Some Mortgage Servicers Are Buying Costly Insurance For Homeowners Without Their Knowledge

[marmar]

American Banker | Wednesday, November 10, 2010
By Jeff Horwitz


When banks buy insurance on the homes of borrowers whose policies have lapsed, they get a great deal. Just not for the homeowners and investors who have to pay for it.

Nominally purchased to protect the owners of mortgage-backed securities, such "force-placed" insurance can be 10 times as costly as regular policies, raising struggling homeowners' debt loads, pushing them toward foreclosure — and worsening the loss to investors on each defaulted loan.

Evidence of abuses and self-dealing in the force-placed insurance industry suggests that there may be far larger problems in how servicers are handling distressed loans than the sloppy document recording that has been the recent focus of industry woes.

Behind banks' servicing insurance practices lie conflicts of interest that align servicers and their insurer partners against borrowers and investors. Bank of America Corp. owns a force-placed insurance subsidiary, and most other major servicers receive commissions or reinsurance fees on the very same policies they purchase on investors' and borrowers' behalf.

"There's no arm's-length transaction here, and that creates all sorts of incentives for the servicer to force-place excessive insurance and overcharge consumers for policies that provide minimal benefit," said Diane Thompson, of counsel for the National Consumer Law Center. "Servicers and insurers have turned this into a gravy train." ............(more)

The complete piece is at: http://www.americanbanker.com/issues/175_216/ties-to-insurers-servicers-in-trouble-1028474-1.html?pg=1

[Angry Dragon]

1. Time to throw all the bankers in jail

The foreclosure mess will be the downfall of the banks, or Obama, or this country.
Not sure which one, it will depend on what Obama, DoJ do.

[aquart]

2. Another fraud for fun and profit.

Destroy them.

[louis-t]

3. There is no doubt that insurance companies and banks will

squeeze every last dollar out of our economy if allowed.

[abelenkpe]

4. agree

Which is why the government should nationalize them.