State investigation seeks to end controversial force-placed insurance practice

Homeowners pay premiums up to 10 times those in standard plans

New York /
Apr.April 12, 2013 09:30 AM

A New York State investigation into banks and mortgage servicers could put an end to the sizable premiums that they take from homeowners through a controversial policy known as force- or lender-placed insurance, the New York Times reported.

Banks and mortgage providers regularly impose this insurance on borrowers who let their homeowners’ insurance lapse, and can typically collect premiums of between two to 10 times higher than standard plans, even though the coverage is more limited. The investigation – carried out by the New York State Department of Financial Services – reveals that these policies encourage reverse competition and thus drive prices up. 

Force-placed insurers do not compete by touting attractive rates; instead, they offer lenders commissions, expense payments, and profit-sharing arrangements, which drive premiums up instead of down.

“The entity selecting the insurance company is not paying the premium,” J. Robert Hunter, the director of insurance for the Consumer Federation of America, told the Times. “So they pick the one that gives the biggest kickback.”
The foreclosure crisis brought the cost of force-placed insurance to the limelight, as distressed homeowners took an additional toll from the policies’ large premiums.

“It was driving people into foreclosure and preventing people already in foreclosure from getting loan modifications,” Justin Haines, the director of the foreclosure prevention unit at Bronx Legal Services, told the Times.

Last month, New York regulators announced plans to end force-placed insurance, beginning with a settlement with Assurant, a large national force-placed insurer. [NYT]  –Hiten Samtani


Related Articles

arrow_forward_ios
Philip Falcone and his homes at 142 Crestview Lane in Sagaponack and 22 East 67th Street (Getty, Corcoran, Google Maps)
Phil Falcone files appeal halting foreclosure of UES, Hamptons homes
Phil Falcone files appeal halting foreclosure of UES, Hamptons homes
Philip Falcone and his homes at 142 Crestview Lane in Sagaponack and  22 East 67th Street (Getty, Corcoran, Google Maps)
Foreclosure on Phil Falcone’s homes can move forward
Foreclosure on Phil Falcone’s homes can move forward
(iStock/Illustration by Kevin Rebong for The Real Deal)
Foreclosures and evictions could be halted for rest of 2021
Foreclosures and evictions could be halted for rest of 2021
John Philip Sousa and the Sousa House at 80 Washington Place (Getty, Leslie J. Garfield)
Second foreclosure suit filed against owner of Sousa townhouse in West Village
Second foreclosure suit filed against owner of Sousa townhouse in West Village
Simon and David Reuben with One Thousand Museum (Getty, iStock)
Reuben Brothers seeks to foreclose on Zaha Hadid-designed One Thousand Museum
Reuben Brothers seeks to foreclose on Zaha Hadid-designed One Thousand Museum
Brian Harris of Ladder Capital, Aron Rosenberg or R&B, 28 West 36th Street and 32 West 39th Street. (Ladder, Aron Rosenberg via LinkedIn, Google Maps)
Midtown office buildings stave off foreclosure with refi from Ladder Capital
Midtown office buildings stave off foreclosure with refi from Ladder Capital
John Philip Sousa and the Sousa House at 80 Washington Place (Getty, Google Maps, iStock/Illustration by Alexis Manrodt for The Real Deal)
$25M Sousa townhouse in West Village faces foreclosure
$25M Sousa townhouse in West Village faces foreclosure
Miami-Dade Mayor Daniella Levine Cava (Getty, iStock)
Miami-Dade resumes pre-pandemic evictions after unannounced February break
Miami-Dade resumes pre-pandemic evictions after unannounced February break
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...