Agency Proposal

By the Regulation Room team based on the NPRM

For Borrowers in Trouble: “Force-Placed” Insurance

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§1. Does it matter if there’s an insurance escrow account?

Almost all mortgage loans require borrowers to get homeowners’ insurance (technically called ”hazard insurance”) for their property. If the borrower doesn’t keep up the insurance, the servicer is allowed to get “force-placed insurance” – so called because the servicer can choose where to buy (“place”) the new policy and “force” the borrower to pay it. Often, force-placed insurance costs more but provides less coverage than what borrowers can get themselves. Sometimes, servicers get commissions or other fees from this insurance, or the servicer may be connected with the insurance company that is being used. This extra cost may push a borrower into deeper trouble. During the mortgage crisis, some servicers wrongly charged borrowers for force-placed insurance even though the borrower’s own policy was still in effect. CFPB is proposing several new limits on force-placed insurance. For borrowers who have an escrow account for insurance, CFPB wants to prevent the servicer from getting force-placed insurance in the first place. CFPB isn’t sure what to do when there is no escrow account.

What this means for consumers. Servicers are already required to renew the borrower’s policy promptly from funds in an insurance escrow account. If there isn’t enough in the account for the premium, the servicer must make up the difference. (The servicer gets the money back as the borrower continues to make regular payments.) So what’s the problem? Borrowers in trouble often make late or incomplete payments. Now, if the borrower is more than 30 days late on his/her mortgage payments and there’s not enough in the escrow account, the servicer does not have to advance the money to renew the borrower’s own policy. Instead, it can decide to go with force-placed insurance. CFPB wants to change this. If the servicer would be advancing money for force-placed insurance anyway, renewing the borrower’s policy is likely to be cheaper and better coverage. So, under the new proposal, the servicer could not get force-placed insurance for a borrower with an insurance escrow account, unless the servicer reasonably believes that the borrower’s insurance was canceled or not renewed for some reason other than nonpayment of premiums. Good idea?

CFPB does want comments on a possible alternative approach for borrowers with escrow accounts: the servicer would not have to advance funds to renew the borrower’s insurance if getting force-placed insurance would cost the servicer less than the amount it would have to advance to continue the borrower’s policy. What are the plusses and minuses of this alternative approach? Should it also include a requirement that the force-placed policy protects the borrower’s interests?

What if there isn’t an escrow account for insurance premiums? Consumer advocates have argued that servicers still should have to advance funds to renew the borrower’s policy instead of getting force-placed insurance. Servicers have argued that paying insurance premiums for borrowers who don’t have escrow accounts isn’t practical. CFPB isn’t sure what to do about this and wants comments. How impractical is it for servicers to renew the borrower’s policy if there’s no escrow account? Are there ways around these practical problems? Should servicers be required to ask borrowers if they will consent to the servicer’s renewing their insurance?

What this means for servicers. CFPB is encouraging servicers to avoid force-placed insurance by exempting renewal of the borrower’s own insurance from the new notice requirements described in the next section. So long as state law allows and the insurer will accept monthly premium payments, servicers who advance money could do so on a month-to-month basis to manage the risk of a borrower cancelling the policy and keeping the refund. CFPB believes that the loan owner, as well as the borrower, would benefit from avoiding force-placed insurance because if the borrower defaults, the higher premium cost will likely be added to the unpaid loan balance. Are there problems with the proposed new approach that CFPB hasn’t considered?

As part of a general expansion of the scope of Regulation X, the force-placed insurance requirements would apply to subordinate lien (as well as primary) closed-end mortgages.

Read what CFPB says in the NPRM about force-placed insurance and escrow accounts.

Read CFPB’s analysis costs and benefits of force-placed insurance proposals: general ; small business.

See the text of the proposed rule and CFPB’s commentary: §1024.17(k)(5) ; §1024.31 (“mortgage loan) .

§2. Warning borrowers in time to prevent force-placed insurance.

CFPB is hoping that if borrowers get better information about the costs of force-placed insurance, they will try to keep their own policy in effect – or, if their policy has lapsed, get back on to a policy of their choosing as soon as they can. Also, CFPB proposes that force-placed premiums and fees have to be “bona fide and reasonable.”
What this means for consumers. When a servicer is going ahead with force-placed insurance, it would have to give the borrower two written notices before charging them: one 45 days before the charge and another 15 days before. You can read them here:

45-day proposed notice

15-day proposed notice

Are these notices clear? Should they contain more or different information?

The servicer may buy force-placed insurance during the 45-day period, but can’t charge the borrower for premiums during the 45 days unless the borrower doesn’t show that his/her own policy remained in effect. Force-placed insurance premiums and fees must be “bona fide and reasonable,” which means an amount that is reasonably related to what it actually costs the servicer for a service it actually provides.

Once a force-placed policy is in effect, similar rules would apply for renewing it. Again the borrower must get two notices before being charged for the renewal premium. You can read them here:

The proposed renewal notice

At any time while force-placed insurance is in effect, the borrower can get his/her own insurance. Under CFPB’s proposal, once he/she notifies the servicer, the servicer must cancel the force-placed insurance and refund any premiums and fees for the time when the force-placed insurance overlapped with the borrower’s own policy.

What this means for servicers. CFPB is proposing that servicers cannot charge for force-placed insurance unless they have a “reasonable basis to believe” the borrower no longer has coverage. “Reasonable basis” includes the servicer not getting a renewal bill for borrowers with an escrow account or, for any borrower, getting a notice of cancellation or nonrenewal from the insurance company. Are there other examples CFPB should include of ”reasonable basis”?

For purposes of “continuous” coverage, borrowers must get the benefit of any grace period for paying premiums. If the borrower verifies that he/she has obtained insurance while a force-placed policy is in effect, the servicer must cancel the policy within 15 days of receipt. Servicers will want to review examples of how to calculate a refund due the borrower for any overlapping period. Servicers must accept “any reasonable form” of written confirmation of insurance.

Although servicers do not have to use forms identical to the sample notices, they must highlight text as shown on the samples. Servicers will want to read what a “good faith” estimate of the cost of force-placed insurance would mean.

