American Banker has won a Society of American Business Editors and Writers award for an investigative story published last year about mortgage servicers' force-placed insurance practices.
The Nov. 10 story, "Ties to Insurers Could Land Mortgage Servicers in More Trouble," unearthed conflicts of interest that make it profitable for banks to service mortgages in a way that harms homeowners and investors. Using court filings, financial statements, and state insurance documents, the story showed that certain insurers effectively pay kickbacks to banks' mortgage servicing subsidiaries, giving them an incentive to place high-priced homeowners insurance on borrowers whose regular policies lapsed. The additional debt burden makes borrowers likelier to default; the cost is ultimately borne by third-party investors holding the loans, including the government-owned Fannie Mae and Freddie Mac (and hence taxpayers).
The reporting by Jeff Horwitz spurred policy responses at the federal and state levels. The Federal Housing Finance Agency, which is the conservator for Fannie and Freddie, initiated a review of its own policies with the aim of lowering the price of force-placed insurance. And shortly after the story's publication Iowa Attorney General Tom Miller said in Congressional testimony that the 50-state AG task force that he leads would investigate forced-placed insurance practices. One of the strongest elements of the AGs' recent proposed settlement with servicers would greatly restrict the companies from profiting on force-placed insurance.
The society announced the winners of its annual Best in Business awards Friday. The American Banker story won in the investigative category, for publications with print circulation of less than 25,000. The awards are to be formally presented in Dallas on April 9.