Real Estate Loan Insurance: Improvements for Banks

The Financial Sector Advisory Committee (FSAC) has delivered an opinion on mortgage loan insurance reforms implemented in recent years. Bottom line: Banks can further improve information for borrowers. has more information

Termination and substitution of mortgage insurance

Termination and substitution of mortgage insurance

First, what reforms are we talking about? These are the laws:

  • Cogilaw Company (2010),;

  • separation and regulation of banking activities (2013);

  • Mahon (2014);

  • on the annual termination (2017).

These schemes frame the principles of unbinding and substitution between home loans and borrower insurance. That is to say, to opt for a mortgage loan insurance other than that proposed by his bank, “before” the signing of the offer of mortgage loan (unbinding) or “after” (substitution). In both cases, the borrowers use an external insurer, an operation called insurance delegation.

What is CCSF?

What is CCSF?

Created in 2003, the Financial Sector Advisory Committee deals with the relationships between financial institutions (credit, insurance, investment, etc.) and their clients. It issues opinions or recommendations.

A Notice of 13 January 2015 provided for the completion in 2016 of an initial assessment to determine ” the effectiveness of the measures adopted, to identify any implementation difficulties and to submit proposals for improvement “. An analysis that does not take into account the law on annual termination since adopted this year.

The CCSF review

The CCSF review

So much for the context. The question now is: what is this balance sheet? The survey is based on a questionnaire administered to various market players: insurers, intermediaries, banks, consumer associations, etc. Each respondent could also put forward proposals likely to improve the delegation.

The results? The conclusions are generally positive. In terms of guarantees offered, but also in terms of decreases in mortgage insurance rates. ” This overall finding, however, covers practices that vary depending on the institution or category of stakeholder, not always favorable to the borrower, on several important points of the device, ” says the CCSF.

The ” practices ” in question are:

  • significant differences (between 20 minutes and 10 days) in the training of the staff of the lending institutions;

  • refusals of insurance delegations insufficiently explained;

  • refusal reasons stating ” a misunderstanding or misinterpretation of the CCSF’s equivalency criteria “;

  • banks whose study of the equivalence of the guarantee levels does not always respect the deadlines of 10 working days;

  • exchange of information between banks and insurers ” insufficient ” between banks and insurers, particularly concerning the TAEA (annual percentage rate of charge).

The recommendations of the CCSF

The recommendations of the CCSF

From there, the CCSF recalls that banks must choose 11 maximum criteria corresponding to its ” risk policy requirements “. He also stressed the importance of the personalized form. This document, which details the minimum guarantees for banks, must be submitted as soon as possible before the issuance of the mortgage offer.

At the same time, the CCSF recommends the publication on the banks’ website of an ” exhaustive list of the documents necessary for the examination of the [delegation] file “, as well as the ” practical arrangements “.

The CCSF also insists on:

  • the fact that bank refusals must be ” clearly motivated, written and dated “;

  • the need for good organization and information between market players (insurers, lenders, etc.);

  • the need for the staff of these actors to be well trained in the terms of credit insurance;

  • the requirement to include TAEA in insurance proposals;

  • compliance with 10 business days when banks review delegated insurance proposals.

The CCSF also plans to issue a future notice in January 2018.

The laws governing the mortgage insurance

The laws governing the mortgage insurance

Let’s go back in more detail on the laws governing borrower insurance.

In 2010, the Cogilaw Company law instituted the delegation of insurance, that is to say the possibility of choosing a credit insurance other than that proposed by his bank. Three years later, the law of separation and regulation of banking activities forced insurers and banks to mention in their offers:

  • the TAEA (or annual effective rate of insurance), which indicates the cost of the borrower insurance in the form of a percentage. This indicator makes it possible to compare mortgage insurance more easily;

  • the total amount of insurance over the total duration of the loan;

  • the monthly cost of insurance.

The 3rd measure is the Mahon law. It allows households to change borrower insurance up to 1 year after signing the mortgage. Fourth and last step: annual termination. Since 1 March 2017, households are allowed to terminate their contract on each anniversary date. For contracts prior to this date, the measure will be effective from January 2018.

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