Lender Placed Insurance, Terms and Conditions, 19263-19264 [2013-07338]
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Federal Register / Vol. 78, No. 61 / Friday, March 29, 2013 / Notices
SUPPLEMENTARY INFORMATION:
mstockstill on DSK4VPTVN1PROD with NOTICES
I. Statutory and Regulatory Background
The Federal Home Loan Bank Act
(Bank Act) confers upon insured
depository institutions that meet the
statutory definition of a ‘‘Community
Financial Institution’’ (CFI) certain
advantages over non-CFI insured
depository institutions in qualifying for
Federal Home Loan Bank (Bank)
membership, and in the purposes for
which they may receive long-term
advances and the collateral they may
pledge to secure advances.1 Section
2(10)(A) of the Bank Act and § 1263.1 of
FHFA’s regulations define a CFI as any
Bank member the deposits of which are
insured by the Federal Deposit
Insurance Corporation and that has
average total assets below a statutory
cap.2 The Bank Act was amended in
2008 to set the statutory cap at $1
billion and to require the Director of
FHFA to adjust the cap annually to
reflect the percentage increase in the
CPI–U, as published by the DOL, for the
prior year.3 For 2012, FHFA set the CFI
asset cap at $1,076,000,000, which
reflected a 3.4 percent increase over
2011, based upon the increase in the
CPI–U between 2010 and 2011. See 77
FR 14366 (Mar. 9, 2012).
II. The CFI Asset Cap For 2013
As of January 1, 2013, FHFA has
increased the CFI asset cap from
$1,076,000,000 to $1,095,000,000,
which reflects a 1.8 percent increase in
the unadjusted CPI–U from November
2011 to November 2012. The new
amount was obtained by rounding to the
nearest million, as has been the practice
for all prior adjustments. Consistent
with the practice of other Federal
agencies, FHFA bases the annual
adjustment to the CFI asset cap on the
percentage increase in the CPI–U from
November of the year prior to the
preceding calendar year to November of
the preceding calendar year, because the
November figures represent the most
recent available data as of January 1st of
the current calendar year.
In calculating the CFI asset cap, FHFA
uses CPI–U data that have not been
seasonally adjusted (i.e., the data have
not been adjusted to remove the
estimated effect of price changes that
normally occur at the same time and in
about the same magnitude every year).
The DOL encourages use of unadjusted
CPI–U data in applying ‘‘escalation’’
provisions such as that governing the
1 See
12 U.S.C. 1424(a), 1430(a).
12 U.S.C. 1422(10)(A); 12 CFR 1263.1.
3 See 12 U.S.C. 1422(10); 12 CFR 1263.1 (defining
the term CFI asset cap).
CFI asset cap, because the factors that
are used to seasonally adjust the data
are amended annually, and seasonally
adjusted data that are published earlier
are subject to revision for up to five
years following their original release.
Unadjusted data are not routinely
subject to revision, and previously
published unadjusted data are only
corrected when significant calculation
errors are discovered.
Dated: March 21, 2013.
Edward J. DeMarco,
Acting Director, Federal Housing Finance
Agency.
[FR Doc. 2013–07335 Filed 3–28–13; 8:45 am]
BILLING CODE 8070–01–P
FEDERAL HOUSING FINANCE
AGENCY
[No. 2013–N–05]
Lender Placed Insurance, Terms and
Conditions
Federal Housing Finance
Agency.
ACTION: Notice; input accepted.
AGENCY:
This Notice sets forth an approach to
address certain practices relating to
lender placed insurance that the Federal
Housing Finance Agency (FHFA)
considers contrary to prudent business
practice, to appropriate administration
of Fannie Mae and Freddie Mac (the
Enterprises) guaranteed loans, and
which expose the Enterprises to
potential losses as well as litigation and
reputation risks. While FHFA plans a
broader review of issues relating to the
market for lender placed insurance, that
includes receiving input from
government and private sector parties,
the practices that are addressed here are
considered sufficiently distinct as to
merit early action by the Agency acting
as Conservator for the Enterprises.
