Ed's Blog

It's called force-placed insurance for a reason. Your mortgage lender buys it for you and you are forced to pay for it, even if it isn't the best deal for you. When lenders purchase a product to "benefit" consumers, they often have numerous incentives to make the more expensive, not less-expensive, choice due to what's called reverse competition. That's a bad deal for you and a bad deal for the economy, but a good deal for the kind of sordid crony capitalism that relies on kickbacks, not better products. Fortunately, the New York Department of Financial Services (both banking and insurance) and the CFPB are both taking a deep dive into the force-placed insurance mess.

In 3 days of hearings ending yesterday (video archive), New York State Department of Financial Services chief Ben Lawsky heard testimony from numerous witnesses, but most importantly, from J. Robert Hunter of the Consumer Federation of America and Birny Birnbaum of the Center for Economic Justice. Bob is an insurance actuary, former Texas insurance commissioner and former federal insurance administrator. Birny's an economist and his former associate director in Texas. There aren't very many people with their combination of independence and knowledge of the often-veiled insurance industry. From hearing coverage by Insurance Journal:

“Lenders usually use forced insurance as an opportunity to collect vast profits by charging outrageously high rates,” said Hunter, a former Texas insurance commissioner and federal insurance administrator. “Self-dealing and kickbacks are common. Lenders collect commissions through affiliated agents or brokers. They receive below-cost or free services from insurers, such as loan tracking assistance. Or they use an insurance company as a front to direct the coverage — and the profits — to their affiliated reinsurers.” Hunter told regulators that “reverse competition” is a major problem with the FPI marketplace. He said this phenomenon occurs when insurers compete for lenders’ business by providing financial incentives to the lender, which are then charged to borrowers, increasing the cost of the insurance."

The New York Times also reported on the hearing:

“I will never forget the ordeal CitiMortgage put me through,” said Mary V. Burton, a social worker from Staten Island who bought her house in 1990 with a $76,500 mortgage. Ms. Burton testified that after losing her job in 2008, she fell behind on her insurance premiums. That entitled her mortgage servicer, CitiMortgage, to force-placed a policy on her house, but it chose one that cost three times as much as the policy she had let lapse. CitiMortgage paid the premiums by taking money from her escrow account, then demanded that she replenish the account or be declared delinquent. Later, with the help of a legal-services lawyer, Ms. Burton learned that the insurer, a subsidiary of Assurant, had issued coverage for the full replacement value of her house, $187,000, instead of the lender’s stake, just $55,000, that it was contractually entitled to. “Their overpriced coverage caused me to experience a significant escrow shortage and is one of the reasons I fell so far behind,” said Ms. Burton, who is still trying to renegotiate her loan."

After listing a series of reforms, Hunter concluded:

"Finally, on behalf of millions of consumers around the nation who are being harmed today by unfair and excessive insurance rates, I urge you to use the results of your investigation of FPI abuses to expand the scope of your reform efforts to examine other types of insurance where reverse competition abuses are also rampant, such as auto FPI, credit insurance, debt cancellation products and title insurance."

The Consumer Financial Protection Bureau (CFPB) is also looking at the force-placed problem (news story). The review is part of its review of needed changes to mortgage-servicing rules (CFPB release).

As a followup to my weekend post on my US News debate on JP Morgan Chase's losing $3-5 billion bet, here's Yves Smith's post in a similar debate in the New York Times. Her title says it all: "For Starters, Reinstate Glass-Steagall."

Comments

It’s just wrong to see how you and others are quick to point the finger, before knowing all of the facts. Why don’t you talk to someone who suffered a loss and no one else but companies like Assurant or QBE would insure them; allowing them to file a claim and move on past the tragedy that caused physical and emotional damages. There is always a risk to everything and someone has to deal with it. I feel for the people that lost their jobs outside of their control, but that is NOT everyone who fell behind in payments (do the research). When people take out mortgages, it clearly states in the closing documents that insurance MUST be maintained at all times. So you mean to tell me that for someone like me that pays my mortgage on time and doesn’t let my insurance lapse, my rate should be as equal to those that let their insurance lapse, after being contacted multiple times??? C'mon give me a break!! The world is based on credit worthiness so why shouldn’t this apply here. These companies’ premiums are tiny crumbs compared to the total premiums of the preferred carriers like State Farm, Allstate, Nationwide, etc, but everyone is focused in on this little niche of the market. LPI did not cause the housing market to collapse; we did it to ourselves, by over extending ourselves as individuals. Now people like you and regulators want to crucify companies for the sins of people like Mr. Lawsky's predecessor who contributed to this mess as well. People like him are out to make a name for themselves so they can be seen as the savior for those "poor innocent" folks, who they believe were victims. The media (which include people like you) have made this out to be another witch hunt, without getting all the facts straight. I am sure that people who lost homes in Joplin, MO or New Orleans, LA as the result of respective horrible disasters we know as tornadoes and Hurricane Katrina; and had LPI to file a claim weren’t contacted - why???? They weren’t the types of victims that people like you or Mr. Lawsky wanted the public to hear about. Its sooooooooooo frustrating to read stuff like this day in and day out, JUST tell the whole truth and nothing but the truth!!!!!!

