March 10, 2010 -- There's some good news for the Ryan Family. After our calls to Chase, the company sent the family an application for a home-loan modification and the Ryans have been approved. Their $3,900-a-month mortgage payment has been modified to $1,410, which the family can afford, they said. The bank also lowered the annual interest rate on their home loan 5 percentage points to 3.35 percent annual interest.
"I'm happy that they finally agreed to work with me to help me save my home," Jim Ryan said.
Homeowners insurance serves two purposes -- it protects both the homeowner and the mortgage bank against a disaster. In this tough economy, more Americans have let their homeowners insurance lapse, but that decision has consequences. If they don't pay for coverage, their lenders will force a policy on them, at a much higher cost.
Joy and Jim Ryan experienced that scenario firsthand. The couple lives in Joy's childhood home. In 2008, Jim was laid off from his job. The loss of income made it hard to make mortgage payments, and the two began missing payments on their homeowners insurance.
The family says it had no choice and was paying all the bills it could. "I got laid off," Jim Ryan said, "so we started robbing Peter to pay Paul."
First, the couple's mortgage bank, Chase, sent warnings about the insurance, but then it took action. The bank announced it had acquired a new policy for the home from an outside insurance company, but the couple had to pay for it.
Bank-purchased Insurance Costs Double the Market Rate
The insurance is known as a forced-place policy, and it doesn't come cheap. The new policy cost the Ryan family almost $2,800 a year, twice the cost of its old homeowners insurance.
In addition to the cost of the policy itself, Chase -- a company that made an $11.7 billion profit in 2009 -- may have added a commission of its own. The insurance company that issued the Ryans' new forced place insurance told ABC News that it generally pays Chase a 15 percent commission on such policies.
The added cost upset the Ryans. "I think they are greedy, callous bastards. I hate them," Joy Ryan said. "They're gouging me for every penny I have."
Mortgage banks say that when they become aware that a homeowner's own insurance has lapsed, they alert the homeowner multiple times and strongly urge the homeowner to obtain his or her own coverage on the public market. If the homeowner doesn't, though, the banks say they're required to put insurance on the property that may cost the family more.
Insurance Industry Says Forced Place Policies More Expensive Due to Risk
The Insurance Information Institute, a group that represents the insurance industry, says the added cost all boils down to risk.
Robert P. Hartwig, president of the Insurance Information Institute, told ABC News that a forced-place policy is riskier because it must be placed on the home immediately. "If there is even so much as a day of lapse, that home can burn down and the bank would be out the home in terms of the collateral."
But insurance industry critic Bob Hunter, who's with the Consumer Federation of America, doesn't buy the risk argument.
"The forced-place insurance is slightly higher risk -- 2 percent or 5 percent," Hunter said, "but they aren't charging 2 percent or 5 percent more -- they're charging 100 percent or 200 percent more."
Critics Say Banks Profiting Off Struggling Homeowners
Hunter accuses the banks of buying insurance policies that give them the biggest kickbacks, instead of buying cheaper insurance that would save homeowners' money.
"This is unreasonable because the bank is making a killing on the backs of people who are hurting," said Hunter.
Hartwig said that he doesn't know about Chase's arrangement with insurers, and he's not familiar with other banks' policies.
ABC News asked Chase for an interview, but it declined and refused to confirm whether they are indeed charging commissions on already-crushing insurance costs.
In a statement, Chase said that if a homeowner doesn't obtain his or her own coverage, "the servicer is required to place insurance on the property that may be more expensive because we don't have the benefit of normal underwriting guidelines."
That's not good enough for the Ryan family.
"Banks don't care," Joy Ryan said. "They're hurting my children, ultimately. They're stealing their happiness, too."