During 2019 several insurance tracking vendors have canceled their relationships with numerous lenders throughout the country. Unfortunately, these vendors in many cases did not give adequate notice or time for the lenders to react and find an alternative. If you have already been forced to make a quick decision or are facing that decision, this blog post covers some options for you.
Many lending institutions made the decision long ago to outsource the important function of tracking insurance on secured loans including auto, mortgage, and equipment portfolios. From the outside looking in, this sounds like a perfectly logical process enhancement. After all, the very nature of making sure your collateral is insured can be cumbersome for an administrative staff already stretched thin with other duties. Unfortunately, sometimes the best-laid plans end up causing more grief than relief!
It is very common for community lenders to acknowledge the shortcomings of insurance tracking and force placing CPI coverage on borrowers. We often hear from community lender executives and collection departments, that even though CPI coverage and outsourced tracking still entails a lot of work and causes a lot of problems, they really don't see any other solution other than switching to another insurance tracker. Many are very excited to find out that there is another option.
Preparing for another Board meeting, studying the most recent Income Statement and reminiscing about the margins of days gone by...It used to be a lot easier to meet or surpass the board and/or shareholders' expectations.
The Federal Reserve rate was just reduced to 2.25% and as of August 1, 2019, the discount rate for institutions to borrow funds is 2.75%; however, all indications lead us to believe that there will be no further reduction this year.
Reviewing your lending institution’s collateral protection policies may not be at the top of your priority list. Who really wants to scour through the fine print of a policy that could easily exceed one hundred pages? These cumbersome policies are contracts that spell out the obligations of both the insurer and the insured using complex language and technical jargon which can be difficult to interpret. Due to the assignment of responsibilities to both parties, it is vital to take the time to understand your policies and the obligations outlined within.
It is late afternoon and you have had a full day with clients and examiners when you notice a certified letter on your desk. You review the letter and you are blindsided by the fact that your borrower has not paid their real estate taxes for over a year and now a third party has a lien on your property. This situation is unfortunately all too familiar for community lenders. Tax Liens are sold to investors in over 29 states. Local governments use property tax revenue to fuel the functions of public schools, police and park departments, libraries, and other vital local offices.
In a day and age where information is nearly immediate, lenders face the challenge of working to set themselves apart from their competition. Indirect lending is a particularly difficult arena to set yourself apart in, especially in a world where rates are aggressively low, and margins are slim. Instead of competing in a race to the bottom in APR, why not set yourself apart with innovative protections for your borrowers? Our newest product called Life Event Auto-loan Protection or LEAP* from Golden Eagle Insurance allows auto lenders to offer a year of complimentary coverage to their borrowers with optional extra coverages.
As a community lender, you believe that your service and product are by far an overall better value for your customers than larger regional or national lenders you compete with. Why do you believe that and why is it actually true?
Many lenders using Collateral Protection Insurance or a CPI / force-placed type of product for their consumer loan portfolios are unaware of the potential ramifications that they may face if their programs are not administered correctly by the provider. I say “their” programs intentionally because to borrowers the CPI or Collateral Protection Insurance product is your program and to regulators and class action attorneys CPI was your choice to insure your loans - (and guess who has the deepest pockets)?
It wasn’t that long ago consumers realistically had only one option when obtaining flood insurance. The National Flood Insurance Program (NFIP), which was initially authorized by the National Flood Insurance Act of 1968 and reauthorized by the Biggert-Waters Flood Insurance Reform Act of 2012, provided that lone option. Earlier this year, five federal regulatory agencies issued a Final Rule that becomes effective July 1, 2019, implementing the BW-12 “requirement that regulated lending institutions accept private flood insurance policies.” Privatization of any product or program creates pricing competition and more options, and flood insurance is no exception. Consumers are able to comparatively shop and lenders will have more opportunities to qualify borrowers.