By LISA PREVOST
BORROWERS who allow their homeowners’ insuranceto lapse will often get stuck with a bill for much more expensive coverage, courtesy of their lenders.
The use of these policies soared during the recession, as homeowners who fell behind on their mortgages effectively stopped paying their insurance as well, since premiums are typically included in the monthly payment. From 2006 to 2011, direct earned premiums for lender-placed insurance more than tripled, to $3.1 billion from $954 million, according to the Insurance Information Institute. “It’s a privately run, high-risk market of last resort,†said Robert P. Hartwig, the institute’s president.
But state and federal regulators have begun to question whether mortgage servicers have been too quick to slap these high-priced policies into place, possibly because of financial incentives. At hearings held this spring by the New York State Department of Financial Services, a representative for American Home Mortgage Servicing acknowledged that a company affiliate receives 15 percent commissions from QBE First, a major provider of lender-placed insurance, for policies placed on its loans.
Because the premiums for lender-placed policies are 2 to 10 times as expensive as standard homeowner policies, these policies impose a considerable burden on already distressed homeowners, said Alexis Iwanisziw, a research and policy analyst for New York’s Neighborhood Economic Development Advocacy Project. In some cases, the cost more or less ensures foreclosure for a household on the brink; it can also hurt a borrower’s chances for a loan modification.
Read the full article here: http://www.nytimes.com/2012/10/07/realestate/mortgages-the-high-price-of-forced-insurance.html
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