November 29, 2023

Mortgages: A Settlement to Benefit Certain Borrowers in New York

An investigation by the New York State Department of Financial Services points to reverse competition as a major cause of the high prices. Force-placed insurers do not compete for business by luring consumers with attractive rates; they compete by offering lenders commissions, expense payments, and profit-sharing arrangements, which drive premiums up instead of down.

“The entity selecting the insurance company is not paying the premium,” said J. Robert Hunter, the director of insurance for the Consumer Federation of America and a longtime critic of the industry. “So they pick the one that gives the biggest kickback.”

Last month New York regulators announced plans to halt such practices, beginning with a settlement with one of the country’s largest force-placed insurers, Assurant. Under the deal, Assurant, which neither admitted nor denied wrongdoing, would pay the state a $14 million penalty, set up a system to compensate certain borrowers who were harmed, and end various payment arrangements with banks and servicers. The prohibition on payments would take effect only after the regulators, either through additional settlements or rule changes, made them applicable to every force-placed insurance company doing business in New York.

Complaints about the cost of force-placed insurance have simmered for years, but the issue gained prominence during the foreclosure crisis, when distressed homeowners found themselves further burdened by the policies’ big bills. “It was driving people into foreclosure and preventing people already in foreclosure from getting loan modifications,” said Justin Haines, the director of the foreclosure prevention unit at Bronx Legal Services.

Mr. Hunter says he sees the New York settlement as an important start to “a very strong trend.” California and Florida have also looked into industry practices and are acting to lower rates. And the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, has proposed a rule that would ban the payment of commissions to lenders and servicers for placing coverage.

The National Association of Insurance Commissioners held its own hearing on force-placed insurance last year. The “bottom line” for regulators is that they need to make certain that these carriers aren’t violating states’ rebating laws, which prohibit insurers from offering inducements to select purchasers, said Mike Chaney, the Mississippi insurance commissioner and the chairman of the association’s property and casualty committee.

In New York, regulators are also requiring Assurant to file a new premium that better reflects actual losses. From 2006 to 2011, very low loss ratios allowed the company to keep a much larger share of premiums than kept by standard home insurers, according to the investigation.

Also, some New York borrowers who were placed with Assurant policies will be eligible for refunds. To qualify, the policy must date no earlier than Jan. 1, 2008. Eligible homeowners fall into one of three categories: those who defaulted or ended up in foreclosure because of the policy; those charged for an unnecessarily high coverage limit; and those charged for a force-placed policy even though their voluntary coverage hadn’t lapsed.

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Bank of America to Triple Number of Mortgage Help Centers

The bank, which will announce the plan on Thursday, will focus on regions hit especially hard by the rising tide of homeowners struggling to make their mortgage payments. Seven locations will open in California and three in the Detroit area; other centers will be unveiled in St. Louis, Newark, Philadelphia and Tucson, among other cities.

Just over two million homes are in foreclosure nationwide, according to LPS Mortgage Monitor, and another two million borrowers are severely delinquent.

Additional centers may open later this year, the bank said. Counselors fluent in languages including Spanish, Korean, Vietnamese and Russian will be available for non-English speaking customers.

“There are some people that prefer a face-to-face experience,” said Rebecca Mairone, national mortgage outreach executive for Bank of America. “They prefer telling their story face to face or need additional information about documents or other counseling. We’re committed to helping distressed customers.”

Most of the counselors in the new centers will be transferred from other areas of the mortgage business, like sales and originations, which have slowed with the decline in mortgage demand.

Bank of America officials said their internal foreclosure procedures had changed in the wake of public criticism, and that the centers were being opened partly in response to customer feedback.

Despite the plans for the new centers, local housing advocates said they remained skeptical of the bank’s willingness to reduce loan balances or otherwise ease the terms of existing mortgages.

Bank of America, the nation’s largest mortgage servicer, and other major banks are overhauling their approach to dealing with distressed homeowners in response to pressure from regulators.

After a public uproar began last fall over problems in the foreclosure process, regulators in Washington and all 50 state attorneys general began a broad inquiry into servicing procedures. In particular, they looked at issues like frequently lost material and at cases in which bank officials reviewed thousands of documents a month with only a cursory glance, a practice known as robo-signing.

Fourteen servicers signed consent orders last month with federal regulators. The orders restrict foreclosure-related fees, and mandate servicers to provide a single point of contact for homeowners who are behind on their payments and an appeals process for borrowers whose first request for a loan modification was turned down.

Separate negotiations are still under way between the major servicers and the state attorneys general, who are pressing the banks to set aside billions to help distressed homeowners modify their mortgages.

Since January 2009, Bank of America has doubled the number of employees who deal with troubled borrowers, to 28,000, but critics say the process still leaves much to be desired.

“If they don’t change the way they interpret the rules for making modifications, the centers won’t make that much of a difference,” said Avis Holmes, executive director of the Detroit Non-Profit Housing Corporation, which provides counseling to homeowners in danger of default. “It seems like they’re more interested in ways not to fully implement modifications.”

Ms. Mairone said that Detroit would soon have three centers to help troubled borrowers, but said “many of these customers will not be able to get modifications.” Instead, she said, the local centers can ease the process, providing other options like allowing customers to sell their homes and pay back as much as they can without a foreclosure, a process known as a short sale.

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