CFPB is looking for additional information about what disclosures servicers are now providing, and what the cost of complying with the new disclosures would be. It anticipates that the result of the proposals will be fewer force-placed policies. How would this affect servicers?

Read what CFPB says in the NPRM about force-placed insurance.

Read CFPB’s analysis costs and benefits of force-placed insurance proposals: general ; small business.

See the text of the proposed rule and CFPB’s commentary: § 1024.37

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August 10, 2012 11:49 am

This should not be an issue if the homeowner had escrow for insurance. The Servicer should pay the original insurer. Notice should be sent to the homeowner that the policy was paid on every anniversary with the name of the insurance company.
We have submitted 5 complaints to the New York State Banking Dept. of homeowners who received forced placed insurance that was 5 times more than the policy on record.

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    August 10, 2012 4:32 pm

    Welcome to Regulation Room, vraphael, and thanks for your comment! It sounds like you have a lot of experience with borrowers experiencing difficulties with their servicers. You might also have valuable insight into the issues in the Options for Avoiding Foreclosure post

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August 10, 2012 5:12 pm

There are various holes in these regulations that will continue to be exploited by the Insurance Trackers/Force-Placed Insurers, who act on behalf of the Loan Servicers:

1) The wording on the letter doesn’t matter, because the outside of the envelope does not state anywhere that it is from the Loan Servicers nor that it is important information regarding their mortgage. This means borrowers will likely overlook the notice no matter how well the letter is written.

2) No loan servicer’s website currently allows a borrower to update their insurance information online. This can only be done via Assurant/QBE First’s generic 3rd party websites. In today’s digital age, there should be a way for borrowers to PROACTIVELY provide this information, rather than being guided… more »

…toward a confusing unknown website. In the case of Wells Fargo, for example, a borrower would need to go to separate websites for their home & auto loan, since QBE First processes their auto insurance information, while Assurant processes their mortgage insurance information. This is confusing and unacceptable.

3) A borrower should be able to speak to an actual employee of the Loan Servicer. Currently ANY insurance related interaction (to include claims) is handled by the Insurance Tracker/Force-Placed Insurer. This is especially upsetting in a claims situation where the Insurance Tracker acts as both parties (the mortgage company & the insurance company) and the borrower’s interests are completely ignored.

4) The Insurance Tracker and Force-Placed Insurer should not be allowed to be the same company, nor subsidiaries, nor any other version the banksters can come up with. There is rampant abuse created by this conflict of interest. « less

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August 10, 2012 5:47 pm

The beginning of this section makes it sound like it only applies to Hazard insurance, however a “Hazard” LPI policy covers both Hazard & Wind/Hurricane. In addition, there is a LPI Flood product. In states where a separate wind policy is necessary (Florida, Hawaii, etc) the placement of these policies creates an issue of duplicated coverage. This happened en masse in 2009 when most major insurance companies (except Citizens) stopped underwriting wind policies in Florida. The negative escrow accounts created by false placement of duplicate coverage are how Florida became one of the leading states for foreclosure.

Remember that escrow accounts are PREPAID insurance accounts, so when a LPI policy is place, and the Loan Servicer processes an escrow analysis on the loan, the… more »

…borrower is given 1 year to make up for 2 years of insurance payments. To make matters worse, the LPI premiums are inflated, and often backdated, so often the borrower is given much less time to make up for this negative escrow balance. If an escrow analysis is completed on a borrower with LPI, the premium can drive their monthly mortgage payment up by as much as 1000% to make up for this deficit. In addition, they can not qualify for a loan modification while they have a negative escrow balance (which is normally caused by the bank’s recommendation not to pay their mortgage while the loan mod is processed). Force-Placed Insurance is why so few borrowers have qualified for the HAMP & FHA loan modification programs.

But wait…there’s more…

If a borrower does not have an escrow account for their loan (or the escrow is only set up to pay property taxes), one is automatically created by the loan servicing system as soon as the loan is flagged to be placed in an LPI letter cycle. Think I’m done illustrating how corrupt this system is? Think again. All of this is actually done by a 3rd party Insurance Tracker. The 2 largest Insurance Trackers in the US are Assurant & QBE First/Praetorian (fka Balboa Insurance Group). If these companies sound familiar, it is because they are also the Force-Placed Insurers. This is how the kickback scheme works, and this is why voluntary companies like State Farm, USAA & Allstate don’t provide the Force-Placed Insurance “product” to anybody.

Which brings me to another point. LPI should not even be a product. The Insurance Tracker is providing the service of placing insurance on a loan. They are simply choosing to only place their in-house proprietary insurance. When you send your insurance information to your Loan Servicer to prove you have insurance, it is actually received by the Insurance Tracker. Check the volume of UTL (Unable To Locate) documents these Insurance Trackers recycle on a daily basis, and you’ll see that they “lose” literally tens of thousands of insurance documents every day. Please read my blog to see how this occurs: Insurance Fraud 101 (From a Whistleblower)

Now…another issue is that a loan servicing transfer (which is often not initiated by a borrower) will create a “Deletion of Interest” cancellation. This often create an issue in both home & auto loans where a borrower will be saddled with LPI coverage despite doing nothing to trigger the event. These Insurance Trackers can’t seem to track your insurance from one of their servicing portfolios to another.

As for Escrow vs non-Escrow, as I’ve stated previously, the servicing system will AUTOMATICALLY CREATE an escrow account in the event of a non-escrow account. Currently the Insurance Trackers divide the mail received into queues, meaning they are purposely dividing them to treat escrow and non-escrow accounts different. It is very simple to remove these systematic rules from their system to ensure all insurance documents are handled the same. They are flat out lying when they say it is difficult. There are absolutely no practical problems, and I’d be happy to provide a sworn testimony in court to that effect.

Other issues include:

1) Placement of Force-Placed Flood on condo units above the ground floor. Flood policies only cover ground water. If a condo unit above the first floor is being affected by ground water, the structure will likely collapse, and flood insurance is no longer the problem.