Background
The FHFA oversees the operations of
Fannie Mae and Freddie Mac. The
Enterprises are in conservatorships, and,
as Conservator, FHFA has statutory
obligations in its conduct of the
conservatorships, including preserving
and conserving assets.1 The Enterprises
have diverse relationships with sellerservicers, ranging from loan originations
to the administration of properties in
default. These relationships are
governed by their seller-servicer guides
and, in certain cases, by individual
contracts. Part of the administration by
servicers of the interests of the
2 See
VerDate Mar<15>2010
19:06 Mar 28, 2013
Jkt 229001
1 The duties and authorities of the Conservator
are set forth primarily at 12 U.S.C. 4617.
PO 00000
Frm 00085
Fmt 4703
Sfmt 4703
19263
Enterprises relate to the maintenance of
properties.
Lender placed (or forced place)
insurance involves the imposition of
property and casualty insurance on a
property that does not have the coverage
required by their mortgage instruments.
This commonly occurs due to lapse of
voluntary insurance coverage for nonpayment of premium. The absence of
coverage triggers notifications to
borrowers advising them of the need to
provide proof of adequate coverage and
warning that, in the absence of this
proof, insurance will be forced placed,
possibly at higher rates and with
diminished coverage.
Protection of property values is
important to homeowners,
communities, and to the Enterprises. At
the same time, provision of such
insurance products at an appropriate
cost is of concern as well. Reportedly,
premiums for lender placed insurance
are generally double those for voluntary
insurance and, in certain instances,
significantly higher. FHFA recognizes
that some greater risks are involved with
lender placed insurance and that lender
placed insurance carriers do not have
the opportunity to underwrite the
properties they insure, however, the
multiples involved may not reflect
claims experience and other measures.
Loss ratios for lender placed insurance
are significantly below those for
voluntary hazard insurance and some
states already have required or have
considered rate reductions of 30 percent
or more.
The Enterprises, operating in
conservatorship and supported by
taxpayers, may be affected by such costs
where a servicer pays the higher
premiums and is unable to recoup the
cost from the homeowner or at a
foreclosure sale, and the expense is
passed along to the Enterprise for
reimbursement.
In the wake of the financial crisis,
demands for lender placed insurance
have risen and, as a result, so have
Enterprise expenses related to such
coverage. Concerns about lender placed
insurance costs, compensation, and
practices have been raised by the
National Association of Insurance
Commissioners, state regulators, the
Consumer Financial Protection Bureau,
state attorneys general, and consumer
organizations. Generally, the focus has
centered on excessive rates and costs
passed onto borrowers, as well as
commissions and other compensation
paid to servicers by carriers.
In order to keep lender placed
insurance costs to the Enterprises as low
as possible, practices that provide
E:\FR\FM\29MRN1.SGM
29MRN1
19264
Federal Register / Vol. 78, No. 61 / Friday, March 29, 2013 / Notices
incentives for or do not deter higher
costs should be avoided.
mstockstill on DSK4VPTVN1PROD with NOTICES
Approach to Certain Lender Placed
Insurance Practices
For mortgages that the Enterprises
purchase or guarantee, FHFA
anticipates that the Enterprises will put
in place restriction on lender placed
insurance practices enumerated below.
Before any such restrictions take effect,
FHFA seeks input from the public and
interested parties for 60 days from the
publication of this Notice. After
considering input received, FHFA will
determine what elements of the
restrictions may or may not be
maintained, amended or revised in its
direction to the Enterprises. Four
months subsequent to the receipt of
such input, and in consultation with the
Conservator, Fannie Mae and Freddie
Mac will provide aligned guidance to
sellers and servicers, including
implementation schedules related to
these particular lender placed insurance
practices.2
The specific practices related to
lender placed insurance that FHFA has
determined pose risks to the Enterprises
or run contrary to the duties of the
Conservator and for which actions are
specified are practices where there are
concerns regarding conflicts between
parties to the insurance agreement,
including:
1. Certain Sales Commissions. The
Enterprises shall prohibit sellers and
servicers from receiving, directly or
indirectly, remuneration associated with
placing coverage with or maintaining
placement with particular insurance
providers.
