New York banking regulators are investigating one of the nation's largest non-bank mortgage servicing companies, Ocwen Financial, over worries the company is bilking $65 million a year in kickbacks from both struggling homeowners and investors.
Watchdogs are scrutinizing the controversial, but common, practice of forcing homeowners to buy overpriced property insurance once they fall behind in their mortgage payments.
In a letterto Ocwen, New York's Department of Financial Services says the company essentially owned the insurance company allowing them to make money on both "commissions" and the premiums.
Consumer advocates worry that the steep prices of these policies make it harder for owners to get back on their feet. If homes do end up in foreclosure, it is the investors who end up getting slammed with these secretive policies.
"There needs to be some fee transparency of how much you're going to charge," says Laurie Goodman, Director of the Urban Institute's Housing Finance Policy Center.
"You wouldn't think about going into a supermarket or restaurant and not seeing a price in advance."
Goodman says these insurance policies, called force-placed insurance, are crucial to the housing economy. But, she says, without price transparency there is no incentive for the mortgage company to get a good price for the insurance.
Ocwen Financial did not immediately return phone calls.
