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By law, the Federal Housing Administration reportedly must keep enough reserves to pay off all claims for the next 30 years. The FHA has over $30,000,000,000.00 or $30 Billion in current reserves. That is not enough to pay potential claims for the next 30 years, however.
That is because of a change that took place between 2007 and 2009. As you can see, that is when the Great Recession began. FHA took over "new loans with mortgage insurance" as a market share that grew to 70.7% in 2009, rising from its 16.4% market share of new loans with mortgage insurance in 2005.
The FHA stepped in because it had to. Circa 2007, and for years ever since, there was no private funding available for mortgage loans for first-time buyers and low-income home purchasers.
The FHA has existed for 79 years but never before has it had to fund future reserves until now. The FHA is traditionally financed through premiums charged to homeowners-borrowers on their mortgage insurance. That is not enough, now.
Now, for the first time, the FHA needs to invoke its statutory authority to automatically draw upon the U.S. Treasury in the event that it cannot otherwise fund its reserves for the next 30 years worth of anticipated claims. The amount which the FHA must draw for this purpose is $1.7 Billion or $1,700,000,000.00.
Why is the funding for the FHA coming from the U.S. Treasury? One answer is that the funding is automatic. It is built into the enabling statute and the present Congress does not need to take any action in order to enable the FHA draw. (Fortunately for the FHA.)
But that answer is not very satisfactory. It seems that the right answer would be if the money was paid instead by the individuals and businesses who caused the mortgage money to dry up in 2007, which are the same people whose bad faith and unfair dealings caused the Great Recession (although you may not know it if you look at the money they made as a consequence).
That is a much better answer. It speaks volumes about the current state of affairs that it does not appear possible that that is the likely answer. Or that it will become likely any time soon.
This article continues the discussion of the ground-breaking Colorado Federal Court decision in Weller v. HSBC Mortgage Serv's, Inc., 2013 WL 4882758 (D. Colo. September 11, 2013). See previous articles posted here on September 17, 2013 and on September 24, 2013. In that case, for various reasons, the Colorado Federal Court held in a case of apparent first impression that a so-called "arbitration agreement" prohibits jury trials and class actions in force-placed insurance cases. See the complete agreement at issue in that case, here: Download Weller Case Dkt 53.4 (D Colo 2013) Arbitration etc. Agreement.
One reason the Court held that HSBC's "arbitration agreement" required arbitration is that the Court also held that Congress did not prohibit arbitration in such cases of force-placed insurance. In particular, the Federal Court held that the Dodd-Frank Act or amendments to other statutes in this case, did not apply retroactively to the 'contract' at issue there.
The Colorado Federal Court noted that there is a split of authority on that issue among the Federal Courts. The Colorado Federal Court sided with the Federal Courts that have not found the Dodd-Frank prohibition to be retroactive on lenders which require arbitration in mortgage contracts. Weller v. HSBC Mortgage Serv's, Inc., 2013 WL 4882758 *4 - *5 (D. Colo. September 11, 2013).
I do not have enough time before this article is posted to examine the sources in my own independent research. Perhaps you do. We will both have more time to conduct our own research, I have no doubt, in the future. At present, however, I recall that Dodd-Frank was enacted in response to the Great Recession caused by lenders and mortgage servicers. In context, then, is that not evidence of a Congressional purpose to remedy the effects of lender and servicer abuses?
"Formulaic" is a word I understand to mean the application of a formula regardless of the consequences, regardless of whether the general formula leads to a good answer in specific cases. The invocation of a maxim more often leads to incorrect results than to the proper interpretation of a statute or a rule of law. To paraphrase Justice Oliver Wendell Holmes, Jr.
The Colorado Federal Court issued a ground-breaking decision in a force-placed insurance case, Weller v. HSBC Mortgage Serv's, Inc., 2013 WL 4882758 (D. Colo. September 11, 2013). This case is the subject of another article posted here on Tuesday, September 17, 2013 and it will be addressed in a further article here.
