The Consumer Financial Protection Bureau adopted a final rule at 12 CFR Part 1024 that, among the implementation of other provisions of the Dodd-Frank Act, imposes restrictions on mortgage servicers regarding the purchase of force-placed insurance. Force-placed insurance is hazard, flood, fire, or other insurance purchased by a mortgage lender for a mortgaged property when a borrower does not maintain insurance on the property. Effective January 10, 2014, mortgage servicers will need to have a "reasonable basis" to determine that a consumer lacks sufficient insurance before purchasing anew policy. Mortgage servicers must make this decision on a case-by-case basis, provide the borrower notice prior to obtaining the forced-placed policy, and notify the borrower annually prior to renewing the policy. If such "reasonable basis" is not demonstrated, the mortgage servicer will have to terminate the force-placed policy within 15 days and issue a refund for any premium collected.
Mortgage servicers will be required to update their policies and procedures to ensure compliance with these requirements, as well as update their systems to ensure that proper notices are sent. The regulations exempt mortgage servicers that service 5,000 mortgage loans or less, all of which the servicer or an affiliate owns or originated, from the provision prohibiting servicers from purchasing force-placed insurance, with respect to a borrower who has established an escrow account for hazard insurance if tl~e amount of the disbursement would be greater than the cost of the force-placed insurance.