Banks can (and do) force-place property insurance on borrowers when real estate is pledged as collateral.
Force-placing actually may be required under some sort of banking law or regulation. I worked at a bank for several years and loans that had real estate collateral were reviewed annually at the time property insurance renewed. If a borrower did not provide proof of insurance, the bank would call their insurance agent that day (no exceptions) and get a policy forced-placed on the property and bill the borrower. It was a super-big deal that all real estate secured loans had proper insurance coverage becasue the bank would get in big trouble if the auditors found out the bank had real estate loans on the books with no insurance coverage.
If you do opt-out of escrow, just make sure to have proof of giving the bank your insurance renewal info. Since the bank will be named as payee on the policy, an insurance certificate is automatically mailed to them but it would be a good idea of get a copy yourself and send it certified mail to the mortgage servicing department.
Make sure you read the fine print, I have heard some wacky stuff relating to extra to principle payments.
When we refinanced, I needed to contact a seperate department to get a form to start the extra to principle payments. Using that form, I needed to state the amount I was paying above the regular payment and that all extra monies were to be applied to principle. Not a huge deal but the bank sure didn't make it easy. I would need to do it again if I ever changed the extra payment amount.
I remember reading that some banks were changing customers a fee (like a $100) to set up an "extra" automatic withdraw, the bank would take the regular payment out of a checking or savings account but would count anything extra going towards principle as a seperate transaction. The bank used this seperate transaction as an excuse to charge a fee. The real motivation was to discourage people from setting up that extra principle payment.
Getting an attorney to review your loan docs might put your mind at ease.
I have yet to hear about it but a former co-worker from my banking days says they predict pre-payment penalties will eventually show up on home loans.
If you have a normal, conforming mortgage, chances are you won't have any problems.
So much of the current mortgage mess relates to people getting wacky loans - the no-money down deals, the adjustable rates, interest only payments and so on. Those were developed and packaged by shady mortgage originators. Outright fraud on the documentation side, borrowers or originators lying about income, falsifying documents, was another factor.