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How servicers can stay ahead of Biden’s potential regulatory changes

New flood insurance requirements expected in 2021

As we move further into 2021, servicers continue to face the ongoing effects of forbearance and foreclosure moratoriums while also anticipating the changes that may take place as a result of the new administration in Washington.

Among these unknowns are changes that could affect lender-placed insurance (LPI). Servicers must have the flexibilities in place to keep up with the latest changes to remain compliant and efficient while still providing an optimal borrower experience.

The LPI process is governed by state and federal laws and regulations, as well as investor, guarantor and insurer guidelines. On the hazard insurance side, the Consumer Financial Protection Bureau’s (CFPB) Regulation X provides strict requirements on how servicers must communicate to the borrower when the servicer determines that the borrower’s insurance lapsed or was canceled, as well as how to refund a borrower’s escrow account in the event that LPI must be canceled.

Similarly, flood insurance is highly regulated by federal agencies, including the Office of the Comptroller of the Currency (OCC), FDIC, NCUA, Board of Governors and Farm Credit Administration (“Federal Regulators”). Beyond the laws and regulations, government sponsored entities (GSEs), FHA, USDA and other agencies that provide loan insurance and guarantees add an additional layer of complexity with servicing requirements that go above and beyond those required by federal and state regulators.  

As the Biden administration settles into office, there will be changes to the leadership of both the CFPB and the OCC. President Biden has nominated FTC Commissioner Rohit Chopra to head the CFPB, and is expected to nominate Michael Barr, a former Treasury Department official, to serve as comptroller of the currency.

“Both nominees are coming out of the Obama and Warren era, when consumer protection was especially at the forefront of all regulations. We fully expect heightened scrutiny around borrower protection,” said Mike Dimas, an executive at Proctor Loan Protector. “That’s across all of mortgage servicing, which would include flood and hazard vendors like Proctor Loan Protector.”

Additionally, 2021 is expected to bring new flood compliance requirements. In 2020, Federal Regulators and the FHA proposed updates to the Interagency Flood Q&As. The FHA also sought public comment on its proposed rules surrounding acceptance of private flood insurance. Servicers are still waiting to see what changes may come about as a result of these proposals, but it is very likely that to stay complaint servicers will need to review and update current practices.  

While keeping an eye on regulatory changes, servicers are also trying to track when foreclosure moratoriums are lifted so they can ensure they’re following correct procedures before moving a borrower into foreclosure steps.

And servicers need support to handle the ongoing influx of call volumes while still providing a quality customer experience for borrowers who are stressed about forbearance. For the week ending January 31, 2021, the MBA found that as a percent of servicing portfolio volume, servicer call center volumes increased to 8.4% from 7.2% the week prior.

Proctor Loan Protector, with the combined resources of Proctor Financial and Loan Protector, is poised to help servicers navigate these compliance and customer service challenges.

First, Proctor Loan Protector is now the largest MGA provider of LPI, with an in-house team of claims adjudicators, full program underwriting and a complete customer support team. Because the company is tracking insurance rather than serving as both the insurance carrier and the tracker, its team has the ability to shop rates on behalf of its clients to ensure that the clients and borrowers have the best rates available.

This multi-market approach means Proctor Loan Protector has multiple carrier partnerships to provide both fully admitted and non-admitted insurance programs. As claims are on the rise, some carriers’ appetites for risk may change; since Proctor Loan Protector has access to multiple insurance markets with a standardized policy form, the company is able to move the lender placed insurance program without impact to the tracking operations or the borrower. This program stability is a significant benefit to Proctor Loan Protector’s clients.

The acquisition of Loan Protector by Proctor Financial means its compliance team is larger than ever, providing considerable subject matter expertise and the ability to proactively monitor changes and updates. Additionally, Dimas said, the joint compliance team is actively involved with the industry, taking part in panels and groups that work to provide comments back to different agencies.

“We’re actively engaged to help shape the industry and the way that servicers and business partners navigate the rules and laws specific to [insurance] services,” he said. “Our compliance team and our attorneys on staff are heavily involved with that. We want to be part of the group that helps shape [these evolving regulations].”

In addition to an engaged compliance team, the technology at Proctor Loan Protector is built to be nimble and responsive to adjust to regulatory changes.

According to Damon Laprade, another executive at Proctor Loan Protector, the company’s Intelligent Insurance Manager (IIM) tool was developed to accommodate a client’s business rules and configurable adapt to regulatory changes. This ensures that servicers remain compliant despite a changing regulatory environment.

“Because IIM was developed this way, when any component of those business rules requires a change, our team of compliance experts and system developers can strategically make this update, using best practices and quality measures,” Laprade said. “If a new regulation does come down tomorrow, and it requires – for example – an extra [notice] letter, we can be agile to program that in IIM.”

He also noted that Proctor’s system performs a full audit of a servicers’ records on a daily basis, taking the complete file and doing a full reconciliation of the insurance they have on file to identify exposures where LPI may need to be implemented. This ensures the most accurate data which reduces the frequency of false force-placement and minimizes negative borrower impact.

Additionally, Proctor Loan Protector manages the inbound insurance calls for its clients and diligently works to exceed its level of customer service for their borrowers. In fact, its call center just received BenchmarkPortal’s Call Center of Excellence Award for the tenth year in a row after an unprecedented year of challenges presented by the coronavirus pandemic and other natural disasters.

“Our duty is to support our clients and their borrowers while following the regulations,” Dimas said. “It’s a difficult balance sometimes, but our job is to make sure that we’re doing everything we can to help the borrower and make sure that the insurance piece is one less headache that they’re having to deal with.”

To learn more about Proctor Loan Protector, go to https://proctorlp.com/.

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