‘Forced’ Home Insurance Policies Face New Scrutiny
Home buyers take out homeowners’ insurance policies to protect the value of their home and personal property in the event of a burglary or a natural disaster. The insurance is typically required to get a home loan, and if borrowers fall into default, banks have the right to make sure the property still has such coverage.
However, officials at the state and federal level have been concerned that insurers have been charging too much for something known as “force-placed insurance,” which takes the place of a lapsed policy.
This week, a new U.S. consumer watchdog and mortgage giant Fannie Mae have been promising a crackdown on those homeowners insurance policies.
In a speech Tuesday, the director of the new federal Consumer Financial Protection Bureau, Richard Cordray, said his agency will issue rules “to prevent (mortgage) servicers from charging for this product unless there is a reasonable basis to believe that borrowers have failed to maintain their own insurance.”