Feds Hoping to Recover Hundreds of Millions in Forced Place Insurance Overpayments

Washington, DCThe Federal Housing Finance Agency (FHFA) is considering a Force-placed insurance lawsuit against major banks and lenders alleged to have participated in kickback schemes since the housing bust of 2008, in an effort to recover what has been described as hundreds of millions of dollars in losses.

There is little doubt that insurance is vital, especially in southern states such as Florida when hurricane season comes calling. It also behooves a mortgage holder to ensure that adequate insurance is in place - and in good standing - in order to protect the investment the bank or other mortgage holder has in the property. Regardless of who holds the mortgage, it is the homeowner’s responsibility to ensure that adequate insurance is in force for the property.

If it isn’t - or has been allowed to lapse - then the mortgage holder has every right to place lenders insurance on the property.

Lender insurance itself isn’t the problem. The issue has to do with higher rates for inferior policies that often carry less coverage than traditional insurance, at allegedly inflated costs. Those costs are high, claim various pundits and industry watchers, because of alleged kick-back schemes facilitated between major banks and Force-Place Insurance providers.

According to blogger Phil Huff, CEO of Platinum Data Solutions, the FHFA barred the ability for banks and other lenders to collect commissions from insurers when Forced-Place Insurance policies are issued. That happened this past June. Additionally, the Office of the Inspector General (OIG) for the FHFA is considering Forced-Placed Insurance Lawsuits in an effort to retrieve overpayments for lenders insurance products.

It was reported that in 2012 Fannie Mae and Freddie Mac, as well as other Government Sponsored Enterprises (GSEs), paid out nearly $360 million in Force-Place Insurance premiums.

If they have overpaid, which is the suspicion, then the FHFA wants that money back.

Offices of the Attorneys General in various states have been cracking down in the last few years over the excessive premium costs generally associated with lenders insurance, and the alleged kickback schemes that ensue. To that end, there have been a plethora of Forced-Placed Insurance Lawsuits.

According to Huff, writing in Mortgage Servicing News (10/14), state regulators in New York, Florida and California accused two lender insurance companies in 2012 and 2013 of charging rates that were deemed to be excessive, and began the process of entering into consent orders to settle claims.

The excessive rates are costing homeowners and GSEs needlessly, and since 2008 when the housing bubble burst, inflated lender insurance rates have become a significant problem and a looming presence: over the past six years Force-Place Insurance has ballooned to $1 billion dollars a year.

The OIG for the FHFA recommends the possibility of forced-place insurance lawsuits in an effort to “remedy potential damages caused by past abuses in the LPI market and, then, take appropriate action in this regard.”