New York Presses Citi Unit on Force-Placed Insurance Probe

February 8, 2012

New York regulators urged Citigroup Inc.’s mortgage unit on Wednesday to stop resisting and comply with a subpoena related to an investigation of the force-placed insurance industry.

In January, the New York Department of Financial Services issued subpoenas to roughly two dozen insurers and mortgage servicers, including Citigroup’s Citimortgage unit, looking for evidence of abuses in the market.

Force-placed insurance has long been controversial because homebuyers are forced to purchase such policies, which protect their lenders, and the costs are typically much higher than traditional homeowners’ insurance.

In many cases, the policies are sold by insurance companies owned by the lenders, or by insurers with whom the lenders have a financial relationship.

Citimortgage’s objection apparently stems from a request for documents that were created prior to the effective date of the Dodd-Frank financial reform law, which was signed into law in July 2010.

In a letter to Citimortgage’s lawyers, a copy of which was obtained by Reuters, the department disputes Citi’s assertion that it does not have to produce documents from before that effective date.

“It is telling that Citimortgage is raising such specious objections to the production of documents in an investigation which has thus far raised numerous conflicts of interests and potential unlawful practices that have had a large impact on the foreclosure crisis in this state and throughout the country,” the department’s executive deputy superintendent, Joy Feigenbaum, said in the letter.

“I request that you immediately proceed with the production of all relevant documents demanded in the subpoena.”

In a statement, Citi said it has been in ongoing discussions with the Department of Financial Services, some as recently as Wednesday, and that it was surprised by the letter because it had indicated it would respond voluntarily to the subpoena.

“We have not filed any objection or response to the subpoena, and in fact, a response is not yet due,” the statement added.

The department also sent a letter on Tuesday to insurer Assurant Inc. related to the force-placed probe, alleging that it has been destroying emails in violation of state law and ordering it to stop or face, “severe monetary and non-monetary penalties.”

Assurant said in an SEC filing on Wednesday evening that it received subpoenas from the Department of Financial Services. The company added that it disagreed with the New York regulator on its document retention practices, but had modified those practices to comply with the state’s requests.

Among the other institutions that have received the requests for information are HSBC Insurance of Delaware, Residential Capital LLC and Suntrust Banks Inc.

ResCap has confirmed it was subpoenaed and was working to respond. Suntrust and HSBC have declined comment.

The investigation is the latest push by DFS, created last year by merging New York state’s banking and insurance departments, to crack down on alleged abuses in the insurance industry.

Last year, the department said it had prompted insurers to pay out more than $52 million in claims by pushing them on their use of a government database of death records.

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