Lender Placed Insurance: Just Another Way Lender’s Don’t Have Borrower’s Best Interest in Mind
May 2nd, 2008How many ways can a borrower get absolutely hit over the head with fees in the loan process? If you think about it, it is amazing how many fees are involved with the loan process. I mean you have fees such as the “document preparation fee;” the “email fee” (a fee some mortgage brokers will charge you to receive and print out an email); the oh-so-wonderful “admin fee;” the Yield Spread Premium (“YSP”); the Service Release Premium (“SRP”); and on and on and on. Unless you are highly sophisticated in the loan industry, it is virtually impossible to know what is customary, normal, or reasonable.
What’s worse is that these fees do not stop at the origination phase. The abusiveness of fees in the loan process can even continue well into the servicing of your loan. Specifically, borrowers can get price-gouged in their impound accounts. In simple terms, an impound account is a trust account established by the lender to hold the borrower’s money to pay for real estate taxes, and insurance premiums. These accounts are a measure that lenders take to mitigate the chance that a borrower will default on his loan. For instance, impound accounts assure the lender that the borrower’s property taxes are timely paid (to avoid liens) and that the borrower’s insurance is paid on time (to avoid uninsured loss.) Borrower’s are taught to view impound accounts as a good thing because the borrower does not have to worry about paying taxes or insurance himself because the lender “takes care of it.”
There’s the background, and here’s the rub. What the lender fails to mention when they purchase insurance on a borrower’s behalf via an impound account, is that they will opt to purchase an exorbitantly high priced insurance. In fact, as I have recently discovered (because it happened to me), the “lender-placed” insurance that the lender will purchase is about 3 times (3 times!) as expensive as the insurance the borrower can procure for himself! To make matters worse, unless the borrower is savvy concerning his real estate costs, he will never know that he is paying too much for his insurance. Unfortunately, the lender can make this excessive purchase without any forewarning and/or explanation to the unsuspecting borrower.
Certainly, every borrower would want to know if he is being assessed a fee more than three times the normal cost. Personally, I cannot think of the situation where I would willingly pay over a 300% markup to have someone purchase something for me. As a real estate attorney, I consider myself sophisticated concerning real estate issues. However, up and until last week, I had no idea how the lender-placed insurance system (or gimmick) works. When I caught on, I personally called my lender to inquire about this practice. I spoke with three representatives, including a supervisor, and was met with the typical “I don’t know” response. Interestingly, all representatives did openly admit to the fact that if the lender purchases the insurance on behalf of the borrower it will be about 3 times as much the price the borrower would pay if the borrower pays for it on his own.
I wonder how many teetering borrowers have been pushed into default as a result of this practice? Only the lenders would be able to tell us. As a legal practitioner, I view this lender-placed insurance practice as posing a huge risk to loan servicers for a nationwide class action. Maybe it will take a class action lawsuit to expose and stop this practice in the future. The bottom line is that this practice needs to stop. Not only is it highly unfair to the unsuspecting borrowers in the national mortgage marketplace, it exposes lenders and servicers to substantial liability.
Posted in Mortgage News, Unethical Lending Practicies | 4 Comments »
MAA in the News - NBC
April 4th, 2008
By Steven Luke - NBC/KNSDPosted
By Jeremy Lee - NBC, Louisiana
March 13, 2008 -
Most buyers would never think of purchasing a home without getting an inspection.
But most buyers never even consider a mortgage inspection.
Experts say all to often buyers are duped by the fine print in those loan papers.
That’s why it could be helpful to have the documents reviewed by an objective third party.
From sub prime to mortgage meltdown, you’ve heard the stories and seen the results.
Experts point to risky loans as the big factor in today’s troubled real estate market.
”Most borrowers are confused and frustrated when they get this stack of loan documents on their table and are told to sign away with a notary,” said Tyler Belong co-founder of the Mortgage Accountability Association.
Real estate attorneys Belong and his partner Jeff Hogue are real estate attorneys.
They’re often hired to review commercial loans, but say most home buyers skip this important practice.
The two men have formed the Mortgage Accountability Association.
For a one-time fee, they’ll scour your loan docs and give you an objective third party review.
Hogue said, “If they’re paying a disproportionately high fee for something, I think they need to be aware of that.”
