Yesterday, Acting Director of the Federal Housing Finance Agency Edward DeMarco released news from FHFA that is great news for many financially-strapped Florida home owners who are fighting foreclosure: finally, federal action is doing something about the force-place insurance mess.
FHFA Announces Federal Action to Halt Abuse of Home Owners Through Lender Placed Insurance Coverage on Property
From the FHFA Notice of March 25, 2013:
Protection of property values is important to homeowners, communities, and to the Enterprises. At the same time, provision of such insurance products at an appropriate cost is of concern as well. Reportedly, premiums for lender placed insurance are generally double those for voluntary insurance and, in certain instances, significantly higher.
FHFA recognizes that some greater risks are involved with lender placed insurance and that lender placed insurance carriers do not have the opportunity to underwrite the properties they insure, however, the multiples involved may not reflect claims experience and other measures. Loss ratios for lender placed insurance are significantly below those for voluntary hazard insurance and some states already have required or have considered rate reductions of 30 percent or more.
What is the federal government going to do about this problem?
For mortgages connected with Fannie Mae and Freddie Mac, the federal government will work to stop lenders and insurance companies from exorbitant insurance premiums on force place policies by banning the fees and commissions on this kind of insurance. FHFA also plans to block the practice of insurance companies paying mortgage companies money for insurance business referrals.
This proposed federal regulation still has to go through the usual approval processes, it won’t be effective for over 60 days. Meanwhile, state governments like New York are doing more. In a statement released earlier this month, the biggest insurance company in the country, Assurant Inc., announced that it would agree to a $14,000,000 penalty and an undisclosed amount of restitution to individual home owners in New York after the state government there pursued claims of unfair practices in lender placed insurance in their jurisdiction.
To get the idea of how bad this problem is, consider that New York officials reported that mortgage lender J.P. Morgan Chase took in over $600 million since 2006 from Assurant in force place insurance deals.
Larry Tolchinsky’s Tip:
We’ve been monitoring lender placed property insurance coverage abuse for over a year now. Lender placed insurance is another name for force place insurance, and it’s a big problem in this country. Too many Florida banks have been pushing high-dollar insurance policies onto home owners that are financially strapped, usually without bothering to discuss policy premiums or policy options with the borrower. Additionally, investigations have found that there are ties between the banks and the insurance companies, one more instance of “you scratch my back, I’ll scratch yours” in Foreclosure Fraud.
The abuse has been rampant and often devastating for home owners fighting against losing their homes: getting the surprise of a huge jump in insurance premiums on the home that is at risk of foreclosure can be the last straw for an exhausted borrower. This federal action is a long time in coming, and it may well be closing the barn door after the horse is gone for many Floridians.
Better late than never, though. Meanwhile, for anyone shell-shocked by a force place policy and lender placed insurance premium, there remains the ever-present judicial course of action. While legislators debate and legislation is written that may or may not become law, and while agencies work to implement new regulations, the steady course and reliable battleground for borrowers in Florida and across the country has been, and remains, the courtroom.
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