2. Certain Reinsurance Activities. The
Enterprises shall prohibit sellers and
servicers from receiving, directly or
indirectly, remuneration associated with
an insurance provider ceding premiums
to a reinsurer that is owned by, affiliated
with or controlled by the sellers or
servicer.
Input
FHFA invites input from any person
with views on the planned practice
limitations set forth above. FHFA also
invites input on enhancing the
transparency and consumer and
investor protections related to lender
placed insurance as well as regarding
other practices that may operate to the
detriment of the Enterprises operating in
conservatorships. Further, FHFA is
interested in whether there is data or
information that would run contrary to
2 Actions
by the Enterprises only affect loans that
they purchase or guarantee; their seller-servicer
guides have no effect on practices of insurers except
for dealings with the Enterprises.
VerDate Mar<15>2010
17:34 Mar 28, 2013
Jkt 229001
the intended results sought by FHFA.
Finally, FHFA is interested in the
amount of time and difficulties
associated with altering contracts
between contractors and Enterprise
servicers as would result from the
planned approach.
FHFA will accept public input
through its Office of Housing and
Regulatory Policy (OHRP), no later than
May 28, 2013, as the agency moves
forward with its deliberations on
appropriate action. Communications
may be addressed to Federal Housing
Finance Agency, OHRP, Constitution
Center, 400 Seventh Street SW., Ninth
Floor, Washington, DC 20024, or
emailed to LPIinput@fhfa.gov.
Communications to FHFA may be made
public and posted without change on
the FHFA Web site at https://
www.fhfa.gov, and would include any
personal information provided, such as
name, address (mailing and email), and
telephone numbers.
Dated: March 25, 2013.
Edward J. DeMarco,
Acting Director, Federal Housing Finance
Agency.
[FR Doc. 2013–07338 Filed 3–28–13; 8:45 am]
BILLING CODE 8070–01–P
FEDERAL RESERVE SYSTEM
Agency Information Collection
Activities: Announcement of Board
Approval Under Delegated Authority
and Submission to OMB
Board of Governors of the
Federal Reserve System.
SUMMARY: Notice is hereby given of the
final approval of a proposed information
collection by the Board of Governors of
the Federal Reserve System (Board)
under OMB delegated authority, as per
5 CFR 1320.16 (OMB Regulations on
Controlling Paperwork Burdens on the
Public). Board-approved collections of
information are incorporated into the
official OMB inventory of currently
approved collections of information.
Copies of the Paperwork Reduction Act
Submission, supporting statements and
approved collection of information
instrument(s) are placed into OMB’s
public docket files. The Federal Reserve
may not conduct or sponsor, and the
respondent is not required to respond
to, an information collection that has
been extended, revised, or implemented
on or after October 1, 1995, unless it
displays a currently valid OMB control
number.
FOR FURTHER INFORMATION CONTACT:
Federal Reserve Board Clearance
Officer, Cynthia Ayouch, Division of
AGENCY:
PO 00000
Frm 00086
Fmt 4703
Sfmt 4703
Research and Statistics, Board of
Governors of the Federal Reserve
System, Washington, DC 20551 (202)
452–3829. Telecommunications
Device for the Deaf (TDD) users may
contact (202) 263–4869, Board of
Governors of the Federal Reserve
System, Washington, DC 20551.
OMB Desk Officer, Shagufta Ahmed,
Office of Information and Regulatory
Affairs, Office of Management and
Budget, New Executive Office
Building, Room 10235, 725 17th
Street NW., Washington, DC 20503.
Final approval under OMB delegated
authority to revise the following report:
Report title: Capital Assessments and
Stress Testing information collection.
Agency form number: FR Y–14A/Q/
M.
OMB Control number: 7100–0341.
Effective Dates: March 31, 2013 and
June 30, 2013.
Frequency: Annually, semi-annual,
quarterly, and monthly.
