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Regulators Review Costs of Force-Placed Insurance

March 26, 2013 by Leave a Comment

That practice, known as force-placed or lender-placed insurance, has recently attracted the attention of federal and state regulators, who say that the policies often have premiums that are considerably higher than the policies they replace and might impose abusive costs on homeowners.

The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, the country’s two biggest mortgage guarantors, on Tuesday proposed a new rule that would prohibit insurance companies from paying sales commissions for force-placed insurance to lenders or mortgage servicers.

After a 60-day comment period, the agency will possibly revise its proposal, which will be issued before the end of the year, according to an agency notice.

“In the wake of the financial crisis, demands for lender-placed insurance have risen,” the agency said. As a result, so have expenses for Fannie Mae and Freddie Mac.

Several regulators, including the National Association of Insurance Commissioners, the Consumer Financial Protection Bureau and state attorneys general, have expressed concerns about “excessive rates and costs passed onto borrowers, as well as commissions and other compensation paid to servicers by carriers,” the federal agency said.

Last week, Gov. Andrew M. Cuomo of New York announced a $14 million settlement with Assurant, one of the largest providers of force-placed insurance. The settlement included several provisions that prohibit some commissions and expenses.

The settlement also required the company to file its rates with the state and allows New York insurance regulators to monitor Assurant’s practices.

“Our investigation found that insurers and banks built a network of troubling relationships and payoffs that helped drive premiums sky-high,” said Benjamin M. Lawsky, New York’s top financial regulator. “Those improper practices created significant conflicts of interest and saddled homeowners, taxpayers and investors with millions of dollars in unfair and unnecessary costs.”

The housing finance authority said that premiums for force-placed insurance were generally double or more the cost of insurance bought directly by a homeowner. Fannie Mae and Freddie Mac are affected, the agency said, when a bank or servicer pays the higher premiums and later, unable to recapture the cost from the homeowner, passes the expense along to the companies.

Article source: http://www.nytimes.com/2013/03/27/business/economy/regulators-review-costs-of-force-placed-insurance.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

A Deal on Foreclosures Inches Closer

January 24, 2012 by Leave a Comment

But a final agreement remained out of reach Monday despite political pressure from the White House, which had been trying to have a deal in hand that President Obama could highlight in his State of the Union address Tuesday night.

The housing secretary, Shaun Donovan, met on Monday in Chicago with Democratic attorneys general to iron out the remaining details and to persuade holdouts to agree with any eventual deal. He later held a conference call with Republican attorneys general. But as he renewed his efforts, Democrats in Congress, advocacy groups like MoveOn.org and several crucial attorneys general said the deal might be too lenient on the banks.

The agreement could be worth about $25 billion, state and federal officials with knowledge of the negotiations said, with up to $17 billion of that used to reduce principal for homeowners facing foreclosure. Another portion would be set aside for homeowners who have been the victim of improper foreclosure practices, with about 750,000 families receiving about $1,800 each. But bank officials said Monday that the total amount of principal reduction and reimbursement would depend on how many states eventually sign on.

The government and bank officials would speak only on the condition of anonymity because the discussions were continuing.

Tom Miller, the attorney general of Iowa, said Monday that an agreement with the nation’s five largest mortgage servicers — Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial — would not be reached “anytime this week.”

In a letter to administration officials, Senator Sherrod Brown of Ohio said the settlement as reported — its details were not fully known — was too small and would allow banks to pass on the cost of the settlement to “middle-class Americans” whose pension funds hold soured mortgage securities.

In addition to disagreements over the total amount, negotiations have been held up over the question of how much latitude authorities would have in pursuing investigations into mortgage abuses before the housing bubble burst in 2007. The banks are pushing for a broad release from future claims, but several attorneys general, including prominent figures like Eric Schneiderman of New York and Martha Coakley of Massachusetts, have demanded a tougher line on the banks.

Some state prosecutors have raised concerns that the settlement could prevent them from investigating broader claims.

Others have said that their citizens would be shortchanged if there were no guarantee that the relief would be distributed geographically.

