New York's Department of Financial Services hammered banks over their relationships with force-placed insurers in a Friday hearing, challenging JPMorgan Chase officials on lucrative reinsurance arrangements that the Department suggested are tantamount to kickbacks.
"Hundreds of thousands of people are going to get foreclosed on, and Chase is profiting immensely from the reinsurance," DFS Superintendent Benjamin Lawsky said to JPMorgan Chase executives on Friday. "It just doesn't smell right."
Lawsky's comments came during the second of three days of hearings into the market for force-placed insurance. Homeowners with mortgages are generally required to carry policies on their homes, which serve as collateral for mortgage loans. Banks can "force" coverage on customers who allow their policies to lapse. Critics have charges that the premiums on the force-placed policies are excessive, in part because of fees paid by insurers to banks that refer them business. New York's DFS has been investigating the force-placed industry since last year, making it the first government body with subpoena power to extensively explore the market.
JPMorgan and other mortgage servicers' reinsure the property insurance they buy on behalf of mortgage borrowers who have stopped paying for their own coverage. In JPMorgan's case, 75% of the total force-placed premiums cycle back to the bank through a reinsurance affiliate. This has raised further questions about the force-placed market's arrangements.
Executives for JPMorgan's affiliated insurance agency disputed that receiving 75% of the force-placed insurance premium revenues borrowers pay had aligned the bank's interests against homeowners. "I could see how somebody would think that," conceded Robert Segnini a vice president of Chase Insurance Agency.
Over the last five years, Chase has received $660 million in reinsurance payments and commissions on force-placed policies, according to New York's DFS.
"Somebody's got to cover that risk, and Chase feels like it's positioned to do so," said Segnini. "The price to the customer wouldn't change."
