Update 12-17-2014: Even though the US Senate and Mel Watt (Director of FHFA) are still investigating the apparent excessive insurance rates of properties in loan delinquency, there has not been any changes to existing rules…so the excessive cost continues. Source: http://www.ibamag.com/news/senators-push-for-fhfa-director-to-stop-forceplaced-insurance-20384.aspx
Update 11-7-2013: FHFA will prevent mortgage servicers that deal with Fannie & Freddie from accepting some specific commission or “kickback” payments from reinsurers (mainly Assurant & QBE) which will result in lower revenues but did nothing to address the cost to consumers – that is apparently left up to State Legislators. Source 11-5-2013 WSJ.
Little does anyone know until it happens, if you don’t pay the homeowner’s insurance on your home and it expires, the mortgage lender is authorized through mortgage application paperwork, to get it for your home (usually through 1 of 2 companies).
So, what’s the problem? It’s the high cost to borrower & lender and insurer’s profit!
9-30-2013: JP Morgan chase and Assurant Inc. agreed to $300 million settlement for overcharging borrowers for “forced place” insurance (which could be as high as 10 times normal homeowner insurance rates) and eliminate practices determined to be “unfair” to the consumer resulting in inflated premiums. Source: Wall Street Journal, 9-9-2013, page c2.
For a long time the cost of this “backup insurance” is sometimes 2-3 times the normal homeowner’s insurance. The lender would obtain it and add it to your monthly payment and you might see several hundreds of dollars increase in your payment.
With recent distressed property situations and homeowner missed mortgage payments, any policies expired. I personally was involved in representing a Buyer of a short sale where the homeowner was permitted to skip the mortgage payments but asked to carry insurance but didn’t carry it. There was an attempt to reclaim the $1,500 forced insurance charge by lender after closing from the Buyer. So this can get real nasty.
Another concern was that lenders were placing markups on getting this insurance that could be >10% of their cost.
Fannie is attempting to force lenders, through the FHFA, to get a discount from a 3rd insurer.
FHFA hasn’t ruled on this request at this time.
Source: WSJ article 1-23-2013, Page C3 “Banks Fight Fannie Over Insurance“