Force Placed Insurance Used As Excuse to Foreclose

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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

By EDWARD WYATT

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

http://www.liveinsurancenews.com/force-placed-insurance-settlement-achieved-in-new-york/8522034/

Now It’s the Servicers Betting Against Homeowners

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Editor’s Analysis:

Start with some premises that were speculation but are now known to be true. First, banks and servicers need as many properties in foreclosure as possible. There are many reasons. The banks want it because it covers up the outright bold lies they told investors to get them to “buy” non-existent mortgage bonds most of which involved either no paper certificate at all or they were simply not worth the paper they were written on. Second, the bankers (management) could make a killing depressing Market prices and then relieving the pressure when they wanted prices to go up. Third, servicers make far more money in fees as long as they are “servicing” a loan in default because their fees are higher on loans in distress. Fourth in many cases the servicers actually get to “own” the property if the foreclosure sale occurs.

The tactic used now is that if you miss a mortgage payment or even if you don’t, the servicer can say they were required to obtain insurance on their own because you didn’t. This is forced place insurance and nearly all of it is a bold-faced lie. Now the servicer adds to your mortgage payment the cost of forced place insurance even if they paid nothing. If you are on the edge, the cost of forced placed insurance (many times 3-4 times normal rates) is the straw that breaks the camel’s back. The result? Many homes that were otherwise current in their payments end up in foreclosure.

This can be stopped. On challenge, most servicers back off of forced place insurance claims, but getting them to stop the foreclosure is more difficult — usually because by the time the homeowner challenges the forced place insurance some scheduled payments have been missed. But upon further challenge it can usually be shown that the scheduled payments were in fact made by the servicer to the creditor, meaning that the declaration of a default and notice of sale were bogus — just like everything else in this mess.

Servicers incentivized to bet against homeowners, may hurt housing

by Tara Steele

Insurance policies are not often pointed to as the problem with housing, but one news outlet says homeowners are being pushed off of the foreclosure cliff by force-place insurance.

Force-placed insurance’s impact on housing

“Force-placed” insurance, or property insurance the bank takes out for homeowners who miss an insurance payment has recently come under fire by Bloomberg News Editors1 who say the policies cover less and cost more, and will likely end up putting homeowners into foreclosure regardless of the force-placed insurance policies.

Deeper analysis of the forced-place policies revealed that the loss ratio is much lower than expected, in other words, the percentage of premiums paid out on claims is severely low, paying out $0.20 cents on the dollar, when the average $0.55 cents on the dollar payout of most other types of policies. The implication is that the insurance companies are charging extremely high premiums, and when the policies actually pay out, they barely cover the bank’s losses.

Bloomberg reports that banks not only receive commissions on the forced-place policies, they make even more money by re-insuring them, so the bank takes out a policy to protect the property but is making a more lucrative bet that the policy will never pay out. Fannie Mae has already instructed servicers of Fannie-backed loans to reduce the cost of insurance premiums, but Bloomberg implies that these directives are weak and more can be done.

Although the Consumer Financial Protection Bureau is looking into forced-place insurance, Bloomberg urges the CFPB to require all servicers to pick up the homeowner’s lapsed policy when possible, otherwise seek bids for lower cost options, and notes that Freddie mac should demand its servicers to get competitive bids on insurance policies.

The crux of the forced issue

The CFPB should investigate the commissions made by banks on these policies, says Bloomberg, as they are a major incentive to put homeowners into policies they cannot possibly afford. “Many homeowners who experience coverage gaps have severe financial problems that lead them to stop paying their insurance bills,” notes Bloomberg. “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.”

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.

FORCE PLACED INSURANCE COMES UNDER SCRUTINY IN NEW YORK

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EDITOR’S NOTE: Another example of the Banks claiming more than they are due. Force placed insurance is a game that the banks have been playing for years. They use any excuse possible to use it because they “buy” forced placed insurance to replace the insurance that had “lapsed.” Of course in most cases the insurance has not lapsed and the homeowner has not even received notice that there was a problem. In most cases the homeowner, when notified, corrects it and still finds that they now have a bill for an additional insurance policy whose premium is three times what they are paying to the carrier.

Needless to say, the reason for this practice is perverse incentives. The Bank often owns the insurance brokerage, but even if it doesn’t it receives a fee or kickback that is often equivalent to the regular premium. The perverse consequence of this is that at the time of foreclosure, a homeowner who is up to date on the insurance is forced into a position of paying the force placed insurance if they want to bring their payments up to date.

Big Banks Face Inquiry Over Home Insurance

By

SEE ENTIRE ARTICLE IN NEW YORK TIMES

A New York State financial services agency is investigating several large banks to see whether they fraudulently steered homeowners into overpriced insurance policies.

The investigation centers on so-called force-placed insurance that has become increasingly common since the downturn of the housing market began and homeowners had trouble keeping up with payments on their home insurance.

JPMorgan Chase, Bank of America, Citigroup and Wells Fargo are among the major companies involved in the inquiry by the office of Benjamin M. Lawsky, the superintendent of New York State’s Department of Financial Services, according to a person briefed on the investigation who asked to remain unidentified because the matter was private.

Mr. Lawsky’s office issued 31 subpoenas or other legal notices related to the case in early October, just as the state’s insurance and banking departments were merged under his new agency. His office has already turned up instances where mortgage servicing units at large banks steered distressed homeowners into insurance policies up to 10 times as costly as the homeowners’ original plans.

In some cases, those policies were offered by affiliates of the banks themselves, raising questions about conflicts of interest; in other cases, there may have been kickbacks between unrelated companies, according to the person briefed on the investigation.

Representatives of Citigroup and Wells Fargo said they were cooperating with the investigation. Bank of America said it could not comment “on an active matter” but that it had a practice of cooperating with investigators. JPMorgan did not comment.

