Force Placed Insurance Used As Excuse to Foreclose

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The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

Forced placed insurance is a mechanism by which the banks can force people into foreclosure based on collusive action between the insurer and the bank. If that happens then they  have unilaterally changed the APR and breached the contract. Demanding the payment and declaring a default based upon a false declaration of insurance failure or a false declaration of the cost of force-placed insurance could invalidate the note of default, the foreclosure, the sale and the eviction.

Sound crazy? That is because it is crazy, but nonetheless quite true. It has led to numerous civil prosecutions in various states where “lenders” have agreed to to reinstate loans improperly declared in default and in which the “lenders” paid tens of millions of dollars in fines and refunds. The bottom line is that they will do anything to get homes into foreclosure or to use the failure to pay insurance as a reason for declining a modification. It is a clear opening for borrowers to attack everything from soup to nuts because if the “lender” is demanding the wrong amount of money it not only invalidates the notice of default, the foreclosure and the sale, it  also violates the homeowners’ redemption rights.

The key to unlocking this particular version of bank fraud is to put pen to paper.  Figure out the (make a call) how much the premium should be on say a home that was mortgaged for $700,000. Then ask for the premium if the insurance was only $200,000. Anybody who reads this blog will know instantly that the amount of the insurance premium is going to be less when the insurer accepts a $200,000 risk instead of a $700,000 risk.

Here is where the sleight of hand comes in. We know that the insurance carrier is not going to pay more than the replacement value or fair market value of the house which ever is less (or more depending on the policy).

When the Bank “buys” insurance under force-placed insurance, it is “buying” a policy for a stated risk of $700,000, which is the amount of their loan. But both the bank and the insurance company know that the real risk has declined to $200,000.

The premium charged is for the $700,000 policy even though the  product sold (risk assumed by insurance) is only $200,000. THEN the bank puts a surcharge based upon the premium “paid” for the $700,000 policy.

But did they really pay for the $700,000? No, they split it up with the broker, the carrier and their own service department at the expense of the borrower who if they do reinstate is being price gouged and if they can’t pay the overcharge, they face foreclosure.

The insurance policy the borrower purchases is intended to cover the replacement cost of the house, not the mortgage. When the borrower misses a payment or fails to keep up the insurance the bank create a situation in which forced placed insurance is imposed at a multiple of the regular premium.

But it goes further than that. the original insurance premium was based upon a value placed on the house by the appraiser and which the bank used to find the initial loan.

Before the current era of mortgage madness, the likelihood that the house would be worth less at the time of foreclosure than the time of purchase was extremely low. The issue which I am discussing is not one which applies to the old mortgages, although the insurance premium included a surcharge that was force-placed placed and those could be considered unconscionable simply based upon the fact that the premium imposed by the bank was much higher than the premium which would have been charged directly by the insurer to the borrower.

In the current situation we have an entirely different set of facts which definitely creates an affect on the unconscionability of the insurance charge to the borrower or in force-placed placed insurance. where the replacement value of the home has declined substantially, the amount of insurance which the insurance carrier would carry as a risk is limited to the amount that would be required to replace a home.

This should result in a decrease in the premium at a time when the property was originally insured add a much higher value. Let’s take a case where the property was originally appraised at nine hundred thousand dollars and the price for the purchase of the property was $850,000 and we assume that the buyer put hey down payment of $150,000, the amount of insurance value for the bank was the amount of the mortgage which is $700,000.

At that point the insurance carrier has not done anything to verify the replacement value of the property. They are simply taking the closing documents as a representation of the fair market value of the property. But their liability is limited to the replacement value of the home.

If the fair market value of the property has declined to $200,000 and if we take that figure as the replacement cost of the home and the event of a total loss we can assume that the carrier will only cover the replacement value or $200,000.

The premium for a home insurance policy in which the risk assumed by the insurance company is $200,000 would result in a much lower premium than the premium that was originally charged when the insurer was taking on a risk of $700,000.

Since it is clear that both the insurer and the bank both know that the premium being charged to the borrower is for the $700,000 policy while the actual insurance is limited to a risk of loss of $200,000 an assessment of a premium based upon the $700,000 figure would be an overpayment, unconscionable, and probably in breach of contract as well as collusive in defrauding the borrower.

Adding the surcharge imposed by the bank for force-place insurance based on the premium for a $700,000 policy results in an insurance payment that is many times the actual amount of the premium that would be charged by the insurer to the borrower or the “bank.”

