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Evidence of abuses and self-dealing in force-placed insurance suggests there may be far larger problems in how servicers are handling home loans than sloppy document recording.
November 9 - PH
Before servicers force-place insurance, they often warn homeowners that the policy is costly, offers poor coverage and is likely to benefit the servicer. The investors who often end up paying for that same policy don't benefit from the same notice.
November 9
Assurant Group defended its force-placed insurance business practices and relationships with mortgage servicers Wednesday, as its stock fell 11% following publication of an American Banker story
Before that story was published, Assurant had provided a broad defense of its force-placed business, also known as lender-placed insurance, and the competiveness of its pricing. But on a conference call hosted by Sterne Agee & Leach (and scheduled that day after the stock began to fall), the company went further, saying its average force-placed premium was around $2,000 annually and that it considered itself to be the low-cost leader among the specialty insurers in the force-placed business.
"Assurant has been in the lender-placed insurance business for over 20 years and we are committed to it being a value added and valuable product for all of its constituents," said Gene E. Mergelmeyer, Assurant Specialty Property's president and chief executive officer. "Lender-placed insurance is only issued after extensive efforts to have the borrower obtain their own insurance coverage."
Mergelmeyer also defended the industry practice of providing compensation or risk sharing opportunities to servicer clients.
He said that Assurant's reinsurance deals — flagged in American Banker's story as potentially aligning a servicer's interest with insurers instead of borrowers and investors — were both appropriate and only in place with a "very small minority" of its clients.
It is more common for the company to pay commissions on the insurance, he said, and its commission rates are "generally comparable to the voluntary homeowner's insurance market."
During a question-and-answer period, Mergelmeyer suggested that Assurant's already-regulated status in the states where it operates implies that its rates had already been deemed appropriate.
Another analyst asked whether the company was worried that mortgage investors might "seek to require or incentivize the servicers to seek more cost competitive solutions here?"
Mergelmeyer responded that the company already worked closely with the dominant players in the market, government-controlled Fannie Mae and Freddie Mac.
Other analysts suggested that criticism of industry practices was based on misperceptions about the risks taken on by companies in the force-placed insurance business.
Mergelmeyer agreed, arguing that despite sole-source relationships with many servicers, the pricing in the industry was competitive.
"What really sells our product, it's really around how we treat their customers, our ability to do the tracking well, to be proactive, and not false-place policies," he said.
