Thursday, November 11, 2010

You Think Dodd-Frank Is Entirely Bad? Think Again

Dodd-Frank contains a provision which would address this sort of thing.

...If any homeowner fails to keep up their insurance premiums, then their loan servicer can step in to buy a comparable insurance policy (theoretically on the loan holder’s behalf), to ensure the mortgaged property remains fully insured.

It’s sensible in theory, but in practice, it’s ripe for abuse. And when the servicer owns the insurer, abusive practices, excessive commissions, and self-dealing transactions have become the norm.

Consider one case found by Horwitz. A homeowner’s $4,000 insurance policy, was paid by the loan servicer, Everbank via escrow. But Everbank purposely let that insurance policy lapse, and then replaced it with a different policy – one that cost more than $33,000. To add insult to injury, the insurer, a subsidiary of Assurant, paid Everbank a $7,100 kickback for giving it such a lucrative policy — and, writes Horwitz, “left the door open to further compensation” down the road.

The post mentions other sleazeball/slimebucket practices.

I'm sure these programs were invented by people who took "Business Ethics" courses in their MBA program.


HT: Barry

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