This month, about 15 Democratic attorneys general who shared concerns about the course of the settlement talks met in Washington, including Ms. Coakley, Mr. Schneiderman, Catherine Cortez Masto of Nevada and Beau Biden of Delaware, who is a son of Vice President Joseph R. Biden Jr.

A week after the meeting, Mr. Donovan announced that a deal was “very close.” But none of those four attorneys general attended the meeting on Monday.

Neither did another important holdout, Kamala Harris, California’s attorney general, who opposed earlier proposed agreements.

In a bid to win support from California officials, Mr. Donovan proposed earmarking $8 billion in aid for beleaguered California homeowners, but that left other state attorneys general incensed, according to an official familiar with the negotiations.

“Attorney General Harris has consistently and repeatedly expressed concern about protecting her ability to investigate wrongdoing in the mortgage arena, and that remains a key lens through which she will evaluate any proposals,” her spokesman said Monday.

A spokesman for the Department of Housing and Urban Development declined to comment.

In a statement, Danny Kanner, a spokesman for Mr. Schneiderman, said “any settlement must not shut down ongoing investigations or release claims against the banks that must still be pursued.” Ms. Coakley also promised to continue to pursue her own lawsuit.

Whether California or other large states participate in an agreement will determine how much the banks agree to pay for the eventual settlement, according to bank officials.

Article source: http://feeds.nytimes.com/click.phdo?i=709dafbf9c7a9bd6416866ec5710c0d4

Filed Under: Business News Tagged With: , ,

Big Banks Penalized for Performance In Mortgage Modification Program

June 10, 2011 by Leave a Comment

As part of a new assessment of mortgage servicers, Treasury officials said they would withhold incentive payments for the three banks — Bank of America, JPMorgan Chase and Wells Fargo — until the problems are resolved. At that point, those payments would be made, a Treasury spokeswoman said.

In May, the three banks received $24 million in incentives as part of the modification program.

The Treasury Department has previously withheld payments from mortgage servicers, but Thursday’s action focused on some of the biggest players in the program. Called the Home Affordable Modification Program, or HAMP, it is voluntary for mortgage servicers. Nearly all of the nation’s largest banks have signed contracts to participate.

The Obama administration has long been criticized as being too easy on the mortgage servicers, and Thursday’s announcement did little to quiet that criticism.

Neil M. Barofsky, who resigned in March as special inspector general for the bank bailout, described the assessments and penalties as a “lost opportunity” to hold lenders more accountable.

“It further reaffirms Treasury’s long-running toothless response to the servicers’ disregard of their contract with Treasury, and by extension, the American taxpayer,” Mr. Barofsky said in an e-mail.

Timothy G. Massad, assistant Treasury secretary, defended the approach. He said the assessments of banks and other mortgage servicers “will serve to keep the pressure on servicers to more effectively assist struggling families.”

“We need servicers to step up their performance to meet the needs of those still struggling,” he said in a statement.

The mortgage servicers were evaluated on a scale of one to three stars during the first quarter on whether they had identified and searched for eligible homeowners; assessed homeowners’ eligibility correctly; and maintained effective program management, governance and reporting. Bank of America received the lowest grade, one star, on four of seven areas that were evaluated; Wells received one star in three areas; and Chase, in one.

A fourth mortgage servicer, Ocwen Loan Service, was also assessed as needing substantial improvement, but Treasury said it would not withhold payments to Ocwen because it was negatively affected by a large acquisition of mortgages to service.

Six other mortgage servicers were graded as needing moderate improvement. There were no servicers deemed as needing only minor improvement.

Wells Fargo issued a statement saying it was “formally disputing” the Treasury’s findings.

“It paints an unfairly negative picture of our modification efforts and contradicts previous written assessments shared with us by the Treasury,” said spokeswoman Vickee J. Adams, who said the criticisms were dated and did not reflect recent improvements.

Chase said it too had made significant improvements. “The bank respectfully disagrees with the assessment,” the company said in a statement.

