It’s a practice that has put one provider of Forced-Place Insurance under the scrutiny of state regulators and cost the firm a substantial penalty. While not required to admit any wrongdoing, the fact remains that Assurant Inc. - the largest provider of force-place insurance in the country - entered into an agreement with the State of New York to pay $14 million following a Force-placed insurance investigation.
According to the Wall Street Journal (3/21/13), Assurant was the subject of a probe and subsequent hearings by the New York Department of Financial Services over practices transpiring when a struggling homeowner discontinued homeowner’s insurance due to financial constraints. While one might feel empathy for a struggling homeowner, the fact remains that insurance is a requirement to maintain a mortgage in good standing, as the mortgage holder is entitled to having their investment protected.
Enter the Forced-Place insurance policy. When a homeowner and mortgagee can no longer provide proof of insurance, a force-place insurance policy is forced upon the homeowner and the property - hence the name. The homeowner is required, as before, to pay the premiums. However, the homeowner now has no say in the product he is getting or has no control over the rates he is charged.
In the majority of the cases, rates for Force-Place insurance are far higher than the original insurance the homeowner was struggling to carry in the first place, driving the homeowner to the brink of foreclosure.
An investigation initiated in the fall of 2011 found that premiums for force-place insurance were anywhere from two to 10 times higher than voluntary insurance, for less coverage. What’s more, it was alleged that some lenders and insurance companies maintained cozy relationships that involved kickbacks.
“Insurers and banks built a network of troubling relationships and payoffs that helped drive premiums sky high,” said Benjamin Lawsky, superintendent of the state’s Department of Financial Services, in comments published in the Wall Street Journal. “Those improper practices created significant conflicts of interest and saddled homeowners, taxpayers, and investors with millions of dollars in unfair and unnecessary costs.”
One lender, alleged by state regulators to have benefited from force-place insurance products, realized about $600 million in profits since 2006 through the issuance of force-place insurance through Assurant.
The lender, J.P. Morgan Chase, implied through a spokeswoman that an arrangement J.P. Morgan Chase maintained with Assurant was a “risk-sharing relationship,” through the acquisition of some underwriting risk. The spokeswomen maintained J.P. Morgan Chase did not receive any commissions from Assurant.
In announcing the settlement, New York Governor Andrew Cuomo described an “intricate web of relationships between insurers and banks that pushed distressed families over the foreclosure cliff.” The state’s position is that such relationships were highly profitable for the companies involved, at the expense of consumers.
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According to The New York Times (3/26/13), The Federal Housing Finance Agency has been concerned about the issue for some time. Several regulators, including the National Association of Insurance Commissioners, the Consumer Financial Protection Bureau and state attorneys general, have expressed concerns about “excessive rates and costs passed onto borrowers, as well as commissions and other compensation paid to servicers by carriers,” the federal agency said.
Forced-place insurance lawyers are qualified to assist any homeowner who has been forced to the brink of bankruptcy through the adoption of watered-down, high-premium policies without their consent.