Fannie Mae, Freddie Mac, and FHFA’s Mortgage Servicing Rules Are a Joke

Below is a brief dissection of Fannie Mae’s much touted Force Placed Insurance “Rules”…Please do not pay attention to the man behind the curtain…just go on with your business…

Fannie Mae intends to place one (1) or more Lender Placed Insurance Providers on a Preferred Provider List and then communicate that list (including agreed upon pricing) to Fannie Mae’s Servicer community.

***Nowhere is it stated that this list will be communicated to borrowers.***

The scope of the Lender Placed Insurance services to be provided will include, at a minimum, the following activities:

  • Provide insurance coverage upon request from a Fannie Mae Servicer or the agent of a Fannie Mae Servicer

***This is an empty gesture. It is only in rare cases (such as an uninsured loss in which the investor or loan servicer stands to lose money) where the investor or loan servicer will actually send a request to place coverage on a loan. The majority of the time, it’s Assurant/QBE issuing the force placed policy since they are the only party tracking insurance on the mortgage.***

  • Process and pay legitimate claims whether originated from a Fannie Mae Servicer or a homeowner

***The force placed claims abuse will still remain. Assurant/QBE already process claims for the investor/servicer. Since they are also the companies underwriting their own force placed policies and they are aware of duplicating coverage due to them also being the insurance tracker, the claims are always filed against preferred policies over force placed. This “rule” does nothing to stop that.***

  • Communicate quickly the results of claims review and make payments in a timely manner
  • Issue timely invoices and process payments received for Lender Placed Insurance services

*** Assurant/QBE takes Force placed payments directly out of borrower escrow accounts (creating an escrow account without borrower authorization where one doesn’t exist) as again they are the insurance tracker.***

  • Comply with all applicable state and federal regulations that apply to the Lender Placed Insurance business
  • Provide insurance customer service to homeowners, Servicers and Fannie Mae to include call center operations
  • Maintain books of record necessary to manage the scope of services covered in this RFP to include issuing accurate reports of operating data to both Fannie Mae and its Servicers as described below

*** As my email leak with Anonymous last March clearly shows, the “books of record” are already being illegally manipulated to cover up any mistakes. This is once again an empty gesture.***

  • Provide robust reporting to offer increased transparency and accountability

*** Reporting is already robust. Every single keystroke in any system is recorded by various tracking systems. These systems are just hidden, and the reports are not monitored regularly by anyone who can do anything about it. FNMA’s intervention in this matter will do nothing to change any of this. The loan servicer/insurance tracker in most cases isn’t even able to make changes to reports without making a request to the Fidelity Information Systems Powercell *** Lender Placed Insurers must be rated A X or better Financial Strength in A.M. Best Company’s Insurance Reports.

***They all are…because Lender Placed Policies have the lowest payout…because they are all committing fraud*** Lender Placed Insurer’s policy exclusions shall be limited to those listed in Attachment E.

***Where’s Attachment E? I’m curious to see the exclusion limitations and how they affect factors such as condos, landlords, etc*** All Lender Placed Insurance products claims reimbursement shall be based on replacement cost.

***If claims are limited to replacement cost does this mean the amount of insurance placed will be based on replacement cost? This is currently not done as the replacement cost is normally less than the loan’s principal balance. Some lenders place force placed insurance based on last known hazard, which will actually be more than even the principal balance unless the borrower renegotiates this amount with the insurance company/loan servicer on an annual basis.*** In the event that the homeowner provides evidence of acceptable insurance coverage, the total amount of Lender Placed Insurance premiums shall be refunded from the date that acceptable coverage was issued. The refund shall be paid on a pro-rated unearned premium basis and returned to the homeowner within 15 calendar days.

***There is rampant abuse in what is considered “evidence acceptable insurance coverage”. For example, if your loan servicer (who again is actually the insurance tracker) determines your policy from 1/1/12 – 1/1/13 is suddenly not sufficient and you’re sent a letter notifying you that as of 3/1/12 your insurance has been determined to be insufficient, the evidence of insurance you submit must have a print date of 3/2/12 or later, otherwise the forms you mail/fax to your insurance servicer will be ignored. It is also important to note that you, as the borrower, are providing this evidence to Assurant/QBE, NOT your loan servicer or investor.*** Lender Placed Insurance can be terminated on a loan at any time by the Servicer for any reason. There shall be no fees tied to policy termination or any minimum time requirement. If a policy is terminated before natural expiration refunds shall be paid on a pro-rated unearned premium basis based on the date the policy was requested to be terminated. The refunds shall be returned to the homeowner within 15 calendar days

*** This still allows a servicer to backdate coverage and only issue partial refunds.*** Provide Telecommunication Device for the Deaf (“TDD”) services or other related services to support hearing impaired homeowners contacting Insurance Tracker’s call center representatives.

