New York Regulatory Update

New York Regulatory Update

The New York Department of Financial Services (“DFS”) extended emergency regulations related to mortgage servicing and promulgated new rules regulating force-placed insurance.

 

NEW YORK EMERGENCY RULES PART 419

 

Our August 23, 2010, December 8, 2010, March 24, 2011, May 20, 2011, August 23, 2011, November 18, 2011, January 25, 2012, May 8, 2012, August 15, 2012, December 3, 2012, January 17, 2013, May 7, 2013, July 19, 2013, November 12, 2013, January 8, 2014, April 15, 2014, July 16, 2014, and October 30, 2014 Compliance Memoranda discussed New York Emergency Regulations addressing the servicing of mortgage loans, which were effective October 1, 2010, November 1, 2010, February 1, 2011, May 2, 2011, July 22, 2011, October 20, 2011, January 17, 2012, April 17, 2012, July 12, 2012, October 7, 2012, December 13, 2012, June 26, 2013, September 15, 2013, December 19, 2013, May 28, 2014, and September 11, 2014 respectively.  The DFS recently extended the Emergency Regulations effective December 9, 2014, with an expiration date of March 7, 2015.

 

NEW YORK INSURANCE REGULATION 202

 

The purpose of the regulation is to set forth rules for the rates for and placement of force-placed insurance and to prohibit certain practices related to force-placed insurance in order to protect homeowners and investors from harm caused by excessive force-placed insurance rates, questionable business practices and relationships in the force-placed insurance industry, and inadequate notice of force-placed insurance.  Unless otherwise indicated, the regulation is effective February 6, 2015.

 

 

Definitions

 

“Actual loss ratio” means the sum of paid losses and loss reserves, as a percentage of earned premiums.

 

“Affiliate” means any company that controls, is controlled by, or is under common control with an insurer or insurance producer.

 

“Clearly and conspicuously” means that the statement, representation, or term being disclosed is of such size, color, and contrast and is so presented as to be readily noticed and understood by the person to whom it is being disclosed.

 

“Force-placed insurance” means hazard insurance obtained by a servicer on behalf of the owner or assignee of a mortgage loan that insures the residential real property securing such loan.  The term “force-placed insurance” will not include hazard insurance:

  • To protect against flood loss obtained by a servicer as required by the federal Flood Disaster Protection Act (the “Act”), except as provided in the Prohibited Practices section below;
  • Obtained by a borrower but renewed by the borrower’s servicer as described in the federal Regulation X under the Real Estate Settlement Procedures Act (“RESPA”); or
  • Obtained by a borrower but renewed by the borrower’s servicer at its discretion, if the borrower agrees.

 

“Hazard insurance” means insurance on the residential real property securing a mortgage loan that protects residential real property against losses caused by fire, wind, flood, earthquake, theft, falling objects, freezing, and other similar hazards for which the owner or assignee of such loan requires insurance.

 

“Insurance tracking” means all activities related to determining whether a borrower has in place hazard insurance that complies with the mortgage loan contract’s requirements to maintain hazard insurance, including:

  • Developing and maintaining a database used by a servicer to track required hazard insurance on borrowers’ loans;
  • Maintaining hazard insurance information on behalf of a servicer, including in a servicer’s mortgage servicing system;
  • Inputting insurance information on new loans into an insurance tracking database or a servicer’s mortgage servicing system;
  • All communications by a servicer or on behalf of a servicer with a borrower’s voluntary hazard insurer or voluntary hazard insurance producer;
  • All communications by a servicer or on behalf of a servicer with a borrower concerning required hazard insurance, including the written notices that are required before force-placing insurance and communications concerning charging the borrower’s account for insurance; and
  • All call center and other customer service operations related to the communications described above.

