Banks Pushing Homeowners Over Foreclosure Cliff

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Editor’s Comment:

Whether it is force-placed insurance or any other device available, banks and servicers are pushing homeowners, luring homeowners and tricking homeowners into foreclosures. It is the only way they can put distance between them and the collosal corruption of title, the fact that strangers are foreclosing on homes, and claims of predatory, deceptive and fraudulent lending practices.

Most of those five million homes belong back in the hands of the people who lost them in fake foreclosures. And that day is coming.

Foreclosures are good but short- sales are better as those in the real estate Market will tell you. Either way it has someone other than the bank or servicer signing the deed to the ” buyer” and eventually it will all come tumbling down. But what Banks and servicers are betting is that the more chaotic and confused the situation the less likely the blame will fall on them.

Watch out Mr. Banker, you haven’t seen our plan to hold you accountable. You might think you have control of the narrative but that is going to change because the real power is held by the people. Go read the constitution — especially the 9th Amendment.

Look Who’s Pushing Homeowners Off the Foreclosure Cliff

By the Editors

One of the more confounding aspects of the U.S. housing crisis has been the reluctance of lenders to do more to assist troubled borrowers. After all, when homes go into foreclosure, banks lose money.

Now it turns out some lenders haven’t merely been unhelpful; their actions have pushed some borrowers over the foreclosure cliff. Lenders have been imposing exorbitant insurance policies on homeowners whose regular coverage lapses or is deemed insufficient. The policies, standard homeowner’s insurance or extra coverage for wind damage, say, for Florida residents, typically cost five to 10 times what owners were previously paying, tipping many into foreclosure.

The situation has caught the attention of state regulators and the Consumer Financial Protection Bureau, which is considering rules to help homeowners avoid unwarranted “force- placed insurance.” The U.S. ought to go further and limit commissions, fine any company that knowingly overcharges a homeowner and require banks to seek competitive bids for force- placed insurance policies. Because insurance is not regulated at the federal level, states also need to play a stronger role in bringing down rates.

All mortgages require homeowners to maintain insurance on their property. Most mortgages also allow the lender to purchase insurance for the home and “force-place” it if a policy lapses or is deemed insufficient. These standard provisions are meant to protect the lender’s collateral — the property — if a calamity occurs.

High-Priced Policies

Here’s how it generally works: Banks and their mortgage servicers strike arrangements — often exclusive — with insurance companies in which the banks agree to buy high-priced policies on behalf of homeowners whose coverage has lapsed. The bank advances the premium to the insurer, and the insurer pays the bank a commission, which is priced into the premium. (Insurers say the commissions compensate banks for expenses like “advancing premiums, billing and collections.”) The homeowner is then billed for the premium, commissions and all.

It’s a lucrative business. Premiums on force-placed insurance exceeded $5.5 billion in 2010, according to the Center for Economic Justice, a group that advocates on behalf of low- income consumers. An investigation by Benjamin Lawsky, who heads New York State’s Department of Financial Services, has found nearly 15 percent of the premiums flow back to the banks.

It doesn’t end there. Lenders often get an additional cut of the profits by reinsuring the force-placed policy through the bank’s insurance subsidiary. That puts the lender in the conflicted position of requiring insurance to protect its collateral but with a financial incentive to never pay out a claim.

Both New York and California regulators have found the loss ratio on these policies — the percentage of premiums paid on claims — to be significantly lower than what insurers told the state they expected to pay out, suggesting that premiums are too high. For instance, most insurers estimate a loss ratio of 55 percent, meaning they’ll have to pay out about 55 cents on the dollar. But actual loss ratios have averaged about 20 percent over the last six years.

It’s worth noting that force-placed policies often provide less protection than cheaper policies available on the open market, a fact often not clearly disclosed. The policies generally protect the lender’s financial interest, not the homeowner’s. If a fire wipes out a house, most force-placed policies would pay only to repair the structure and nothing else.

