Counterparties: Kicking the kickback habit
Welcome to the Counterparties email. The sign-up page is here, itâ€™s just a matter of checking a box if youâ€™re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.
Jeff Horwitz, who has been leading on this story since 2010, says that the long-overdue move is a â€śblow to banks and other mortgage servicers.â€ť
Horwitzâ€™s original report explains what the problem is: mortgage servicers foist overly expensive and unnecessary insurance policy on homeowners. When a homeowner lets their propertyâ€™s insurance policy expire, the mortgage servicer can step in and buy a policy on the homeownerâ€™s behalf. This is meant to protect both homeowner and the lender, but it quickly becomes egregious: homeowners were often stuck with insurance that cost 10 times more than their previous policies. In turn, mortgage companies made millions for referring homeowners toward specific insurance companies.
FHFAâ€™s proposal is pretty simple: it bans the kind of payments between insurance companies and mortgage servicers that Horwitz likened to â€śsimple kickbacksâ€ť. Not surprisingly, pushing homeowners into pricy policies they didnâ€™t need was very profitable.Â JP Morgan reportedly made $600 million since 2006 through its relationship with Assurant, one of the largest force-placed insurance companies. One report found that 15% of force-placed premiums go straight back to banks.
The crackdown on kickbacks is also a long time coming. FHFA, the Fannie Mae and Freddie Mac regulator run by the widelyÂ criticizedÂ Ed DeMarco, privately announced to industry execs in February that the agency had killed a force-placed insurance reform that would have saved taxpayers at leastÂ $145 million annually.
AsÂ Karen Weise notes, FHFA is also lagging states. Last week New YorkÂ announced a $14 million penalty and settlement with Assurant. This follows actions by a handful ofÂ state actions, including byÂ Florida andÂ California.
Assurant, meanwhile, told theÂ WSJ itâ€™s premature to speculate about the effect of FHFAâ€™s proposals. In some sense, Assurant is right: itsÂ stock was actually up today — to a new post-crisis high — and the public is now free to comment on the proposal, as are Assurantâ€™s lobbyists. The industry that has received many millions in kickbacks for overcharging homeowners will now have 60 days to comment on how it feels about losing out on those kickbacks. — Ryan McCarthy
On to todayâ€™s links:
The second-largest pension fund in the US may switch entirely to passive investing – Investment News
“Don’t do it CalPERS! If youâ€™re not allocating capital to its most productive uses, who is?” – Matt Levine
Steve Cohen bought a Picasso for $155 million “as a gift to himself” – NY Post
And, of course, there are many more links at Counterparties.