Over the past few years the housing fiasco has elbowed millions of property owners and mortgage holders to mental regions they have never been to before. Plummeting home values have introduced them to the dark side of life that is totally new to them. Unable to make mortgage payments on time has tested their patience with the system many believe is working against them. Foreclosure is the word on their taut lips. A short sale could avoid that but then the horror stories associated with it – according to real estate aficionados - isn’t often a viable option.
It has been tough for so many. And then reports emerge that it has been even worse for scores of mortgage borrowers and homeowners than previously believed.
The reason is actually quite straight forward. And on the surface acceptable. When a homeowner is approaching the point of being unable to meet his mortgage obligation he is likely to cut off some other payments first, like the required home insurance for instance. If that happens the mortgage lender will take out a policy for him – it’s called a force-placed insurance - to protect everyone involved and then bill the owner for it. Fair enough. But this is where things have in recent years descended into a nasty money-grabbing scam.
The insurance bill sent to the already struggling mortgage holder could be double what it usually runs, or triple and has been reported to be even as high as ten times the normal cost. Yes it has. So where does all the excess loot go to? The insurance firm of course gets a fat premium and it also pays the home loan provider – frequently being its wholly owned subsidiary - an appropriate referral commission. Quite disturbing. The ugly word kickback somehow flutters into the picture. Almost 6 million of these products have been issued since 2009.
The mortgage banking industry has already earned a reputation of high greed and mismanagement and this just adds another chapter to that. It has dealt with the infamous robo-signing controversy, absorbed severe criticism over how incompetently it handles short sales, fought in courts over its role in improperly securitizing mortgage-backed paper in the secondary marketplace, hauled over the coals for poorly and often illegally executing foreclosures, the list is long.
The underhanded practice leaves the homeowner even less able to make his mortgage payments. What happened to the good-faith promise the lending sector has generally advertised about doing everything possible to work something out? In addition, it certainly could be another factor as to why people decide to walk away from their mortgage. The lenders are breezily advancing the notion that it is the consumer’s moral obligation to honor that mortgage no matter what. Interesting?
Federal and state regulators have been slow to catch on to this abuse. The Consumer Finance Protection Bureau has generated new rules that should help, as long as they are enforced properly. California, Florida and New York have passed regulations to curb the excesses. And recently the Federal Housing Finance Agency, or FHFA, the present boss of Fannie Mae and Freddie Mac, has stepped in to wrest back the hand that was hungrily reaching into disillusioned homeowners’ pockets.
When is the next money-grabbing scheme going to pop up?