When a homeowner’s insurance lapses, gets canceled, or falls short of what a mortgage requires, the loan’s servicer is allowed to buy a replacement policy on the borrower’s behalf and add the premium to the mortgage bill. That backstop is commonly called lender-placed or force-placed insurance, and it typically costs far more than a policy a homeowner buys directly, since it is priced to protect the lender’s interest in the property rather than the borrower’s broader needs. Financial regulators in 46 states say NewRez LLC, one of the country’s largest mortgage servicers, charged that pricier premium to more than 4,200 borrowers nationwide who never had a coverage gap in the first place, because their own homeowners policies were already active.
A Multi-State Exam That Started With 2020 Loan Files
The finding traces back to a multi-state mortgage servicing examination that the Multi-State Mortgage Committee opened on NewRez in January 2022, reviewing loan files from November 1, 2020 through October 31, 2021. Examiners from Connecticut, the District of Columbia, Georgia, Iowa, Mississippi, Pennsylvania, South Dakota, the Texas Office of Consumer Credit Commissioner and Vermont conducted the review and issued a report of examination in September 2022 that identified violations of the federal Real Estate Settlement Procedures Act’s rule governing lender-placed insurance. NewRez, headquartered in Fort Washington, Pennsylvania, is licensed as a mortgage servicer in each of the participating states, according to the consent order.
NewRez neither admitted nor denied the examiners’ findings under the settlement agreement it eventually signed, which the document notes is standard for how these multi-state resolutions are structured. The agreement states that NewRez cooperated throughout the exam and had remediated all impacted borrowers before the deal closed, according to the settlement agreement and consent order NewRez signed with the participating states. Acting New York Superintendent of Financial Services Kaitlin Asrow, whose office helped negotiate the settlement, said the department is committed to protecting consumers and holding institutions accountable for their responsibilities to New Yorkers, according to the New York State Department of Financial Services.
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The $15.5 Million Splits Three Ways: Penalty, Costs and Refunds Already Paid
The settlement’s total figure divides into three pieces set out in the agreement. NewRez owes a $9.9 million administrative penalty split among the participating states, plus $1,088,757.84 in administrative costs to the states that ran the exam and negotiated the resolution. The remaining $4,511,242.16 is not new money changing hands: the agreement classifies it as a credit for consumer relief NewRez had already paid to affected borrowers before the settlement was finalized.
That means the money most closely tied to the erroneous charges, the roughly $4.5 million DFS describes as consumer harm, was returned directly to borrowers’ accounts rather than set up as a claims process. Neither the settlement agreement nor the New York announcement describes a form, portal, or deadline for a borrower to apply for a share of that amount, because the remediation happened while the exam’s findings were being resolved rather than through a later claims fund. The agreement also states it creates no private right of action, meaning individual borrowers cannot sue NewRez directly under its terms; any further relief runs through the remediation and self-audit process the state regulators already required.
New York’s $602,226 Share of the Penalty
New York’s cut illustrates how the national totals break down by state. The state is set to receive $602,226.09 of the administrative penalty, the second-largest state share behind Florida’s $1,667,906.09, according to the penalty schedule attached to the settlement agreement. DFS separately said NewRez had already returned $409,026 to affected New York borrowers, a figure drawn from the same nationwide remediation pool rather than a state-specific fund. As with the national remediation, New York borrowers were not required to file a claim to receive that amount; DFS describes the $409,026 as already returned.
New Testing NewRez Must Run Before Placing Coverage Again
Beyond the payments, the settlement requires NewRez to run monthly compliance testing on newly boarded loans that carry lender-placed insurance, checking a sample of loan files in every participating state to confirm a homeowner’s own policy was not still valid when the lender-placed coverage was added. If more than 5 percent of the sampled loans in a given month fail that check, NewRez is deemed to have failed the standard for that period and must report the miss to an oversight committee made up of regulators from the District of Columbia, Iowa and Massachusetts. If a loan fails the test, NewRez must cure the error by canceling the lender-placed policy and refunding every premium and fee the affected borrower paid.
NewRez has 90 days from the settlement’s effective date to put the new testing in place, and the standard stays in force for one year afterward. The company is also required to complete a separate self-audit of lender-placed insurance fees on loans boarded between January 1, 2023, and the settlement date, and to refund in full any additional errors that audit turns up.
Why the Coverage Itself Costs Homeowners More
The price gap between lender-placed insurance and a policy a homeowner buys directly is what turned the mistaken charges into measurable financial harm rather than a bookkeeping error. DFS describes lender-placed coverage as insurance a servicer buys to protect its financial interest in a property, covering hazard, flood or wind risk, and priced above what the same homeowner could typically find independently. For the more than 4,200 borrowers identified in the exam, that pricing applied to coverage sitting on top of homeowners policies that were never lapsed, canceled, or insufficient to begin with.
This article was produced with the assistance of AI and reviewed by The Financial Wire editorial team.
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Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
