Newrez OKs $15.5 million settlement over insurance claims

Newrez has agreed to a $15.5 million settlement with state regulators over allegations it wrongly imposed force-placed insurance on thousands of borrowers who already had homeowners' policies.

The Conference of State Bank Supervisors announced the deal Wednesday, which includes $4,511,242 in remediation for affected homeowners. The servicer will pay a $9.9 million administrative penalty and $1.08 million in related costs, to be distributed among the 48 participating regulators from 47 states, according to the settlement. 

"Newrez is pleased to resolve this matter with the MMC (Multistate Mortgage Committee), which relates to issues identified several years ago that have since been addressed, including through remediation provided to affected borrowers," the servicer said in a statement, which also emphasized its commitment to assisting homeowners. 

The deal stems from a multi-state exam in 2022, which looked at Newrez's business between Nov. 1, 2020 and Oct. 31, 2021. Regulators say they found the instances of incorrectly applied force-placed insurance, in violation of the Real Estate Settlement Procedure Act's Regulation X. 

Newrez cooperated with investigators throughout the probe, and it does not admit wrongdoing in reaching the deal, according to the settlement. The servicer is also implementing enhanced monitoring to ensure compliance with the deal. 

The settlement

An investigation found that Newrez imposed force-placed insurance on more than 4,200 borrowers nationwide. 

The enhanced monitoring, required for a year from the settlement date, includes monthly tests for all newly boarded loans with lender-placed insurance within the participating states' jurisdictions. Newrez must manually review samples of relevant loans from the prior month, checking whether existing homeowners policies were valid when the servicer assessed lender-placed insurance. 

Newrez must report the results to an executive committee and cure defects if it finds a failure rate of more than 5% on the samples it pulls. The initial members of the executive committee are regulators from Iowa, Massachusetts and Washington, D.C., according to the settlement. 

Within six months of the deal, Newrez also must conduct a self-audit of all lender-placed insurance fees collected or refunded for newly boarded loans on properties within the participating states from 2023 to the present. 

The Newrez agreement marks one of the largest settlements by a lender or servicer with a state or federal regulator in recent years. Bayview Asset Management last year agreed to a $20 million penalty to settle with state regulators over its handling of a massive 2021 data breach.