Look Who’s Pushing Homeowners Off the Foreclosure Cliff

[marmar]

(Bloomberg) One of the more confounding aspects of the U.S. housing crisis has been the reluctance of lenders to do more to assist troubled borrowers. After all, when homes go into foreclosure, banks lose money.

Now it turns out some lenders haven’t merely been unhelpful; their actions have pushed some borrowers over the foreclosure cliff. Lenders have been imposing exorbitant insurance policies on homeowners whose regular coverage lapses or is deemed insufficient. The policies, standard homeowner’s insurance or extra coverage for wind damage, say, for Florida residents, typically cost five to 10 times what owners were previously paying, tipping many into foreclosure.

The situation has caught the attention of state regulators and the Consumer Financial Protection Bureau, which is considering rules to help homeowners avoid unwarranted “force- placed insurance.” The U.S. ought to go further and limit commissions, fine any company that knowingly overcharges a homeowner and require banks to seek competitive bids for force- placed insurance policies. Because insurance is not regulated at the federal level, states also need to play a stronger role in bringing down rates.

All mortgages require homeowners to maintain insurance on their property. Most mortgages also allow the lender to purchase insurance for the home and “force-place” it if a policy lapses or is deemed insufficient. These standard provisions are meant to protect the lender’s collateral -- the property -- if a calamity occurs. ...............(more)

The complete piece is at: http://www.bloomberg.com/news/2012-05-06/look-who-s-pushing-homeowners-off-the-foreclosure-cliff.html

[JHB]

1. "when homes go into foreclosure, banks lose money" -- maybe ordinarily, but not these days...

For example...

According to Realtor Carol Engler, the reasons for our seemingly perpetual housing crisis lie with current bank practices and the incentives they have to quickly foreclose on a property.

“The banks are immune to what's happening. They don't have any reasons why they should get on board with the modification programs or to help people stay in their homes,” Engler said. “The banks have all the advantages now.” Engler said the advantages that banks have — insured mortgages, federal handouts, etc. — make it more cost effective for them to foreclose on a house than to work on a modification.

When a bank tenders a mortgage without a 20 percent down payment, they typically require the borrower to take out a private mortgage insurance (PMI) policy intended to offset the losses a lender incurs if a borrower defaults. So if a person gets behind on their mortgage payments, there is little reason for a bank to enter into a protracted negotiation with the homeowner because any loss is covered by the PMI. And if a particular PMI covers only a percentage of a bank's loss, there are plenty of federal dollars flowing through Fannie Mae and Freddie Mac to make up the difference.

“One bank told me flat out they would rather foreclose because it's easier and cheaper than spending months going back and forth with a homeowner,” Engler said.

http://www.yumasun.com/articles/banks-76431-bank-engler.html

Not trusting this this to be the whole story, but with the sort of non-traditional practices that fueled the RE bubble, it's not surprising that traditional solutions aren't happening either.

[JDPriestly]

9. Excellent point about the PMI insurance.

It makes it more difficult for young couples and families to buy houses and thus, pushes the housing prices down. Even if you never miss a payment, you have to stay in a house for years before you can afford to move.

Meanwhile banks got bailed out. We got sold out.

[dixiegrrrrl]

14. I have no PMI, no escrow on my mortgage. But BOA keeps trying to forceplace insurance on us.

Even if you pay 20% or more down, you have to stipulate no PMI, no escrow, and self insurance.
The lender may balk at this or try to charge extra for it, but they can be argued with.
The major reason to try to gt 20% down is to avoid the escrow and PMI, since YOU pay for it out of the payments
and banks mess up the escrow account all the time. ( been there, down that with my first house).

Forceplaced insurance is an old game, and illegal, actually.

[secondwind]

2. They're probably planning to buy up everything in sight. BASTARDS!

[slackmaster]

10. Yup, they may lose money on every foreclosure, but if they foreclose on everyone they'll make it up

...in volume.

[secondwind]

3. We need more folks like George Bailey !!

[Fuddnik]

4. Florida will fix it right after Hell freezes over.

We probably have the most corrupt legislature in the country.

Over each of the last four years, Wells Fargo has tried to make me buy forced place insurance at exorbitant rates, even though I'm carrying full replacement value homeowners and flood insurance, equal to more than double the mortgage balance.

Each year, they charged it to my home equity line. Eventually after fighting them for several months, they reversed the charges. This year, I started a pre-emptive attack on them, and it appears to have worked.

[mrdmk]

5. If you look closely at the insurance company that Wells Fargo contracts with

you will find that Wells Fargo and your new insurance policy are the same company! What a joke...

[FailureToCommunicate]

7. Wells Fargo just started something similar with our refi...

claiming first that we had not renewed our policy - which is ridiculous on the face because a mortgage or refi won't close unless you do have HO insurance- but then Smells Fargo did the insisting on "super" wind coverage(again which was already covered). The tip off was that the letters say we can get this wind coverage from OTHER agencies...that charged much larger premiums for that specialized coverage.

So...you say you started pre-emptive actions back at them. I would welcome any advice on what worked.

[Honeycombe8]

6. How can this be legal? This is horrible. nt

[xchrom]

8. Du rec. Nt

[slackmaster]

11. Homeowner's insurance is one thing a homeowner should never try to go uber-cheap on

Get a decent policy from a reputable insurance company, and make sure to get a policy that realistically covers your potential liability.

[Pachamama]

12. Our Mortgage Lender forces us to have flood insurance at $1600 a year

We live in a flood zone.....had a flood 7 yrs ago in which we we incurred so much damage the house had to be completely re-built. We elevated this house and built it so it is at least 3 feet above the highest ever recorded flood level. Has a solid concrete foundation with piers and footings and lateral support. Has the mandatory FEMA mandated flood openings (one square inch per every square foot of surface area for the foundation.) This house will survive everything except maybe a "Noah's Ark Event" ( and then we are all gone, including banks). But no matter that we built the house this way, we have to pay the insurance. Its ridiculous. But we have to. And yet Obamacare may be overturned by Supreme Court as being illegal to require mandated purchasing of healthcare? If it does, why am I mandated and required to buy this insurance?????

Oh yeah....because its the Banks health, not ours......

[meaculpa2011]

13. My bank ORDERED me to...

increase my insurance to maximum replacement value. It didn't make sense, since I only owe $40,000, until I noticed that the bank and the insurance company were one and the same. The only way I can collect maximum replacement value is if a Biblical storm washed away the house and the land. Of course, if that happened most of Long Island would be washed away, the insurance companies would declare bankruptcy and refuse to honor policy obligations then be bailed out by the government. My premium tripled. Thankfully, I only have two years left.