FHFA Prohibits Servicer Reimbursement

The Federal Housing Finance Agency (FHFA) announced Tuesday that it has directed the GSEs to prohibit servicers from being reimbursed for expenses associated with captive reinsurance arrangements. The announcement follows a notice that FHFA published in the Federal Register last March regarding its views on these lender-placed insurance practices and accepting public input. The notice also cited concerns that the practices expose Fannie Mae and Freddie Mac to potential losses as well as litigation and reputation risks.

“FHFA remains concerned about the cost of lender-placed insurance for Fannie Mae, Freddie Mac, and consumers,” said Edward DeMarco, acting director of FHFA. “One of our primary responsibilities as conservator of Fannie Mae and Freddie Mac is to preserve and conserve their assets on behalf of taxpayers. This directive is intended to reduce their costs as we consider additional measures.”

FHFA also established a regulatory working group consisting of federal and state regulatory agencies to ensure that all parties with an interest and role in the subject of lender-placed insurance are engaged in the discussions. The views of the working group were carefully considered along with the more than 30 replies FHFAreceived from consumer advocates, state regulators, lender-placed insurance carriers, servicers, managing general agents, individuals, and trade associations in response to the notice. This recent action reflects this input.

Fannie Mae and Freddie Mac will provide aligned guidance to sellers and servicers to prohibit these practices, including implementation schedules.

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