Lack of Clarity

Homeowners can obviously avoid force-placed insurance by keeping their coverage current. Banks are required to remove the insurance as soon as a homeowner offers proof of other coverage. But the system, as the New York state investigation and countless lawsuits have demonstrated, is defined by a woeful lack of clarity, so much so that Fannie Mae has issued a directive to loan servicers to lower insurance costs and speed up removal times. And it said it would no longer reimburse commissions. The recent settlement with five financial firms over foreclosure abuses also requires banks to limit excessive coverage and ensure policies are purchased “for a commercially reasonable price.”

That’s not enough. Tougher standards should be applied uniformly, regardless of the loan source. Freddie Mac should follow Fannie Mae’s lead and require competitive pricing on the loans it backs. The consumer bureau should require mortgage servicers to reinstate a homeowner’s previous policy whenever possible, or to obtain competitive bids when not.

The bureau should also prevent loan servicers from accepting commissions or, at the very least, prohibit commissions from inflating the premium. It should require servicers to better communicate to borrowers that their policy has lapsed, explain clearly what force-placed insurance will cost and extend a grace period to secure new coverage. Finally, states should follow the example of California, which recently told force-placed insurers to submit lower rates that reflect actual loss ratios.

Many homeowners who experience coverage gaps have severe financial problems that lead them to stop paying their insurance bills. They are already at great risk of foreclosure. Banks and insurers shouldn’t be allowed to add to the likelihood of default by artificially inflating the cost of insurance.

Cuomo Appoints New Cop: Homeowners Hopeful That Truth Will be Revealed

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Expanding Reach, Cuomo Creates Second Cop on Financial Beat

By

ALBANY — Benjamin M. Lawsky is not the attorney general of New York State.

But one could be forgiven for being confused. Since Gov. Andrew M. Cuomo installed him as superintendent of a new state agency, the Department of Financial Services, which became active in October, Mr. Lawsky has been making headlines normally associated with attorneys general.

He has forced insurers to turn over more than $100 million in unpaid death benefits to surviving family members, dispatched rafts of subpoenas to banks, and pressed lenders to curb abusive foreclosure practices.

Critics say the new financial services agency reflects Mr. Cuomo’s expansive view of his executive powers, which he has continually sought to strengthen during his 13 months in office. They also see an attempt by the governor to encroach on the turf of Attorney General Eric T. Schneiderman, a fellow Democrat with whom Mr. Cuomo has had a precarious relationship.

Supporters say it is an auspicious time to have two cops on the financial beat — after all, the agency, which subsumed the existing Banking and Insurance Departments, came into being as the Occupy Wall Street movement was finding its footing and focusing its critique on those very industries.

Mr. Lawsky, in his first few months on the job, is using a playbook that he helped write as a top lieutenant in the attorney general’s office when Mr. Cuomo held that post, gravitating toward headline-grabbing cases while looking for negotiated solutions with industry executives.

“We set our priorities here often simply based on what the big issues are,” Mr. Lawsky, 41, said in an interview. “Does that come from the world of Andrew Cuomo? Yes, because government shouldn’t be a waste of time. Government should be about making a difference in people’s lives.”

For his part, Mr. Schneiderman has not allowed himself to be rolled over.

Last year, he helped beat back an effort by Mr. Cuomo’s office to give Mr. Lawsky and the new agency even more expansive powers that would have cut into the heart of the attorney general’s jurisdiction. The governor’s proposal, which would have allowed Mr. Lawsky to investigate violations of the Martin Act, the sweeping state securities law used by former Gov. Eliot Spitzer and his successors to pursue financial malfeasance, alarmed Wall Street and even academics.

Writing in The New York Law Journal, Jonathan R. Macey, a Yale Law School professor, called it “a naked and highly suspicious power grab.”

