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?
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Provided by:
Esko Kiuru
Mortgage, real estate and apartment industry analyst
www.BluefoxToday.com - syndicated mortgage, housing and property management blog
eskokiuru@gmail.com
My cell: 702-499-1006
Esko, excellent article. I know "Balboa" home owners' insurance was an arm of CW and then became a subsidy of Bank of America when CW went defunct. This is exactly what happened to millions of homeowners with BOA servicing. This is sleazy business practice at best, in my opinion.
Force pay insurance is nothing new. It's rediculously expensive. I once had it placed on my home and it took me 11 months to straighten it out with the lender. I had insurance all along. Then the renewal came. Same thing. I refinanced. I was not going through that again.
Always something to frustrate already tough situations!
In these difficult times, there is always bigger companies looking to take advantage of those less fortunate. And it seems as though companies are becoming less and less competent. SAD.
This type of thing should be brought to the attention of the appropriate authorities and it really should come to an end. It is unfortunate that these things continue to be tolerated at the expense of folks who are struggling to meet their obligations.
Good article! Well traveled topic, but the 6 million products snipit is good info. Makes me think of the old "pick a payment" mortgages at closing with the optional term life insurance or the option to have your mortgage debt forgiven when you die.
Esko, it seems there is no end to miseries of those poor home-owners who were scammed - once again!
there are dozens of schemes in the making...that is for certain. The distressed real estate environment has given birth to so many shcemes and scams that no one could ever count them all
Homeowners facing foreclosure do have many challenges ahead. Most of them are not paying the insurance as well as the mortgage and may other bills. Therefore, the bank ends up with paying the home insurance. So even if the insurance companies are charging extra it is the banks that are going to eat the cost.
For non-distressed property homeowners it is wise to shop around for home insurance. Although my bank sets up an escrow to pay for home insurance. I can still choose which insurnace company to use.
One more list of problems that we agents encounter with the banks.
Fantastic article!!! There are extreme cases of wanton misdeeds on the part of investors and lenders sometimes. As a side story, I had a house that was "winterized" by the lender. My sign was prominently displayed and the lockbox was on the door. The lawn was freshly mowed and the windows were all protected from outside view. The home was vacant and we made sure the lender knew but that servicers such as gardners and pool people would be there on a continual basis to take care of the house.
The "agent" left 3 stickers on the outside windows claiming the house was vacant and or abandoned without calling me. That caused the house to be broken into and me begging the lender to stop posting those stickers. The electricity, gas was on and even after I sent this to them showing them the intent of the homeowner to still maintain continued with stickers. I finally had to threaten to call the police and file a report against the company "winterizing" stating that they were the people who was causing the breakins. That finally did it!
This last year has been an uphill battle with all investors and lenders in short sales with very little making sense.
I had no idea of the homeowners insurance scam!! Geez that borders on a RESPA violation. What a shame. It's no wonder that we see foreclosures in such horrible shape and why they become so angry. Thanks for sharing this unique knowledge!
I am really surprised that not one person went to jail over the whole economy collapse. Very sad to see all the scheming these lenders do.
Lots of allegations about many issues and entities yet most were standard operating procedure until Congress changed the laws, rules and regulations. Some provocative comments about consumers who entered into mortgages who lacked the education to comprehend variable rates, terms and conditions or the experience and wisdom to hire a professional to guide them through a mortgage process to prevent them form financial damages. The SAFE Act has been around for some time now and the abuses that you allege has almost been eradicated unless you have data to prove otherwise.
Finally, when the homeowner ceases to pay the mortgage and the homeowners insurance, the investor has to protect his equity and gets insurance on the property. Will the homeowner pay the new premium if he has already stopped payments on the mortgage or his homeowners insurance premium? You refer to this scenario as a scam, yet who is getting scammed?
This it so real and very sad for homeowner's for keep their homes...Great Article Esko! Thank you for excellent blog post!
So sad but true. Forced placed insurance has been around for a long time and really is always the most expensive. They take all comers with no investigation, so they charge the most. It is also easy to turn it into a revenue maker for the lender that owns their own Ins. Co. HMMMMMM....conflict
Very interesting article - the homeowners really are not out any money - just the banks, from what I can understand. If the banks own the insurance company, I guess it would be pretty wicked ....
Hi Esko,
So many scams, so little time ; ) I don't mean to poke fun, but if we don't laugh a little bit, we all might lose our minds with all of this nasty business going on around us. It's all very sad and, as you mention, one of the reasons that homeowners can't catch up, once they've fallen behind.
Thanks for the very interesting post and congratulations on the well deserved feature!
Gina
okay so if you have an escrow for insurance this won't happen.
a referral fee paid to a mortgage lender is an inducement to do business, wouldn't you think. if this can be documented, wouldn't that be a RESPA violation? formal (written) complaints should be filed if this practice exists
Often the forced placed policies are some of the worst coverage you can get.
as long as there is a loophole the servicers will find it ... I wonder when they will look at how impound accounts are handled ... or is that too worry some to even tackle? ...
Hi Esko, we agree, this recession has caused a lot of stress on way too many people.
Homeowners should get a rental estimate for their property before considering a short sale OR going into foreclosure...by renting their home, downsizing their living accommodations they may keep their property AND credit
Yes there are a surplus of parasites in this industry that should be behind bars, unfortunately they are a lot sharper than our government officials ever will be.