Mortgage Servicers are Profiting from Forced-Place Insurance

by San Antonio Attorney

Companies managing millions of home loans are evading new federal regulations and settlements meant to prevent them from making unfair profits from distressed homeowners.

They are trying to make money out of insurance companies that are practically nonexistent. Some of them have no offices and with just one registered agent. They are making multi-million dollar profits, while the new rules forbid them from obtaining commissions on insurance coverage that servicers require homeowners to get.

Prior to the housing boom, servicers of mortgages have employed tactics to make money from purchasing insurance policies using other people’s money. Insurers gave money to banks such as Wells Fargo, JPMorgan Chase, and Citigroup to purchase overpriced insurance coverage, according to New York state regulators. To cover up this practice, some mortgage servicers faked virtual insurance companies and concealed illegal payments as commissions.

The Federal Housing Finance Agency has made a new rule prohibiting servicers from profiting on such insurance policies, and the America’s largest banks have declared that they will no longer engage in such practice. But some of them may have already made a lot of profits from the scheme.

Since people usually discontinue their insurance when they are unable to make their mortgage payments, the downfall of the housing industry after 2007 made the illegitimate practice into a very lucrative industry. In a number of ways, the rise of force-placed insurance business mirrored the practices that triggered the housing bubble. After benefiting from borrowers for letting them buy homes they could hardly pay for, mortgage servicers were cashing in on overpriced insurance bills they designated to homeowners susceptible to foreclosure.

Nationstar Mortgage Holdings Inc., a major non-bank mortgage servicer, has been looking for buyers to an insurance agency priced at approximately $100 million. This is according to the people who know about the deal yet did not want to be named because they were did have authority to talk about the sale.

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