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Shady force-placed insurance

By Polyana da Costa · Bankrate.com
Thursday, March 8, 2012
Posted: 3 pm ET

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?

Follow me on Twitter @Polyanad

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2 Comments
Natacha Glenn
March 23, 2012 at 10:43 pm

Lender placed insurance is something that the homeowner should fully educate themselves on. Ask questions concerning what your lender will do to keep your home insured, especially if you pay your insurance out of pocket. I say this because the policy is less likely to cancel if the lender is responsible for making the payment. Ask if they have terms in place to pay your insurance for you if there is a cancellation notice received and/or you express you can not make the payment. This should not be a service that you should have to pay for, it should be a courtesy. Keep in mind you still have to pay for your insurance through your mortgage payment if this happens. Know your terms of your mortgage concerning hazard, wind, and flood insurance.

Merie kenneth
March 11, 2012 at 5:18 pm

Can u send money as loan