 

The term “insurance tracking” will not include:

  • Issuing force-placed insurance or monitoring the continuing need for force-placed insurance after voluntary hazard insurance covering residential real property has lapsed or been cancelled, or an insurer, insurance producer, or affiliate has not received evidence of existing insurance coverage that complies with this rule; or
  • Performing administrative services associated with canceling force-placed insurance on properties on which force-placed insurance is not required.

 

“Insurer” means an authorized insurer.

 

“Insurance producer” means a licensed insurance producer.

 

“Loss reserves” means the sum of case reserves and incurred but not reported losses.

 

“Mortgage loan” means a loan made primarily for personal, family, or household use, secured by either a mortgage or deed of trust on residential real property in New York, any certificate of stock or other evidence of ownership in, and proprietary lease from, a corporation or partnership formed for the purpose of cooperative ownership of residential real property in New York, or a loan secured by a security interest on a manufactured home in New York or mobile home in New York, which contains 1-to-4 family housing units.

 

“Real estate owned property” means residential real property that is owned by a lender after the property is not sold at a foreclosure auction.

 

“Residential real property” means real property located in New York used or occupied, or intended to be used or occupied, predominantly for residential purposes and which consists of not more than 4 dwelling units, other than hotels and motels.

 

“Servicer” means a person or entity engaging in the servicing of mortgage loans in New York, whether or not such person or entity is registered or required to be registered pursuant to the New York Banking Law.

 

Requirements Before Issuing Force-Placed Insurance

 

If an insurer, insurance producer, or affiliate mails or delivers to a borrower on behalf of a servicer notices relating to force-placed insurance, then the insurer, insurance producer, or affiliate must:

  • Deliver to a borrower or place in the mail a written force-placed insurance notice in accordance with Regulation X;
  • Deliver to a borrower or place in the mail a written force-placed insurance reminder notice in accordance with Regulation X; and
  • On a separate piece of paper in the same transmittal as the written notices required above, clearly and conspicuously disclose that an insurer, insurance producer, affiliate, or any other third party is staffing the mortgage servicer’s telephones, if that is the case.

 

If an insurer, insurance producer, or affiliate mails or delivers to a borrower on behalf of a servicer notices relating to renewing or replacing force-placed insurance, then the insurer, insurance producer, or affiliate must:

  • Deliver to a borrower or place in the mail a written notice to renew or replace force-placed insurance in accordance with Regulation X; and
  • On a separate piece of paper in the same transmittal as the written notice required above, clearly and conspicuously disclose that an insurer, insurance producer, affiliate, or any other third party is staffing the mortgage servicer’s telephones, if that is the case.

 

The notices required above must clearly and conspicuously disclose on the front of the envelope that the delivery or mailing contains important homeowners insurance information. Such disclosure must be printed in a readily noticeable contrasting color with a font size of at least 12 point.

 

Amount of Coverage

 

An insurer must not issue force-placed insurance in excess of the borrower’s last known amount of hazard insurance; provided, however, that if the amount of the borrower’s last known hazard insurance did not comply with the mortgage loan requirements, then the insurer must not issue force-placed insurance in excess of the replacement cost of the improvements on the mortgaged property.

 

Sufficiency of Demonstration

 

If an insurer, insurance producer, or affiliate receives correspondence related to force-placed insurance from a borrower on behalf of a servicer, then the insurer, insurance producer, or affiliate must accept any reasonable form of written confirmation, from the borrower or otherwise, of existing hazard insurance that complies with the mortgage loan contract’s requirements to maintain hazard insurance, which will include the existing hazard insurance policy number along with the identity of, and contact information for, the insurer or insurance producer.  An insurer, insurance producer, or affiliate that receives correspondence related to force-placed insurance from a borrower on behalf of a servicer may require a copy of the borrower’s hazard insurance policy declaration page, the borrower’s hazard insurance certificate, the borrower’s hazard insurance policy, or other similar forms of written confirmation.  An insurer, insurance producer, or affiliate that receives correspondence related to force-placed insurance from a borrower on behalf of a servicer may reject evidence of hazard insurance submitted by a borrower if neither the borrower’s insurer nor the borrowers’ insurance producer provides confirmation of the hazard insurance information submitted by the borrower, or if the terms and conditions of the borrower’s hazard insurance policy do not comply with the borrower’s mortgage loan contract requirements.