Reporters: Large banking
organizations that meet an annual
threshold of $50 billion or more in total
consolidated assets (large Bank Holding
Companies or large BHCs), as defined by
the Capital Plan rule (12 CFR 225.8).1
Estimated annual reporting hours: FR
Y–14A: Summary, 50,160 hours; Macro
scenario, 1,860 hours; Counterparty
credit risk (CCR), 2,292 hours; Basel III/
Dodd-Frank, 600 hours; and Regulatory
capital, 600 hours. FR Y–14 Q:
Securities risk, 1,200 hours; Retail risk,
1,920 hours; Pre-provision net revenue
(PPNR), 75,000 hours; Wholesale
corporate loans, 6,720 hours; Wholesale
commercial real estate (CRE) loans,
6,480 hours; Trading risk, 41,280 hours;
Basel III/Dodd-Frank, 2,400 hours;
Regulatory capital, 4,800 hours; and
Operational risk, 3,360 hours; and
Mortgage Servicing Rights (MSR)
Valuation, 864 hours; Supplemental,
960 hours; and Retail Fair Value
Option/Held for Sale (Retail FVO/HFS),
1,216 hours. FR Y–14M: Retail 1st lien
mortgage, 153,000 hours; Retail home
equity, 146,880 hours; and Retail credit
card, 91,800 hours. FR Y–14
Implementation and On-Going
Automation: Start-up for new
respondents, 79,200 hours; and Ongoing revisions for existing respondents,
9,120 hours.
Estimated average hours per response:
FR Y–14A: Summary, 836 hours; Macro
scenario, 31 hours; CCR, 382 hours;
Basel III/Dodd-Frank, 20 hours; and
1 The Capital Plan rule applies to every top-tier
large BHC. This asset threshold is consistent with
the threshold established by section 165 of the
Dodd-Frank Act relating to enhanced supervision
and prudential standards for certain BHCs.
E:\FR\FM\29MRN1.SGM
29MRN1
]]>Agencies
[Federal Register Volume 78, Number 61 (Friday, March 29, 2013)]
[Notices]
[Pages 19263-19264]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07338]
-----------------------------------------------------------------------
FEDERAL HOUSING FINANCE AGENCY
[No. 2013-N-05]
Lender Placed Insurance, Terms and Conditions
AGENCY: Federal Housing Finance Agency.
ACTION: Notice; input accepted.
-----------------------------------------------------------------------
This Notice sets forth an approach to address certain practices
relating to lender placed insurance that the Federal Housing Finance
Agency (FHFA) considers contrary to prudent business practice, to
appropriate administration of Fannie Mae and Freddie Mac (the
Enterprises) guaranteed loans, and which expose the Enterprises to
potential losses as well as litigation and reputation risks. While FHFA
plans a broader review of issues relating to the market for lender
placed insurance, that includes receiving input from government and
private sector parties, the practices that are addressed here are
considered sufficiently distinct as to merit early action by the Agency
acting as Conservator for the Enterprises.
Background
The FHFA oversees the operations of Fannie Mae and Freddie Mac. The
Enterprises are in conservatorships, and, as Conservator, FHFA has
statutory obligations in its conduct of the conservatorships, including
preserving and conserving assets.\1\ The Enterprises have diverse
relationships with seller-servicers, ranging from loan originations to
the administration of properties in default. These relationships are
governed by their seller-servicer guides and, in certain cases, by
individual contracts. Part of the administration by servicers of the
interests of the Enterprises relate to the maintenance of properties.
---------------------------------------------------------------------------
\1\ The duties and authorities of the Conservator are set forth
primarily at 12 U.S.C. 4617.
---------------------------------------------------------------------------
Lender placed (or forced place) insurance involves the imposition
of property and casualty insurance on a property that does not have the
coverage required by their mortgage instruments. This commonly occurs
due to lapse of voluntary insurance coverage for non-payment of
premium. The absence of coverage triggers notifications to borrowers
advising them of the need to provide proof of adequate coverage and
warning that, in the absence of this proof, insurance will be forced
placed, possibly at higher rates and with diminished coverage.
Protection of property values is important to homeowners,
communities, and to the Enterprises. At the same time, provision of
such insurance products at an appropriate cost is of concern as well.
