Homeowners around the country have seen their insurance rates increase three to 10 times the cost of the insurance policy they originally had in place through their choice of insurance companies. Banks and lenders that have overcharged homeowners have been doing so industry-wide for years, according to recent investigations.

A lender placed insurance policy is also known as a force placed insurance policy. Homeowners who pay a mortgage on their home are required to maintain a homeowners insurance policy that covers the home, the home’s contents and accidents that occur on the property.

A lender placed policy usually only covers the home itself, not the contents, because the mortgage company only cares about insuring its asset, which is the house alone. Logically, it seems this policy that covers less would cost less, but that is not the case at all.

Problems with Lender Placed Insurance Policies

If a consumer allows the homeowners insurance policy to lapse, the lender legally is allowed to force another insurance policy in its place. The problem is that lenders and banks have found a way to maximize their profits at the expense of the homeowners.

In some cases, a bank might make an agreement with an insurance company promising to only use that insurance company. In exchange for the bank’s loyalty, the insurance company kicks back a portion of the premium received from the homeowner. Such a practice encourages banks to choose policies with high premiums, and it prevents healthy competition among insurance companies for the lender placed insurance market.

If the homeowner fails to pay the homeowners insurance premium, the insurance company can cancel the insurance. Once a lender realizes there is no insurance on the home, the lender can and will go into action to ensure a force placed insurance policy is enforced.

Lender placed insurers insist the rates are high because they must insure each house assigned to them rather than being able to choose only residences that pose the least risk. They say their inability to show discretion necessitates and justifies the high premiums.

Homeowners who don’t pay the high premiums could face foreclosure.

Fortunately, the Consumer Financial Protection Bureau (CFPB) adopted new rules to regulate lender placed insurance business practices in 2013. Mortgage companies now must have a reasonable foundation for imposing a force placed insurance policy and they must notify the homeowner before enforcing the policy.

Among the lenders currently under investigation for their lender placed insurance practices are:

• AmeriHome Mortgage
• Arrest Bank
• Dovenmuehle Mortgage
• Freedoms Mortgage Corp.
• Lakeview Loan Servicing
• LoanDepot
• Matrix Financial Corp.
• Pingora Loan Servicing
• Provident Funding
• Quicken Loans
• Residential Mortgage
• Shellpoint Mortgage Servicing

If you are a homeowner who was forced to pay excessive premiums for lender placed insurance in the past five years, you could qualify to participate in this investigation.