If you have a mortgage, you know your lender requires you to pay for property insurance until the loan is paid in full. But do you know what happens if your coverage lapses or if at some point the lender decides you don’t have sufficient insurance? The lender buys insurance on your behalf and charges you twice, sometimes five times more than what you are used to paying for insurance.
Why so much? That's what the CFBP wants to find out. The consumer protection agency is cracking down on force-placed insurance. The agency plans to issue new rules on this practice this year, prohibiting servicers from charging borrowers for insurance unless "there is a reasonable belief that homeowners have fallen behind their payments," according to the CFPB.
I've heard borrowers complain they were charged for lender-placed insurance even when their insurance policy was active. In some cases, the lenders say the owner's policy didn't provide sufficient coverage. There also are numerous homeowners lawsuits against servicers for overcharging borrowers for insurance.
When a borrower stops paying for insurance, why doesn't the lender renew the borrower's existing policy to keep the price the same? Why go out there and grab the most expensive policy they find?
On a side note, it's important to remember that some of the insurance companies selling the high-cost insurance policies are owned by lenders or by insurers related to lenders. What an interesting coincidence, no?
Speaking of coincidences, Fannie Mae suddenly cares about lender-placed insurance practices. According to a bulletin obtained by Reuters, Fannie wants to oversee the insurance policies itself and will "soon implement changes" to its lender-placed insurance rules.
Better late than never.
Has your lender forced high-cost insurance on you?
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