The insurer would simply pay the replacement value in the event of a total loss even know it had received a premium based upon a $700,000 value. The surcharge imposed by the bank for force-placed insurance would be based upon the premium for the $700,000 policy which we have just seen is fabricated. therefore using force placed insurance as an excuse for foreclosure leads to various defenses.

A similar situation arises in the case of title insurance. title: carriers will routinely deny coverage for any corruption of title caused by claims the resulting from supposed land transactions in which the loan was sold or securitized. A subpoena issued to the title insurance carrier would reveal that the reason they would deny coverage is that the chain of title was corrupted from the beginning and therefore misrepresented which induced the carrier to accept a risk of loss which was not was in the four corners of the insurance contract.

It’s by going after the nickles and dimes that things pile up and reveal wholesale fraud. Don’t take my word for it —figure it out for yourself. Nearly all force-placed induced foreclosures were the product of fraud and collusion and that is what states around the country are prosecuting, passing new regulations, and passing new laws. The refund is subject to contingency fees for the lawyer — another open can of worms with deep pockets and weak defenses.

Regulators Review Costs of Force-Placed Insurance


A widespread practice by lenders of buying often-costly insurance for mortgaged property and billing the owner is under scrutiny.

Message on the Forensic TILA Analysis — It’s a Lot More Than it Appears

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No doubt some of you know that we have had some challenges regarding the Forensic TILA analysis. It’s my fault. I decided that the plain TILA analysis was insufficient for courtroom use based upon the feedback that I was getting from lawyers across the country. Yet I believed then as I believe now that the only law that will actually give real help to the homeowners — past, present and future — is TILA, REG Z and RESPA. Once it dawns on more people that there were two closings, one that was hidden from the borrower which included the real money funding his loan and the other being a fake closing purporting to loan money to the homeowner in a transaction that never happened, the gates will start to open. But I am ahead of the curve on that.

For those patiently waiting for the revisions, I appreciate your words of kindness. And your words of wisdom regarding the content of the report which I have been wrestling with. I especially appreciate your willingness to continue doing business with us despite the lack of organizational skills and foresight that might have prevented this situation. I guess the problem boils down to the fact that when I started the blog in 2007 I never intended it to be a business. But as it evolved and demands grew we were unable to handle it without help from the outside. If I had known I was starting a business at the beginning I would have done things much differently.

At the moment I am wrestling with exactly how I want to portray the impact of the appraisal fraud on the APR and the impact on “reset” payments have on the life of the loan, which in turn obviously effects the APR. I underestimated the computations required to do both the standard TILA Audit and the extended version which I think is the only thing of value. The standard TILA audit simply doesn’t tell the story although there is some meat in there by which a borrower could recover some money. There is also the standard issue of steering the borrower into a more expensive loan than that which he qualified for.

The other thing I am wrestling with is the computational structure of the HAMP presentation so that we can show that we are using reasonable figures and producing a reasonable offer. This needs to be credible so that when the rejection comes, the borrower is able to say that the offer was NOT considered by the banks and servicers because of the obvious asymmetry of results — the “investor” getting a lot less money from the proceeds of foreclosure.

And THAT in turn results in the ability of the homeowner to demand proof (a) that they considered it (b) that it was communicated to the investor (with copies) and (c) that there was a reasonable basis for rejection — meaning that the servicer must SHOW the analysis that was used to determine whether to accept or reject the HAMP proposal. Limited anecdotal evidence shows that like that point in discovery when the other side has “lost” in procedural attempts to block the borrower, the settlement is achieved within hours of the entry of the order.

So I have approached the analysis from the standpoint of another way to force disclosure and discovery as to exactly what money the investor actually lost, whether the investor still exists and whether there were payments received by agents of the creditor (participants in the securitization chain) that were perhaps never credited to the account of the bond holder and therefore which never reduced the amount due to the creditor from the homeowner. My goal here is to get to the point where we can say, based upon admissions of the banks and servicers that there is either nobody who qualifies as a creditor to submit a “credit bid” at auction or that such a party might exist but is different than the party who was permitted to initiate the foreclosure proceedings.

The complexity of all this was vastly underestimated and I overestimated the ability of outside analysts to absorb what I was talking about, take the ball and run with it. Frankly I am wondering if the analysis should be worked up by the people who do our securitization work, whose ability to pierce through the numerous veils has established a proven track record. In the meantime, I will plug along until I am satisfied that I have it right, since I am actually signing off on the analysis, and thus be able to confidently defend the positions taken on the analytical report (Excel Spreadsheet) etc.



COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM

EDITOR’S NOTE: Amazing how our culture has been one of “entitlement.” No I’m not talking about social security, medicare or medicare, or fire departments, police departments or teachers. I’m talking about the fees that mortgage brokers have been paid to steer borrowers into loans that were guaranteed to fail or at the very least, had worse terms than the broker knew the borrower could get. The Wall Street mentality of get what you can has permeated the entire marketplace.

Broker Fee Rules Take Effect


THERE have been changes in federal rules covering how mortgage brokers are paid, and while legal challenges to them persist, the question now is how the new system will work in practice.

Regulators and consumer advocates say borrowers are bound to benefit. Broker trade groups say their industry will shrivel and consumer costs will go up.

Mortgage brokers are middlemen who work with multiple lenders to arrange home loans for customers. They say they add value by helping borrowers find the best deal; their detractors say they add costs that have been hidden in complex fees.

The business has contracted significantly in the last five years. In 2005, during the real estate boom, brokers accounted for 31 percent of mortgages originated, according to Inside Mortgage Finance, a trade publication. Last year it was just 11 percent, and the market was only half as big.

Brokers used to be compensated by a mix of borrower-paid origination fees and lender-paid fees. The most controversial was a “yield spread premium,” paid by lenders when a broker placed a borrower in a loan that charged higher interest than other loans. The justification was that higher rates allowed lower upfront closing costs. The criticism was that the premiums were an incentive to push expensive loans and that the system contributed to a flood of risky loans and thus to the financial crisis.

In response, the Federal Reserve put out rules that prohibit loan originators from being paid by both the borrower and lender on the same deal, and also barring commissions based on anything other than loan size. The rules were set to take effect April 1; two trade groups sued, delaying enactment a few days before a federal appeals court allowed it. Both the National Association of Mortgage Brokers and the National Association of Independent Housing Professionals say they will keep pressing their lawsuits.

On the front line, the problem is that there has been “no clear guidance” on exactly how to arrange commission structures for employees who originate loans, said Melissa Cohn, the president of the Manhattan Mortgage Company, a loan brokerage firm.

“To be honest with you,” she said, “in some cases it’s going to create higher-priced mortgages.” Although the spirit of the law is to protect borrowers, she added, “the reality of it is it’s just going to cause more confusion.”

Mike Anderson, the director of the National Association of Mortgage Brokers, speaking just two days after the rules went into effect, said: “It’s already happening. Rates have already gone up; fees have gone up.” Mr. Anderson, who is also a broker in New Orleans, cited situations in which brokers could no longer cut fees to make deals go through, and others in which banks were raising charges. “The rules basically pick the winners and losers,” he said, with the winners being the big banks. “The losers are the small businesses.”

The Facebook page of the National Association of Independent Housing Professionals is full of complaints from what appear to be mortgage brokers saying the rules will hurt their business, and recounting how unnamed lenders have raised prices.

Despite industry opposition, the change is a victory for borrowers, according to representatives of the Center for Responsible Lending, an advocacy group long critical of the yield-spread premium system. Borrowers “should be getting more honest services from the originator they’re working with,” said Kathleen E. Keest, a senior policy counsel, “because that originator is no longer going to have a conflict of interest if they put a borrower in a loan with a higher interest rate or riskier terms.”

“If people were saying that the way things worked, worked well,” she added, “that’s one thing, but it’s very clear the way things worked before didn’t work for anybody. The notion we need to have the same rules is denying what happened. It’s denying that the way the market was working was disastrous for everybody.”


COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM


EDITOR’S NOTE: If the FDIC is right then many WAMU loans were not sold into the secondary market, at first. Chase probably did that when they acquired the portfolio. So the securitization profile is a little different and perhaps a lot different than the usual scenario. BUT it is also clear that the TILA violations giving rise to right of rescission are basically admitted by the FDIC and stated as a matter of fact. So it looks like the WAMU originated loans should be more targeted to TILA violations and a forensic mortgage analysis to  back that up, than the other cases where the loans were table-funded at the outset. It also appears as though they knew and fully expected that the borrowers were being deceived as to value of the property and as to the actual APR. Common law and statutory actions for fraud would seem to apply.

[APPRAISAL FRAUD] 5.    Defendants knowingly pushed their Higher Risk Lending Strategy at a point in the housing cycle when prices were unsustainably high. WaMu focused its growth in a few geographic areas – notably California and Florida – where housing prices had escalated most rapidly and were most at risk for significant decline. Defendants thus gambled billions of dollars of WaMu’s money on the prospect that the Bank somehow would manage to avoid losses on higher risk loans to high-risk borrowers in high-risk areas, despite their own awareness of the inevitable decline in the overheated housing market.

