Forced Placed Insurance by Mortgage Lenders is Often Overpriced and Incorrectly Assessed
Struggling homeowners sometimes find their mortgage companies signing them up for expensive insurance products
All homeowners with a mortgage are required to have homeowners insurance as a condition of the mortgage. In almost every case the premiums are paid by an escrow accounts in the hands of the mortgage servicer. But what happens when the mortgage company mistakenly believes that you have no insurance?
Homeowners are increasingly complaining that mortgage companies are charging consumers for insurance that the they already have in place. Consumers are complaining that banks are attaching their own insurance and siphoning money from consumer escrow account because they claim the consumers' insurance had been cancelled.
The National Consumer Law Center has called upon the Consumer Financial Protection Bureau to investigate forced-placed insurance, calling it a growing problem for both borrowers and investors nationwide.
Forced placed insurance, also known as lender placed insurance, is a type of insurance policy placed on the borrowers home when that borrower fails to maintain their own insurance policy or fails to provide evidence of insurance.
Forced placed insurance is a group credit insurance sold to the lender or servicer and names the lender or servicer as the insured. The lender or servicer pays the premium for the insurance and then bills the borrower.
This type of coverage is very lucrative for lenders. It is much more expensive than regular voluntary homeowners insurance, sometimes up to 10 times more expensive. Since this insurance is added to a homeowners mortgage payments, the high-cost insurance can drive up a mortgage payment and send a borrower into default very quickly or present a borrower from catching up on missed payments. The difference in cost is completely unjustified.
The recent mortgage abuse settlement that federal and state governments reached with five major lenders specifically called for reducing instances of forced placed insurance. Fannie Mae has also revised its servicing guidelines and attempts to address the problem. However, the problem does not seem to be getting resolved any time soon.
The North Carolina Consumers Council supports the actions by the National Consumer Law Center in this action.
If you have been a victim of forced placed insurance, please consider filing a complaint with the Consumer Financial Protection Bureau.