Mortgage Broker Settles $15 Million After Homeowners Paid for Insurance They Didn’t Need

A massive $15.5 million settlement has been reached between a Pennsylvania-based mortgage servicer and the state financial regulators after it was accused of imposing “force-placed” insurance on borrowers. The Conference of State Bank Supervisors (CSBS) shared the news in an Aug. 12 press release, explaining how 47 states had taken part in the settlement. 

Force-placed insurance is the name for a homeowners insurance policy that is implemented by the servicer when an existing homeowners insurance policy has been canceled, and the borrower fails to obtain a replacement policy, is delinquent, or doesn’t have enough coverage. 

According to CSBS, the NewRez LLC customers impacted by the settlement already had sufficient insurance policies in place. CSBS says that 4,200 borrowers were involved in the multistate regulatory settlement.

Now, these borrowers are expected to receive remediation to help offset the more than $4.5 million in estimated costs the borrowers incurred as a result, while the remaining funds will go towards paying costs and penalties.

There Are 48 State Financial Agencies Involved in the Settlement

CSBS reports that one of the country’s largest mortgage servicers has settled after working with state regulators. The multistate investigation found that NewRez had incorrectly imposed the force-placed policies on borrowers in error between Nov. 1, 2020, and Oct. 31, 2021, according to The Providence Journal. 

As part of the settlement, the Fort Washington, Pennsylvania company will be required to strengthen policies and procedures related to force-placed insurance, including monitoring and controls. NewRez neither admits nor denies any wrongdoing.

Force-Placed Insurance is Typically More Expensive

Policygenius reports that force-placed insurance is often between 1.5 and 2 times as much as non-force-placed insurance policies. That means if a typical policy is $1,754 per year, a force-placed policy could add up to almost $3,500, according to the company. 

That’s because force-placed policies don’t follow the same rules and guidelines as traditional insurance when it comes to underwriting. That may mean insuring the home without doing an inspection or conducting important analysis, which may mean charging the homeowner more than necessary. 

Unfortunately, coverage doesn’t tend to keep up with the price of the policy. According to Policygenius, force-placed policies tend to favor the servicer over the homeowner, which means that personal property isn’t usually covered. Personal liability is often left off the policy as well.

If you are currently dealing with a force-placed policy, you can reach out to your mortgage servicer for more information on how to get a traditional homeowners insurance policy instead.