2) Force-Place Insurance is often placed on homes and other structures within Planned Unit Developments (which includes any neighborhood with an HOA, gated communities, neighborhoods where you see a name as you enter from a main street) simply because the HOA policy covering common areas is expired. This is almost laughably ridiculous, and the servicing abuse shouldn’t even need further explanation.

3) Force-Placed policies provide no contents coverage, liability, etc. At least minimal amounts of these important coverages should be included.

4) A Force-Placed Insurer should not be able to act as the Insurance Tracker, as it is a conflict of interest.

5) Executives responsible for the servicing abuses I’ve outlined should be held responsible for racketeering under federal RICO laws, and I believe they should all be imprisoned for their crimes against humanity. « less

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August 10, 2012 5:53 pm

Whenever a borrower communicates with their Loan Servicer in regards to ANY & ALL insurance related matters, they are actually speaking to the Insurance Tracker (who also acts as the Force-Placed Insurer) whose representatives state that they are actually the Loan Servicer. In the event of a claim, if a borrower is unhappy with the resolution from the Force-Placed Insurer, they will call the Loan Servicer, who will transfer them to the Insurance Tracker, who is acting as the Loan Servicer, but is actually the Force-Placed Insurer. This is such an illegal conflict of interest it’d be funny if it weren’t true.

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    August 11, 2012 1:05 pm

    versability, do you have a suggestion for how cfpb should respond to this problem. Should it explicitly set rules for these communications? If so what should they be?

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      August 11, 2012 1:58 pm

      It’s as easy as 1-2-3:

      1) The Loan Servicer should be required to disclose that you are being transferred to a 3rd party vendor. This includes updating their IVR to let you know when a selection is taking you to a 3rd party & requiring that a customer service rep to notify you when they transfer you to a 3rd party. When you click a link for turbotax on, for example. It will tell you that you are about to leave the site. Why is that warning given for every website in the world, but not over the phone by your loan servicer? It’s a deceitful practice that is abused.

      2) Representatives from the Insurance Tracker should have to introduce themselves as the insurance tracker (again, both via the IVR and customer service reps). When you have insurance on your cell phone,… more »

      …for example, the representative (whether in person or over the phone) ALWAYS informs you that you will be speaking to a 3rd party insurance service to file a claim. Why do mortgage servicers not do this? What are they attempting to hide?

      3) The Insurance Tracker should NEVER be allowed to also act as the Force-Placed Insurer. The mortgage company and insurance company should always be separate entities in order to protect the borrower. Allowing an Insurance Tracker to act as both creates a situation where they will act in their own interests first, then they will act in the loan servicer’s interests, as they are a large portfolio client. In this scenario the borrower always loses.

      Allowing Force-Placed Insurers to act as Insurance Trackers led to a situation where many Hurricane Katrina claims are STILL unresolved TO THIS DAY! That is completely unacceptable and should in fact be considered illegal.

      This set up also negates the servicing industry’s claims that LPI premiums are so high because they are blindly insuring. The reality is that the representatives from the Force-Placed Insurer have usernames that allow them to log into the mortgage servicing system. They also have all prior insurance information, claim information, etc. Many representatives have even deeper access to your account. This means they actually have MORE access to property information than a voluntary insurance company such as Farmers, Allstate, etc. In many cases they even have more access than the Loan Servicer. This is all highly suspect and needs to be stopped immediately. « less

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August 13, 2012 12:01 am

The lender should not be able to place forced insurance and replace the primary titled owner as the beneficiary of any loss policy issued on an pre forclosure asset, until forclosure occurs, the DEED is and remains in the ownership under homestead laws of most states, the borrower’s legal property.

I can understand the insurance requirement.

The borrower should not be required to assume debt, that defies market logic,and then be liable for that debt being issued when they can derive no direct benefit from it, not even policy ownership.

Also the lender should be required to obtain insurance at prevailing fair market insurance rates the regular consumer pays at the very most, when I was forced into REO due to default, and on medical disability, the monthly insurance cost was… more »

…three times the annual cost of my then existing annual allstate policy cost.

Which had also had additonal riders including liability umbrellas, for my auto and additional personal medical for visitors, comprehensive platinum content coverage, it belies common sense that they be allowed to fleece and abuse already indigent homeowners, like that. Charging 3 times what my full policy costs in a year, in a single month, and not even convering the whole contents of the house.

They should have to use and provide traditional carrier insurance throught market channels at prevailing fair market insurance rates for the property, the policy should be CO-owned with both borrower and lender listed as beneficiaries of any REO policy especially if being billed to the escrow account, anything less is the abuse of the fiduciary of escrow.

Also the whole risk thing of blind insurance, who are they kidding? I had no problem blindly insuring my house with my current carrier from six states away, in fact they knew the number of claims ever filed on the property being insured as well as any claims I had filed on the property I owned prior to this one.

All of this over inflation claim of excessive risk on REO insurance is a scam designed to insure they overcome the bankruptcy discount on cram downs. It prevents qualification for LMO’s prevents curing of default as well. There is NO reason for it. « less

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    August 13, 2012 9:42 am

    REO and Force-Placed Insurance are 2 different products. The REO policy shouldn’t have a borrower’s name as the beneficiary because it is placed on a property post-foreclosure, however, you are 100% correct that these policies should NOT be charged to the borrower’s escrow account (which they currently are), and a borrower should NOT be held responsible for any REO charges whatsoever. Currently, escrow accounts are systematically added to EVERY foreclosure. The point it happens is dependent on the state and whether the lender is FNMA, FMAC, or other. These illegally created escrow accounts are illegally saddled with exorbitant MONTHLY REO premiums, which end up being charged to the borrower, NOT the lender.

    This is also an example of rampant racketeering and mortgage abuse,… more »

    …but it is a separate issue from the Force-Placed premiums falsely placed on mortgages, automobile liens, and other collateral loans. « less
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August 14, 2012 2:38 pm

When a borrower calls a servicer requesting information about force-placed insurance, the servicer sometimes will transfer the call to a third-party vendor who acts on the servicer’s behalf. Should the rules make servicers notify the borrower that they will be speaking with another company before doing making the transfer?