Once the “housing bubble” burst, they each knew that borrowers faced with “payment shock” likely would default in large numbers because they would no longer have an ability to refinance, and that WaMu would incur substantial losses because the collateral for the loans would no longer be sufficient to pay off the underlying loans.

118. Later, after significant numbers of WaMu’s Option ARM loans became delinquent or defaulted, Schneider admitted that the Bank – contrary to the Guidance – had relied on the ability of borrowers to refinance their adjustable rate loans. In a November 2007 email to Killinger, Rotella, and others concerning loan workouts for borrowers in danger of default, Schneider admitted:
“None of these borrowers ever expected that they would have to pay at a rate greater than the start rate. In fact, for the most part they were qualified at the start rate. . . .When we booked these loans, we anticipated an average life of 2 years and never really anticipated the rate adjustments. [TILA VIOLATION — APR MISSTATED BASED UPON LIFE OF LOAN EXPECTED AT 2 YEARS INSTEAD OF 30 YEARS)”

1. Officer Stephen J. Rotella (“Rotella”), and Home Loans President David C. Schneider (“Schneider”) caused Washington Mutual Bank (“WaMu” or “the Bank”) to take extreme and historically unprecedented risks with WaMu’s held-for-investment home loans portfolio. They focused on short term gains to increase their own compensation, with reckless disregard for WaMu’s longer term safety and soundness. Their negligence, gross negligence and breaches of fiduciary duty caused WaMu to lose billions of dollars. The FDIC brings this Complaint to hold these three highly paid senior executives, who were chiefly responsible for WaMu’s higher risk home lending program, accountable for the resulting losses.

3.    In order to achieve this level of growth in its HFI residential loan portfolio, Defendants layered multiple risks on top of otherwise inherently risky loan products such as Option ARMs, Home Equity Lines of Credit (“HELOCs”), and subprime mortgages. Option ARMs – WaMu’s “key flagship product” – enticed marginal borrowers with low teaser interest rates and modest initial mortgage payments. But those loans often resulted in “payment shock” could not afford them and owed amounts exceeding the value of their homes. In addition, HELOCs were sold widely, creating many highly leveraged borrowers with home loans of 90 percent or more combined loan-to-value ratios. Furthermore, subprime loans were made to one of the riskiest segments of the SFR market, borrowers with poor credit scores and bad credit histories.

4. risky products with additional risk factors, including stated income and stated asset loans approved with little or no documentation (so-called “liars’ loans”); loans to borrowers with high debt-to-income ratios who often could not afford to repay those loans; and loans to speculators and second home buyers who had very little personally invested in the property. WaMu not only originated these multiple risk-layered loans for its HFI portfolio, but also purchased similar risk-layered loans originated by third-party brokers, correspondents and conduit channels over which WaMu failed to exercise proper quality controls.

22. In a June 2004 Strategic Direction memorandum, Killinger presented a newfive-year strategic plan by which WaMu would take on “more credit risk (with more home his vision to grow WaMu’s assets “by at least 10% per year, reaching about $500 billion in 2009,” and achieve an “average ROE [return on equity] of at least 18% and average EPS [earnings per share] growth of at least 13%.” [E.S.] He also set forth an annual goal for 2005 to “[i]ncrease residential mortgage portfolio (primarily option ARMs) by $25 billion.”

On June 1, 2005, Killinger authored a second Strategic Direction memorandum, in which he acknowledged the most speculative “housing bubble” in decades:

The macro factor that troubles us the most is the rapid escalation in housing prices. We are currently experiencing the most speculative housing market we have seen in many decades. Reports from many areas of the country confirm rampant speculation…. Whatever the exact outcome, it is highly likely that housing will not be a stimulant to the economy and could easily become a significant drag on consumer confidence and consumer spending.

That same day, June 20, 2005, the Bank’s Chief Enterprise Risk Officer again emphasized to Killinger and Rotella the need for continuing credit risk management in connection with the five-year plan, and stressed a number of “present day realities”:
•    Home prices increasing unsustainably fast

•    Negative amortization and payment shock potential in our primary
product,    Option ARM Adjustable Rate Mortgages

•    Increasingly liberal credit terms offered in the market include: interest-
only, 100% loan-to-value, sub-prime second mortgages, higher risk loan
types available even at low borrower credit quality, and

•    Housing speculation by non-owner occupied buyers.

78. The Chief Enterprise Risk Officer similarly noted in an April 2008 Enterprise Risk Management Report that “WaMu is much more concentrated in portfolio-held loans than other assets when compared to its top ten competitors; WaMu’s loan portfolio is twice as concentrated in real estate loans.”

