Claims and Bad Faith Law Blog

LATEST U.S. ATTORNEY'S INVESTIGATIONS INTO MORTGAGE FRAUD CONSPIRACIES!

This follows the article published here on the same subject but featuring a different United States Attorney's Office in an entirely different State and District:  BANK EMPLOYEE INDICTED IN MORTGAGE FRAUD CONSPIRACY!  That article was published here on January 14, 2014.

           As is pointed out in this linked newspaper report, Bank of America's mortgage problems never seem to end.  "BofA also said it's cooperating with an investigation by the civil division of the U.S. attorney's office in Brooklyn, N.Y., into yet more mortgage issues."  E. Scott Reckard, "Latest Government Probes of BofA Target Foreign Exchange, FHA Issues" (Los Angeles Times Online at latimes.com, posted on Wednesday, February 26, 2014).

          In an investigation reminiscent of other indictments and investigations pursued by U.S. Attorney's Offices across the country against many investment banks and lenders and their agents, the issue reportedly under investigation by the United States Attorney's Office in Brooklyn is compliance with various mortgage lending requirements of the Federal Housing Administration or FHA.  In filings required by the SEC, BofA itself revealed that "the Brooklyn probe is part of an industrywide effort by regulators and government agencies" concerning the possible existence of claims resulting under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), and possibly under the False Claims Act.  See id.

 © 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

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 Mortgage Madness Breaks Out In March!  Next week, all the articles published on Insurance Claims and Issues Blog will focus on the issues and damages alleged in lender force-placed insurance cases.  Tune in and turn on to the issues and damages which may soon confront you and your clients and customers.  Trust but verify!

SANDY MONEY IN NEW JERSEY: SO, WHERE IS IT GOING?

          We know that New Jersey has 60,000 State  employees (or thereabouts).

          We know that the State of New Jersey signed a $68 Million, 3-year contract with a Third Party Administrator to administer Federal Taxpayer relief funds intended for Sandy recovery efforts.

          We know that the TPA had 4 offices in Louisiana, 2 in Texas, 1 in Washington D.C., and None in New Jersey.

          We know that the State of New Jersey fired the TPA in December, 2013 because the governor's administration announced the firing on January 22, 2014.

          It is not generally known who if anyone took the TPA's place in administering Federal Taxpayer funds for Sandy relief in New Jersey.  Governor Christie said at a 'town hall' event last week only that there was a new administrator, but apparently he did not say who that is.  See Michael Barbaro, "For Christie, Awkward Return to a Setting He Once Ruled" (New York Times posted online on Thursday, February 20, 2014).

          In response to a questioner at the event why New Jersey did not make use of its 60,000 or so employees to distribute Sandy relief funds, Mr. Christie firmly said that New Jersey hired an outsourced contractor because, well, 60,000-plus people would not for some unstated reason be able to distribute the Federal Taxpayer money to the people Mr. Christie said should get the money.  Id.

          Mr. Christie was clear, however, in laying the blame for inadequate distribution of Federal Taxpayer funds at the feet of the Federal Government after New Jersey hired and fired its choice of  TPA to distribute those funds in New Jersey.  Id. 

          It should be noted as well that some of the people at the event said that they needed the relief money after Sandy.  Mr. Christie told those people that they didn't need the money.  Id.

          So, where is the Federal Taxpayer Sandy relief money going in New Jersey?

          Exactly?

 

The question of where Sandy relief money is going in New Jersey was asked in previously published articles on Insurance Claims and Issues Blog on February 19, 2014 and here on January 21, 2014.  Here by way of C-Span.org is a video excerpt of the town hall event in New Jersey last week.

 © 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

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SPECULATORS DRIVE UP HOUSING PRICES, DRIVE OUT COMPETITION, NAMELY, HOMEOWNERS.

The astonishing true story of how speculators are changing Homeowner's Insurance issues into Renter's Insurance issues!

           Recent newspaper reports continue the publication they began months ago of bewilderment over housing sales.  Sales of single-family homes have been falling for months and home sales continue to fall.  Yet, housing sales prices are rising and continue to rise.  See for example two of several recent newspaper articles like these:  "Stocks & Bonds / Weak News on Home Sales Helps Send Shares Down," p. B2, col. 1 (Reuters report published in New York Times Nat'l ed., "Business Day" Section, Saturday, February 22, 2014);  "Wintry Blast Chills Sales of Houses", p. B5, col. 6 (Reuters report published in New York Times Nat'l ed., "Business Day" Section, Tuesday, January 28, 2014).

          Speculators are purchasing foreclosed homes.  Most of the foreclosed homes purchased by the speculators used to be single-family homes before the Great Foreclosure Recession began.  Speculators -- a good old word for what newspapers generically call "investors" -- are paying top dollar for foreclosed homes.  Speculators drive up prices and drive would-be homeowners out of the market.  The new owners are becoming landlords.  They are making their money by renting the properties.  Michael Corkery, "Wall St.'s New Housing Bonanza / Some Question Sales of Bonds Backed by Foreclosed Homes Turned Into Rentals" p. B1, col. 5 (New York Times Nat'l ed., "Business Day" Section, Thursday, January 30, 2014).

