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What is Lender-Placed Insurance?

What is Lender-Placed Insurance?

Lender-placed insurance (also known as force-placed insurance) is insurance that a mortgage lender, servicer, or bank purchases on behalf of a borrower if proper insurance is not maintained to protect the structure of the borrower’s home. This can occur if the insurance coverage lapses or if there is insufficient coverage. When a borrower enters into a mortgage agreement, they are required to maintain their homeowners insurance policy. Lender-placed insurance is used as a final recourse; the mortgage company will exhaust all avenues of obtaining the homeowner’s insurance prior to the lender placing coverage. Insurance cannot be placed upon the borrower unless the mortgage servicer has a reasonable basis to believe that the borrower has failed to maintain proper insurance as mandated in their loan. Servicers must follow very specific methods to communicate with the borrower to give them the opportunity to provide proof of sufficient coverage.

Lender-placed insurance protects the mortgage lender’s financial interests in the property. This insurance protects the property against damage or loss that occurs during the period in which the borrower fails to maintain coverage. This means that if a home is damaged or destroyed while the homeowner does not have their own insurance coverage, the lender-placed insurance provided by the mortgage servicer will protect the financial interest in the home to cover repairs. It is often more expensive than traditional homeowners insurance and the cost of the policy is passed on to the borrower who is responsible for paying the premiums.

Lender-Placed Insurance is Regulated

The mortgage servicing industry and lender-placed insurance is regulated by state and federal laws that aim to protect borrowers from unfair or abusive practices by lenders and insurance companies. It is regulated by the Consumer Financial Protection Bureau (CFPB), Fannie Mae, Freddie Mac, Housing and Urban Development (HUD), and state regulations. Lender-placed flood insurance is regulated by the National Flood Insurance Program (NFIP).

What is BBVA Insurance’s Role with Lender-Placed Insurance?

BBVA Insurance provides lender-placed insurance to financial institutions such as mortgage lenders, mortgage servicers, and banks. We operate as an extension of our clients, functioning as the financial institution’s insurance department. In addition to administering the lender-placed insurance, BBVA Insurance provides insurance tracking services: this includes tracking the insurance policies, procuring the homeowners’ insurance, processing mail, disbursing insurance premiums, and performing customer service functions. In addition to this, BBVA Insurance monitors and keeps up to date on state and federal legislation, regulations, and litigation that impacts the insurance and mortgage servicing industry and ensures that compliance is woven within the fabric of the company. Technology also plays an important role, with proprietary insurance tracking tools, automation, and other efficiencies that improve the borrower experience with lender-placed insurance. When mortgage servicers elect to outsource their insurance operations to BBVA Insurance, they elect a compliant program that delivers a borrower-focused, benefits-driven insurance and risk management solution.