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A couple of weeks ago, ABC News reported on yet another outrage by big banks in the mortgage foreclosure crisis: force placed insurance.

While many homeowners choose to place tax and insurance payments into escrow (so it is included in their monthly mortgage payment), some homowners do not have escrow accounts and choose instead to simply pay insurance and taxes on their own. However, if the homeowner allows the insurance policy to lapse, the lending bank is notified. The bank will then inform the homeowner that he or she must buy insurance, or the lender will buy it and add it to their monthly payment. If the homeowner does not purchase insurance in a timely manner, the bank will "force place" insurance on the property.

This all sounds fair, right? After all, insurance is required on a mortgaged property in order to protect the property owners as well as the bank. Banks should be allowed to protect themselves if a consumer doesn’t pay to insure a property. However, the ABC News piece reveals that force-placed insurance, just 2-5% more risky than other insurance according to the Consumer Federation of America, can cost up to 100% more than insurance homeowners puchase themselves. The story also claims that lenders will often insure properties with companies that give them the largest kickbacks, specifically pointing out that Chase is paid a 15% commission by at least one force-placed insurance company they use.

See the ABC story of the Ryan family below.

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