The investigation is yet another legal battle for the nation’s largest banks and points to the sorts of problems they may continue to face nationwide. The banks, in separate negotiations with federal and state authorities over suspected foreclosure abuses, have been trying to negotiate a settlement with state and federal officials to avoid future investigations, but it is not clear if businesses like home insurance would be covered if a deal were reached.

It also points to one of the many problems that may be holding up the housing recovery. Some homeowners have found it more difficult to refinance their loans after banks tied this compulsory insurance to their loans.

In general, mortgage servicers are allowed to take out insurance policies on homes after a homeowner allows existing coverage to lapse. Though homeowners have little choice and sometimes little notice about the new plans, they often end up shouldering the costs of the insurance through their mortgage payments.

The increased cost is to be expected to some degree because homeowners who missed insurance payments on old policies are risky customers. However, Mr. Lawsky’s office views some of the increases as exorbitant. For instance, in one case his office is examining, a homeowner who paid $2,000 a year to State Farm ended up paying $6,000 a year to a new insurer.

Potential wrongdoing may occur when both mortgage servicing and insurance units are within the same company or affiliated in some way. That introduces a potential conflict because companies may have an incentive to place homeowners in policies offered by their affiliates rather than looking for the best rates on the open market.

David Neustadt, a spokesman for the state’s financial services department, declined to comment on the investigation, but noted that Gov. Andrew M. Cuomo had combined the state’s financial overseers to be able to take on what Mr. Neustadt called the “sometimes problematic overlap between banking and insurance.”

Force-placed insurance was a niche industry before the financial crisis, but it has grown drastically in the last few years. As homeowners struggle to meet their mortgage bills, they often lapse on their home insurance payments first. Banks typically insist that homes backed by their mortgages must be insured, so that they have a way to collect money if the properties are damaged.

In many cases, banks are servicing loans on behalf of mortgage security investors, and banks have a duty to maximize recoveries on behalf of those investors. Force-placed insurance is one way banks try to protect against losses.

The investigators are looking for the potential conflict at Bank of America involving a unit called Balboa Insurance that it owned until last year. That unit’s interaction with the bank’s mortgage servicing is an important focus for Mr. Lawsky, the person familiar with the investigation said.

JPMorgan is a focus of the inquiry because in recent years the bank held a small financial stake in an insurance company called Assurant on behalf of its clients, the person said.

Mr. Lawsky’s office is also investigating banks that do not own insurance companies to see if they received kickbacks for steering their mortgage clients’ business to particular insurers. His office has not yet reached a settlement in this area with a large bank, but some smaller players in mortgage servicing, like Goldman Sachs, have already agreed to his demands that they change their practices with force-placed insurance.

 

Customer Privacy Violations at Bank of America/Balboa Insurance

SEE ALSO 10-lies-we-live-by-and-should-stop-believing-if-we-want-this-to-stop

Does your bank allow their employees to take pictures while displaying your private and personal information? If you do business with Bank of America, Balboa Insurance, or any of their corporate clients, the answer is a resounding YES!

The below is one of many photographs posted to Facebook by Bank of America and Balboa Insurance associates taken while they are processing your claims and loans. Information on the computer monitor includes a customer’s full loan details, property address, loan number, social security number, etc.

Surely a bank this large would take better security measures with your private and personal information. If you’d like to see for yourself, visit any of Bank of America’s 3 insurance tracking centers (located in Ft Worth, TX, Chandler, AZ, and Moon Township, PA). The information is normally processed on the first floor, and the windows are always open (and not tinted in any way). You can sit across the street and photograph any private mortgage or auto information you want as long as you have a camera with a zoom.

I’ve worked for University of Phoenix, Verizon Wireless, MCI (post-Worldcom), American Express, Best Buy, etc, and never have I witnessed such blatant violations of customer privacy regulations.

Bank of America: A Peak Behind The Curtain of Corruption, Part 1

For the last 7 years, I worked in the Insurance/Mortgage industry for a company called Balboa Insurance. Many of you do not know who Balboa Insurance Group (soon to be rebranded as QBE First by Australian Reinsurance Company QBE according to internal communication sent to all Balboa associates) is, but if you’ve ever had a loan for an automobile, farm equipment, mobile home, or residential or commercial property, we knew you. In fact, we probably charged you money…a lot of money…for insurance you didn’t even need.

Balboa Insurance Group, and it’s largest competitor, the market leader Assurant, is in the business of insurance tracking and Force Placed Insurance (aka Lender Placed Insurance, FOH, LPI, etc). What this means is that when you sign your name on the dotted line for your loan, the lienholder has certain insurance requirements that must be met for the life of the lien. Your lender (including, amongst others, GMAC, Aurora Loan Services [a subsidiary of Lehman Bros Holdings], IndyMac Federal Bank [a subsidiary of OneWest Bank], Saxon, HSBC, PennyMac [a collection agency started by former Countrywide Home Loans executive Stan Kurland after CHL and Balboa were sold to BAC], Downey Savings and Loans, Financial Freedom, Select Portfolio Services, Wells Fargo/Wachovia, and the now former owners of Balboa Insurance themselves…Bank of America) then outsources the tracking of your loan with them to a company like Balboa Insurance.
Balboa makes some money by charging these companies to track your insurance (the payment of which is factored into your loan). If you do not meet the minimum insurance requirements set by your lienholder, Balboa Insurance places a force placed insurance policy on your loan. You are sent a letter telling you that you do not have insurance, and your escrow account is then adjusted for the inflated premium of a full coverage policy placed by Balboa’s insurance tracking group, run by Steven Ramsthel, Sr Vice President of Loan Tracking Operations & Customer Care at Balboa Insurance Group, as seen on his LinkedIn profile

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