***This is already a Federal law per the Americans with Disabilities Act as far as I’m aware. Funny enough, I was a TDD Relay Operator prior to working for Balboa/Countrywide/BAC.*** Make Lender Placed Insurance proceeds payable to the homeowner and Servicer when homeowner is active in the claim process.

***How is the homeowner considered “active” in the claim process? This is why I ask…if the homeowner is not considered “active” in the claim process, then the only logical party that could have initiated the process is your loan servicer. In what real world scenario can you ever imagine in the endless possibilities of the universe in which there should ever be a claim for damage on your home that you are not aware of? Why would your servicer be filing a claim on a property without your knowledge? If it is because the damage happened after you are foreclosed on, why are you responsible for paying the premium for insurance on a house that the bank says you don’t own?!?!?! There is rampant fraud occurring at this point in both Home/Auto, and this provision does nothing to change that.*** Make Lender Placed Insurance proceeds payable solely to Servicer where the property is vacant, the homeowner cannot be located, or a Proof of Loss claim has been filed.

***Once again, what is a real world scenario in which a property is vacant and the homeowner cannot be located that isn’t a foreclosure situation, and once again, if the bank says you don’t own the home, why are you responsible for insuring it? You can’t have it both ways. These regulations are continuing to allow this. Also isn’t a Proof of Loss ALWAYS filed?!?!?!*** Cooperate with Servicer to audit active and closed claims. Random audits will be performed to measure general compliance with law, regulation and the Fannie Mae Guidelines (Attachment B). Additionally from time to time special purpose audits will be performed to review actions taken on a specific account or set of accounts.

***Again, the leak I did last year showed conclusively the willingness of insurance trackers to hide and adjust system of record information during audits (in order to maintain contractual Service Level Agreements, comply with Federal law, etc) so this is just another empty statement.*** All Hazard Insurance must include windstorm, hurricane, and hail coverage as required in the Fannie Mae Guidelines, Part II, Chapter 2: Hazard Insurance (Attachment B).

*** Why? This isn’t done for voluntary insurance. There are specific states (Florida, Hawaii, N/S Carolina, etc) where wind/hurricane/hail coverage is required, but why is it required for borrowers who weren’t previously required to carry this coverage? In addition, Wind/Hazard is tracked as separate policies in these states, as a preferred carrier will not write both on the same policy in Florida for example. Now, knowing this, if your servicer determines you lapsed on your hazard, but your wind policy is still in place (or vice versa), you have been purposefully given duplicate coverage. You as the borrower are the only person able to cancel your voluntary policy. The insurance agent will never cancel an insurance policy by request of the servicer/tracker/investor. Once again, the borrower is still screwed.*** Provide Hazard Insurance for all Fannie Mae Planned Unit Development (PUD) Project loans as requested and comply with Fannie Mae Guidelines, Part II, Chapter 2, 204: Coverage Required for Units in PUD Projects Provide Hazard Insurance for all Fannie Mae Units in Condo Projects as requested and comply with Fannie Mae Guidelines, Part II, Chapter 2, 205: Coverage Required for Units in Condo Projects

*** PUD’s & Condo master policies are normally covered by the HOA/Condo Association Master Policy (which rarely cancels) Again, it is Assurant/QBE which is tracking these Master policies. In addition, a Master Policy “Cancellation” is applied to every loan determined to be in that condominium complex, however a Renewal, Declaration, Endorsement, etc, is the responsibility of each individual homeowner. Rampant servicer abuse will still be allowed.*** As indicated in Fannie Mae Guidelines, flood insurance is only required for properties located in an SFHA flood zone (Attachment G).

