[credit provider=”Robert Johnson — Business Insider”]
Looks like our prediction that shady force-place insurance practices would be the next big scandal to come out of the mortgage crisis is finally ringing true. Bank of America and Citigroup are at the centre of a New York state probe into claims they are among several big banks that have been overcharging consumers for insurance, Reuters reports.
If you’re scratching your head, here’s the deal with force-place insurance:
When homeowners stop paying their home insurance, banks get to charge them with their insurance policy of choice. Usually, they’ll send several notices to consumers in advance before finally implementing the new policy.
These force-placed policies cost as much as 10 times the market price and although they’re meant to protect the investors in mortgage-backed securities, they often just drive people into foreclosure.
And when mortgage servicers own the insurer, both parties can drive up fees, essentially screwing over both investors and homeowners.
Reuters’s source claims JPMorgan Chase & Co. and Wells Fargo are wrapped up in the investigation as well, which is being spearheaded by the New York State Department of Financial Services.
The department is looking into whether the policies the banks issued to homeowners were issued by their own affiliates – violating antitrust law – and whether they took kickbacks for pushing policies from affiliated insurers.
Requests for comment sent to Citigroup, and Wells Fargo were not immediately returned Wednesday.
Spokespersons for Bank of America and Chase declined to comment.
Update – Wells Fargo had this to say:
“We understand that the New York State Department of Financial Services (DFS) has requested information about Lender Placed insurance from insurance companies who provide that coverage and from many of the agents who represent those insurers. We provided the requested information and continue to fully cooperate with the DFS.”