[FRAUDULENT CONVEYANCE] 198. In or about August 2008, Kerry Killinger and his wife, Linda Killinger, transferred their residence in Palm Desert, California, to two irrevocable qualified personal residence trusts (“QPRTs”) named the “KK QPRT I 2008 Trust” (which appointed Kerry Killinger as trustee) and the “LCK QPRT I 2008 Trust” (which appointed Linda Killinger as trustee).
199.    In or about August 2008, Kerry Killinger transferred an undivided one-half interest in his residence in Shoreline, Washington, to his wife, Linda Killinger. Shortly thereafter, Kerry Killinger and Linda Killinger each transferred their respective undivided one- half interests in this residence to two irrevocable QPRTs named the “KK QPRT II 2008 Trust” (which appointed Kerry Killinger as trustee) and the “LCK QPRT II 2008 Trust” (which appointed Linda Killinger as trustee).


Securitization and TILA Audits: You Can’t Do One without the Other

Article below submitted From the desk of Brad Keiser:

Editor’s note: This is a perfect example of why ignoring the complexities of securitization leaves all the red meat on the table. The commingling of funds that is cited in the article below is exactly what I have I have been talking about , exactly why the pretender lenders balk at a full accounting, and exactly why a full forensic analysis (like the one Brad will be presenting later this  month) is essential if you are going to battle.

see: Brad Keiser\’s Forensic Analysis Workshop

It is not enough to know about securitization. You must understand what effect it had on the transaction. It sounds counter-intuitive to say that when you know the homeowner has not made a  payment, the obligation might still be considered performing and NOT in default because the payments were made to the creditor.

This does not automatically  mean that you get a free house. But it does mean that the real creditor who has advanced the money, the creditor that the debtor owes money to, is the real party in interest and they might no longer be secured depending upon the nature of the payment and the handling of the accounts — which is why I think that accountants would be ideal candidates for Brad’s workshop.

Securitized loans are not a separate animal from the discrepancies that are revealed in TILA audits. They impact the TILA audit in a way that dwarfs all other factors. Like the fact that the $5,000 yield spread premium paid to the mortgage broker is just a small fraction of the yield spread pocketed by the investment banking crowd behind the curtain.

And what about the very significant impact of those spreads and premiums combined with the impact of a reset on the life of the loan, and the false appraisal? The APR is misstated in virtually every securitized loan not by small amounts or fractions but by multiples of more than 100% of the loan principal in some cases.

Moody’s warns on GMAC mortgage bond servicing
Thu Mar 4, 2010 3:07pm EST
Related News

* Moody’s upgrades GMAC on US Tsy capital infusion
Fri, Feb 5 2010

NEW YORK, March 4 (Reuters) – Moody’s Investors Service on Thursday said it may downgrade portions of 125 residential mortgage bonds based on unusual “cash management arrangements” of GMAC Mortgage LLC, which services loans in the securities.

The rating company said GMAC commingled cash flows from multiple bonds in a single custodial account, Moody’s said in a statement. This allowed GMAC to use cash from loans in one bond for principal and interest payments on another, it said.

By allowing the commingling, it “increases the likelihood that some RMBS deals may not be able to recover the amounts ‘borrowed’ by the servicer to fund advances or another RMBS deal if a servicer bankruptcy were to occur,” Moody’s said.

This could give rise to competing claims in a bankruptcy proceeding, the rater said.

Downgrades based on mortgage servicing, rather than credit, may add to concerns of bond investors who have been long accustomed to harsh rating cuts as delinquencies and foreclosures increase losses.

GMAC Mortgage is a unit of Residential Capital LLC. Residential Capital is owned by GMAC Inc.

For some commentary see this link:

Brad Keiser


Foreclosure Defense: False Appraisal Creates APR Disclosure Violation

The inflated appraisals that run at the core of the mortgage meltdown context and crisis results in a number of claims against the lender, the appraiser, the mortgage broker, the real estate broker, the developer, and entities upline in the securitization process, plus the insurance companies carrying errors and omissions and other assurance on those participants.

Salient among these is the effect that the appraisal, known by those participants to have been inflated. Thus the borrower was taking a loss at closing without knowing it. This loss, while also considered damages if one is pleading fraud, produces a distortion of the annual percentage rate (APR) disclosure in the good faith estimate. Thus if the GFE states the APR at 6%, and the buyer loses $100,000 like a new car buyer driving off the lot, the interest rate on a 30 year mortgage would be at least 3% at variance with the disclosed APR.

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