The Federal Court's disposition of Plaintiff Weller's "unconscionability" argument against applying the arbitration provisions in his mortgage contract documents is both unsatisfying and brief.
In reality, Mr. Weller gave up some valuable rights when he signed the separate "arbitration contract" as a part of his house closing. He waived his right to a jury trial if HSBC ever chose to arbitrate his claims (which of course HSBC chose to do).
Weller also gave up his right to pursue his claims if any against HSBC, in a class action.
Mr. Weller also agreed to give up discovery in litigation for the possibility of discovery in arbitration (discovery in arbitration is a hollow possibility, as anyone knows who has ever represented any party in an arbitration). See the total HSBC "Arbitration Agreement" from the Weller case Court file, here: Download Weller Case Dkt 53.4 (D Colo 2013) Arbitration etc. Agreement.
What, you might well ask, does waiving the right to file a class action have to do with agreeing to arbitrate?
The answer from the lender's perspective revealed in the Court file of this case, apparently: Everything.
Class actions resulting from force-placed insurance can be costly, although the costs in individual cases are not nearly as great as the revenue a mortgagee can obtain from force placing insurance in exchange for receiving commissions, or in exchange for the payment of reinsurance premiums to one of its subsidiaries, or some combination of these and other payments which the mortgagees-lenders or their mortgage servicers receive in many force-placed insurance cases.
Despite these waivers of clearly substantial rights, the Colorado Federal Court held in this case that "[s]ubstantively, there is nothing inherently unfair about submitting Mr. Weller's claims to arbitration or the terms of this particular arbitration agreement itself." Weller v. HSBC Mortgage Serv's, Inc., 2013 WL 4882758 *5 (D. Colo. September 11, 2013). [Emphasis added.]
It is one thing to say that there is nothing inherently unfair about arbitration. In the abstract, that is probably true, subject of course to some caveats such as whether the arbitration is binding in all cases to which arbitration is subject, and whether rights are given up in a forced exchange by one party, rights which the other party would never choose to exercise and so have no value to it but only to the other party giving them up.
Further, the Federal Court seemingly equated its "unconscionablity" analysis with an analysis of whether the complaining party was "unconscious".
The Federal Court emphasized that, in this case, Mr. Weller's unconscionability argument failed under Colorado law because he should have been aware of the HSBC "Arbitration Agreement" provisions before he signed off on them, that he did not object to them before he 'agreed' to them, that he did not ask for copies before the closing (without noting that under the Federal Real Estate Settlement Procedures Act, Weller was only entitled to see the closing papers one {1] day before the closing), and that one of the eleven (11) provisions was in both boldfaced type and all capital letters. The Court was impressed with this eleventh provision of the HSBC "Arbitration Agreement," which the Court treated in its opinion as follows:
The contract itself is a separate document and plainly titled “ARBITRATION AGREEMENT”in bold-face type. The typeface of the rest of the document is small but uniform, with certain provisions bolded and/or printed in all capital letters. The final section, just above Mr. Weller's signature, provides:
BY SIGNING BELOW, THE PARTIES ACKNOWLEDGE THAT THEY HAD A RIGHT TO LITIGATE CERTAIN CLAIMS THROUGH A COURT BEFORE A JUDGE OR JURY, AND THAT THEY WILL NOT HAVE THAT RIGHT IF EITHER PARTY ELECTS ARBITRATION PURSUANT TO THIS AGREEMENT, EXCEPT AS PROVIDED OTHERWISE HEREIN. THE PARTIES HEREBY KNOWINGLY AND VOLUNTARILY WAIVE THEIR RIGHTS TO LITIGATE SUCH CLAIMS UPON ELECTION OF ARBITRATION BY EITHER PARTY. THE PARTIES FURTHER ACKNOWLEDGE THAT THEY HAVE READ THIS ENTIRE ARBITRATION AGREEMENT CAREFULLY, THAT THEY RECEIVED A DUPLICATE COPY OF THIS AGREEMENT, AND THAT THEY ARE ENTERING INTO THIS ARBITRATION AGREEMENT VOLUNTARILY AND NOT IN RELIANCE ON ANY PROMISES OR REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THE ARBITRATION AGREEMENT.
