The deal, which currently does not specify a total dollar amount, would have Wells and insurance providers Assurant and QBE repaying affected homeowners up to 11% of the total premiums paid on certain forced-place insurance policies.
Forced-place insurance policies are purchased by lenders when a homeowner with a mortgage allows their insurance policy to lapse. Since the bank requires that the property be covered, it obtains a policy on its own for the property.
However, these policies are often more expensive than coverage homeowners would get on their own. In many cases, forced-place insurance also only provides enough coverage so that the bank can recoup the remaining value of the loan in case of destruction of the property.
Plaintiffs in this case and others have alleged that the higher rates charged for these policies were not a matter of the cost of doing business. They claimed that banks were getting commissions and kickbacks that were tied to the dollar value of the policy premiums. Thus, according to the plaintiffs, the premiums were set at a high level so as to maximize the lenders’ share of the premiums.
Some contended that charging high insurance premiums on homeowners — many of whom could already not afford the less-expensive policies they’d allowed to lapse — was only working to push borrowers further toward foreclosure.
As with almost all major settlements, Wells Fargo appears to be admitting no wrongdoing, saying agreed to the settlement in order to avoid a protracted legal battle.
A $110 million settlement involving Citi’s forced-place insurance practices is awaiting court approval, while cases against Bank of America and HSBC are still pending.