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August 14, 2012 2:52 pm

CFPB hasn’t addressed Real Estate Owned insurance in this proposal. Should it? If so, what should it be doing?

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    August 14, 2012 3:42 pm

    There definitely needs to be rules stating that a borrower is NEVER saddled with REO fees. This is one of many reasons escrow accounts need to be transparent on a bill. People need to be able to see what they’re being charged, or fees like REO will continue to be illegally added to their accounts.

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August 17, 2012 12:38 am

One major Force-Placed Insurance issue that needs to be addressed is how it is constantly referred to as a product. LPI is not a product. LPI is a service by definition. Whether you refer to it as Force-Placed or Lender-Placed, the point is that it is insurance that they are buying for you. Why are they allowed to buy proprietary insurance? They should ONLY be allowed to charge a maximum of $35 (similar to an overdraft charge) for the SERVICE of price shopping insurance for a consumer. They should be legally required to select the cheapest insurance available through this necessary force-placed insurance SERVICE (NOT PRODUCT).

The collection of this $35 service fee would offset any of these mortgage servicing costs the CFPB feels should be passed on to consumers for creating a bill.

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August 19, 2012 10:43 am

Homeowner’s insurance should have a guaranteed re-issue policy in place for the mortgage servicer. The rate should be no more than the insurance cost in prior year. The mortgage servicer should be required to use this guaranteed re-issue policy. This simple and straightforward change would remove the potential for servicers and insurers to game the system.

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    September 8, 2012 3:41 pm

    Hi co80231, and thanks for commenting. It sounds like what you’re suggesting would require servicers to have insurance payment information for borrowers without escrow accounts. Other commenters (such as cu man, below) have discussed the costs this would impose on servicers. What are your thoughts on that discussion?

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August 20, 2012 6:24 pm

The rule does not go far enough in terms of protecting the consumer from errors of the bank and allows the bank to put the consumer in a catch22. My lender errorneously determined that I was in a flood area and despite my protests (and documentation) that I was not in a flood area went out and bought flood insurance at very high rates. When they finally evaluated my documentation they agreed to cancel the policy since I was not in a flood area but did not want to refund the cost of insurance for the time the insurance had been in place. It took many hours, calls, and esacalations, and preliminary discussions with attorneys to get the cost of the unnecessary insurance refunded.

The system leaves consumers poorly defended and allows the bank to buy insurance at extremely high rates.

My… more »

…suggestions are that the rule include the following:

1. If the insurance was place erroneously the bank has to refund all insurance payments and pay a penalty.

2. The bank should only be allowed to buy insurance at a rate no greater than the leser of — 10% of competitively priced polices or 10% greater than the rate the homeowner had been paying.

3. The bank should have a time limit on how long it would have to inestigate. « less

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    August 20, 2012 6:29 pm

    Just to let you know…it was the Force-Placed Insurer acting on behalf of your lender that determined your flood zone and placed the policy on your account. They are also the ones you spoke with every time you called your lender.

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    August 21, 2012 1:33 am

    Welcome to Regulation Room, eisrael11, and thanks for your comment. CFPB’s rules for refunding improper force-placed insurance are here. Would standards like these have made your flood insurance situation easier to resolve?

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August 24, 2012 3:08 pm

I have read all the previous comments and I agree with some and disagree with others. I agree that if your lender is not helping you, then you should be able to turn them into someone that can get you some help. Enter the CFPB, they are here to help the consumer and that is what they should do.

I disagree with the Lender not being able to force place insurance on a home. Yes, the deed is in the homeowner’s name, but if the home burns to the ground because the homeowner didn’t pay the insurance, what them. Is the bank just supposed to forgive the debt and take just the land, because that is all that would be left. I am pretty sure this is to payoff your mortgage in case of a fire, etc. and the lender is only supposed to place enough insurance on the loan to cover payoff.

If… more »

…lenders are not following the rules report them to CFPB, but understand the more burden that is put on the banking industry the more costly loans are going to become. Be careful what you wish for. « less
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    August 24, 2012 3:29 pm

    Thank you for your comment, catfish, and welcome to Regulation Room. It sounds as though you have a good understanding of the reasons behind force-placed insurance. Do you think that CFPB has struck a good balance between providing protection to consumers against unnecessary force-placed insurance and limiting the costs to servicers?

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August 24, 2012 10:49 pm

Will there be talks related to the lender paid mortgage insurance (lpmi). My intentions upon taking out the loan and putting down 20% was to avoid having to pay a pmi. I had no knowledge that a lpmi policy was in place on my loan. USC Title 12 Chapter 49 Homeowners protection sec 4905 states the required disclosure of a lpmi prior to closing the loan as it could cause a higher interest rate. But the statutory damages under sec 4907 set a maximum of $2,000 in damages. The costs of the action and attorney fees don’t promote any lawful deterrence.

The servicer wrote after my own discovery that no premiums were add to the loan. How would a consumer be able to verify this?

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August 25, 2012 12:36 am

Why don’t we use a simple, divided insurance formula, that solves all the force placed insurance problems. The home owner picks the best insurance policy prior to the closing when purchasing a home. The policy is divided by responsibility. The bank adds the portion for the structure to the monthly house payment, that includes wind if required and flood if in flood zone and any inside flooding. The home owner is responsible for personal injury, appliances and personal effects and has to send in the money directly. If the home owner quits making the payment it is irrelevant to the bank that is responsible for sending in the insurance on the structure if they want it protected their investment until foreclosure. It is considered part of the house payment and the bank is returned to arms… more »

