From The Big Picture.
American Banker’s Jeff Horwitz has a spectacular piece of reporting today about goings on in an obscure corner of the mortgage-servicing world: Losses from Force-Placed Insurance Are Beginning to Rankle Investors.
What is force-placed insurance? If any homeowner fails to keep up their insurance premiums, then their loan servicer can step in to buy a comparable insurance policy (theoretically on the loan holder’s behalf), to ensure the mortgaged property remains fully insured.
Consider one case found by Horwitz. A homeowner’s $4,000 insurance policy, was paid by the loan servicer, Everbank via escrow. But Everbank purposely let that insurance policy lapse, and then replaced it with a different policy – one that cost more than $33,000. To add insult to injury, the insurer, a subsidiary of Assurant, paid Everbank a $7,100 kickback for giving it such a lucrative policy — and, writes Horwitz, “left the door open to further compensation” down the road.
Related article: Losses from Force-Placed Insurance Are Beginning to Rankle Investors