Forty-five days. That is the minimum notice a mortgage servicer must give before charging for force-placed hazard insurance, one of several federal rules this guide lays out.
General information, not professional financial, tax, legal, or insurance advice. The Dreamy Leads Research is an editorial and data team, not a licensed advisor.
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Chapters
- 0:00 The lesser-of coverage rule is gone for most first mortgages.
- 0:11 I. The old rule
- 0:35 II. Hazard vs homeowners
- 0:55 III. What the policy must meet
- 1:12 IV. The escrow account
- 1:37 V. The force-placement clock
- 1:59 VI. What it costs
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Full transcript
I. The old rule
Most pages still repeat the lesser-of rule: coverage equal to the loan balance or full replacement cost, with an eighty percent coinsurance floor. For a first mortgage sold to Fannie Mae or Freddie Mac, the guide reports that test is gone. Both now ask whether the policy settles losses at replacement cost, with roofs excepted.
II. Hazard vs homeowners
Hazard insurance is the part of a homeowners policy a lender requires: the dwelling and other structures. Your belongings, personal liability, additional living expenses and medical payments for guests come with the homeowners policy, but a lender does not require them.
III. What the policy must meet
Beyond replacement-cost settlement, Fannie Mae caps the deductible at five percent of the coverage amount, including separate windstorm deductibles, and names eight perils a policy must cover, including windstorm and hail.
IV. The escrow account
Most borrowers pay through escrow. Under Regulation X, a servicer collects one twelfth of annual escrow items each month, holds a cushion of no more than one sixth, and sends an annual statement within thirty days. A shortage is repaid over at least twelve months, and a surplus of fifty dollars or more is refunded within thirty days.
V. The force-placement clock
If coverage appears to lapse, the first notice must come at least forty-five days before any charge, and the reminder at least thirty days after that and at least fifteen days before the charge. Once proof of continuous coverage arrives, the servicer must cancel and refund the overlap within fifteen days.
VI. What it costs
On cost, a large force-placed insurer estimated its policies run one and a half to two times the prior premium. The often-repeated ten-times figure traces to a twenty ten magazine article. The full guide is free at Dreamy Leads Research. What state is your home in, and by how many dollars a month did your escrow payment change at your last annual statement? Tell us in the comments.
Frequently Asked Questions
Is hazard insurance the same as homeowners insurance?
No. Hazard insurance is the property-damage component a lender requires; homeowners insurance is the packaged policy that contains it plus personal property, liability, medical payments and additional living expenses. Buying a homeowners policy satisfies the hazard requirement.
How much hazard insurance does my lender require?
For a first mortgage on a one- to four-unit home, Fannie Mae B7-3-02 determines coverage sufficiency by confirming the policy's loss settlement terms and requires coverage on a replacement cost basis except for roofs; Freddie Mac 4703.2(a)(iii) says the same. The old lesser-of-loan-balance rule now applies only to second liens and, by statute, to flood insurance.
Can my servicer force-place insurance if my escrow account is empty?
Generally no. 12 CFR 1024.17(k)(5) states that a servicer is not considered unable to disburse funds from an escrow account because the account contains insufficient funds. Exceptions apply to vacant properties, policies cancelled for reasons other than non-payment, and small servicers.
Sources
- Dreamy Leads Research Financial Data Explorer
- 12 CFR 1024.17, 1024.31 and 1024.37 (CFPB Regulation X)
- Fannie Mae Selling Guide B7-3-02 and Servicing Guide B-2-02
- Freddie Mac Single-Family Seller/Servicer Guide Section 4703.2
- 78 FR 10696 — CFPB Mortgage Servicing Rules Under RESPA
- 42 U.S.C. 4012a
- Texas Department of Insurance