…length with insurance companies. The insurance can’t adjust more than once every 12 months. The insurance company has to give the home owner 60 days written notice if there will be an increase in the rate on the homeowner or on the banks side. This way, the homeowner has time to shop for a better rate, before the policy runs out. The homeowner has the option to replace the banks side and the homeowners side because it is in their payment. The closing agent collects a 6 month reserve at the closing for the bank structure insurance. If the home owner does not make the payment the the bank forecloses. That is if the bank has not committed massive fraud or destroyed the documents. If this is the case, then the bank should have to make the structure payment for years, to teach them a lesson. The only solution is to take away the decision making involving insurance from the bank, as the honesty and ethics problem, prevent any other alternative. Oh, when determining the value placed on the home for insuring, it is very important to subtract the value of the land from the purchase price for structure insurance. The land isn’t going anywhere.
JP Morgan was servicing my loan for Fannie Mae. I was shocked to learn after my short sale that I was billed almost $16,000.00 for one month of force placed insurance. I was paying State Farm less than $300.00 per month for insurance. Is this RACKETEERING FOLKS or what!!! JP Morgan billed me under “escrow shortage” on their payoff provided to the closing agent. The closing agent also collected on the HUD 1 for insurance itemized. JP Morgan then collected the 11 month prorated refund for unused insurance. I complained to the SEC about how much I was charged, by my JP Morgan Fannie Mae combo. JP Morgan really shocked me then, they tried to justify their outrageous bill and sent me a copy of another force placed annual policy they placed on my home 2 months after my house sold. They even back dated the policy to start at my closing date. This explains why my account was left open for 6 months after my house sold with activity in my account. I guess if Fannie Mae can go to the government and ask for 100 billion and get it when ever they want, then their is a massive incentive to run this bill up, not down, if they are sharing in the proceeds. Is this racketeering and pay to play is all that I am asking? I can’t think of any other alternatives as hard as I try. Why are the foreclosed homes in such bad shape, if they have this over priced insurance on them? Just let the bank protect the structure that’s all they do anyway’s, most of the time. No more pay to play, no more back dated insurance, no more over priced insurance where consumers are taken advantage of at the lowest point in their lives, no changing insurance companies after foreclosure is initiated. By switching servicers every few months to generate prorated refunds on prepaid annual policies is a very BIG PROBLEM ) The insurance company can’t change after foreclosure is initiated from the homeowners choice and the policy stays with the note and mortgage until the property sells. How many people out there in foreclosure keep getting notices in the mail about a new servicer and a new annual insurance policy every few months even though the last policy says it includes the “successors and assigns”? So, if you have three policies with over lapping dates how can that be if the policy moves with the note and mortgage because it includes the “successors and assigns”? My friend had three force placed insurance policies in place with over lapping dates after his foreclosure started with each one including the “successors and assigns”. The loan was moved around real fast to generate policies. We need a rule here to prevent this. No moving a loan for servicing after foreclosure begins. « less
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    August 28, 2012 9:46 am

    Hi transparency. If I understand you correctly, you are making two proposals. First, on insurance, you think an insurance company should be selected at closing to provide hazard insurance. The insurer cannot adjust the rate it charges more than once every 12 months, and must provide 60 days’ notice before changing its rate, giving the borrower time to find a lower-cost insurer. If the homeowner fails to make the required insurance payments, the bank should become responsible for them and simply foreclose on the homeowner without charging the borrower for insurance. Second, servicing cannot be transferred once foreclosure proceedings begin. Is that a correct summary?

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      August 29, 2012 10:23 pm

      Moderator, Steve Smith made a great point that is related to insurance and is another example of the narrow scope of the questions, that you have to work with. Your success level with this program will be based on embracing the issues that are relevant and important that are being ignored, like the point Steve made. Ultimately, the consumer pays for PMI. If PMI is required, then the home owner should be able to shop for the best rate. If PMI is mandatory then it should be listed and broken down on the statement that we are discussing. Banks need to be removed from insurance where it appears they commit massive fraud so banks will return to focusing on loaning money. The home owner should shop for the PMI best rate to protect their loan because ultimately they are paying for it. The homeowner… more »

      …should shop for the best price they can find on structure insurance based on replacement value of the structure including wind/hurricane/flood/fire/water damage, on a need basis and subtract the value of the land for replacement insurance. Structure and PMI insurance is considered part of the monthly house payment just like interest & principle. This keeps what is mandatory to secure a loan to a minimum so homes will not be lost due to over priced insurance any longer. Nobody should loose their home because they are paying for optional items either. There is an easy solution for this. If the homeowner wants insurance for theft, personal injury or house content then this is handled directly between the homeowner and the insurance company if they can afford it and it is a separate policy. Basically moderator, separating minimum priced mandatory bank insurance from optional insurance is crucial and could make the difference from making a house payment or not. Mandatory insurance should be in the name of the bank and homeowner. Optional insurance should be in the home owners name and paid directly from the home owner to the insurance company if they can afford optional insurance. The bank gets a 6 month reserve for structure insurance at closing. The bank sends in the payment every month for PMI and Structure insurance. There is never a default on the banks side where it is placed on auto pay monthly. No more prepaid annual policies to generate prorated refunds by switching servicers. Even though the banks have this expensive force placed insurance on properties they are not keeping up the properties and selling them as is. It is important to stop this game, and only allowed structure insurance for the bank. The most important thing in this paragraph is the importance of separating mandatory insurance, from optional insurance. It is crucial to get the price of insurance as low as possible to prevent a lot of unnecessary foreclosures. It’s time to remove bank greed and fraud from property insurance. It’s time to return banks to loaning money. It was time 4 years ago. « less
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August 28, 2012 2:46 pm

I work at a federal credit union. We currently send out three warning letters (over a 90 day period) prior to force placing insurance. The letters are progressively stern starting with the friendly reminder to finally informing the borrower what the cost will be. The letter s have our name and return address on the envelope and do not look like junk mail. You would be surprised how many people ignore them until they receive the fourth letter which details the amount added to their loan to cover the CPI. Only then do they call us.

As a lender I make no money from CPI and, more often than not, have to charge off the cost when the debt goes bad. But, the alternative of not having the property insured is too great a risk.

