U.S homeowners purchasing residential property within “Special Flood Hazard Areas” as designated by the Federal government may have been excessively charged by lenders for mandatory flood insurance. In pending lawsuits, mortgage lenders including Citibank, Bank of America and Wells Fargo are alleged to have procured force placed flood insurance for borrowers in excess of amounts mandated by Federal Law. These costs have been directly passed along to consumers, along with lucrative financial benefits to lenders.
In many cases, the cost of the flood insurance policy has either been deducted from the borrower’s home equity account, or has simply been added to the mortgage balance. Thus borrowers are left with no option but to bear the cost for the excessive insurance.
Bloomberg has estimated that lender profits on force placed insurance in 2010 exceeded $5.5 billion. Force placed insurance has become so lucrative for lenders that many banks have scrambled to form their own insurance companies to optimally capitalize on this practice.
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