NewRez Settlement Highlights Need for Insurance Compliance and Oversight

NewRez LLC has reached a $15.5 million settlement with 48 state financial agencies over improper practices related to "force-placed" insurance on borrowers with valid homeowners insurance.

This significant resolution involves reimbursements to affected borrowers and commitments from NewRez to enhance its oversight measures. The multistate investigation exposed over 4,200 cases where NewRez unnecessarily added the more expensive force-placed insurance policies to accounts that already had adequate coverage, incurring costs exceeding $4.5 million. Such practices highlighted vulnerabilities in the administration of insurance requirements for mortgage servicers and underscored the need for rigorous compliance with regulatory standards.

Impact on Borrowers and Industry Implications

In Idaho, where NewRez operates as Shellpoint Mortgage Servicing, 16 borrowers received refunds totaling $22,419.20, averaging $1,400 each. Idaho's share of the settlement penalties and costs is $84,016.09. Salvador Cruz, director of the Idaho Department of Finance, commended NewRez's efforts to mitigate undue financial burdens on affected borrowers. This case illustrates broader challenges in the mortgage servicing industry regarding the proper management of insurance placements and borrower communications.

Force-placed insurance is implemented when a homeowner's policy lapses or lacks necessary coverage. Federal regulations mandate that servicers notify borrowers 45 days before imposing this insurance, with a subsequent notice 15 days before any charges to allow time for borrowers to provide proof of existing valid insurance.

Guidelines for Homeowners

• Regularly review mortgage statements to identify any unauthorized insurance charges.
• Update insurance providers with current policy information to prevent force-placed insurance errors.
• Verify the licensing status of financial entities using NMLS Consumer Access for compliance assurance.
• Contact the Idaho Department of Finance for inquiries about incorrect charges or settlement details at (208) 332-8000.

This settlement serves as a critical reminder for insurance agents, brokers, claims professionals, and compliance teams to ensure robust monitoring and adherence to regulatory requirements in insurance placements. As part of ongoing risk management, insurance entities should evaluate and strengthen their processes to prevent similar compliance issues. The NewRez settlement not only compensates affected borrowers but also emphasizes the importance of accurate and transparent insurance practices within the mortgage industry.