NewRez Reaches $15.5 Million Multistate Settlement Over Force-Placed Insurance

Key Takeaways

• $15.5 Million Multistate Settlement: NewRez LLC agreed to a $15.5 million settlement stemming from a multistate examination involving financial regulators in 46 states.
• More Than 4,200 Borrowers Affected: Regulators found NewRez imposed force-placed insurance on more than 4,200 borrowers who already had active homeowners insurance policies.
• $4.5 Million in Consumer Harm: NewRez has paid $4.5 million in restitution to affected borrowers and will pay another $11 million to state regulators for penalties and costs.
• New York Borrowers Receive Restitution: NewRez returned $409,026 to affected New Yorkers and will pay a $602,226 penalty to the New York State Department of Financial Services.
• Controls and Monitoring Required: The settlement requires NewRez to implement new controls and enhanced monitoring for loans with force-placed insurance.

Deep Dive

NewRez LLC has agreed to a $15.5 million multistate settlement after regulators found the mortgage servicer charged more than 4,200 borrowers for force-placed insurance even though they already had active homeowners policies.

The settlement, announced Wednesday by the New York State Department of Financial Services, grew out of a multistate examination involving financial regulators in 46 states. The examination found that the Pennsylvania-based company imposed the additional insurance on borrowers who already had coverage, causing $4.5 million in consumer harm.

NewRez has paid $4.5 million in restitution to affected borrowers and will pay another $11 million to state regulators for penalties and costs. In New York, the company has returned $409,026 to affected borrowers and will pay a $602,226 penalty.

“The Department is committed to protecting consumers and holding institutions accountable for their responsibilities to New Yorkers,” Acting Superintendent Kaitlin Asrow said. She thanked regulators in other states for their work on the enforcement action.

Force-placed insurance is designed for circumstances in which a homeowner no longer has adequate coverage. If a policy is canceled, delinquent or insufficient and the borrower does not obtain replacement coverage, a lender, bank or loan servicer may purchase insurance to protect its financial interest in the property.

That protection can come at a steep price for the borrower. Force-placed insurance is typically significantly more expensive than coverage homeowners obtain themselves, which makes the accuracy of a servicer’s insurance records more than an administrative concern.

In this case, regulators found that NewRez imposed those costs on thousands of borrowers whose homeowners policies were still active. The result was not a dispute over whether force-placed insurance itself was permissible, but a servicing failure that applied it to customers who did not need it.

The settlement requires NewRez to address that process as well as compensate the borrowers affected by it. The company must implement new controls and conduct enhanced monitoring for loans with force-placed insurance, according to DFS.

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