Banks Face Scrutiny Over Home Insurance Steering

The New York State’s Department of Financial Services is investigating several big banks to determine if they illegally steered distressed home owners toward overpriced insurance policies, The New York Times reports.

The agency has found cases where large banks have steered distressed home owners into insurance policies “up to 10 times as costly as the home owners’ original plans,” The New York Times reports. For example, in one case, the agency found that a home owner was paying $2,000 a year to State Farm but then saw an increase to $6,000 a year when switching to a new insurer.

The agency is also investigating whether the banks showed conflicts of interest in offering customers home insurance policies that may have been affiliated with the banks rather than shopping for the best rate in the open market.

“In general, mortgage servicers are allowed to take out insurance policies on homes after a home owner allows existing coverage to lapse,” The New York Times' article explains. “Though home owners have little choice and sometimes little notice about the new plans, they often end up shouldering the costs of the insurance through their mortgage payments.”

JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo are among the major banks named in the investigation.

Source: “Big Banks Face Inquiry over Home Insurance,” The New York Times (Jan. 10, 2012)