(Def. Motion App.,Exh. 3 § 11 at 6.)
Weller v. HSBC Mortgage Serv's, Inc., 2013 WL 4882758 *6 (D. Colo. September 11, 2013). [Boldface and pitch, or size of the font, in original.]
If wishes were horses, beggars would ride as the old saying has it. If binding arbitration is so easily administered on borrowing homeowners, there will be no redress outside of arbitration for commissions, reinsurance premiums, and other charges imposed by mortgagees-lenders and their mortgage servicers in force-placed insurance cases. Whether Congress intended such a result or the Supreme Court will compel it, is addressed in the next article.
Next: The role of Dodd-Frank Act's prohibition on requiring arbitration of force-placed insurance in residential mortgage transactions. Please Read The Disclaimer.
Arbitration of one plaintiff's alleged claims was ordered in a force-placed insurance case filed in Federal Court in Colorado. The Court ordered arbitration with the contracting defendant lender and mortgage servicer, HSBC, on the ground that HSBC is a party to the mortgage contract.
The Court also ordered arbitration with the force-placed insurance providers, known as "the Assurant defendants" in that case:
Defendants Assurant, Inc. (“Assurant”), and American Security Insurance Company (“ASIC”) (collectively, “the Assurant defendants”) are insurance providers through which HSBC allegedly force places insurance and to which it outsources insurance tracking, monitoring, and processing.
Weller v. HSBC Mortgage Serv's, Inc., 2013 WL 4882758 *1 (D. Colo. September 11, 2013).
The main plaintiff in this putative class action, if you will, was one Jack Weller. Mr. Weller was unique among the plaintiffs in that case, apparently, in that he did not live in a flood plain "and therefore did not require flood insurance." Weller v. HSBC Mortgage Serv's, Inc., 2013 WL 4882758 *1 (D. Colo. September 11, 2013). That fact did not stop HSBC from force-placing flood insurance on Mr. Weller's property through the Assurant defendants. Although HSBC acknowledged that it had no basis to do this, HSBC "nevertheless refused to remove some of the charges" to Mr. Weller when HSBC force-placed the flood insurance on his property. Weller v. HSBC Mortgage Serv's, Inc., 2013 WL 4882758 *1 (D. Colo. September 11, 2013).
Mr. Weller sued HSBC and the Assurant defendants. The defendants all requested that the Federal Court order arbitration of the claims alleged by Mr. Weller against them as a result of the force-placed insurance. Weller's claims against HSBC included alleged "breach of contract and breach of fiduciary duty and violation of the Racketeer Influenced and Corrupt Organizations Act ('RICO'), the Truth in Lending Act ('TILA'), and the Colorado Consumer Protection Act ('CCPA')." As was previously noted, HSBC was a contracting party in Mr. Weller's mortgage transaction. The mortgage documents included an arbitration provision. "Indeed, it facially appears that the arbitration agreement is valid, [citation omitted], and that Mr. Weller's claims fall within the broad ambit of that agreement." Weller v. HSBC Mortgage Serv's, Inc., 2013 WL 4882758 *2 (D. Colo. September 11, 2013). The Federal Court disposed of Mr. Weller's arguments (in holdings which will be addressed in a separate article) and granted HSBC's motion to arbitrate all of the claims alleged against it on behalf of Mr. Weller.
Weller's claims against the Assurant defendants were alleged "for unjust enrichment, aiding and abetting HSBC's breach of fiduciary duty, and violations of RICO and TILA." Weller v. HSBC Mortgage Serv's, Inc., 2013 WL 4882758 *1 (D. Colo. September 11, 2013).
