Tracking hazard & flood insurance for your financial institution’s real estate loan portfolios can be a tedious task that consumes a great deal of employee time. It might seem like entry-level work, but it must be done in a compliant and efficient manner, which often means the task lands at the desk of higher-level staff members. Lenders are usually doing their best to comply with the CFPB Insurance Tracking Regulations regardless of their assets size.
The insurance tracking process and regulations have caused a burden on many lenders , from local credit unions and banks to large, regional banking corporations. The process is time-consuming and tedious: insurance tracking can include all aspects of policy matching, data collection, escrow disbursements, and reporting, along with a compliant notification process and insurance placement.
The simple solution? Work with a company whose objective is to help lenders comply with the CFPB Insurance Tracking Regulations and provide you with a Compliant and Comprehensive Risk Management Approach.
If you’re considering streamlining the insurance tracking in your loan servicing operation and putting your company in a better position when it comes to efficiency, compliance and risk management, read on to learn more about the proven solutions that can significantly reduce the time your organization spends tracking insurance.
What are the Options Available to Reduce Insurance Tracking ?
There are Three Preferred Risk Management Tools Available to Lenders:
Mortgage Impairment Insurance
Mortgage Impairment insurance, also known as an enhanced mortgagee errors and omissions (E&O) insurance, protects the lender’s interest on a real estate loan when a homeowner is either uninsured or underinsured. Since lenders are listed as the mortgagee on a property, the lender ends up exposed to losses if damage occurs, the loan goes into default, and the borrower does not have primary insurance.
Every lender is unique, so coverage can be tailored accordingly. Generally, both the impairment and E&O coverage are included. Our stand-alone Mortgage Impairment policy can be written on a checking basis where the lender verifies borrower’s insurance at loan closing and annually for all first mortgage loans in the portfolio. This option keeps the lender in compliance with investor requirements for the GSEs (Fannie and Freddie). The checking policy does require a higher level of “tracking” to make sure primary insurance is in place at renewal.
An ex-checking option is available for lenders who wish to verify insurance at loan closing but only respond to cancellation or non-renewal notices thereafter. This option does not require a lender to track insurance renewals. A blanket impairment option is also available for those lenders who choose to only verify insurance is in place at loan closing and then no tracking at all going forward. These policies often save a lender at least 50% in tracking costs per year.
At Red Rock Financial, we work to customize the coverage appropriate for your needs. Our stand-alone mortgage impairment policy is one of the broadest available in today’s market, providing an effective safety net for a wide range of needs while greatly reducing the administrative task of tracking insurance.
Blanket Insurance Coverage
Blanket insurance can be used to completely eliminate insurance tracking, other than for flood insurance which is required by the regulations. This coverage is substantially less expensive than tracking insurance internally. While blanket insurance allows you to cover your entire real estate portfolio, you are also able to separate out the types of loans so you can select which loans to insure. You can get blanket insurance on first or second mortgages, home equity lines, or commercial loans, with the most inexpensive options to insure being home equity loans and second mortgages.
Blanket insurance also eliminates the need for forced-placed insurance by the lender. Normally, if the borrower’s insurance expires, forced-placed insurance needs to be applied, even if the matter is resolved in a day. You can avoid unnecessary debits and credits if you bypass forced-placed premiums by using blanket mortgage insurance.
You can also prevent negative interactions with borrowers by using blanket insurance coverage instead of alarming them with notifications of forced-placed insurance. Overall, blanket insurance may lower your administrative costs since you won’t need to outsource any insurance tracking or dedicate your institution’s time to do tracking. However, Blanket policies can benefit from additional tracking for extra risk mitigation.
While the benefits may be appealing, you will need to consider that some mortgages do require insurance tracking and force-placed insurance such as Fannie Mae and Freddie Mac loans, both of which will not accept a blanket insurance policy to replace either. Flood insurance also requires insurance tracking and force placement due to federal regulations.
Customized by Red Rock Financial, blanket insurance coverage provides all-risk property damage protection on uninsured and underinsured losses to residential and commercial mortgage portfolios while greatly reducing the administrative task of tracking insurance.
Outsourced Insurance Tracking
Do you know how much time your employees spend on insurance tracking and related tasks? If you have one or more employees devoting a significant amount of time to these projects,
outsourcing insurance tracking will likely produce a high return on investment.
Tracking insurance, sending borrower notifications, and force placing insurance coverage has become a big headache for lenders, especially in the face of ever-evolving laws and regulations affecting the loan servicing industry. That’s why it’s become a simple choice for many banks to leave insurance tracking to the experts. When you do, your bank and its employees can focus on what they do best: serving your customers.
What’s more, you’ll also have the peace of mind of knowing insurance tracking items aren’t falling through the cracks. Often, banks who outsource insurance tracking find their new system to be much more comprehensive than what they previously had in house. Your employees are busy, and many of them wear more than one hat. But that doesn’t mean insurance tracking can go by the wayside. No matter what’s happening in the housing market, lapsed insurance policies and foreclosures are a fact of life, especially when times are hard.
When you choose to outsource, a majority of your insurance risk exposure is shifted to the company contracted to handle the tracking. At Red Rock Financial, our objective is to help you find the solution that best meets your needs and make sure our lenders comply with the CFPB Insurance Tracking Regulations and provide our institutional clients with a compliant and comprehensive risk management approach.
Red Rock Financial partners with companies that handle a full range of insurance tracking-related tasks, so your ROI can grow. Tracking can include all aspects of policy matching, data collection, escrow disbursements, and reporting, along with a compliant notification process and insurance placement when necessary. Our solutions focus on managing the risk and document flow in the most efficient, streamlined and cost-effective way possible.
