WASHINGTON — Anyone with a mortgage knows that one of the borrower’s key responsibilities is to pay hazard insurance premiums on the property and not let the policy lapse.
But if you fail to keep the insurance current, or the premiums aren’t paid from your escrow account, the lender or its mortgage servicer can obtain its own coverage, which may cost you more than the policy you originally chose. How much more? A lot.
A $140 million national class-action settlement last week — one of a series of cases brought against major banks, mortgage servicers and insurers — shed light on a controversial business practice in the mortgage industry: alleged kickbacks in connection with “force-placed insurance” policies.
Force-placed insurance has been in mortgage contracts for years. It has a legitimate purpose — protection of the lender’s collateral for the loan, the house, says Florida attorney Dennis Wall, who has written a newly published book on the subject for the American Bar Association. But when kickbacks and affiliate side deals drive premiums to abusive levels, he said, “it’s a bad game.”
The latest settlement involves nearly 400,000 borrowers whose mortgages were serviced by Ocwen Financial Corp. between January 2008 and January of this year. Plaintiffs, who filed suit in U.S. District Court in Miami, charged that Ocwen and Assurant, a large insurance company and its affiliates “entered into exclusive and collusive relationships” whereby the insurer or affiliates allegedly paid Ocwen kickbacks, commissions and other compensation in exchange for force-placed coverage for lapsed policies at inflated premium costs.
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