From the term to the interest rates, borrowers get the lowdown on everything including possible prepayment penalties.
“They’re usually not disclosed to them. So if they want to sell their house in three years and they have a huge prepayment penalty, that could keep them from doing that,” said Hogue.
One of the most common items overlooked, a fee called YSP or yield spread premium.
“It’s not paid by the borrower, but it’s paid by the lender to the broker because the interest rate is higher,” Belong said.
It’s a buyers market, but when it comes to loans it’s buyer beware.
Posted in MAA News | 9 Comments »
Mortgage Fraud - The Crime of Our Time?
April 4th, 2008- fhaloanpros.com April 1, 2008
According to the FBI, mortgage fraud has rapidly increased over the last five to six years. In September of 2002, the FBI had 436 mortgage fraud investigations. As of March 2007, the FBI reported that it had more than 1,036 and that the number was rapidly increasing - an increase of 237 percent (and rising) in less than five years.
Over the past year and a half, the FBI and other federal agencies and departments such as the CIA, the US Attorney General, and even the IRS have become increasingly involved in investigating and prosecuting mortgage related fraud. (See FBI.gov). In fact, the US Attorney General’s office recently created the Mortgage Fraud Task Forces in high-fraud regions such as, for example, Western Pennsylvania. Additionally, State Attorney Generals are beginning to take more proactive measures to punish mortgage fraud criminals and deter would-be mortgage fraud criminals.
By way of illustration, since the former (and now defamed) New York State Attorney General Eliot Spitzer began filing civil suits against real estate agents, mortgage brokers, mortgage bankers and appraisers in 2006, other State Attorney Generals have apparently ramped-up their efforts to prosecute mortgage fraud criminals. According to NBC’s Los Angeles affiliate, in March, 2008, the California Attorney General’s office shut down a half-dozen lending companies who had allegedly pushed homeowners into “illegal and unconscionable loans.” The banks alleged of the mortgage fraud, bait and switch practices, forgery, and material misrepresentations had their bank accounts frozen and were enjoined from such illegal sales practices. According to California’s Attorney General, Jerry Brown, “As the mortgage crisis worsens, a growing number of fly-by-night companies are employing utterly brazen tactics to push homeowners into illegal and unconscionable loans.”
By most accounts, the government efforts appear to be resulting in successful prosecutions at both the civil and criminal level. But, will these increased efforts by the government provide the lasting deterrent against mortgage fraud that is so desperately needed? The answer is likely no. As California Attorney General Brown suggests, while the real estate market continues its spiraling descent, many brokers, appraisers, and other real estate professionals will continue to feel increasing pressure to do whatever it takes to get loans consummated in this down market. There simply isn’t as much volume as there was two years ago. In other words, in the short term, we should expect mortgage fraud to continue to rise, despite the increased efforts by government agencies, simply because of the market conditions.
So, will there be a decrease in mortgage fraud once the market corrects and then begins to rise again? No. According to the FBI’s 2006 Mortgage Fraud report, during boom periods, high mortgage loan volume impacts expedited quality control efforts which often focus on production. Therefore, perpetrators may submit loans based on fraudulent information anticipating that the bogus information will be overlooked.
However, during a boom market, we should also expect the reporting and prosecuting of mortgage fraud to decrease. Why? Well, during a rising real estate market, home values are increasing and the chances of borrowers or lenders getting seriously burned (similar to the way many are being burned in the current market) significantly decreases; as does the probability that borrowers or lenders will report mortgage fraud. Although more fraud may be occurring during a “boom” market, there will be less reporting of it and therefore fewer prosecutions as a result of it.
Although it appears we are currently in a lose-lose situation, private industry leaders and the government will have the opportunity to determine how to develop more sophisticated models for preventing mortgage fraud before it occurs in the real estate market cycles ahead of us. Hopefully, there will soon be more effective measures in place, so we do not undergo such an industry-wide travesty again.
Posted in Mortgage News, Unethical Lending Practicies | 9 Comments »
Can Lender-Initiated Programs and FHA Reform Stave-Off the “R” Word?
