Counterparties: Denial of service

June 17, 2013

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As the victims of the tornado in Moore, Oklahoma start the process of rebuilding their town, David Dayen reports that they’re finding themselves in a new crisis: navigating the homeowners’ insurance process. That task, it turns out, also means dealing with the often maddening world of mortgage servicers.

It’s standard practice for homeowners’ insurance claim checks to written out jointly to both the homeowner and the mortgage servicer, Dayen writes. As a result, servicers often use the need for a signature as leverage to pressure borrowers into repaying their mortgage instead of using the money to rebuild their home.

The news from Oklahoma comes in the wake of accusations that surfaced Friday from former Bank of America employees, who allege that the bank misled struggling homeowners about their options. The former employees say BofA “deliberately denied eligible home owners loan modifications and lied to them about the status of their mortgage payments and documents”. The bank, Reuters reports, allegedly steered borrowers from the government’s flagship homeowner aid program, the Home Affordable Modification Program. Court documents filed last week allege that employees were compensated for forcing foreclosure: sometimes in cash bonuses, sometimes in gift cards to Target.

ProPublica reported on a similar situation at the Goldman Sachs subsidiary Litton Loan Servicing last year:

As of the end of 2010, fewer than 12 percent of the borrowers who’d applied for a HAMP modification with Litton were granted one. The vast majority of those denials, Wyatt says, were not legitimate. Goldman Sachs’ emphasis on maximizing profits rather than preventing foreclosures is typical of the servicing industry, he says, particularly the larger banks.

Meanwhile, Reuters reports banks are getting out of the mortgage servicing game. The loans that seven-largest non-bank servicers handle rose by 69% in the first quarter, to $1.4 trillion. Banks are increasingly selling the rights to collect payments on loans to companies that aren’t bound by the same capital regulations. That doesn’t necessarily mean the situation is rosier for the homeowners, however. – Shane Ferro

On to today’s links:

New Normal
Inside China’s terrible job market for college graduates – NYT
Detroit, where per capita income is just $15,000, is taking aim at its pensioners - Felix
Detroit’s 10-cents-on-the-dollar meme - Cate Long

The Fed
What the bond market is telling the Fed – Gavyn Davies

Charts
What’s more important: A college degree or being born rich? – Matt Bruenig

The Fed
“In every year of the economic recovery, the Fed has overestimated how fast the economy would grow” – WSJ
Another Fed trial balloon on tapering – FT

Oxpeckers
“I’ve come to understand… the power of little details”: in praise of TKs – Jeff Pearlman

Your Retirement Plans
The inventor of the 401(k) says it was “never meant to take care of everyone” – Marketplace

Wonks
Inflation helped the British keep unemployment down – Neil Irwin

New Normal
“I will hide nothing. But I will conceal everything.” – Walter Kirn
First gentrification, then plutocratisation: “The great cities are becoming elite citadels” – Simon Kuper

Servicey
Reading fiction makes people comfortable with ambiguity, researchers find – Pacific Standard

Awesome
Orson Welles: One of those people you really, really want to have had lunch with – Peter Biskind

Politicking
“The Canadian Snowbird Association” got a provision written into the immigration bill – USA Today

Crisis Retro
CDOs are maybe not coming back, after all – FT

And, of course, there are many more links at Counterparties.

One comment

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The New Republic writer neglects one key underlying fact about use of insurance proceeds to repair or rebuild a home with a mortgage – these are proceeds related to an asset in which the lender has a secured interest. He seems surprised that people don’t just get a big check with the understanding that it will be used to repair or rebuild, which would ignore the lender’s security interest. It may be a real problem, but this author’s take on it is exceptionally poor – I can’t tell if it’s only because he is biased or also because he is ignorant.

Posted by realist50 | Report as abusive