What home insurance hikes can mean for servicing values: Soaring insurance costs may add to escrowed funds that servicers can earn money on in some cases, but higher premiums also could lead to affordability issues.

The recent increase in property insurance costs has implications for housing finance, particularly in terms of servicing valuations. Higher insurance premiums can add to escrowed funds that servicers can earn money on, but they can also lead to affordability issues for borrowers. Servicers may be able to earn money from funds held in escrow, but some states have rules that require the distribution of the float benefit to the borrower, which can diminish the net benefit of float. Higher insurance rates can put pressure on borrowers, potentially leading to prepayment behavior and relocation. Additionally, lender-placed insurance, which may be used if borrowers do not get their own insurance, can weaken the borrower's finances in the event of a disaster. Overall, valuations of mortgage servicing rights should consider borrower behavior and the potential impact of higher insurance costs. [Extracted from the article]