New York Investigates Home Insurer Payments to Banks New York State regulators are investigating whether banks received improper payments from two insurance companies that write policies for financially troubled homeowners, as part of their examination of the unusual web of business relationships between the companies. John Mendy, a homeowner, at a financial services hearing. Benjamin M. Lawsky, center, New York Department of Financial Services superintendent, at a hearing looking into payments. The two insurers, Assurant and QBE Insurance, control about 90 percent of the market for coverage known as force-placed insurance, which mortgage lenders take out when borrowers stop making payments on their homeowners" insurance. The state Department of Financial Services is looking into whether the insurance firms effectively bought their dominant positions by paying kickbacks to banks disguised as commissions or other business, according to the department's superintendent, Benjamin M. Lawsky. In three days of hearings that ended Monday, Mr. Lawsky said he was considering "whether banning these relationships makes sense." The department, which issued more than 30 subpoenas and other legal notices relating to the case last October, is also considering whether to require rebates for homeowners who were overcharged for the coverage. Consumer advocates at the hearing said force-placed insurance typically costs from three to 10 times the price of regular homeowners" insurance. Mr. Lawsky said the insurers appeared to be paying less than 25 cents in claims for every dollar of premium they received, an extraordinarily low loss ratio. After the hearings on Monday, Gov. Andrew M. Cuomo said his administration will continue to investigate the "lack of competition, high prices, and low loss ratios and take necessary steps to clean up this market." Representatives of banks and insurers who appeared at the hearing said their business relationships and the profits from them were appropriate and that they were cooperating with the department. Force-placed insurance has been extraordinarily profitable for banks and insurers in the last few years, generating $5.5 billion of premiums in 2010, according to Mr. Lawsky. Mortgage lenders have long required home buyers to buy enough insurance to cover the lenders" stake in the property, to protect their collateral from fires and other hazards. The contracts routinely allow for the lender to buy another policy if the homeowner lets his own policy lapse. The lender either uses money from the mortgage escrow account, or if that isn't sufficient, advances the money and gets reimbursed when the house is sold. The business came under scrutiny after the bursting of the housing bubble and the financial crisis, when more homeowners stopped paying premiums to save money, or when they defaulted on their mortgages. "I will never forget the ordeal CitiMortgage put me through," said Mary V. Burton, a social worker from Staten Island who bought her house in 1990 with a $76,500 mortgage. Ms. Burton testified that after losing her job in 2008, she fell behind on her insurance premiums. That entitled her mortgage servicer, CitiMortgage, to force-placed a policy on her house, but it chose one that cost three times as much as the policy she had let lapse. CitiMortgage paid the premiums by taking money from her escrow account, then demanded that she replenish the account or be declared delinquent. Later, with the help of a legal-services lawyer, Ms. Burton learned that the insurer, a subsidiary of Assurant, had issued coverage for the full replacement value of her house, $187,000, instead of the lender's stake, just $55,000, that it was contractually entitled to. "Their overpriced coverage caused me to experience a significant escrow shortage and is one of the reasons I fell so far behind," said Ms. Burton, who is still trying to renegotiate her loan. John Frobose, the president of the Assurant subsidiary that issued the policy on Ms. Burton's house, said he was pained to listen to complaints like hers, because he thought his company had a good record for accuracy and smooth dealings with customers. He said his clients, the banks, set high standards and would move their business elsewhere if they thought an insurer was failing to measure up.