The Federal Court noted that the alleged claim of "aiding and abetting HSBC's breach of fiduciary duty" was legally dubious at best, but that it served as a basis to tie the Weller claims to the mortgage contract documents even though none of the Assurant defendants was a party. Weller v. HSBC Mortgage Serv's, Inc., 2013 WL 4882758 *8 (D. Colo. September 11, 2013).
"Likewise," the Federal Judge wrote in this case, "plaintiffs' claim of unjust enrichment is premised on the Assurant defendants' alleged acceptance of premiums contemplated by HSBC's mortgage agreements." Weller v. HSBC Mortgage Serv's, Inc., 2013 WL 4882758 *8 (D. Colo. September 11, 2013). [Emphasis added.] Accordingly, at least according to the Federal Court in this case, Assurant was legally entitled to invoke HSBC's arbitration provision in the HSBC mortgage agreement with Weller. Weller v. HSBC Mortgage Serv's, Inc., 2013 WL 4882758 *8 (D. Colo. September 11, 2013).
To be continued. In the next article, the Federal Judge in this case will choose sides after noting a conflict in the case law over the Dodd-Frank's prohibition on arbitration clauses in residential mortgages. The Court will also rule that the provision reproduced in the Court's opinion is not "unconscionable."
Five mortgage servicers settled in early 2012. By the time they settled, their settlement included their status as banks owning mortgages and not just their status as mortgage servicers for other lenders. As mortgage servicers, they allegedly committed fraud in foreclosures for other lenders.
As banks holding mortgages, they allegedly had fraud committed for them in foreclosures.
They settled with Federal prosecutors and most of the State Attorneys General. They have apparently reneged on their deal.
Investment banks apparently do not use their own employees to handle any of their own property operations. They either use subsidiaries or other people's employees. The banks hire mortgage servicers to service the mortgages they themselves hold.
They also hire "property management companies" to "manage" properties, i.e., to handle cleanup of properties in foreclosure and, increasingly, apparently also to throw occupied properties into foreclosure which are not already in foreclosure.
Follow the money, right? These property management companies are paid by declaring property abandoned and changing the locks. They are paid by boarding up the "abandoned" houses. They are also paid for then removing trash from these so-called abandoned homes -- which must be very convenient for them when the homeowners are actually still living there.
This article picks up where the post of September 10, 2013 about the British TV series "Broadchurch" left off. Did you know that Joe Miller is the killer? Take it from the Daily Mail newspaper in London, which reported on the Internet that Joe Miller is the killer on "Broadchurch".
Another example of the writer's or writers' inability to write strong female characters is the female reporter from some big London newspaper who descends upon Broadchurch. She takes up with a young and inexperienced male reporter. Soon they are having sex. They have to, you know. That is what males and females do on TV, that is what they are about, that is all there is to them -- at least on "Broadchurch" the British TV series.
Imagine what if. What if the veteran female reporter was professional instead of the way in which she is written now. What if she took the young, inexperienced reporter on as an apprentice, if you will, and taught him how to investigate and then how to write reports for a newspaper based on that investigation. That is what a great many experienced newspaper reporters do for less-experienced journalists, male or female. But not on "Broadchurch". On "Broadchurch," they have casual sex and maybe a cigarette.
Clearly the writer of "Broadchurch" does not know any strong professional women. Or at least he -- and the head writer is a "he" -- does not know how to write strong women characters. Pity. If he did, the series would have been better than it is. As it is, foisting it upon a deceived U.S. population was done in Bad Faith.
Did you hear that Joe Miller is the killer? Check out the Daily Mail website. The London newspaper reported on the Internet that Joe Miller is the killer.
Force-placed insurance is not an easy subject to discuss. It takes time and space to have that discussion. Even then, there are so many balls in the air, so to speak, that you may never be quite sure if you have got them all.
In this Conclusion of the series and of my published article, the stage is set for future FPI claims and issues -- including issues of good faith and fair dealing, or not.
