Citi Responds to Force-Placed Allegations

CitiMortgage has responded to recent allegations that it and other large banks engaged in deceptive practices when force-placing insurance policies on borrowers, saying it follows federal rules and guidance in this area.

"If a homeowner does not provide an insurance policy, CitiMortgage secures a policy to protect the interests of the investor and may receive a commission in some cases,” the company said in a statement provided to this publication. “We do not receive a commission for lender-placed flood insurance.

“We understand insurance issues can be complex, and we work with customers to try to resolve them,” the company added. “Federal law dictates that if a property is in a special flood hazard area, lenders are required to enforce the purchase of flood insurance for as long as the property remains in one of those flood zones. We abide by federal guidelines in allowing designated customers time to purchase their own flood insurance before we are required to purchase it on their behalf."

The spokesman also referenced a recent “friend of the court” brief filed by the Department of Housing and Urban Development in another flood insurance case, Kolbe v. BAC Home Loans Servicing, saying it represents the “government’s viewpoint” on the issue.

HUD said in its amicus curiae brief that a recent ruling on appeal in that case “threatens to turn that regulatory scheme on its head” by converting the federal ceiling for flood insurance coverage “into a floor” and by limiting the insurance a lender can require.

“That interpretation lacks no anchor in the statutory scheme, serves no practical end, and ignores the obvious purpose of the federal minimum flood-insurance requirement, which is not to restrict the use of flood insurance but to promote it,” the brief states.

“Kolbe’s interpretation…would render it impossible for many FHA lenders to secure adequate protection against flood risks. For example, the minimum flood insurance required by federal law is never more than $250,000, the largest policy available under the [National Flood Insurance Program]. But the principal balance of FHA-insured mortgages often far exceeds the sum. Kolbe’s reading would thus systematically expose many FHA-insured lenders to the risk of ruinous flood losses.”