Due to uncertainties with industry-wide litigation and the regulatory environment, Altisource Portfolio Solutions has discontinued its lender-placed insurance (LPI) brokerage line of business.
In a release, Altisource officials say although the company developed an LPI program that is unique in its benefits to consumers and investors, it will discontinue the line of business and focus on its other solutions for the real estate and mortgage banking industries.
Homeowners that already have LPI policies in place with Altisource will not be impacted.
The discontinuation of the LPI business is expected to reduce Altisource's fourth quarter diluted earnings per share by an average of approximately $0.50 to $0.65, the company says.
The Consumer Financial Protection Bureau's (CFPB) mortgage servicing rules that went into effect in January put new restrictions on LPI (also sometimes called force-placed insurance).
The rules, which originate from the Dodd-Frank Wall Street Reform and Consumer Protection Act, require servicers to verify and document that a homeowner's insurance policy had lapsed and that there is no insurance on the home before proceeding ahead with imposing LPI charges.
In addition, servicers must provide each borrower with advanced notice prior to obtaining a forced-placed policy, and notify the borrower annually before renewing the policy.
More specifically, a servicer must send two notices to the borrower prior to obtaining force-placed insurance. The first notice – to be sent at least 45 days before purchasing an LPI policy – requests that the borrower obtain hazard insurance for the property. The second notice, to be sent at least 15 days before charging the borrower for force-placed insurance coverage, requests that the borrower submit proof of insurance (such as a copy of the insurance policy declaration page, an insurance certificate, or the policy) and includes the cost of the force-placed insurance or a reasonable estimate of the cost.
If the loan is escrowed, the servicer must generally pay the existing policy.
In addition, the servicer generally must keep an existing insurance policy in place if the borrower has an escrow account from which the servicer pays the insurance bill – even if the servicer needs to advance funds to the borrower's escrow account to do this.
A servicer does not have to continue existing coverage (and can purchase a force-placed policy) if it has a reasonable basis to believe that the borrower's insurance is being canceled for reasons other than nonpayment, or the property is vacant.
Should a borrower subsequently provide evidence that he or she has insurance coverage, the servicer must cancel the LPI within 15 days of receiving evidence of existing insurance, and refund any premiums charged for duplicate coverage to the borrower.
Mortgage servicers that service 5,000 or fewer mortgage loans per year are exempt from the rules.
For servicers that are over that range, violating these rules can bring about serious consequences, as evidenced through multiple lawsuits during the past several years. In March, Wells Fargo, along with insurers QBE and Assurant, settled a class action lawsuit over its LPI practices, resulting in a reported out-of-court settlement of about $19 million. As part of the settlement, Bank of America has agreed to forgo commissions on LPI for a period of three years.