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"Banks force-placed insurance practices under microscope"

Blog post   •   Mar 31, 2013 09:45 EDT

If you haven’t heard about force-placed insurance before, there’s a pretty good chance you will be hearing a lot about it soon.

Though the practice has been around for several years, it’s only recently been making headlines in numerous national publications as regulators have finally decided it was high time to crack down on what only can be called self-dealing and fraudulent activities.

Force placed, as the name suggests, is a bank insurance product that big banks, lenders and loan servicers essentially force homeowners to purchase if they either allow their own policy to lapse – often the result of financial difficulties – or if the lender determines that the insurance the homeowner does have in place is insufficient.

And therein lies the rub:  While force-placed insurance premiums initially were supposed to be lower, so that the homeowner could afford to maintain the required insurance, investigations revealed that premiums were two to ten times higher and the force-placed insurance provided far less protection than any policy the homeowner would purchase were they able to afford it in the first place.

Last week, New York Gov. Andrew Cuomo announced that his state’s Department of Financial Services reached a settlement with one of the country’s largest force-placed insurers – Assurant Inc.

According to a press release agreement calls for Assurant to do the following:

  • Make a $14 million settlement payment, without admitting or denying any wrongdoing.
  • Modify certain lender-placed business practices consistent with new regulations expected to be issued by the NYDFS that will apply to all New York-licensed lender-placed insurers of properties in the state.
  • File its new lender-placed program and new rates in New York.
  • Establish a refund opportunity program to be administered by an independent third party, through which New York property owners with ASIC or ABIC polices issued on or after Jan. 1, 2008 may be eligible for refunds of a portion of their premiums.

The investigation revealed what has been referred to as a “web” of complex arrangements between banks and insurers, which at the end of the day resulted in kickbacks to the banks and huge profits for the insurance companies. According to published reports, New York regulators found nearly 15 percent of the premiums from force-placed policies went back to the banks.

In the real world, that would be called racketeering. But as we all know banks don’t operate in the real world, but in their own protected world where they not only are “too big to fail” but as U.S. Attorney Eric Holder recently admitted, too big to jail.

While the settlement is a start, it doesn’t do much for those who lost their homes because they could not afford the insurance that was forcibly jammed down their throats. About half of the foreclosures handled by our firm have involved some form of force-placed insurance.

The Assurant agreement is, by far, the most significant regulatory action to date and a day after its announcement comes word that the Federal Housing Finance Agency, which regulates mortgage giants Fannie Mae and Freddie Mac, plans to ban forced-placed insurance practices across the board.

Despite the $14 million slap on the wrist, Assurant isn’t ready to give up its force-placed lending practices and go home. In fact, in its press release announcing the settlement Assurant’s president and CEO notes: “We look forward to filing our next generation lender-placed product …”

Stay tuned!

Meet Florida's leading real estate and foreclosure defense attorney, Roy Oppenheim. An experienced professional who traded Wall Street for Main Street and founded, Oppenheim Law and Weston Title with his partner and wife, Ellen in 1989. As one of the leading Florida law firms, their reputation has earned them the highest rating (A-V) conferred by Martindale Hubbell® Law Directory, the most respected directory of lawyers and law firms in the U.S. Noted as a technical and skilled legal blogger, Oppenheim founded The South Florida Law Blog (Best Business and Technology blog, South Florida Sun-Sentinel) and is a contributor in Yahoo! Homes, US News and World Reports, HuffPost Live and many others.Twitter at @OpLaw or like Oppenheim Law on Facebook.

Comments (1)

    I know what this is about. I have to handle this issue on my own as my attorney can only do the Mod and Foreclosure . Being hit with my first Hurricane "Ivan" I had Vanguard Insurance who did a good job of covering my home that year. In 2007 they had to pull out of florida by march 25th my policy would end with them. So I secured another policy the first of March , sent it to Chase with a letter stating this "IS" the policy I want on my home , called Chase Insurance Dept, told them same thing as well as my agent faxed them a copy of policy . I received a notice in the mail from Chase that stated they had placed a Hazzard Policy on my mortgage from Jan. through March in the amount of $300.00 plus dollars per month. Then I received my statement , I almost passed out. My mortgage went from $667.00 to $1100.00 a month. I called over and over . Received a letter stating they would correct the issue with yet another policy being placed on my mortgage by Chase. Meantime I'm sending in my normal payment only to find it didn't get applied. Then I get a payment stub to pay $900.00 plus dollars for my mortgage payment as they still had not corrected their errors on all these Insurance Policies. this goes on for months. I sent in extra money to my escrow , nothing fixed. Meantime , they are charging me all these fees and charges mounting into the $1000.00 range. By 2008 they told me I had no choice but to get a partial mod and have all this put at the end of my loan. I have a FHA Loan, Homestead , and couldn't get help with this . I called the Insurance commissioner but didn't know the name of the last Insurance Company Chase had Placed on my loan (as they weren't sure either as they were still researching this information). Here it it is several years and still not resolved. It is now in the hands of the Executive Office of Chase due to filing complaints with CFPB, HUD, and Florida Attorney Generals Office. I have asked they remove it from my loan completely as it is now being used against me in the foreclosure summons I just received. I gave copies of all of it to CFPB with the complaint.

    - Hope Winters - Baker - May 24, 2013 21:49 EDT

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