Reportedly, premiums for lender placed insurance are generally double
those for voluntary insurance and, in certain instances, significantly
higher. FHFA recognizes that some greater risks are involved with
lender placed insurance and that lender placed insurance carriers do
not have the opportunity to underwrite the properties they insure,
however, the multiples involved may not reflect claims experience and
other measures. Loss ratios for lender placed insurance are
significantly below those for voluntary hazard insurance and some
states already have required or have considered rate reductions of 30
percent or more.
The Enterprises, operating in conservatorship and supported by
taxpayers, may be affected by such costs where a servicer pays the
higher premiums and is unable to recoup the cost from the homeowner or
at a foreclosure sale, and the expense is passed along to the
Enterprise for reimbursement.
In the wake of the financial crisis, demands for lender placed
insurance have risen and, as a result, so have Enterprise expenses
related to such coverage. Concerns about lender placed insurance costs,
compensation, and practices have been raised by the National
Association of Insurance Commissioners, state regulators, the Consumer
Financial Protection Bureau, state attorneys general, and consumer
organizations. Generally, the focus has centered on excessive rates and
costs passed onto borrowers, as well as commissions and other
compensation paid to servicers by carriers.
In order to keep lender placed insurance costs to the Enterprises
as low as possible, practices that provide
[[Page 19264]]
incentives for or do not deter higher costs should be avoided.
Approach to Certain Lender Placed Insurance Practices
For mortgages that the Enterprises purchase or guarantee, FHFA
anticipates that the Enterprises will put in place restriction on
lender placed insurance practices enumerated below. Before any such
restrictions take effect, FHFA seeks input from the public and
interested parties for 60 days from the publication of this Notice.
After considering input received, FHFA will determine what elements of
the restrictions may or may not be maintained, amended or revised in
its direction to the Enterprises. Four months subsequent to the receipt
of such input, and in consultation with the Conservator, Fannie Mae and
Freddie Mac will provide aligned guidance to sellers and servicers,
including implementation schedules related to these particular lender
placed insurance practices.\2\
---------------------------------------------------------------------------
\2\ Actions by the Enterprises only affect loans that they
purchase or guarantee; their seller-servicer guides have no effect
on practices of insurers except for dealings with the Enterprises.
---------------------------------------------------------------------------
The specific practices related to lender placed insurance that FHFA
has determined pose risks to the Enterprises or run contrary to the
duties of the Conservator and for which actions are specified are
practices where there are concerns regarding conflicts between parties
to the insurance agreement, including:
1. Certain Sales Commissions. The Enterprises shall prohibit
sellers and servicers from receiving, directly or indirectly,
remuneration associated with placing coverage with or maintaining
placement with particular insurance providers.
2. Certain Reinsurance Activities. The Enterprises shall prohibit
sellers and servicers from receiving, directly or indirectly,
remuneration associated with an insurance provider ceding premiums to a
reinsurer that is owned by, affiliated with or controlled by the
sellers or servicer.
Input
FHFA invites input from any person with views on the planned
practice limitations set forth above. FHFA also invites input on
enhancing the transparency and consumer and investor protections
related to lender placed insurance as well as regarding other practices
that may operate to the detriment of the Enterprises operating in
conservatorships. Further, FHFA is interested in whether there is data
or information that would run contrary to the intended results sought
by FHFA. Finally, FHFA is interested in the amount of time and
difficulties associated with altering contracts between contractors and
Enterprise servicers as would result from the planned approach.
FHFA will accept public input through its Office of Housing and
Regulatory Policy (OHRP), no later than May 28, 2013, as the agency
moves forward with its deliberations on appropriate action.
Communications may be addressed to Federal Housing Finance Agency,
OHRP, Constitution Center, 400 Seventh Street SW., Ninth Floor,
Washington, DC 20024, or emailed to LPIinput@fhfa.gov. Communications
to FHFA may be made public and posted without change on the FHFA Web
site at https://www.fhfa.gov, and would include any personal information
provided, such as name, address (mailing and email), and telephone
numbers.
Dated: March 25, 2013.
Edward J. DeMarco,
Acting Director, Federal Housing Finance Agency.
[FR Doc. 2013-07338 Filed 3-28-13; 8:45 am]
BILLING CODE 8070-01-P
