With Kickbacks on Force-Placed Insurance, the U.S. Mortgagegate Scandal Just Gets Deeper

I thought that I'd seen it all with the "Mortgagegate" scandal, but the story that American Banker broke yesterday (Wednesday) underscores why the U.S. housing market has been host to the biggest and most-profitable scam the world has ever seen. According to the article, the newest development in the American mortgage saga has to do with " force-placed " insurance policies: When mortgage borrowers don't pay their homeowner insurance premiums, are in default or in the foreclosure pipeline, mortgage-pool servicers make sure homeowner properties remain insured by requiring the purchase of a force placed insurance policy. That makes sense. After all, the collateral that underlies the mortgage has to be protected from damage or total loss. As it turns out, force-placed insurance policies are aptly named. The American Banker article disclosed that the force placed policies that servicers are making homeowners buy can cost as much as 10 times more than standard policies. And servicers are making homeowners buy policies from preferred vendors. In return for delivering these new insurance customers, mortgage-pool servicers are getting commissions – "reinsurance fees," in insurance-industry parlance, reinsurance fees. I call these "fees" what they really are – kickbacks. To understand the breadth of this latest scandal development, please read on...