CONCLUSION
The continued viability of any action arising out of force-placed insurance will depend on whether mortgagees and their servicers are successful in silently altering the legally accepted understanding of "security interest". It is only for the protection of a lender's security interest that standard mortgage documents allow the forced placement of insurance necessary to protect that interest. If the understanding of such a security interest silently morphs from the interest of the lender in receiving any remaining proceeds of the loan for which the borrower gave the lender a mortgage, to an understanding that the term now instead should mean to protect the value of a bank's or other lender's investment, then there will in all likelihood be no causes of action or claims available, either, as a result of force-placed insurance.
If such causes of action and claims remain viable, however, then putative class actions involving force-placed insurance will have to meet the evolving requirements of the applicable rules of civil procedure and statutes. Most such class actions are filed now in Federal District Courts, which means that they are subject to the requirements of Federal Rule of Civil Procedure 23, possibly the Federal Class Action Fairness Act, and the pronouncements so far of possibly five Justices of the United States Supreme Court. The adjudication of Federal force-placed insurance class actions is still in its early stages.
An effort has been made to plot the likely and potential courses of that adjudication as Federal Judges face increasing numbers of force-placed insurance class action cases. If this article is of assistance to Courts and mortgagees and lenders and their counsel in resolving such issues, then it will have been worth the cost. If the amounts involved in these cases are kept near to our thoughts, then it must truly be said that whether our Courts will do justice requires attention:
Since the damage amounts allegedly owed to each individual defendant are relatively low—especially as compared to the costs of prosecuting the types of claims in this case involving complex, multi-level business transactions between sophisticated Defendants—the economic reality is that many of the class members would never be able to prosecute their claims through individual lawsuits.[1]
Please Read The Disclaimer.
[1]Williams v. Wells Fargo Bank, N.A., 280 F.R.D. 665, 675 (S.D. Fla. 2012).
The times have driven me to write about Bad Faith in fields that do not necessarily involve insurance. "Broadchurch" is an 8-part TV series from Britain. The series was foisted upon the U.S. in Bad Faith.
Have you been watching "Broadchurch," the British TV murder mystery? We are now up to Episode 6 I think. Drawn out does not begin to describe it. Reportedly, the script "revealing" the killer in this mystery was not given to the cast until the eve of the last episode.
Actually, anyone who has ever written for a living -- including yours truly -- absolutely knows from the writing in this series that the script for the last episode was probably written on the eve of the last episode. Not until the end did the writers identify the perpetrator.
They sprinkled clues throughout 8 episodes and pointed fingers at every character. In the last episode, because they had to pick one of the characters, they chose who their killer would be and worked backward through the many clues pointing to that character as the killer.
Did you hear that Joe Miller is the killer? He is the husband of I guess it is Sergeant Miller, the female detective and mother of the deceased boy's best friend. Who knew? Who cares?
The writing is pathetic in more than this. The writer or writers do not seem to know many professional women, if any. The writers certainly show that they cannot accept women as equals. The character of Sergeant Miller is one example. She does not behave professionally at all. The story line is that she lives in the village where a murder took place and all the suspects are her neighbors. As a consequence, we are supposed to believe, and believe, and continue to believe until the end, that she is incapable of suspecting any of them as the killer. Presumably, she is totally incapable of suspecting her own husband, which drives home the point that she is incapable, don't you think? No-one can accuse them of being subtle.
Don't you believe them. The writers did not know how to write a strong female character, and that is the real story.
Did you hear that Joe Miller is the killer?
More to come about the misogynists who wrote this 'story' in Britain. And who have inflicted it upon us in the U.S.
Bad faith and unfair dealing are appropriate concepts outside the insurance arena sometimes. Recent events have made me comment.
The number of Mr. Obama's red lines is increasing. According to Thursday's media reports, now Mr. Obama has drawn a red line around Larry Summers to head the Fed and complete the job Mr. Summers started on the economy.
This is another red line decision that Mr. Obama is punting to Congress, this time because he has to. Senate confirmation of Mr. Summers and the Depression he will finish causing to all but Citigroup and its progeny, is required.