When you buy a house with a mortgage, you promise to keep the house insured against whatever disasters befall your home — by buying a home owners insurance policy and possibly wind or flood insurance, too. If you don’t (or can’t) get that insurance, the lender has the right to buy its own policy (known as force-placed insurance) and pass along the cost to you. Trouble arises because not only do lenders not get a very good deal (these policies cost more and cover less than the insurance you buy yourself), they sometimes buy policies for home owners who don’t need them.
The CFPB proposal rightly insists that before a lender can hit you with a sky-high priced insurance policy, it must:
- Give you at least two notices telling you to go get your own insurance before it buys a policy for you. One notice would be required at least 45 days before charging for force-place insurance coverage, and a second notice would be required no earlier than 30 days after the first.
- Warn you about how much the lender’s policy is going to cost you.
When the lender does get a policy for you, the CFPB says two other rules should apply:
- The lender ought to refund your money if it charges you for an insurance policy that you didn’t need because you really did have your own policy.
- If your lender includes insurance policy costs in your escrow, but there’s not enough money in escrow when the renewal bill comes, the lender will have to pay for the policy anyway and then raise your escrow payment to cover the cost correctly.