Home > Attorney Generals, Force Placed Insurance > Mortgage Industry Dirty Little Secret? – NYTimes.com

Mortgage Industry Dirty Little Secret? – NYTimes.com

Investigators are training their sights on a type of hazard insurance policy known as force-placed insurance, a type of policy that has driven up costs for homeowners and pushed some into foreclosure. People who buy certain mortgage securities may be getting hurt, too.

Benjamin M. Lawsky, the superintendent of the New York State Department of Financial Services, is investigating institutions that underwrite and sell force-placed insurance. Last fall, his office began sending subpoenas to insurance agents and brokers. Requests for information also went out to insurance companies that write such policies.

Working his way up the chain, Mr. Lawsky’s office issued a new set of subpoenas late last week. According to a person briefed on the matter who was not authorized to discuss it, the subpoenas went to loan servicers that imposed force-placed insurance on borrowers, as well as to insurers affiliated with those servicers.

Among the servicers that received the subpoenas were Morgan Stanley Mortgage Capital Holdings and CitiMortgage. Insurer affiliates that received requests for information include BancOne Insurance, a unit of JPMorgan Chase, and Alpine Indemnity, an affiliate of PNC.

“Force-placed insurance appears to be the dirty little secret of the mortgage industry,” Mr. Lawsky said in an interview last week. “It is a silent killer harming both consumer and investors while enriching the banks and their affiliates.”

Representatives of PNC and JPMorgan Chase declined to comment. Mark Rodgers, a spokesman for Citigroup, said the bank was working with Mr. Lawsky’s office. “CitiMortgage does not sell homeowner’s insurance to consumers,” he said. “If a homeowner does not provide an insurance policy, CitiMortgage secures a policy to protect the interest of the investor. Whenever the homeowner submits proof they have obtained insurance on their own, the lender-placed insurance is canceled.”

A spokesman for Morgan Stanley said its mortgage company “does not have an affiliated agent, broker or insurance company to procure force-placed insurance.”

Force-placed insurance has exploded during the foreclosure crisis. Once a backwater that generated $1 billion a year, it is now a $6 billion-a-year business. Much of its growth has come on the backs of homeowners.

When homeowners run into financial trouble, they often let their hazard insurance lapse. Because lenders require homeowners to be insured against damage or total loss — say, from a fire — policies are then forced on the borrowers and added to their monthly mortgage payments.

There is a lot to love about force-placed insurance — if you sell it. The policies typically cost at least three times as much as ordinary property insurance. Some borrowers have been charged much more — up to 10 times the prevailing rate — according to people knowledgeable about these practices who spoke on condition of anonymity to maintain business relationships.

Mind you, force-placed policies do not protect homeowners from loss. Only lenders are covered. But homeowners must pay the freight. And lender-placed insurance typically does not carry deductibles, as typical policies do.

Borrowers have also complained of being forced to buy this high-priced insurance even when it is unnecessary. Back in 2007, a borrower with a mortgage serviced by Countrywide Financial described how the lender automatically signed her up for flood insurance even though she had proved that such insurance was unnecessary. Not being able to meet the extra payments, she fell behind on her mortgage. Countrywide then began foreclosure proceedings.

 

Read the Entire Article: Hazard Insurance With Its Own Perils – Fair Game – NYTimes.com.

  1. February 13, 2012 at 2:08 pm

    Is this PMI (private mortgage insurance?) if a homeowner places less than 20% down on their home they MUST buy PMI. If the homeowner falls behind on their payment, such as being in a car accident not of their fault and miss work for a couple of weeks, the bank refuses the mortgage payment from the mortgage owner, collects the PMI, then forecloses on the homeowner, all over a car accident.

    http://www.change.org/petitions/john-g-stumpf-ceo-wells-fargo-rescind-rachel-kendalls-foreclosure-auction

  2. February 13, 2012 at 2:27 pm

    This article talks about lenders forcing high cost home owners insurance on homeowners when they can purchase policy on their own for 1/3 to 1/2 the cost. The lender is often affiliated with the insurance company and either gets a commission or kick back. Balboa Insurance company is a good example – used to be a subsidiary of Countrywide and then Bank of America. Both lenders made additional money by force placing these policies. In some cases the homeowner has their own adequate insurance policy but the lender refuses to fix the error.

  3. February 13, 2012 at 2:28 pm

    PMI is another huge problem. Homeowners with PMI have difficulty getting the lender to work with them because said lender can cash in on policy just as you said.

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