Now banks are running house insurance scams!

[dixiegrrrrl]

Many people have their house insurance paid out of escrow, meaning the servicer collects the premiums and pays the insurer for the owner.

Check this scam out:

"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.

It’s sensible in theory, but in practice, it’s ripe for abuse. And when the servicer owns the insurer, abusive practices, excessive commissions, and self-dealing transactions have become the norm.

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.

That $33,000 policy — including the $7,100 kickback – is an enormous amount of money for any loan servicer to make on a single property. The average loan servicer makes just $51 per loan per year."

More:

http://www.ritholtz.com/blog/2010/11/latest-mortgage-scandal-force-placed-insurance/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+TheBigPicture+%28The+Big+Picture%29

[PA Democrat]

1. It's time for these crooks to be tossed in jail.

Confiscate their assets and throw their asses in jail.:mad:

[phantom power]

2. Yep. It's going to keep getting worse until some people start going to fucking jail.

I wonder if that will happen.

[Billy Burnett]

3. Worse than that - if defrauded customers start showing up at the bank/office with guns blazing.

Hate to think of what could happen if some of the gun totin' tea party thugs figure out that it is the bank who ripped them off, not muslin (sic) commie nazis.

[truedelphi]

5. In some alternate universe, where people in the top tier of government

Are not part of the BORG of One Money Party hacks, it is already happening.

here on earth, in the good ol' USA of 2010, not so likely.

[upi402]

9. I've been saying that for decades

We can't even get a political party that makes them pay their fair share, or even investigate and try them in court.

What will it take here, in the land of the brave and the home of the free?

[Roma]

4. A homeowner’s $4,000 insurance policy?

Doesn't that seem a tad high in the 1st place? That must be a hell of a house. I'm just comparing to a 4200 sqft 5br 3.5 bath 4 car garage & pool here in AZ. Well less than $1000 a year with a $million liability rider.

[EC]

7. Depends where you live

in hurricane areas it could be over $10,000. for an average home...a friend of mine lives in Ft. Myers area and said his was about $10,000.

[EC]

6. Banks that have liens on cars already do this

and they charged double for just comp and collision - just protecting their interests while you're still liable to pay all costs in an accident...except the cost of your car, which the lienholder is protected for the cost and you're not...so you come out way better keeping the coverage on your car until the loan is paid, because if the lienholder finds out you have no comp and collision on that car - they'll slap it on and add it to your loan...I worked in insurance for years and there were many times that the banks caught people and I saw the "policies" these banks slapped on the loan and they were at least twice as much as a person would have paid for full coverage.

[DAMANgoldberg]

10. Here is your workaround...

Eliminate the lienholder and buy a car for cash from a private party. Oh, and take a mechanic with you. Then if you drop coverage and turn the tag in (you must surrender tags in NC & SC), you're done!

[EC]

12. That's what I advised customers

because I would never buy a car on credit again - unless it was a personal loan a non-collateral loan...

[dixiegrrrrl]

11. I wonder how long it will be before there will be choice to buy your own insurance

on a lien of any kind.
surprised they have not made that a law yet.

[dixiegrrrrl]

8. The scam now explains the letter I got from my servicer, BOA.

Last year, 5th year into our 30 year fixed loan, got a letter demanding proof of insurance.
Our mortgage is NO escrow, NO P&I, we pay our own insurance and property taxes ( I insisted on that).
BOA "kindly" threatened that if we did not provide proof of insurance they would "helpfully" provide it for us and bill us.
Yeah...right.

Now I see we dodged another bullet. My previous house had the insurance in escrow with the bank.