BofA Reaches $228M Force-Placed Homeworkers Insurance Settlement
A string of force-placed homeowners insurance lawsuits are nearing completion with settlements totaling more than $670 million. The latest settlement was determined, requiring Bank of America to pay $228 million.
Homeowners charged excessive home insurance rates when their policies lapsed will receive some relief from the settlement, but not nearly enough to compensate for their total costs.
What Is Force-Placed Homeowners Insurance?
The Bank of America lawsuit and others stemmed from the mortgage foreclosure crisis. The rampant use of Adjustable Rate Mortgages (ARMs) resulted in skyrocketing interest payments, as home values plummeted for many homeowners. Those who could not refinance because of weakened home values found themselves unable to make their loan payments, which often includes insurance premiums via escrow accounts.
As a result, insurance policies lapsed for nonpayment, and banks used their right to enact force-placed homeowners insurance on borrowers. However, instead of placing similar, reasonably-priced policies on homes, banks purchased high-priced policies which resulted in big commissions for insurers.
Some insurers were also owned by big banks. JPMorgan Chase, for instance, was accused of receiving “kickbacks” from insurers when instituting these policies.
Home Insurance Rates: Class Action Settlement Reached
The first of force-placed homeowners insurance cases to settle occurred in February 2014, wherein Citibank agreed to offer partial refunds to impacted homeowners of approximately $110 million.
In March, JPMorgan Chase and its co-defendants, HSBC, and Wells Fargo reached a similar settlement over the home insurance rates debacle. Below are a tally of their settlement amounts:
- JPMorgan Chase and defendants â€“ $300 million
- HSBC – $32 million
- Wells Fargo â€“ Undisclosed total
Are These Force-Placed Homeowners Insurance Settlements Fair?
Concerns over whether the settlements are fair to homeowners continue. Forced-placed homeowners insurance can cost 10 times the annual premium of voluntary insurance coverage.
The refunds going to affected homeowners are far lower than what force-placed coverage cost:
- JPMorgan Chase â€“ 12.5 percent refund
- HSBC â€“ 13 percent refund
- Wells Fargo â€“ 11 percent refund
- Citibank – 12.5 percent of homeownerâ€™s premium , 8 percent of flood premium
Details on how much Bank of America will refund overcharged homeowners have not been released. Based on the previous settlements, it’s not likely enough to cover the over-rated home insurance rates.
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