 

Refunds of Force-Placed Insurance Premiums

 

Within 15 days of receiving, from the borrower or otherwise, evidence demonstrating that the borrower has had in place hazard insurance that complies with the mortgage loan contract’s requirements to maintain hazard insurance, an insurer, insurance producer, or affiliate must remove force-placed insurance from the borrower’s property and refund to the servicer or borrower, as the case may be, all force-placed insurance premiums paid by the servicer or borrower for any period of overlapping insurance coverage.

 

Prohibited Practices

 

“Force-placed insurance” will include hazard insurance to protect against flood loss obtained by a servicer as required by the Act.

 

An insurer must not issue force-placed insurance on mortgaged property serviced by a servicer affiliated with the insurer.  An insurer, insurance producer, or affiliate must not compensate a servicer or a person or entity affiliated with a servicer with respect to force-placed insurance on residential real property being serviced by the servicer.  An insurer, directly or indirectly, must not compensate an insurance agent that acts in the adjustment of a loss for force-placed insurance, or an independent adjuster that acts in the adjustment of a loss for force-placed insurance, based on underwriting profitability or loss ratio.

 

An insurer must not share force-placed insurance premiums or force-placed insurance risk with the servicer that obtained the force-placed insurance or a person or entity affiliated with the servicer that obtained the force-placed insurance.  An insurer, insurance producer, or affiliate must not make any payments, including, but not limited to, the payment of expenses, to a servicer or a person or entity affiliated with a servicer in connection with securing force-placed insurance business.  An insurer, insurance producer, or affiliate must not provide insurance tracking to a servicer or a person or entity affiliated with a servicer for a reduced fee or no separately identifiable charge.

 

Minimum Loss Ratio and Rate Filings

 

Effective March 8, 2015, an insurer writing force-placed insurance in New York must file force-placed insurance premium rates with a permissible loss ratio of at least 62%.

 

An insurer must have separate rate classifications for force-placed insurance and hazard insurance obtained by a servicer on real estate owned property.

 

No later than April 1 of each year, an insurer issuing force-placed insurance in New York must report to the Superintendent of Financial Services (the “Superintendent”), for each of the insurer’s force-placed insurance policy forms for the preceding calendar year:

·        Actual loss ratio;

·        Earned premium;

·        (effective October 4, 2015) Itemized expenses, including:

o       Expenses incurred in connection with insurance tracking;

o       Expenses incurred in connection with issuing force-placed insurance or monitoring the continuing need for force-placed insurance after:

§         Voluntary hazard insurance covering residential real property has lapsed or been cancelled; or

§         The insurer, insurance producer, or affiliate has not received evidence of existing insurance coverage;

o       Expenses incurred in connection with canceling force-placed insurance on properties for which force-placed insurance is not required;

·        Paid losses;

·        Loss reserves;

·        Case reserves; and

·        Incurred but not reported losses.

 

An insurer writing force-placed insurance in New York must, within 30 days after filing its annual statement, re-file with the Superintendent its force-placed insurance premium rates for any force-placed hazard insurance policy form that has had an actual loss ratio of less than 40% for the immediately preceding calendar year.

 

At least once every 3 years, an insurer writing force-placed insurance in New York must re-file with the Superintendent its force-placed insurance premium rates, supported by required data and actuarial analysis that is acceptable both professionally and to the Superintendent, taking into account the loss experience over the preceding period and an appropriate rating factor for catastrophe exposure and other factors.

 

Effective October 4, 2015, an insurer must not include as an expense in a force-placed insurance rate filing any expense incurred in connection with insurance tracking.