Has the American Banker always been an investigative publication? They certainly are now and they have the expertise to get into some fairly complex schemes by which the average guy gets screwed by banks. Take, for instance, this article on mortgage insurance.
Perhaps when you bought your first house you did not have quite enough for the down payment (which in prehistoric times was 20%). No problem. You could buy mortgage insurance, which would protect the bank if you defaulted on the mortgage. True, the bank would recommend an insurer but they did so more to insure themselves should there be a problem down the road. In the boom days of subprime mortgages the banks realized that they could make a buck (maybe even more than a buck) on this insurance so they got in bed with the insurers.
Banks didn't recommend just any insurer; they recommended those with whom they had made a deal. The deal being that the insurer had to buy reinsurance and, by coincidence, the bank had a subsidiary that could provide that reinsurance. Of course, the subsidiary would have to receive a portion of the premium paid by the homeowner. In some cases the subsidiary would be responsible for only 10% of any losses, but would be able to keep 40% of the premium. Not a bad deal!
One problem with the deal was that it was illegal. It violated the Real Estate Settlement Procedures Act, a 1974 law prohibiting abusive home sales practices. Furthermore, some banks made homeowners buy more insurance than they needed.
HUD discovered these deals. In 2009 HUD told the Department of Justice about them and provided reams of evidence. Two plus years later Mr. Holder and company have done nothing about the matter. The Banker article claims that these reinsurance deals were worth about $6 billion. Even a judgment of 1% wold be worth $60,000,000. But the banks are Obama's and Geithner's friends.
No comments:
Post a Comment