And in a recent interview, John C. Coffee Jr., a law professor at Columbia University, put it this way: “Cuomo made his fame as attorney general, and he sort of treated that jurisdiction as portable and took it with him as governor.”

The Cuomo administration backed off, dropping the Martin Act provision. Nonetheless, the new agency, besides absorbing two major regulatory bodies, has gained a number of new powers. It has broader authority to fight fraud beyond the insurers and state-chartered banks it licenses, and its reach has extended to all manner of financial products, including student lending, credit cards and tax refund anticipation loans.

Eric R. Dinallo, a partner at Debevoise & Plimpton and former state insurance superintendent, likened the new agency to the Securities and Exchange Commission, in the way it combines regulation and enforcement under one roof.

“It’s not common to have a combined regulatory and enforcement function,” he said, adding, “It’s effectively very competitive with the attorney general’s jurisdiction.”

The two agencies are publicly cordial, but behind the scenes they are much like two boxers feeling each other out in an opening round. Already, turfs are overlapping.

Mr. Schneiderman, a liberal-minded attorney general, made a national name for himself in his first year by spurning a settlement that the Obama administration and other attorneys general had been negotiating with the banking industry over foreclosure practices. Then last week, President Obama, vowing to get tougher on Wall Street, reached out to Mr. Schneiderman, naming him co-chairman of a new financial crimes unit to prosecute large-scale financial fraud.

At the same time, Mr. Cuomo, in his State of the State address this month, turned to Mr. Lawsky, not Mr. Schneiderman, on the issue, directing the Department of Financial Services to create a Foreclosure Relief Unit. And Mr. Lawsky has moved on his own to secure deals with smaller lenders on curbing abuses.

Asked whether he supported Mr. Schneiderman’s stance on the national negotiations, Mr. Lawsky was noncommittal.

“We’re not commenting at all on the ongoing negotiations because we are at least tangentially a part of them and could ultimately be called on to sign or not sign,” he said, adding, “We want to see what the final proposal is.”

Danny Kanner, a spokesman for Mr. Schneiderman, said in a statement that the two offices “will continue to work together toward our common purpose of protecting consumers, investors, and the integrity of New York’s global markets.”

“In the aftermath of the financial crisis,” the statement said, “we need more willing hands on deck, not less, to meet that critical objective.”

Mr. Lawsky said he was learning to balance the roles of regulator and enforcer. And during his years as a top aide to Mr. Cuomo, Mr. Lawsky has been known as one of the relatively few administration officials to play nicely with others.

“A lot of people like to paint me as a tough guy because I’m a former prosecutor,” he said, adding: “You are being handed a huge amount of power over people’s lives and their businesses. It’s not something you willy-nilly bang people over the head with.”

Mr. Lawsky grew up in New York and Pittsburgh, received his undergraduate and law degrees from Columbia, and worked under four United States attorneys for the Southern District of New York, prosecuting everything from insider trading to terror and mob cases. He is a runner, but last had time to train for and run a marathon — the Marine Corps Marathon — in 2009. (His time was 3:40:17.)

Perhaps his most notable early achievement has been putting pressure on health insurers to make public proposed rate increases. But his office also pointed to early relationships he has formed with both industry executives and consumer groups.

Theodore A. Mathas, chief executive of the New York Life Insurance Company, said, “Ben is approachable, he’s a good listener and he’s quickly grasped a lot of complex things we’ve thrown at him.” Michael P. Smith, president of the New York Bankers Association, said, “We are very pleased with his performance.”

On the consumer advocacy side, Charles Bell, programs director for Consumers Union, said, “We’ve been pleased that they have reached out,” adding that a group of consumer advocates was meeting with the agency monthly on a variety of topics.

Mr. Lawsky does know how to answer the tough questions. During a recent online question-and-answer session with the public, the first questioner asked: “Mr. Lawsky, are you copying the governor’s hairstyle? It seems you have a similar look.” He replied: “That never occurred to me. It’s very flattering. Thanks.”

 

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