If you had to buy insurance, would you ask JP Morgan Chase or Wells Fargo to choose a policy for you? Probably not. And yet, the Federal Housing Finance Agency is allowing Chase, Wells and other mortgage servicing giants to insurance-shop for millions of homeowners who get saddled with absurdly over-priced coverage while the big banks walk off with kickbacks from the insurance companies.
Every mortgage holder is required to have homeowner’s insurance. Sometimes the insurance lapses or gets canceled, often without the homeowner’s knowledge, making it necessary for the mortgage servicer to step in and purchase a form of emergency coverage known as force-placed or lender-placed insurance. Such emergencies have become far more common since the onset of the housing crisis; and because force-placed insurance costs between two and 10 times as much as regular homeowner’s insurance, it can have the perverse effect of driving families into foreclosure or making it harder for them to obtain affordable loan modifications.This article was originally published in U.S. News & World Report.