I have a mtg with Valley National Bank in NJ, I lost my job but was still able to keep up with my mtg, my home owners cancled my policy because there was a tree with a branch over my roof that had ben there since I bought the house 8 years ago the tree co. waned $600.00 to cut it off.My house had never ben flooded before it was built in 1958.But after huricane Irene then the noreaster I got flooded right after that the insurance co. tells me I have to cut this branch down just a coincidece they didn't want my insurance. I got a letter from Valley National bank said I was covered with no amounts for the coverage.6 months later I get a bill for $4,000.00 added on to my monthly payment I imediatley called State Farm and got a policy for $700.00 for a year now they wont let me pay my mtg until I pay the $4000.00. I dont have the money.What they should have done was imediatley add 377.00 to my monthly mtg. and I would have gotten the State Farm policy the same day.shouldn't or is there a disclosure law on how they are going to charge a person? thank you Keith.

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I have a mtg with Valley National Bank in NJ, I lost my job but was still able to keep up with my mtg, my home owners cancled my policy because there was a tree with a branch over my roof that had ben there since I bought the house 8 years ago the tree co. waned $600.00 to cut it off.My house had never ben flooded before it was built in 1958.But after huricane Irene then the noreaster I got flooded right after that the insurance co. tells me I have to cut this branch down just a coincidece they didn't want my insurance. I got a letter from Valley National bank said I was covered with no amounts for the coverage.6 months later I get a bill for $4,000.00 added on to my monthly payment I imediatley called State Farm and got a policy for $700.00 for a year now they wont let me pay my mtg until I pay the $4000.00. I dont have the money.What they should have done was imediatley add 377.00 to my monthly mtg. and I would have gotten the State Farm policy the same day.shouldn't or is there a disclosure law on how they are going to charge a person? thank you Keith.My e-mail address is yankeeeswin6657@aol.com

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I will admit I agree with some of what you said but there is one problem with it. Common sense says if someone who pays (examples) 100 dollars for something and can live comfortable. If they lapse or just don't ahve the money due to personal situations cannot afford 300 dollars if they have to find other services elsewhere they have to pay more due to a previous incident even (if) they already rectified the situation it haunts them for years and cause higher rates for everything. Charging more because of past issues actually makes it so less people can afford and/or keep insurance. You'll probably assume that I am similar but i am someone who dealt with identity theft. Some one paid there bills with my debit card it took months for me to get my money back my account was overdrawn by tremendous amounts due to my purchases(before i was aware) along with the thief's. This caused me not to be able to pay other things. (all my funds including pay checks went directly to this bank. I was also only nineteen at the time with little experience My two credit cards became 150 days late even when i reported the incident since the cards were not directly involved i was still obligated to pay them on time. It took 5 months to get my money back and have all the fees removed and both my cards where closed and i paid them. Because of that it ruined everything else. When I try for insurance those still get asked about. and no I did not have anyone that could help me pay for it. I tried that too. But I don't agree that your price for insurance should be by your credit score.

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It’s just wrong to see how you and others are quick to point the finger, before knowing all of the facts. Why don’t you talk to someone who suffered a loss and no one else but companies like Assurant or QBE would insure them; allowing them to file a claim and move on past the tragedy that caused physical and emotional damages. There is always a risk to everything and someone has to deal with it. I feel for the people that lost their jobs outside of their control, but that is NOT everyone who fell behind in payments (do the research). When people take out mortgages, it clearly states in the closing documents that insurance MUST be maintained at all times. So you mean to tell me that for someone like me that pays my mortgage on time and doesn’t let my insurance lapse, my rate should be as equal to those that let their insurance lapse, after being contacted multiple times??? C'mon give me a break!! The world is based on credit worthiness so why shouldn’t this apply here. These companies’ premiums are tiny crumbs compared to the total premiums of the preferred carriers like State Farm, Allstate, Nationwide, etc, but everyone is focused in on this little niche of the market. LPI did not cause the housing market to collapse; we did it to ourselves, by over extending ourselves as individuals. Now people like you and regulators want to crucify companies for the sins of people like Mr. Lawsky's predecessor who contributed to this mess as well. People like him are out to make a name for themselves so they can be seen as the savior for those "poor innocent" folks, who they believe were victims. The media (which include people like you) have made this out to be another witch hunt, without getting all the facts straight. I am sure that people who lost homes in Joplin, MO or New Orleans, LA as the result of respective horrible disasters we know as tornadoes and Hurricane Katrina; and had LPI to file a claim weren’t contacted - why???? They weren’t the types of victims that people like you or Mr. Lawsky wanted the public to hear about. Its sooooooooooo frustrating to read stuff like this day in and day out, JUST tell the whole truth and nothing but the truth!!!! Interesting post and thanks for sharing. |http://vo.to/IDRCOMAGENTEXASONLINEINDONESIA | http://vo.to/agenbolapromo | http://vo.to/itunetAGENJUDIDOMINOONLINEINDONESIATERPE |

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