Newrez agrees to $15.5M settlement over forced-place insurance

Newrez has agreed to pay $15.5 million to resolve a multistate examination that found the mortgage servicer improperly charged some borrowers for lender-placed insurance despite having evidence of existing homeowners insurance, according to a settlement agreement signed Wednesday.

The settlement agreement, reached with state mortgage regulators in 46 states and the District of Columbia, includes $9.9 million in administrative penalties, $1.09 million in administrative costs and $4.51 million in consumer relief that Newrez has already paid.

The New York State Department of Financial Services said in a release on Wednesday that Newrez has returned $409,026 to affected New York borrowers and will pay a $602,226 penalty.

“The Department is committed to protecting consumers and holding institutions accountable for their responsibilities to New Yorkers,” Acting Superintendent Kaitlin Asrow said in a statement. “I thank our partner agencies from across the nation for working with us on this multistate enforcement action.”

The examination, initiated in January 2022, covered Newrez’s mortgage servicing activities from Nov. 1, 2020, through Oct. 31, 2021. Regulators found instances of noncompliance with the Real Estate Settlement Procedures Act (RESPA) and Regulation X requirements governing lender-placed insurance.

“Newrez is pleased to resolve this matter with the MMC, which relates to issues identified several years ago that have since been addressed, including through remediation provided to affected borrowers,” the company told HousingWire.

“Newrez cooperated at all times with the investigation, put in place enhanced and forward-looking measures to address potential regulatory or consumer concerns, and appreciates the engagement and collaboration with its regulatory partners throughout this matter. We remain committed to serving our homeowners and partners with the high standards they expect.”

Force-placed insurance, also known as lender-placed insurance, can be obtained by a mortgage servicer when a borrower does not maintain required homeowners insurance and can be used when a policy is canceled, lapses or provides insufficient coverage. The coverage usually costs borrowers more than if they were to obtain their own insurance coverage.

The regulators said Newrez’s practices resulted in consumer harm totaling about $4.5 million. The settlement agreement says Newrez has already remediated all borrowers affected by the issues identified in the examination and subsequent audit.

Newrez neither admits nor denies wrongdoing or violations under the settlement agreement. But as part of the agreement, Newrez must conduct an additional self-audit of lender-placed insurance fees collected or refunded on newly boarded loans in participating states from Jan. 1, 2023, through the effective day of the agreement, according to the settlement agreement.

If the audit identifies borrowers who paid premiums or fees for improperly placed insurance, Newrez must refund the full amount they paid.

The company must also provide regulators with quarterly updates on its remediation efforts until affected consumers have been made whole, and it must implement enhanced servicing standards and conduct monthly testing of newly boarded loans with lender-placed insurance for one year. The testing must determine whether borrowers had valid homeowners insurance when lender-placed insurance was assessed.

If more than 5% of the loans tested contain errors, Newrez must report the failure to an executive committee representing participating state regulators and take corrective action.