Fannie Mae to Change LPI Practices for Servicers

""Fannie Mae"":www.fanniemae.com/portal/index.html is looking to change the way insurance is applied to borrowers who end up with force-placed insurance due to gaps in coverage.

[IMAGE]

The GSE announced Tuesday that it has issued a request for proposals (RFP) inviting insurance companies to compete for Fannie Mae LPI business, which should lead to significantly reduced insurance costs.

""The changes will lower barriers for borrowers who want to cure

[COLUMN_BREAK]

their delinquencies, while improving transparency and boosting competition in the LPI market,"" the enterprise said in a bulletin.

By reducing insurance costs, homeowners, taxpayers, and Fannie Mae are all said to save money.

""To bring their loan current, a borrower must reimburse the servicer for the cost of the LPI policy. If the borrower defaults in mortgage loan payments and does not cure, Fannie Mae must reimburse the servicer for LPI premium,"" the GSE said in the bulletin, adding that expenses to Fannie costs taxpayers as well.
According to an FHFA ""statement"":http://www.fhfa.gov/webfiles/23408/02-28-12_FINAL_DeMarco_Testimony_SBC.pdf, Fannie Mae and Freddie Mac have received about $180 billion in taxpayer support.

Fannie Mae also said it will provide servicers with new policy guidelines on when and how to secure LPI, as well as guidance regarding allowed reimbursable costs.

The GSE requires hazard insurance on all mortgages it owns, and if there is a gap in coverage and the homeowner fails to provide evidence of coverage, the servicer can automatically add insurance to the loan.

LPI tends to be more expensive and often include commissions and other administrative costs, as opposed to less costly insurance a homeowner would typically shop for and purchase.