*** Flood zone discrepancies between the servicer, insurance tracker, voluntary insurance company, FEMA are rampant. In addition, the determination is normally done by Landsafe. When I worked at Balboa, I sat right next to the Landsafe department for a year, just another in a long line of servicer abuses.*** Provide Flood Insurance for all Fannie Mae Units in Condo Projects as requested and comply with Fannie Mae Guidelines, Part II, Chapter 3, 306.01: PUD Projects (Attachment B). Provide Flood Insurance for all Fannie Mae Units in Condo Projects as requested and comply with Fannie Mae Guidelines, Part II, Chapter 3, 306.02: Condo Projects (Attachment B). Provide Flood Insurance for all Fannie Mae Units in Cooperative Projects as requested and comply with Fannie Mae Guidelines, Part II, Chapter 3, 306.03: Co-op Projects (Attachment B).

*** Biggest customer complaint…Even if your condo is located in a mandatory flood zone (currently flood zones A_ _ and V_ _) why would it matter if your condo isn’t on the ground floor?***

Critical Performance Indicator (CPI)

***Ironically, to the force placed insurance providers LPI (Lender Placed Insurance) is force placed insurance on homes and CPI (Collateral Protection Insurance) is force placed insurance on automobiles.***

Executive meeting between Fannie Mae and the Lender Placed Insurer (See Section Performance Credit issued to the Servicer (See Section

***If the Lender Placed Insurer makes enough critical mistakes to enough homeowners, why is the retribution given to the Loan Servicer and not the Homeowners?!?!?*** Minimum Service Level: 95% of binders placed within Three (3) calendar days Minimum Service Level: 98% of premium refunds processed within 15 calendar days

***Force Placed Insurance Placement/Cancellation is the exact same process performed by the exact same departments…why is the placement done within 3 days and the cancellation/refund processed in 15 days? The Insurance Tracker (who, again is the force placed insurer) has direct access to the borrower’s escrow account.***  KPI: Elapsed time between claims notification and initial settlement (excluding payments of recoverable holdback)

***Previously it was stated that claims be paid to RCV (Replacement Cost Value). If this is true, then how is there a recoverable holdback? It’s my understanding that can only be done by paying the ACV (Actual Cash Value). Why are these payments being singled out if they can’t even exist by Fannie Mae’s own rules stated earlier in this document? Annnnnd again…why is the borrower not being compensated for this? Why is it only FNMA?*** Definition: Elapsed time between the 10th of the calendar month and time in which Fannie Mae confirms they have received the monthly management report

Minimum Service Level: 100% of reports delivered within two (2) calendar days

*** Monthly reports are currently provided to the servicers by the 5th calendar day of the month at the absolute latest (with many being due much earlier) By giving the Force Placed Insurer until the 12th of the month, FNMA is allowing the Force Placed Insurer ample time to prioritize and implement any changes necessary in order to fake compliance. This is absolutely ridiculous as all reports can be 100% automated and procured through Fidelity, etc without the Force Placed Insurer ever having any hand in the process whatsoever. Essentially they are letting students grade their own take home tests (and take their time doing it as well).*** Operational Report: Provide a weekly Lender Placed Insurance refunds report to the Servicer. The report shall include (without limitation) the: loan number, homeowner’s name, policy number, coverage type, premium amount, term of coverage, cancelation date type of refund/credit and earned premium amount/credit amount. This report shall be provided to Fannie Mae directly upon request. Operational Report: Provide a weekly Lender Placed Insurance premium payment request report to the Servicer. The report shall include (without limitation) the: loan number, homeowner’s name, policy number, coverage type, coverage amount term of coverage, state, and requested premium amount. Data Request: Provide a weekly file to reflect the status of Lender Placed Insurance issuance of policies. Data Request: Provide Servicer and Fannie Mae all documentation for active and closed claims upon request in a timely manner.

*** Not only do all parties involved already know they already have access to this information…they also all have access to archives of the information going back to the 1980’s (including what is archived on paper at Iron Mountain). This is why FNMA doesn’t bother to outline the report details, etc like they do in item, which is the only actually new report that is being created in this section.)***


Dr. Brian Penny is a former Business Analyst and Operations Manager at Bank of America turned whistleblower, troll, and freelance writer. You can find his work in Cracked, High Times, HuffPost, Lifewire, Forbes, Fast Company, and dozens of other places, although much of it is no longer under his name. Dr. Penny loves annoying fake media.

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