What Happens When Homeowner’s Insurance Lapses?

They're laughing all the way to the bank...at America's homeowners.

What happens? It’s not pretty, not pretty at all. As if homeowners aren’t having a hard enough time at the moment making payments and keeping their homes from short-sales (or worse, foreclosure), lenders are making it even harder.

Yes, you heard us—the LENDERS are making it harder on homeowners with one of their clever little “hidden practices” that are nice money earners for them.

Look out for “force-placed insurance”—this spells profits for mortgage-servicers and financial heartbreak for homeowners. Why? Most homeowners are unaware that if a home insurance policy lapses, the lender can put their own in place, one that is usually priced far above the market rate. And sometimes it’s so high that it can force homeowners into default or even foreclosure.

Sadly it’s a widespread practice, so beware! Five years ago, lenders imposed only $1.5 billion worth of this force-placed insurance on homeowners; in 2010 that increased to—wait for it—$5.5 billion. What!? You can’t tell us that this hasn’t contributed to the continued downward spiral of the economy and the housing market. And please note: Chase is one of the biggest purveyors of this practice.

On the lenders side, of course, the cite that it’s “valuable protection and peace of mind to financial institutions” and that it might “make it easier for the consumer to have services that are provided in-house versus going outside”. Hmmm…not when those “in-house services” cost you five times or more what it would cost the homeowner who shopped around to the “outside” vendors.

Could there be more insult to injury here? Oh yes. Last year, the Dodd-Frank financial reform act contained a requirement that force-placed insurance should be “reasonably priced.” Thank you, Dodd-Frank! Oh wait…the Mortgage Bankers Association successfully lobbied for that portion of the law to be removed. Heaven forbid that the homeowners of America catch a break.

And these force-place insurance policies have been imposed even when it’s the fault of the lender or the insurer! Finally, a coalition of the attorneys general of all 50 states is working on a regulation that would ban lenders from imposing force-placed coverage from one of their subsidiaries or from accepting any kind of kickback or commission when placing the insurance from an independent company. But when will that be instated? Probably after the lenders earn another few billion dollars.

What do you do? Please call us at BMR Insurance so we can not only get you the best deal on your homeowner’s insurance, but we will also make sure to notify you if we think that the insurance is about to lapse. That’s the kind of customer service we pride ourselves on at BMR Insurance. Call us on 714-838-1911 or just drop on by! We love seeing our clients in the office.