Tag Archives: mortgages

FHFA Blocks Action to Protect Homeowners Against Insurance Ripoffs

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If you had to buy insurance, would you ask JP Morgan Chase or Wells Fargo to choose a policy for you? Probably not. And yet, the Federal Housing Finance Agency is allowing Chase, Wells and other mortgage servicing giants to insurance-shop for millions of homeowners who get saddled with absurdly over-priced coverage while the big banks walk off with kickbacks from the insurance companies.

Every mortgage holder is required to have homeowner’s insurance. Sometimes the insurance lapses or gets canceled, often without the homeowner’s knowledge, making it necessary for the mortgage servicer to step in and purchase a form of emergency coverage known as force-placed or lender-placed insurance. Such emergencies have become far more common since the onset of the housing crisis; and because force-placed insurance costs between two and 10 times as much as regular homeowner’s insurance, it can have the perverse effect of driving families into foreclosure or making it harder for them to obtain affordable loan modifications.

Of course, the servicers like this arrangement fine, because they receive all kinds of sweeteners from insurance vendors, with the added cost built into the price of the coverage. The high premiums are the homeowners’ problem – or the taxpayers’, if the added expense drives a borrower into foreclosure. In that case, Fannie and Freddie are legally bound to reimburse a mortgage servicer for all costs, fair or otherwise.

Although some state regulators have begun to crack down on this practice, the Federal Housing Finance Agency – the nation’s largest housing watchdog – has stymied the search for a solution.

Last November, Fannie Mae – fed up with the inflated cost of force-placed insurance – decided to purchase it directly from insurers instead of reimbursing servicers. That plan would have saved taxpayers $300 million, according to one Fannie Mae analysis. Stunningly, Fannie’s regulator – the Federal Housing Finance Agency – quashed this initiative without any explanation to the public.

The FHFA continues to dither instead of playing a constructive role in bringing relief to homeowners and taxpayers. The agency has signaled that it may soon take steps to prohibit some of the kickbacks plaguing the industry and driving up prices. These practices will be difficult to police, however, and insurance sellers could find new ways to compensate servicers that are not explicitly prohibited by the FHFA.

Instead, the agency should address the fundamentally bad incentives of this marketplace by allowing the GSEs to purchase affordable force-placed insurance policies directly from insurance companies, cutting out the kickbacks. As leading consumer groups explained in a letter to the agency this week, if the FHFA works with the GSEs, the tremendous purchasing power of Fannie Mae and Freddie Mac can be used to discipline mortgage servicers and force-placed insurance providers alike.

In fact, as the agency plans for the future and builds a new platform that Fannie Mae and Freddie Mac will use to conduct most of their business, the agency should build force-placed insurance options into the system, making this insurance easier to purchase and less expensive for the GSEs.

The nation urgently needs the FHFA to act as a responsible watchdog so that homeowners can focus on keeping their homes and the GSEs can effectively support a strong housing recovery.

— Sarah Edelman

Sarah Edelman is a policy analyst at the Center for American Progress. This piece was originally published on USNews.com.

Monitoring the Mortgage Agreement

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In February of 2012, the five biggest mortgage servicers signed on to a legal settlement with 49 states and the federal government. The servicers committed themselves to doing more and better mortgage modifications and using principal reduction as a tool. They also agreed to abide by a set of new rules designed to better protect homeowners.

In recent months, New York has threatened to sue Bank of America and Wells Fargo, while the attorneys general of Illinois and Florida have voiced concern that servicers are still not consistently following the new rules. Now the National Housing Resource Center (NHRC) has released a report documenting evidence of widespread noncompliance. The NHRC based its report on feedback from 212 housing counselors working with clients across 28 states.  An earlier survey by the California Reinvestment Coalition of counselors in California alone found similar results.

Here are some of the NHRC report’s most striking findings:

  • Mortgage servicers frequently take far beyond the mandated maximum of thirty days to respond to completed loan modification applications. Citibank’s review process, according to one counselor, “takes an average of 8 months to more than a year.”
  • Servicers routinely lose important documents and demand they be sent in again. Unexplained delays by the bank mean that borrowers must repeatedly update time-sensitive documents. Counselors complained of inefficient collection procedures, with one commenting (about GMAC/Ally Bank) that “Not all documents are scanned together at intake and often times they are lost and no one knows where the client is in the process ….”
  • Dual tracking – the servicer practice of moving forward with a foreclosure while the homeowner is actively seeking a loan modification – is unfortunately alive and well. “62% of respondents said that the mortgage servicers continued to dual-track at least ‘sometimes.’”
  • Qualified SPOCs (Single Points of Contact) are few and far between. The national settlement mandates that a borrower have consistent access to someone who is familiar with his or her case. In fact, servicers don’t always provide such a contact, and when they do, the SPOC often fails to return phone calls or isn’t knowledgeable about the borrower’s case. Speaking of Bank of America, one counselor said: “The voicemail machine is the only answer you get and there is never a call back within those 48 hours as they stated on their voicemail.”
  • Borrowers who don’t speak English face an uphill battle. According to the report, “Nearly half [46%] of counselors said their LEP clients ‘never’ received translated foreclosure-related documents and 76% of respondents said their LEP clients were ‘never’ or only ‘sometimes’ able to speak to a servicer in their native language or through a translator provided by the servicer.” Those with hearing and other disabilities are often literally ignored. “Servicers will typically hang up when they are ‘picked’ up by a relay call center for deaf/hearing impaired.
  • 29% of respondents believed that people of color must jump through extra hoops when trying to modify their loans. “Banks seem to take more time in doing work-outs with our white borrowers,” one respondent said. White borrowers “are sometimes offered services never offered to others.
  • Servicers often refuse to negotiate loan modifications with widows and surviving children when the deceased is the only name on the mortgage.  The Catch-22 in some of these situations is the servicer’s insistence that the mortgage be current before the inheritor can take it over and seek an affordable modification.

— Mitchell Margolis

Complete report is available at http://www.hsgcenter.org/wp-content/uploads/2013/06/NMS_Findings.pdf