Lenders and their mortgage servicers, and the insurance companies they use to issue insurance policies to protect their interests under residential mortgages at the mortgagors' expense, have developed an interesting relationship. They have all been accused of arrangements in which the insurance companies pay to play, so to speak, by paying money to lenders and their mortgage servicers in exchange for their place on an approved list which the lenders and servicers use to select the insurance company to issue their lender force-placed insurance.
It is often difficult to tell from the terms of any given settlement agreement whether lenders, their mortgage servicers, and their force-placed insurance companies, are completely changing all of their pay-to-play behavior. In general terms, the payments are most often called "commissions" or "reinsurance premiums". But what they are called is not the issue to be discussed here. Rather, the issue under discussion here is for how long these practices will stop.
The so-called National Mortgage Settlement was based on five servicers' agreements, brought forward in Consent Judgments against each of the five, that they would stop asking for money from force-placed insurance companies in exchange for placing the insurance companies on their approved lists. They did not agree to a prohibition of their practices for all time, however. They agreed only to a moratorium for awhile.
They agreed to stop their allegedly bad practices for four (4) years.
Defendants settling lender force-placed insurance claims likewise do not agree to stop their pay-to-play practices forever.
They agree on average to stop doing these allegedly bad things for six (6) years.
Such is the case in the most recent settlement approved by a Federal Court, which came on Friday, February 28, 2014. Download Saccoccio v. JP Morgan Chase Bank, N.A., Order Granting Final Approval of Class Action Settlment, and Service Awards, and Attorney's Fees and Expenses (SD Fla 02.28.14).
All lawyers and Judges know the risks of going to Trial. In general, that is a big reason why so many lawsuits are settled. Specifically, in the case of lender force-placed insurance practices, no lawsuit has been found which has ever gone to Trial against the lenders or their mortgage servicers or their lender force-placed insurance companies.
If, and perhaps that is a big "if" as they say, one of these cases went to Verdict and Judgment in which these alleged pay-to-play commissions and other payments were found illegal, then it might be easier to obtain settlement agreements in which the lenders and their servicers and their approved-list-force-placing insurance company partners would agree to stop these practices forever.
Until then, expect more of the same.
© 2014 by Dennis J. Wall. All rights reserved. No claim to original U.S. Government works.
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