The National Association of Federal Credit Unions asked the Federal Housing Finance Agency on Tuesday to further evaluate its proposed ban on lender-placed insurance, saying the measure could harm credit unions.
The FHFA is currently considering a proposal to ban lenders and servicers from receiving, directly or indirectly, remuneration associated with placed coverage, as well as ban ceding premiums to a reinsurer that is owned or affiliated with the lender or servicer.
“Credit unions, as not-for-profit cooperative entities, generally enter into third-party agreements specifically designed to reduce, not increase, cost for the member-borrowers,” NAFCU said in its comment letter. “In the case of lender placed insurance, the benefits of a credit union’s third-party agreement directly extend to other member-borrowers as they are owners of the credit union.”
NAFCU requested that the FHFA further study the ban “to ensure that they are tailored narrowly enough to prevent abuse but would still permit appropriate risk coverage.”
“Lender placed insurance, as the FHFA knows, protects mortgage lenders, investors and mortgage insurers,” NAFCU said. “Where voluntary insurance lapses and a lender places insurance on the collateral, the Enterprises incur benefit. Accordingly, should the FHFA move forward with proposed prohibitions, NAFCU strongly urges the agency to take every precaution necessary to ensure that it does now unintentionally create unwarranted roadblocks to lenders’ ability to reducing risk by placing insurance on collateral.”