Bank of America and Chase Investigated for Force-Placed Homeowners Insurance
JPMorgan Chase and other major banks like Bank of America are being investigated for allegedly steering borrowers into overpriced home insurance policies illegally. The New York State financial services agency in charge of the investigation is focusing on a trend that was once used to protect banks from financial losses but now may be used simply to earn some extra cash.
Force-Placed Homeowners Insurance Rising
When a major lender provides a mortgage loan to a borrower, that borrower is required to purchase a homeowners insurance policy to ensure that the property is financially protected from damage or losses until it is paid off. The lender has the right to keep track of status of the homeowner’s policy, and if it lapses, can impose their own coverage on the mortgage.
The name of the coverage is force-placed homeowners insurance. Typically this type of coverage, while accomplishing the same goal, can cost up to 10 times more than coverage homeowners find on their own. Further, payments for the insurance are tacked onto monthly mortgage payments, forcing the overall cost of the mortgage to skyrocketâ€”and in some cases, forcing homeowners to lose their properties due to an inability to pay.
While force-placed homeowners insurance have had a negative impact on homeowners, government officials suspect that it might benefit banks financially, thus encouraging them to illegally force this coverage on homeowners for a profit.
Bank of America and JPMorgan Chase to Be Investigated
The new investigation set forth by the office of Benjamin M. Lawsky, the superintendent of New York State’s Department of Financial Services, will take a look at several large banks, including JPMorgan Chase, Bank of America, Citigroup and Wells Faro, to discover whether they have fraudulently steered homeowners into force-placed homeowners insurance policies.
The office has issued 31 subpoenas or other legal notices related to the case in an attempt to discover whether affiliates of banks are receiving kickbacks for agreeing to add this insurance to mortgagesâ€”or if there are other conflicts of interest between banks and insurers, such as both functioning under the same parent company.
So far, no settlements have reportedly been reached yet, but it is possible that banks found guilty of the practice may be asked to pay restitution or change the way they issue force-placed homeowners insurance.