"Let the truth be known
But they talked that freedom at us
And didn't even leave a ladder" Lil Wayne, "Tie My Hands"
NEW YORK (MainStreet)I constantly hear banking and insurance industry professionals stating that only 1% of loans in their loan portfolios have force-placed insurance as a way of defending the practice. According to the Census Bureau, this equates to 7.56 million American citizens being price gouged. That the banking and insurance industries consider this staggering number to be inconsequential isn't even the disgusting part.
The statistics they provide to back this up are a fallacious argument. Banks only report 1% of their loan servicing portfolios as having force-placed insurance, because the product is four to ten times more expensive than a regular homeowner's policy (as reported by Birny Birnbaum during the NY Department of Financial Services hearings on the product, the transcript of which can be viewed here), and it leads people to foreclosure. This allows the bank to remove that homeowner from its portfolio and not include them in the reporting. Allow me to illustrate:
It's also important to know that escrow accounts are a prepaid account for insurance. What this means if you have an escrow account is $75 per month of your mortgage payment goes into an escrow account held by the bank (the bank accrues interest on this account that is opened in your name, but you do not), and at the end of the year, the bank uses these funds to pay your $900 premium (pocketing any interest accrued).