Dan B. Frahm, a spokesman for Bank of America, said that the bank was “committed to continually improving our processes to assist distressed homeowners” through the federal modification program and its own internal program. But he added, “We acknowledge improvements must be made in key areas, particularly those affecting the customer experience.”

The modification program was created using $50 billion that was set aside from the bank bailout to help distressed homeowners. The idea was that the Treasury Department would provide incentives to mortgage servicers and investors to modify mortgages for struggling homeowners, rather than foreclose on them.

The administration predicted that three million to four million Americans would benefit, but so far, only 699,053 permanent modifications have been started.

To date, Treasury has spent about $1.34 billion on HAMP. One problem was that the mortgage servicers, at least initially, were not prepared to handle the onslaught of modifications, and homeowners complained that paperwork had been routinely lost and trial modifications had dragged on for months.

Article source: http://feeds.nytimes.com/click.phdo?i=c65c3a578a64bfc29284cfa8d9b41069

Filed Under: Business News Tagged With: , ,

Critical Reports on Banks Prompt Fall in Financial Shares

April 14, 2011 by Leave a Comment

A Senate report on Wednesday criticized ratings agencies and banks, like Goldman Sachs, for their practices during the mortgage crisis, while federal regulators also released a report saying that banks did a poor job of handling the flood of foreclosures. The regulators said they would impose penalties, without giving the timing or amount.

The banking sector was down almost 1 percent Thursday. Among the decliners were some of the 14 mortgage servicers that have signed consent agreements promising changes related to the regulators’ report.

“The uncertainty over this whole mortgage mess is contributing” to the decline in the financial sector, said Anthony G. Valeri, a senior vice president and market strategist for LPL Financial. “I think the market is waiting to see what the fines will be.”

“But it is a short-term concern for the market until we ultimately find out what the exact dollar amount is,” he said.

JPMorgan Chase, one of the servicers signing the agreement, said that it was adding as many as 3,000 employees to meet the new regulatory demands. Its shares were down 2.75 percent. Citigroup fell 1.3 percent; Bank of America was down 0.79 percent; Wells Fargo declined 1.7 percent, and Goldman Sachs lost 2.7 percent.

Indexes had been lower through most of the day but regrouped as the session neared a close. The Dow Jones industrial average closed 0.12 percent or 14.16 points higher, while the Standard Poor’s 500-stock index added less than a point and the Nasdaq lost slightly more than a point.

Alan B. Lancz, the president of Alan B. Lancz Associates, said the market might have gotten a late-day help from initial public offerings, like Zipcar, which was up 56 percent.

“As we headed into the last hour they were still showing significant gains,” he said. “That maybe gave a spark of catalyst to the buyers and that is why you see a fairly stronger day compared to what it looked like on the outset.”

Google also strengthened just ahead of its earnings, which supported the Nasdaq, he said.In addition, shares of consumer staples were up 0.56 percent as a sector, with Kraft Foods and Coca-Cola each gaining more than 1 percent.

While it was the banking sector that drew the most attention, analysts said other economic factors were at work.

Nomura analysts said in a research note that downward revisions to gross domestic product, negative revenue and loan growth, and an unpredictable regulatory backdrop have discouraged investors.

“We have spent the past few weeks on the road visiting investors,” the analysts said. “The overwhelming feedback on banks has been why bother.”

“It’s just hard to get people to care about bank stocks right now,” Nomura said.

An increase in unemployment filings last week also weighed on the markets as well as a monthly index on producer prices, which showed that energy costs were responsible for almost all of the increase in March.

Economists are concerned that increases in wholesales prices will be passed along and damp spending by consumers.

Recent downward revisions to economic growth, like that from the International Monetary Fund, may have damped sentiment, Mr. Valeri added.

But the bond market has benefited. The benchmark 10-year yields were little changed at 3.46 percent.

“We thought going into this week that it would be a tough week for Treasuries given the fresh supply,” Mr. Valeri said, referring to an auction of 10-year bonds. “A new theme emerging this week that seems to have trumped the data, and even the auctions, was the potential of a slowdown in the economy.”

Article source: http://www.nytimes.com/2011/04/15/business/15market.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,