March 12th, 2008http://www.fhaloanpros.com/2008/03/how-best-to-fight-recession/) )
To date, the current administration’s plan of attack for correcting the mortgage meltdown and credit crunch crises has been to: (1) place pressure on lenders to help borrowers refinance or setup affordable payment plans and (2) initiate programs and approve legislation (such as FHA Secure and H.R. 3648 precluding taxes on forgiven debt) to encourage borrowers to refinance. But with the continued deceleration of home values, the acceleration of defaults and foreclosures, and the decreasing supply of loan dollars, many in Congress, Federal agencies, and consumer advocacy groups are calling for stronger action. (See acorn.org; the US Comptroller of the Currency; and the Wall Street Journal, article by Michael M. Phillips and Greg IP dated 2/28/08 at http://s.wsj.net/article/SB120416823532298975.html?mod=fpa_mostpop).
According to the Wall Street Journal, representative Barney Frank (D., Mass.), chairman of the House Financial Services Committee, has proposed a plan that would provide about $10 billion in loans and grants to help states buy foreclosed homes, plus a similar sum to allow the FHA to guarantee new, more-affordable mortgages for homeowners on the brink of losing their houses. Other congressional lawmakers are pushing for something even more aggressive. Senator Chris Dodd of Connecticut wants to create something similar to the Depression-era Home Owners’ Loan Corporation, which would buy troubled mortgages from banks and investors and move borrowers into more affordable loans with government backing.
However, there appears to be one major problem with most of the more aggressive solutions proposed thus far: they all cost money to implement, lots of money. Barring some serious cuts to other federal programs, the additional $10 billion cost proposed for Mr. Frank’s above-referenced plan, for example, would likely be borne by John and Jane Taxpayer. This begs the question: will raising taxes to initiate programs aimed at curbing the aftermath of the so-called “mortgage meltdown” serve the greater welfare, or will it ultimately sink us further into a recession? In a struggling economy many economists and government officials like Treasury Secretary Henry Paulson seem to agree that raising taxes could actually accelerate a recession. (See Wall Street Journal article supra)
So what is the answer? Is it time start paying the federal government more so it can start buying-up all the “bad” loans? Or, can the administration use the resources currently available to it in order to push private lenders to solve the problem?
This writer believes that it is premature to initiate any $10 billion programs just yet. While it is important to begin brainstorming and outlining such contingency plans, it is still to soon to tell whether or not the federal government will be able to provoke banks to act in a manner sufficient to pull us out of this economic tailspin.
Right now, the FHA Secure program is only months old. Project Lifeline, a foreclosure prevention program developed by six of this country’s largest home loan servicers, has been in existence for less than a month. Just Last week the U.S. Office of the Comptroller of the Currency said it was ordering nine big banks (Wells Fargo, Chase, Bank of America, Citibank, Wachovia, National City, HSBC , First Horizon and US Bancorp) to make ongoing disclosures to the Comptroller regarding monthly defaults, foreclosures, and steps taken to prevent foreclosures. Federal Reserve Chairman, Ben Bernanke, has given recent indication that rates will be cut once again when the Fed meets on March 18th. (See article by the Associated Press dated 2/27/08 at http://www.msnbc.msn.com/id/23367821/). Further, we still have yet to see what effect the new increased conforming loan limits will have on the home lending industry.
So, it’s safe to say that some problem solving wheels are in motion. Accordingly, we should not push the panic button and call on Congress to pass the 2000s version of the New Deal just yet. Rather, we should allow the FHA, the Fed, and private lenders time to do what they have already set out to do.
See more articles like this by visiting www.fhaloanpros.com
Posted in MAA News | No Comments »
Experts Say Mortgage Meltdown is Only 40% Over
February 5th, 2008Some experts estimate that we are currently only 40% through the worst of the mortgage misconduct meltdown. In other words, according to many experts, the past couple of years have revealed only 40% of all of the defaults and foreclosures that we can expect to see as a result of the subprime and mortgage misconduct meltdown.
Most experts blame the meltdown on unscrupulous mortgage brokers, hasty borrowers, and lenders who offered risky products while turning a blind eye to the transactions the mortgage brokers were orchestrating. 60 Minutes recently investigated the mortgage misconduct crises in an attempt to make sense of it all. You can see the entire story by 60 Minutes by clicking on the link below.
http://www.cbsnews.com/sections
Posted in MAA News, Mortgage News | 27 Comments »
Will Bush and the FHA Help Prevent Foreclosure?
