Borrowers Paid for Insurance They Already Had…Now NewRez Is Paying $15.5 Million

Imagine paying your homeowners insurance like you’re supposed to, only to have your mortgage servicer add another insurance policy to your loan anyway.

And then charge you for it.

That’s the issue behind a new $15.5 million multistate settlement involving mortgage servicer NewRez LLC.

State financial regulators said more than 4,200 borrowers nationwide were assessed costs for force-placed insurance even though they already had active homeowners insurance policies.

The settlement announced August 12 includes millions of dollars in penalties, regulatory costs and consumer relief.

First, what exactly is force-placed insurance?

Force-placed insurance — also called lender-placed insurance — isn’t automatically a bad thing.

If you have a mortgage, your loan agreement generally requires you to maintain adequate property insurance.

If your homeowners policy expires, gets canceled or no longer provides the required coverage, the mortgage company needs a way to protect the property securing the loan.

In that situation, the servicer can obtain insurance and charge the borrower for it.

The problem is that force-placed coverage is usually significantly more expensive than homeowners insurance purchased normally by the borrower.

And obviously, it becomes a much bigger problem if the homeowner already has valid coverage.

Regulators say that happened to more than 4,200 borrowers

The enforcement action followed a multistate mortgage servicing examination of NewRez that began in January 2022.

The examination looked at servicing activity from November 1, 2020 through October 31, 2021.

According to the settlement agreement, regulators identified instances of noncompliance involving lender-placed insurance requirements under the Real Estate Settlement Procedures Act and Regulation X.

State regulators ultimately said more than 4,200 borrowers had active homeowners insurance policies when force-placed insurance was imposed on their accounts.

The resulting consumer harm totaled roughly $4.5 million.

NewRez cooperated with regulators during the examination and has remediated borrowers identified through that process, according to the consent order.

NewRez entered the settlement without admitting or denying wrongdoing or violations of law.

How the $15.5 million settlement breaks down

The $15.5 million headline number is made up of several pieces.

The settlement agreement includes a $9.9 million administrative penalty.

Another approximately $1.09 million covers administrative costs incurred by participating states involved in the examination and settlement process.

The agreement also gives NewRez credit for approximately $4.51 million in consumer relief already paid relating to the lender-placed insurance issues.

Put together, those amounts total $15.5 million.

New York regulators, for example, said NewRez returned $409,026 to affected borrowers in that state and will pay a $602,226 penalty there.

The story may not end with borrowers who were already refunded

One of the more interesting parts of the agreement is what happens next.

NewRez is required to perform an additional self-audit covering certain newly boarded loans with lender-placed insurance fees from January 1, 2023 through the effective date of the agreement.

If that audit finds a borrower was charged premiums or fees for lender-placed insurance that was placed in error, the agreement requires NewRez to refund the full amount the borrower actually paid for that erroneous policy.

NewRez will also have to provide regulators with updates on the progress of that remediation.

So the approximately $4.5 million in consumer relief already identified may not necessarily be the final amount returned to homeowners.

New monitoring requirements are part of the settlement

This isn’t simply a write-a-check-and-move-on agreement.

NewRez is also required to implement enhanced servicing review standards related to lender-placed insurance.

Those standards include monthly testing of certain newly boarded loans where force-placed insurance has been added.

The review is supposed to determine whether valid documentation showed that a homeowners insurance policy was already in place when the additional coverage was assessed.

If testing identifies an improper lender-placed insurance charge, the agreement provides for terminating the improper coverage and refunding premiums and fees paid by affected borrowers.

Why homeowners should actually look at mortgage statements

Most people don’t close on a mortgage and think, “I can’t wait to study my servicing statement every month.”

Fair enough.

But this settlement is a pretty good example of why homeowners should at least scan what’s being charged to their loan and escrow account.

If your mortgage company suddenly says it doesn’t have proof of homeowners insurance, don’t ignore the letter because you know you’re insured.

The servicer’s system may not know that.

Keep a copy of your insurance declarations page. Keep renewal notices. If the mortgage company asks for evidence of coverage, send it promptly and keep some record showing when and how it was provided.

And if a new insurance charge suddenly appears on your mortgage statement, ask what it is.

A servicing error is much easier to challenge when you have documentation showing your policy was active the entire time.

The mortgage doesn’t stop being complicated after closing

Most mortgage education focuses on getting the loan.

Credit scores. Rates. Down payments. Appraisals. Underwriting. Closing costs.

Then everyone signs the documents and acts like the mortgage part is over.

It isn’t.

The servicing side can last for decades.

Your servicer may handle your monthly payment, escrow account, property taxes, homeowners insurance, mortgage insurance, payoff requests and eventually the release of the lien.

That makes mortgage servicing a lot less exciting than getting approved for a house, but it can have a very real impact on what homeowners pay.

The NewRez settlement is a reminder that keeping your own records and occasionally looking at what’s happening with your loan is worth the few minutes it takes.

Sources: New York State Department of Financial Services and the NewRez multistate Settlement Agreement and Consent Order.