New York Investigates Forced-Place Insurance Scams | FDL News ...

Louise Story writes about a new investigation in New York of big banks and their mortgage practices. This one is not being run by Attorney General Eric Schneiderman, though he reserves the right to get involved. Instead, the New York Department of Financial Services is investigating the banks on the issue of forced-place insurance, one of the biggest scams going.

The investigation centers on so-called force-placed insurance that has become increasingly common since the downturn of the housing market began and homeowners had trouble keeping up with payments on their home insurance.

JPMorgan Chase, Bank of America, Citigroup and Wells Fargo are among the major companies involved in the inquiry by the office of Benjamin M. Lawsky, the superintendent of New York State?s Department of Financial Services, according to a person briefed on the investigation who asked to remain unidentified because the matter was private.

Mr. Lawsky?s office issued 31 subpoenas or other legal notices related to the case in early October, just as the state?s insurance and banking departments were merged under his new agency. His office has already turned up instances where mortgage servicing units at large banks steered distressed homeowners into insurance policies up to 10 times as costly as the homeowners? original plans.

In some cases, those policies were offered by affiliates of the banks themselves, raising questions about conflicts of interest; in other cases, there may have been kickbacks between unrelated companies, according to the person briefed on the investigation.

I first wrote about forced-place insurance back in November of 2010. Basically, banks who take over the insurance for homeowners whose policies have lapsed end up getting a kickback when the insurer ramps up the price. And the homeowners pay the cost. In some cases, the policies didn?t even lapse; the bank assumed the homeowners? insurance costs and steered the borrower into costly deals, adding the balance to principal. Sometimes the servicer just purchased redundant coverage for borrowers who were current on their policies. And this provides yet another incentive for servicers to keep borrowers delinquent: they can take over their insurance in that case, and jack up the price, getting a kickback in the process.

Dodd-Frank made this type of forced-place insurance scam illegal. Yet, despite the fact that we?ve known about this for years, it takes the New York State Department of Financial Services to run the investigation. Presumably the Consumer Financial Protection Bureau, now newly bolstered with the ability to regulate non-bank financial operations like mortgage servicers, can get involved. But Dodd-Frank makes it unclear who is supposed to regulate forced-place insurance scams at the federal level. Until then, we have to rely on the states.

It?s just another example of how most bank profits really do come from criminal enterprises. As American Banker reports today, JPMorgan Chase has recently stopped filing consumer debt collection lawsuits, because a whistleblower charged that the bank ?falsely overstated the balances of thousands of delinquent accounts it sold to a third party.? And, they also found the exact same robo-signing problem we?ve seen in foreclosure fraud:

In April of last year, Chase ceased filing claims altogether in Dade County. That month, The Wall Street Journal first reported that Chase had dropped ?more than a thousand? consumer debt cases around the country. Some contract attorneys cited documentation irregularities for the move, the paper reported.

Robo-signing, or the high-volume production of signed legal documents, has been a key element of the governmental and media foreclosure reviews. Chase?s current pullback raises at least the possibility that at least some banks may have documentation problems in other business lines.

Any ?deal? made with banks on their crimes simply perpetuates an industry that mostly profits off those crimes.

Source: http://news.firedoglake.com/2012/01/11/new-york-investigates-forced-place-insurance-scams/

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