If there is no escrow for insurance the idea of the lender… more »

…having to pay the primary homeowner insurance is unworkable. First I will have to determine if they use an agent or directly pay the company. Then, I will need to review the coverage (do I really want to pay the rider that covers the jewelry and their jet ski?) It is unworkable. « less
Use these buttons to endorse, share, or reply to the preceding comment by cu man.
    August 28, 2012 7:00 pm

    Hi cu man, and welcome to Regulation Room! CFPB is interested in what sort of burdens the new rules will impose on servicers. It sounds like your credit union’s warning practices are similar to what CFPB is proposing. You might also like to check out the continuity of contact and information request requirements to see how they compare with your credit union’s current practices.

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    August 31, 2012 12:46 pm

    I don’t understand how paying an insurance policy for a Non-Escrow loan is so difficult. You know the process already because you’re obviously already doing it for Escrow loans. I’m not seeing the difficulty in providing the same service to Non-Escrow customers. Don’t you keep a database of who is agent or company billed for your Escrow customers? The systems are clearly in place by your own admission. You’re just adding more volume, so hire a few more people.

    Use these buttons to endorse, share, or reply to the preceding comment by versability1.
      September 4, 2012 8:44 am

      “…so hire a few more people.”

      First, where do I get the funds to pay these people? We operate on a razor thin margin. If I hired “a few more people” for every regulation I would lose money and no longer be in business. A credit union is a not for profit enterprise but it cannot lose money and remain in business.

      Second, while a data base is in place for escrow accounts no such system exists for non-escrow accounts. Go back and read my post. Who do I pay? The insurance company directly or an agent? Once insurance is force placed things go downhill very quickly and the chance of my getting paid back is slim to none. Even if I could find out who to pay I am not going to misuse the credit union’s funds to pay for additional riders on a homeowner’s policy.

      Use these buttons to endorse, share, or reply to the preceding comment by cu man.
      September 6, 2012 2:22 pm

      You’re making a process I know to be simple sound more complicated than it is. I worked for an insurance tracker, so I’m well aware that the codes are exactly the same to pay a company or agency regardless of the escrow status. In fact, the escrow status is simply one extra coding step. You can remove that step. None of your arguments have any validation. There’s no reason a non-escrow loan can’t be treated the same as an escrow loan and that is a 100% verifiable FACT that you are only disputing in order to dodge regulation. Nice try, but I’m an expert on loan tracking, and I know better.

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    September 6, 2012 2:25 pm

    Your arguments make no sense. As an expert in the loan tracking industry, I can 100% indisputably tell you that there is no extra cost whatsoever to treating a non-escrow and an escrow loan the same. You’re flat out lying, and I have to call you out. I’ve worked in every loan tracking system, and if you’d like to contact me for a free consultation on your credit union’s loan servicing software, simply do a google search for Versability or “The Boy Who Cried Force Placed Insurance” and I’d be more than happy to consult your supposed Credit Union on how to accomplish this at absolutely no cost. Otherwise I’d thank you to stop lying in this forum, because I know better and I WILL call out your lies.

    Use these buttons to endorse, share, or reply to the preceding comment by versability1.
      September 6, 2012 2:47 pm

      ….and so ends any attempt at civility. Really, there is no need to lob “three score barrels of powder” at me.

      Use these buttons to endorse, share, or reply to the preceding comment by cu man.
      September 6, 2012 4:43 pm

      Versability1, We ask that you refrain from calling other commenters names, even if you believe they are not being honest. Please remember that the purpose of Regulation Room is to provide CFPB with information about the proposed rule. The kind of participation that really matters is when people explain not only what they think the agency should (or shouldn’t do), but why. Please focus on the proposal and avoid personal attacks.

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August 31, 2012 2:05 pm

The proposed rule requires that the mortgage servicer continue to pay the homeowner’s insurance (HO Ins) from the escrow account even if the customer is in default on the loan. This places an undue burden on the mortgage servicer. It is often the case that forced placed insurance is much cheaper than the cost of a full blown HO Ins policy, particularly with small balance loans where the servicer only needs to protect its interest in the property, not the full value of the loan. If a customer is in default and has not made payment for many months (often times years), the home owner is being unduly enriched and the mortgage servicer is being harmed by having to payout much more than it otherwise would have to to protect its interest in the property. The commentary suggests that the… more »

…mortgage servicer pay the HO Ins premium monthly to avoid having the customer cancel the policy and run off with the funds. I strongly believe that this is an untenable situation for the loan servicer, which now has 12X the amount of work to do. Consumers need protections, but enough is enough. If a consumer stops paying their loan, the servicer should be free to place forced fire insurance. The real question is the definition of default. 1 or 2 months behind is clearly not enough. But if a consumer hasn’t made a payment for 6 months, the servicer should be free to inform the cutsomer that it no longer will escrow for HO Ins. The consumer can then look for their own insurance. If they get it, great. If not, then the lender can place forced insurance. Once the lender stops escrowing for HO Ins, it must rerun its escrow analysis to make sure a refund is not due back to the consumer. However, let’s be honest, with 6 months of missed payment, a refund will never be due. I believe this is a very reasonable resolution to this issue. « less
Use these buttons to endorse, share, or reply to the preceding comment by mark warshal.
    August 31, 2012 5:22 pm

    Small typo in the following sentence. Replace “loan” with “property”

    It is often the case that forced placed insurance is much cheaper than the cost of a full blown HO Ins policy, particularly with small balance loans where the servicer only needs to protect its interest in the property, not the full value of the property.

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September 4, 2012 5:41 pm

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September 5, 2012 10:54 am

Here is a real world example which will illustrate why this proposed rule is unfair.

I am a mortgage originator and loan servicer. I hold all the loans I make.

I have a customer who has stopped making payments on his account. He is 6 months past due on his loan and has refused to make contact with us. He is in foreclosure. I escrow for his taxes and his insurance. He has a large shortage in his escrow account. His homeowner’s renewal is due on October 23, 2012. The renewal premium is $1,398.00.

The proposed rule would require that I pay his insurance premium from his escrow account even though he does not have enough money in his escrow account to cover the premium.

I can write forced placed insurance to cover my interest in his property for $460. Yes, the insurance… more »

…is inadequate for his needs, but it is perfectly adequate for my needs.

Here are the steps I have taken to deal fairly and completely with this customer.

