Birnbaum says one of the major problems with force-placed programs is the high premiums, which he says is not justified by any evidence presented by insurers or lenders. Rates are excessive and the department has a statutory responsibility to protect consumers from excessive rates, he adds.

“Based on an 80 percent loss ratio standard, New York consumers were overcharged by about $500 million from 2004 through 2011,” Birnbaum says.

These insurance programs also lack coverage found in private policies that help consumers with losses related to personal property and added living expenses.

“The high premiums and low loss ratio are highly profitable for insurers and servicers,” notes Birnbaum.

The current revenue stream enjoyed by mortgage servicers and insurers amounts to a conflict of interest, he goes on to say. Eliminating the excessive rates charged would eliminate “kickbacks” the servicers receive for imposing these insurance programs on consumers.

Birnbaum says the department needs to require a yearly review of rates, especially when they have not reached an 80 percent to 85 percent loss rate.

“[Insurers] should not have been able to charge excessive premiums because of kickbacks to the servicers,” Birnbaum says.

Later during the hearing, Carrie Miller, an attorney for District 37 Municipal Employees Legal Services, said mortgage servicers discourage consumers from finding ways to get rid of the force-placed insurance.

Jona Cosio, an attorney for the Legal Aid Society in the Bronx, N.Y., said a homeowner she represents did not understand his insurance had lapsed, and his mortgage payments increased because of the insurance forced-placed on his home.

The attorneys say homeowners do not understand force-placed insurance or why premiums increase so dramatically—sometimes putting them into foreclosure because they can no longer afford to make the mortgage payments.

Miller says consumers don't understand that they can purchase insurance privately, thereby lowering their rates and ridding themselves of the expensive force-placed policy.

Earlier during the hearing, representatives from GMAC Mortgage and American Home Mortgage Services Inc. testified that only a small percentage of mortgage holders are put into force-placed insurance programs. As the lien holder, the servicers say they are obligated to make sure there is sufficient coverage on the property.

The executives described a system that advises consumers at least 15 days in advance of being put into a force-placed program. They said consumers have multiple opportunities to correct the record.

Joy Feigenbaum, executive deputy superintendent for the Financial Fraud and Consumer Protection Division of DFS, who chaired Monday's hearing in place of DFS Superintendent Benjamin M. Lawsky, said “there is a real disconnect between” what the companies say they do for consumers and the experience consumers relate to the department.