The Birthplace of Force-Placed Insurance
While those who participated in the scam known as sub-prime lending deserve whatever punishment they receive, let’s not forget where they learned their lessons. And how force-placed insurance grew to become the serious issue it is today.
An Indication of Force-Placed Insurance
PropertyShark.com provides information about housing around the region. PropertyShark .com just published a map showing all the distressed properties in New York City during 2011. You can see the map here: http://www.propertyshark.com/mason/ny/New-York-City/Maps?map=nyc2&x=0.5632&y=0.6809333333333333&zoom=2&basemap=lispendens&star=1&tab=themes&ll=40.6289391996291,-73.9243806440218
Now, as you look at the areas in Brooklyn and Queens, a disturbing trend becomes evident. In communities of color there are more of those nasty little dots than anywhere else on the map. How did this happen?
Well, blame the first phase of the problem on those dirt bags who engaged in the worse form of predatory lending known to man: The predation of elderly and unsophisticated homeowners.
They mailed thousand of letters each week, and employed telemarketers whose only mission was calling these unsuspecting homeowners and convincing them to meet with a consultant. They told these vulnerable folk about how their homes had money (equity) just sitting there doing nothing. They could use this money or repairs, a trip home, and many other reasons. They never told them about reverse mortgages. No, you see there was little profit in legitimate financial instruments like reverse mortgages. Heck, sometimes, they didn’t even say a mortgage was involved.
Then, when they met with their unsuspecting victims, they’d tell them how they didn’t have to take a dime out of their pockets for anything. Little did the public know everything was coming out of their home equity. Many didn’t know how their loan applications were falsified to reflect fraudulent rental, pension and employment incomes. Corrupt appraisers valued homes for much more than they were worth, so lenders could meet the necessary “loan-to-value” numbers.
So, the homeowners applied for $25, 000 and more. They’d go to the closing table thinking about what they’d do with the money, only to walk away with $5,000 or $7,000. What happened to the rest of the money, you ask? Well, that went for attorney fees, application fees, and any other fees you can think of. Fees which, were the mortgage not predatory in nature, would average about 6% of the total cost of the loan. Money which shouldn’t come out of their equity, but from liquid cash.
Once the deception was discovered, some would revolt and demand, via the right of the three-day rescission rule, the cancellation of the loan and return of all of their funds.
Too few people did this.
Most, convinced this was the way business was done, struggled to pay loans with high interest rates, at a time of life when they should enjoy living in a home without outstanding debt. And yes, force-placed homeowners insurance helped many of these same people fall deeper into the pit. Many of these people wound up losing their homes, because their Social Security and pension checks couldn’t handle the weight of their new monthly obligation.
Of course, the jackals were waiting in the bush. As soon the distressed house fell into default, they pounced. Now the letters and calls offered relief in the form of a quick sale. In many of theses cases, what the house sold for was barely enough to cover the outstanding mortgage. So, you had a home you’ve lived in for 30 or 40 years. No mortgage. Now you have nothing and nowhere to live.
I’ll be returning to the subject of force-placed homeowners insurance next week. I just wanted to let everyone know this resource was available.
If you, a family member, or a close friend are either in, or facing default on your mortgage obligations, please call me at 718-783-2722. There are organizations like Bridge Street Development Corp. , (bsdcorp.org), and Neighborhood Housing Services (nhsnyc.org), ready to provide counsel and guidance to homeowners in need. If you’re paying for force-placed insurance, call me. Let’s work together to save you thousands of dollars you can use to bring and keep your mortgage obligations current.