Massachusetts Attorney General Maura Healey said national mortgage lender and servicer HSBC has agreed to pay $4 million to resolve allegations involving force-placed insurance practices.
The settlement resolves allegations that HSBC received commissions and other “kickbacks” relating to force-placed insurance policies that it procured for struggling Massachusetts homeowners, Healey said.
Under the agreement filed Thursday, HSBC will provide $2.675 million in restitution to affected Massachusetts homeowners, and pay an additional $1.4 million to the Commonwealth of Massachusetts.
Healey said the settlement provides for refunds to thousands of Massachusetts borrowers who were improperly charged force-placed insurance premiums that included commissions or other payments to HSBC.
“Mortgage servicers should not enrich themselves through insurance products at the expense of struggling homeowners,” Healey said. “This agreement ensures that HSBC returns the money to Massachusetts consumers it received in violation of state laws.”
Force-placed insurance is property insurance that mortgage servicers obtain on behalf of homeowners when they believe homeowners have failed to maintain adequate homeowners insurance. Force-placement often occurs in circumstances in which a borrower has fallen behind on mortgage payments and other bills.
The attorney general’s office said mortgage servicers like HSBC often rely on force-placed insurance companies to monitor whether borrowers have maintained adequate homeowners coverage.
When a borrower is believed to have failed to maintain appropriate coverage, the insurer issues a force-placed policy and the mortgage servicer charges the premium for the policy to the homeowner.
Premiums for these force-placed policies are high, often as much as two- or three-times as expensive as voluntary insurance, and the coverage provided is limited, according Healey.
Until June 1, 2012, HSBC received compensation that was tied to the force-placed insurance premiums charged to HSBC’s borrowers, which the attorney general’s office alleges created an improper conflict of interest and violated state consumer protection laws.
An HSBC affiliate was allegedly paid commissions by the insurer Assurant Inc. for the sale of the force-placed policies despite the fact that HSBC’s affiliate did not perform any of the traditional functions of an insurance agent.
HSBC also participated in Assurant’s quota-share reinsurance program, which enabled its affiliate to share in the profits of Assurant’s highly lucrative force-placed insurance business, the attorney general’s office said.
Under the terms of the settlement, HSBC agreed not to accept commissions, profit-sharing, or reinsurance proceeds or any free or below market value services from insurers that it uses for force-placed policies on Massachusetts borrowers’ properties.
In November, an Assurant subsidiary entered into an agreement with the attorney general’s office to refund premiums to thousands of Massachusetts homeowners who were required to purchase unnecessary or overpriced force-placed insurance policies.