05 Sep Conversion Process: Switching from Auto Tracking CPI to Blanket LSI/VSI
Forced placed insurance has come under the scrutiny of regulators as it relates to mortgage lending. Auto lending is the next logical extension of this scrutiny. Providing “free” tracking services to financial institutions and including these costs in the insurance premium is clearly not desired by the regulators. The situation with Wells Fargo is a great example of recent regulatory issues with auto-tracking & CPI Programs. Due to these recent changes, many financial institutions are considering a blanket approach to their risk management strategy. Ultimately avoiding unwanted attention from regulators and shielding their members from exorbitant force place premiums.
The information below identifies important items to consider when making the switch from a tracking/CPI program to Blanket LSI “Lenders Single Interest” coverage to ensure the smoothest transition possible.
Contract – Identify the contract language within your current tracking agreement, including the expiration date and the amount of notice that is needed to cancel the contract (30, 60, 90 days etc). There is no yearly contract associated with LSI coverage that needs to be considered. You can cancel the program at any time with limited notice.
Pending Claims – Before cancelling your current contract, make sure to file any eligible claims. LSI policies will assume the risk on your outstanding loan portfolio, however there are delinquency exclusions that the Lender needs to be aware of. Any loans 30 days or more delinquent are not eligible for claims with the new LSI program. Therefore, it is important that all eligible claims are made on your incumbent program before making the switch.
Existing Force Place Certificates- We recommend leaving all existing force place certificates in place and letting them expire, non -renewing them. This eliminates the need to notify or refund borrowers and allows for a clean transition to the LSI program.
Loan Agreement LSI/VSI Disclosure – The loan agreement must include the below VSI disclosure along with a separate line item disclosing the VSI charge. SAMPLE DISCLOSURE “Vendors Single Interest (VSI): You are required to obtain VSI. You may obtain this insurance from anyone you want that is acceptable to the credit union. If you obtain the insurance form the credit union, you will pay _____.”
* Lee & Mason will work with you to make sure your loan agreement is compliant
Operational Processes for LSI/VSI – One of the biggest benefits LSI coverage is the ease of administration/program management. All the lender is required to do is report the number of consumer loans (eligible for LSI coverage) made a month in arrears. We do not need borrower information, vin numbers, loan details, etc. – we simply need the number of loans originated in a month.
Claims Systems – Aside from reporting loan volume, the only other administrative aspect of LSI would be filing claims which is done via our online claims system. All documentation needed to file claims can be updated into our claims system, and updates are constantly provided to lenders within the system. Overall Lee & Mason claims system is extremely user friendly.
Real Estate Tracking- Unfortunately many tracking programs for Real Estate are subsidized by auto tracking force place premiums. Because of this, if you cancel your auto tracking contract your tracking provider may cancel tracking on your Real Estate loans as well. Lee & Mason can provide two different options in this scenario that are compliant and fully stand alone on their own – without connection to any auto programs.
- Blanket Mortgage Impairment for the entire real estate program – This would eliminate the need to track or force place insurance within the portfolio.
- Insurance Tracking Proposal– Lee & Mason has a full-service tracking facility and will provide a Real Estate tracking proposal that is compliant within the regulatory environment and not subsidized in any way by the LSI/VSI Program.