1. I have informed him by mail that
(a) I will no longer be escrowing for his homeowner’s insurance.
(b) His policy will be renewing on October 23, 2012.
(c) He needs to contact his agent to make an arrangement for payment on the policy.
(d) as long as he keeps the policy in force, we will not issue forced placed fire insurance.
(e) if he allows his insurance to cancel we will write a forced placed policy providing coverage to protect my interest in the property at a cost of $460.00.
(f) if forced placed insurance is required, he will be responsible for paying this cost.
(g) the forced placed policy is for my benefit only and is insufficient for his needs.

2. I have redone his escrow analysis and reduced his monthly tax escrow payment.

The steps I have taken seem perfectly fair and reasonable.

This proposed rule implies that even if the borrower has stopped paying the loan, I as the mortgage holder and loan servicer have a responsibility to protect the borrower, no matter how much money it will cost me. In today’s world it could take years to finally take back a property. This rule would require me to pay the borrower’s policy premium for 2, 3 or even 4 years, even though I could protect my interest in his property for 1/3 the cost.

Of course, at any time, the borrower can call the insurance agent, cancel the policy and receive the refund, a refund of my money, not his. Asking me to pay his premium monthly instead of yearly is a ridiculous alternative, in my estimation.

The borrower is being unfairly enriched at the expense of the mortgage holder. This is not the way the our American system is designed to function. When are individuals going to be held accountable for their actions or inactions?

I know that the public is angry and wants to make Wells Fargo and Bank of America pay for everything, as retribution for the mortgage meltdown. But small mortgage holders like myself are being forced to pay for the sins of others. The rule is unfair to me and is simply wrong, based upon how our American system of economics functions.

I strongly recommend that the CFPB rethink its rule and implement a new rule which requires the mortgage servicer to inform the borrower of the situation and give the borrower the opportunity to take responsibility for himself, as I have outlined above.
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    September 6, 2012 2:30 pm

    Here’s some real world questions for your real world example:

    1) How are you writing the policy? If you’re the one writing it, does that mean you’re underwriting it? If you are, then you’re self insuring, and you’re actually not serving your own “needs” since you’d be the one paying out the insurance. That makes no sense.

    2) 99.99% of the time it has been proven beyond any shadow of any doubt that the force placed policies are overpriced and unnecessary. You’re going to be paying the premium one way or the other. If you want to call the insurance company to cancel some of the coverages or add the insurance cost to the borrower’s loan, that’s the purpose of an escrow account, and if they default, you’re insured against… more »

    …that by the investor. Once again, your real world example holds no water.

    3) in every case, it is always cheaper and better for everyone involved to have the preferred voluntary policy continued rather than placing a force-placed policy. You’re not being forced out of anything. « less

    Use these buttons to endorse, share, or reply to the preceding comment by versability1.
      September 6, 2012 2:55 pm

      Answers to your questions.

      1. It is a Lloyds of London policy written through SWBC. The cost is $1.50 per $100 of coverage plus 3% tax. We are absolutely not self-insuring. Also, there is absolutely no add-on costs. I charge the customer exactly what SWBC charges me.

      2.The renewal cost of the current HO Ins policy is $1,340.00. A very expensive HO Ins policy. I can protect my interest for only $463.50. I am the owner of the note. It is my money that I am paying out. No one is insuring me against a loss. The customer has insufficient funds in his escrow account to cover the cost of his HO Ins policy, nor the forced fire policy I potentially have to place.

      3. I agree it is better for the customer to have his own insurance. He has stopped paying my loan, but he absolutely… more »

      …has the option to continue paying on his insurance. If he keeps his policy in force, we will accept that. If he doesn’t, and the policy cancels, we will need to write forced insurance.

      You seem to have a very strong point of view. Kindly explain to me your rational for why I have to risk more of my own money, paying a very expensive HO Ins policy, for a customer who is no longer paying me, when I can protect my interest in the property for 1/3 as much. « less

      Use these buttons to endorse, share, or reply to the preceding comment by mark warshal.
        September 7, 2012 3:32 pm

        Welcome to Regulation Room, mark warshal, and thank you for sharing your experience. Your point seems to be that force-placed insurance can be cheaper for the servicer than homeowner’s insurance.

        Is this usually the case, or does it come up when a substantial part of the mortgage has been paid down? If it comes up when the mortgage has been paid down, in your experience, roughly how much of the mortgage needs to be paid for the force-placed insurance to be cheaper than the homeowner’s policy? Also, do you think there would be a difference if the lender and servicer were two separate businesses (rather than, like in your case, having the owner and servicer be the same)?

        CFPB’s alternative proposal would allow a servicer to use force-placed insurance, but only if it… more »

        …would cost the servicer less than continuing the homeowner’s policy. Would this address your concerns, and do you see any drawbacks to this approach?
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September 7, 2012 5:12 pm

I do not seem to be able to reply to Moderator’s post, so I will start a new comment here. This post is in reply to Moderator’s reply to my previous post.

There are several points I am trying to make.

1. Yes, it is often the case that forced insurance is cheaper than regular insurance.

2. It has always been the case that money held in escrow to pay for taxes and insurance was an expense that was prepaid by the borrower. RESPA is filled with rules on how to calculate escrow deposits and make sure that the buffer is no more than 2 month’s worth of payments. If a borrower is in default on his loan, there is insufficient funds in his escrow to pay his insurance. I will always continue paying the taxes because taxes are a priority lien. But the insurance is nothing but… more »

…an expense. If the borrower has reneged on his responsibility to make his monthly mortgage payments and also allows his fire insurance to cancel, then I as the mortgagee should have the right to protect my interest in the collateral property in a reasonable manner, one which will not possibly cause me to lose more money.

Now, to answer your questions.

1. There are a lot of variables which determine the cost of the HO Ins policy. Credit history and property location are probably the two most important. $100,000 of forced placed insurance would cost, through my provider, $1,545.00. A HO Ins policy through a traditional carrier with dwelling coverage of $200,000.00 could cost, based upon my experiences, between $600 and $2,000. But I deal with smaller balance loans of 10K to 30K, where the cost of the forced placed policy is almost always less than the HO Ins premium.

