So, like everyone else, I’ve been curious about this “Anonymous” collective BoA leak for a few days now. Only I’ve been curious for slightly different reasons. Most people wouldn’t have clued in on it when the “pre-leak” mentioned Balboa Insurance because it’s inside baseball. In fact, unless you have been dealing with Mortgage Servicing Fraud, this entire topic might very well be completely foreign to you. To be honest, until I heard Balboa mentioned, I really wasn’t paying much attention either.
But the issues that this leak highlight, it turns out, have been around and, more importantly, have been known about for at least the last decade. Mortgage Servicing Fraud victims have known about force placed insurance issues for forever. Force placed insurance is part of the reason that Mortgage Servicing Fraud is so successful. Force placed insurance, among other things, creates defaults in borrowers’ accounts that would otherwise not exist. In my own case, between myself and the NH Banking Department, we must have supplied proof of homeowners insurance to my servicer, Fairbanks Capital Corp. n/k/a Select Portfolio Servicing, seven times. SEVEN. And yet, it did little good. Even when they attempted to “reverse” the charges it did little good. That is because once the accounting goes sidewards on a mortgage servicer’s books it is, for all intents and purposes, likely to stay that way. The damage is done to the borrower’s account.
Mortgage servicers make their profits on fees. As part of my initial explanation of Mortgage Servicing Fraud, I usually start off with “As a mortgage servicer, would you be content with making a $2.50 per month servicing fee? Or would you prefer to make that $2.50 servicing PLUS a $50.00 late fee?” It doesn’t sound like much – until you multiply it by 100,000. Then $2.50 becomes $250,000.00. And $52.50 becomes $5.2 Million. Which would you rather make every month? To put it in perspective, at one point Fairbanks admitted that as much as 40% of it’s 750,000 loan portfolio (at peak) was in some stage of default at any given point. That’s 300,000 loans. Using my example, at $50.00 a pop for a late fee that’s $15 Million per month that Fairbanks/SPS would have been pocketing. Not passing on to investors. Pocketing for themselves as what, in servicing contracts, is termed “additional servicing compensation.” Of course, servicers also get to keep assumption fees, modification fees, interest on the “float”, etc. as “additional servicing compensation.” as well. But that discussion is saved for another time.
This is where part of the whole force placed insurance scam comes into play. If a servicer can artificially create a default scenario on their books, the servicer gets to pocket a late fee. Force placed insurance was and still is good for that for a couple of reasons. Not only does it create an opening for “default” but it allows for additional charges through the very FPI product which usually costs 2-3 times an average homeowners policy. And when claims of kickbacks and other malfeasance start emerging from different sources, at some point you really should start paying attention to them.
Among other issues, I attempted to bring this to the attention of the the GAO and more than 45 Senators and Congresspeople with my June 2009 GAO Review Request of the Federal Trade Commission. Through a FOIA request to HUD-OIG I was able to obtain, among other documents, Exhibit T of my request. Exhibit T is a “Memorandum of Interview” dated April 8, 2003. In it, the interviewee stated that they were aware of companies within the industry that require as much as 25% of the “earned premium” of properties sent to FPI providers. If I’m not mistaken, this would be more commonly known as a “kickback”.
Exhibit T sets the stage for further discussion of FPI and kickbacks. While it does not specifically tie force placed insurance, kickbacks and Balboa/Countrywide all together, Exhibit U does. Exhibit U is a Memorandum of Interview taken March 26, 2003. In it, the interviewee specifically stated that an individual, and for the record I have always assumed that the “individual” here was Tom Basmajian, didn’t like how force placed insurance was being handled at Fairbanks, took over control of it and “negotiated with Countrywide to provide the insurance and give Fairbanks a revenue incentive (i e kickback) for the business.”
Now remember, these interviews were taken in 2003 by HUD-OIG. If memory serves, they were taken as part of a combined criminal and civil investigation being conducted in conjunction with the USA/Curry v. Fairbanks class action. At the very least, HUD-OIG, the Federal Trade Commission and the U.S. Attorney General’s office were aware of this information. And, as part of the civil settlement, the criminal investigation was dropped. Interestingly, there were apparently two boxes of documents pertaining to the HUD-OIG investigation of Fairbanks/SPS but, somehow, one of the files had magically “disappeared” sometime prior to my FOIA request.
Maybe “Anonymous” will be successful in bringing the issue of force placed insurance to the forefront. I certainly wasn’t. Of the 40+ U.S. Senators and Congresspeople that received my GAO Review request, beyond responses confirming receipt of the document, I received exactly zero replies. Zero inquiries for further information.
As we have all now witnessed, borrowers are on their own. If members of Congress actually wanted to help their constituents, they could do it without actually appearing to directly help them. Foist the responsibility for fixing this entirely avoidable “crisis” onto the judicial system. Let the case law solve this problem. All you have to do is give people better access to the court system, which is what should happen regardless of the issue being addressed. Justice should not be solely for those that can afford it. Use a portion of that already allocated TARP money for bolstering the judicial system across the country. Repair the courthouses that are falling down. Hillsborough County North, in NH, is closed for 18 months for asbestos removal of all things. Make the courts more efficient. Upgrade their technology. Allow justice to do it’s job.
Then take a little more of that TARP allocated money, because let’s face it, it’s never going to be given back to the taxpayers directly so it may as well be used to actually benefit all of them, and disperse it to Legal Aid programs in each of the 50 states for foreclosure defense and consumer related issues. By doing so, Congress would stimulate the economy, contribute to job growth, provide the necessary tools to borrowers for dealing with the ever-emerging layers of fraudulence created by the mortgage and foreclosure industries, and it would also give itself the political cover it so desperately needs to distance itself from the “crisis” while simultaneously actually helping people and maybe solidifying future votes and bolstering their political coffers.