Look Who’s Pushing Homeowners Off the Foreclosure Cliff (Bankster Methodology Alert)

[stockholmer]

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

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 http://files.consumerfinance.gov/f/201204_cfpb_factsheet_putting-service-back-in-mortgage-servicing.pdf 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.

High-Priced Policies

Here’s how it generally works: Banks and their mortgage servicers strike arrangements -- often exclusive -- with insurance companies in which the banks agree to buy high-priced policies on behalf of homeowners whose coverage has lapsed. The bank advances the premium to the insurer, and the insurer pays the bank a commission, which is priced into the premium. (Insurers say the commissions compensate banks for expenses like “advancing premiums, billing and collections.”) http://newsroom.assurant.com/lender-faq.cfm The homeowner is then billed for the premium, commissions and all.

It’s a lucrative business. Premiums on force-placed insurance exceeded $5.5 billion in 2010, according to the Center for Economic Justice, http://financialservices.house.gov/UploadedFiles/072811birnbaum.pdf a group that advocates on behalf of low- income consumers. An investigation by Benjamin Lawsky, who heads New York State’s Department of Financial Services, has found nearly 15 percent of the premiums flow back to the banks. It doesn’t end there. Lenders often get an additional cut of the profits by reinsuring the force-placed policy through the bank’s insurance subsidiary. That puts the lender in the conflicted position of requiring insurance to protect its collateral but with a financial incentive to never pay out a claim.

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[pscot]

1. This sounds like outright theft

It can't possibly be legal, can it?

[stockholmer]

2. outright theft, fraud, flagrant accounting abuses make up at least 20% of the US's cooked GDP number

here is just one small taste

26 supporting slides

Highlights of the discussion include:
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Why the presently accepted GDP measurement is ineffective in properly measuring wealth creation, national economic health and prosperity,

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How the elements of Government Spending, Taxation, Stock Market changes, Export & Import trade balances and other statistical indicators are all being used to manage the perceptions of economic growth,

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How Hedonics, Substitution and Imputation make GDP greater than it really is,

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How the new game of "Imputation" is using notional numbers to represent growth with no money actually changing hands,

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How bad data leads to bad decisions and too many bad decisions leads to fewer decision choices until the only choice is to lie,

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How the current US growth rate is minimally overstated by 20%, even if you accept the illogical 1.54% Deflator for the US and the IMF's 2.2% Global Deflator.