So, there is no simple formula that we can use to say that when the mortgage is paid down by X percent, forced insurance will be less expensive than traditional coverage.

2. Although I would happily accept an exception for mortgagees who service their own loans (which I am), I think the rule should be based on a solid principal. As the rule stands now, someone — either the servicer or the note owner — is being required to pay out more money than it has to in order to protect its interest in the property. Just because the servicer is different from the note owner really should not make a difference. Someone is being forced to potentially lose more money than necessary.

In my opinion, if the borrower in default is properly notified that his HO Ins policy will no longer be escrowed, and if the borrower in default fails in his responsibility to keep the policy in force, then I believe the mortgagee or the servicer should be free to place a forced policy to protect its interest.

As we have discussed previously, if I pay the customer’s premium on his HO Ins policy, he can cancel the policy and receive the refund. Asking me to pay the HO Ins policy for a borrower in default in monthly installments seems to me to be a tremendous additional burden.

Additionally, why should I as the mortgagee be required to pay for the defaulted borrower’s liability coverage and personal property coverage? This may sound harsh, but when I make someone a loan, I don’t want to become his surrogate mother who has to pay his bills when he can’t or won’t.

3. The CFPB’s alternative proposal is certainly more appealing than the existing proposed rule. In my situation, the forced placed policy will most likely cost less than the HO Ins policy. So, I can accept it for sure, but I don’t think it is based on a sound principal.

As a drawback to the alternative rule, I do see some litigation issues. If I choose forced insurance over the defaulted borrower’s HO Ins policy, and there is a loss, some heavy litigation could result. But overall, I absolutely prefer the alternative proposal.
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September 17, 2012 4:01 pm

Warning a borrower about force placed insurance is irrelevant to addressing the problem, symptom or solution. After reading your link to 2024.37 force placed insurance (c)2viii I realized that the only solution that is being offered for all the force placed insurance issues is that the banks have to tell the borrower that they are about to place a force placed hazard insurance policy on them that “cost significantly more”. In other words, if you can’t make your property insurance payment, our solution is to increase the price of the insurance. Why am I the only person that sees this as totally stupid? Providing a borrower a written statement that you are going to take advantage of them is not the solution but part of the problem. Trust me, after watching 4 years of abuse,… more »

…the homeowners know they are about to be screwed over, with over priced insurance, that is going to make their problems much worse, and may prevent the chance of any recovery. Providing it in writing, mandated by the CFPB just means that the government approves of this behavior, which makes the pain even worse. This is deplorable! That is like saying, if you don’t send in your $100.00 electric bill payment on time, we are going to charge you $500.00 per month for electric instead and we are going to add a creepy middle man, to share in our electricity scam that “cost significantly more”. The government wants to increase transparency, so I have to give you heads up to the scam in writing. (Problem:homeowner has run into a financial issue and can’t make their property insurance payment. My 2nd provided Solution: Get the insurance payment as low as possible by eliminating all optional coverage and only insure the structure for the bank at the lowest price possible.) Allow the bank to place this on auto pay monthly and charge the homeowner interest on this amount just like their home loan. If home is 3.5% interest then 3.5% on the insurance balance paid out monthly on auto pay. If the combined balance at the bank between principle, interest and property insurance ever equals 3 months behind then foreclosure is an option. If the bank cannot continue the same policy then they have to find one at the same price or lower. Remember this policy has a lot less things it covers because the homeowner side is removed (content etc.) so it actuality is still considered “significantly more” at the same price because it covers less categories now and nobody has addressed this. If you kick people when they are down instead of helping them up or just not kicking them and see if they can get up on their own is a better option.
The absolute worst issues, with force placed insurance are not even being addressed at all, like: Switching servicers every few months to generate a new annual prepaid force placed insurance policy, over priced policies, over lapping policies, prepaid policies that generate prorated refunds for unused insurance where the servicer gets paid twice on the same policy, the servicer and the closing agent both collect for the same insurance policy at closing, new force placed insurance policies being generated 2 months AFTER the property sold and even back dating this policy to the closing date and not mailing me a copy of it until 3 years later (just got a copy of it a couple of months ago). Multiple policies at the same time that include successors and assigns as obligated parties to the policies. This is some of the things that happened to me and or my friend. As shocking as this was, it is even more shocking that the CFPB just wants banks to notify borrowers that they are about to be kicked them while they are down as a solution. Trust me all borrowers have friends that have already been kicked and they don’t need a warning because they know what’s coming and this is irrelevant to any solution. « less
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September 22, 2012 6:30 pm

Here is another force placed insurance problem that is not being addressed with the current force placed insurance solution. The current solution, which is a “warning” to the borrower that will some how prevent force placed insurance. Because the homeowner can not make their property insurance payment, because of lack of funds, the bank is going to highly inflate the insurance, is some how the current solution. (This makes the problem worse and is not a solution but another problem.) I have linked the following problem because I’m surprised this problem is not all over the web. I would guess this ladies problem was probably created because the banks collapsed the market after running the market up with artificial demand leaving her upside down.

This lady’s house… more »

…is now worth $59,000. Her insurance company will only insure the house for $59,000. She owes $84,000 on the house. Her insurance company will not insure her home for more than it is worth. So her lender put a force placed insurance policy on her for $84,000 instead of the difference is her complaint, however her complaint should be about a lot more probably. This is so sad, and needs a solution. I ask how many advisors out of the 24 at the CFPB have experienced crime in almost every category, in relation to their mortgage, so they know what it would take, to not have experienced, all the crime? This board needs Transparency and Versability because we will tell them what they have wrong and right based on personal experience. How many victims of extensive abuse with analytical skills, that will speak up, do they have? How many whistle blowers from inside the bank are on this board to expose what the banks are doing that needs fixing? Please do not tell me “0″. I love Elizabeth Warren and the CFPB and I want this program to be hugely successful, because it is our only hope, for bank reform and is the only reason that I am sending you some of my suggestions that fall under the scope of your questions. « less

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