Arkansas has joined 48 state financial agencies in a $15.5 million settlement with one of the nation’s largest mortgage servicers after regulators found thousands of borrowers were improperly charged for insurance despite already having active homeowners’ coverage.
The Arkansas Securities Department announced the settlement Wednesday, August 12, involving NewRez LLC, a mortgage servicer based in Fort Washington, Pennsylvania.
According to state regulators, a multistate examination found NewRez improperly imposed force-placed insurance on more than 4,200 borrowers nationwide who already had active homeowners’ insurance policies.
Regulators said the improper charges resulted in approximately $4.5 million in consumer harm.
Under the settlement, NewRez will pay a total of $15.5 million. The company worked with state regulators to self-identify the issue and proactively remediate $4.5 million to impacted borrowers. NewRez will pay another $11 million in costs and penalties.
The settlement also requires the mortgage servicer to strengthen its internal controls and implement enhanced monitoring of loans involving force-placed insurance.
Arkansas Securities Commissioner Susannah T. Marshall said the enforcement action is intended both to hold the company accountable and prevent similar problems in the future.
“This settlement holds NewRez accountable for harm done to Arkansas homeowners and requires a change in behavior.”
Marshall said the issue is particularly important as homeowners continue dealing with rising insurance costs. She said mortgage servicers need effective procedures to make sure borrowers aren’t subjected to unnecessary or additional fees.
WHAT IS FORCE-PLACED INSURANCE?
Force-placed insurance is coverage that a mortgage lender, bank or loan servicer may purchase on a property when it believes a borrower’s homeowners’ insurance has been canceled, has become delinquent or does not provide sufficient coverage.
If a borrower fails to obtain adequate replacement insurance, the mortgage company may obtain coverage itself to protect its financial interest in the property and charge the borrower for the cost.
However, force-placed insurance is typically significantly more expensive than a policy purchased directly by the homeowner.
The issue uncovered by regulators in the NewRez examination was that more than 4,200 borrowers already had active homeowners’ insurance policies when the additional force-placed insurance costs were imposed.
ARKANSAS HELPED WITH MULTISTATE ENFORCEMENT
The District of Columbia led the enforcement team, with assistance from financial regulators in Arkansas, Iowa, Massachusetts and Montana.
NewRez cooperated with the states during the settlement process.
NewRez operates under NMLS ID 3013.
WHAT ARKANSAS HOMEOWNERS SHOULD KNOW
Arkansas residents with questions about the enforcement action can contact the Arkansas Securities Department at 800-981-4429.
Consumers can also use NMLS Consumer Access to check whether a mortgage company or other financial services provider is licensed to conduct business in Arkansas and to review available information about previous enforcement actions.
The settlement is another reminder for homeowners to carefully review mortgage statements, escrow activity and insurance charges and to contact their mortgage servicer if they believe insurance has been added to their account incorrectly.