January 10th, 2008As most real estate-conscious people are aware, on August 31, 2007, President Bush announced the creation of FHASecure in an effort to prevent the foreclosure of tens of thousands of homes in the US. But will this plan work? Or will it go to far? On the other hand, will it not go far enough?
Backed by the government, FHASecure is enabling homeowners who have a history of on-time mortgage payments under their original interest rates, but missed payments after their rates reset, to refinance into FHA’s mortgage insurance program. Families with high-cost mortgages and mortgages that are due to reset, but are still current on their loan, also continue to refinance through FHASecure. This is a more viable option because FHA-backed loans are less likely to result in foreclosure.
But some skeptics caution that this plan goes to far. They argue that FHA Secure will result in the loss of millions of dollars of revenue by US banks that would have otherwise been collecting monthly mortgage checks from borrowers who might not have actually faced foreclosure. Without FHA Secure, many borrowers might have been able to reassess their financial expenditures or negotiate with their bank in order to take themselves off of the foreclosure path while remaining on the same loan, with the same bank. However, since FHA Secure is an option, many borrowers will opt to leave their current bank and refinance through FHA, leaving many banks with fewer and fewer borrowers, especially in a time when so many borrowers have become nervous to borrow. Additionally, some propose that we may even see borrowers intentionally miss payments after their interest rate rises, so that they can qualify for FHA Secure. The result of all of this, the argument goes, is a continued decline in the markets tied to the financial prowess of the banks in this country.
On the other hand, some claim that the FHA Secure initiative does not go far enough. They claim that it omits certain borrowers who are in desperate need of mortgage salvation but do not qualify for FHA Secure because they missed some mortgage payments right before their loan reset or because their loan reset too soon. In other words, FHA Secure will not save all of those that need and perhaps deserve salvation from foreclosure.
So will FHA Secure work or not? Time will tell. According to HUD Secretary Alphonso Jackson, more than 33,000 borrowers have already refinanced their subprime home loans with FHASecure. An additional 20,000 are in the pipeline for approval this month, bringing the total to more than 53,000 in a four month period. Tell us what you think about the FHA Secure initiative.
Posted in Mortgage News | 476 Comments »
Tell Us Who is Making a Positive Difference
January 7th, 2008We at MAA invite you the consumer to let us know about any person, business, organization, or association, whether public or private, for profit or not for profit, that is having a positive impact on the lending industry. Here we are looking for information about companies that are doing what they can to restore ethics, reliability, and accountability to the residential lending industry. Blog on!
Posted in Who is Making a Positive Difference? | 33 Comments »
Refinance Bait and Switch
December 25th, 2007Has your mortgage broker ever provided you with a loan at one rate only to persuade you to refinance 6 to 12 months later? If so you may be among the many people in this country that have fallen victim to what some government officials are calling the refinance bate and switch. It works like this: The broker will gets his client into a loan that the broker knows does not have the best interest rate that his client could qualify for. Then, six month’s later, that same broker will call his client informing the client that he can get them into an even better loan with an even lower interest rate than the one they just signed. Why would any broker do this? The answer is that all mortgage brokers get paid a commission each time they sell a loan. If a broker can sell two loans to the same borrower in a given year, that broker will earn two commissions, often at his client’s expense. Additionally, when the broker gets a client into a loan that has a higher interest rate than that which his client could qualify for, the broker will often get paid a commission from the lender (this is referred to as a yield spread premium). So, have you ever been the victim of refinance bate and switch? Want to add to this Blog? Here’s how.
Posted in Unethical Lending Practicies | 54 Comments »
Hidden or Uncommunicated Penalties
December 25th, 2007Has a lender failed to disclose prepayment penalties or terms that would limit your ability to refinance? Many people are unaware of the hidden penalties written into their loan. At MAA, when we review your loan, we will uncover every possible penalty and clearly explain it to you, in big BOLD print, so you are aware of it BEFORE signing that loan.
Do you have a similar experience, where penalties kept you from refinancing, or paying off the loan in order to retain a more affordable one. Are you at risk of losing your home because these terms were not clearly communicated to you by your lender? We’d like to hear about it.
Posted in Unethical Lending Practicies | 6 Comments »