Nationstar Mortgage has agreed to pay $77 million to settle class-action suits filed by homeowners over the alleged inflating of homeowner insurance rates, according to media reports.
The Nationstar settlement was approved earlier this week; combined with a similar lawsuit against Ocwen Loan Servicing (part of Ocwen Financial Corp.) that was settled in September, the two servicers will pay a combined total of $217 million to more than 1 million homeowners.
The homeowners sued Ocwen and Nationstar, two of the country’s largest mortgage servicers, over what foreclosure defenders call “force placed insurance.” Third parties were searching the records of lenders and servicers to find homeowners who either had no insurance coverage or sufficient insurance coverage to satisfy their mortgages, according to a report from the Daily Business Review.
The class action suits claim the insurance policies were automatically issued to homeowners at rates approved by lenders, which were much higher than market rates. Homeowners claim they did not have a choice in the matter, hence the term “force placed insurance.” Lenders call the practice “creditor-placed insurance.” According to the homeowners, lenders made as much as 25 percent commission from the insurers in some cases while homeowners struggled to pay the bill for the inflated insurance premiums during the financial crisis.
U.S. Magistrate Judge Jonathan Goodman of the U.S. District Court for the Southern District of Florida (in Miami) approved the Nationstar settlement on Monday, November 10. He approved the Ocwen settlement Sept. 14. According to the report, he wrote in his statement for Ocwen that, “The settlement is generous to class members, providing relief approximating a trial win and for many class members exceeding a trial win.” The Ocwen settlement pays homeowners 12.5 percent of the net insurance premium.
The deals provide $140 million in monetary relief from Atlanta-based Ocwen and $77 million from Dallas-based Nationstar, revising practices that once allowed lenders and servicers to benefit from collateral protection insurance.
Nationstar did not immediately return the request from DS News for comment. Ocwen spokesman John Lovallo said, 'We were pleased when the United States District Court for the Southern District of Florida issued its final approval on this settlement in September 2015. The Company established a reserve for its portion of the settlement during the third quarter of 2014, and believes that it is adequately reserved. We look forward to returning our full focus to what we do best – helping homeowners stay in their homes.”
Both Nationstar and Ocwen had a rough third quarter financially. It has been tough for Ocwen since December of last year, when it agreed to a $150 million settlement with the New York Department of Financial Services over erroneously dated foreclosure notices issued to borrowers. That settlement included the departure of Ocwen’s chairman, Bill Erbey, who founded the company in the mid-1980s. In Q3, Ocwen laid off about 300 employees—about 10 percent of its U.S. workforce—and posted a net loss of $66 million. Likewise, Nationstar also posted a net loss of $66 million in Q3.