          Homeowner's issues are turning into renter's issues.  This development has been, well, developing for at least a few months now.  See "Foreclose, Buy, Rent ... Whither Homeowner's Insurance?" published here on November 26, 2013.  Homeowner's Insurance issues are even more certain to turn into Renter's Insurance issues the more time that passes. 

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

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Sanctity of LAW trumps sanctity of CONTRACT. Every time.

          After the Federal Judge overseeing Detroit's bankruptcy proceedings strongly suggested to Detroit's lawyers that certain "interest-rate swap" contracts might be invalid, Detroit's lawyers brightly filed a lawsuit seeking to declare the very same interest-rate swap contracts invalid.  See Mary Williams Walsh, "Detroit Turns Bankruptcy Into Challenge of Banks" p. B1, col. 2 (New York Times Nat'l ed., "Business Day" Section, Tuesday, February 4, 2014).

          All parties to Detroit's bankruptcy apparently agree to the obvious fact that Detroit entered into these "long-term financial contracts" with certain investment banks in order to raise money.  Detroit's newly filed pleadings challenge the validity of retaining these obligations even after Detroit is eventually discharged from bankruptcy.

          The interest-rate swap contracts appear to be very much like collateral protection insurance.  Alternatively, they also very much resemble credit insurance.  They were entered into to protect the rights of investment banks, Detroit's creditors, to be repaid the loan money which they lent to Detroit at a rate of return which, after some urging, Detroit is now willing to describe as a 'handsome profit'.  See id.

          Collateral protection insurance and credit insurance are subject to law.  Laws governing the timing, amounts, and other features of collateral protection insurance and credit insurance vary among the States which regulate insurance.  Variations aside, the law governing collateral protection insurance like the law governing credit insurance is, well, the law.

          I'll make it an open question whether contracts like interest-rate swap contracts trump the law, or whether there may be an additional reason for refusing to enforce them if they fail to comply with the law in the first place, i.e., if they are illegal.  See generally "Bad Insurance Deals Push Cities to Brink," December 29, 2013.

          One thing is just about certain, however.  The investment banks will urge all the Courts involved to declare their immunity from State insurance regulation of interest rate swaps under such Federal laws as the Gramm Leach Bliley Act and other laws, if any are available.

 © 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

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Mr. Lew, You Think You're, Who?

    Mr. Jacob "Jack" Lew is not very well known outside of Washington, D.C.  He is the current Secretary of the Treasury.  He took the place of Timothy Geithner.

   Mr. Lew will not become better know any time soon if he has his way.  This week he convened a government meeting paid for by Federal Taxpayers.  The government meeting was a meeting to discuss government business.  It was a meeting of the Financial Stability Oversight Council.

   Mr. Lew ordered the meeting to be held behind closed doors.

   We know only two things about what the participants discussed.  First, they discussed which companies should be designated for special status as "systemically important" even though the companies are not banks.  Second, Mr. Lew's department advised that the FSOC participants discussed "international developments on insurance matters".  Brendan Murray, "Lew Convenes FSOC Meeting in Closed Session Today" (Bloomberg.com, posted on Thursday, February 13, 2014).

   What "insurance matters" did they discuss in this publicly funded meeting to discuss public business?  We know that the current Federal Government has expressed interest in regulating areas of insurance which only States have previously regulated.  See, e.g., the article, "BAD FAITH POWER GRAB BY FEDERAL INSURANCE OFFICE" posted here on December 15, 2013.  But we do not know if that interest by the Federal Government was discussed, even though the people and businesses which pay insurance premiums have an interest in the subject, too.

   So what did the FSOC people discuss at their closed meeting?  We do not know.  We just do not know.  Except that other people paid for the meeting.  And that other people will pay for whatever is decided as a result of that and other meetings held behind closed doors to decide the issues which affect other people.

   Mr. Justice Louis Brandeis was spot on when he said:  "Sunlight is the best disinfectant."

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

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MAKING MONEY OUT OF LENDER FORCE PLACED INSURANCE.

Settlements are good business.  Actually, settlements are a way of doing business in lender force placed insurance class action cases in Federal Courts.  A recent example:  Casey v. Citi (NDNY Case No. 12-00820).

           A new report about a new settlement agreement in a lender force placed insurance case has just been published.  Some of the details appear to be garbled in the transmission.  For that reason, we will not mention what news information service has taken the lead on this reporting.

          A new settlement agreement has been filed in the Federal case of Casey v. Citi (NDNY Case No. 12-00820).  The parties have recently requested the Federal Court's approval of their proposed class action settlement in that lender force placed insurance case.  They filed their motion seeking preliminary approval of their class action settlement on February 5, 2014.  Download Casey v. Citi (NDNY 12.00820).Ps M Prelim Appr Class Action Settlement.Fd020516.  The Federal Court has set a Hearing to approve on March 14, 2014.

          This article is based strictly on the popular reporting concerning this announced settlement, and on some experience with similar settlements in lender force placed insurance class actions especially in Federal Court.  When I have had some time to review the parties' documents in the specific Casey case, I will comment on them.

          According to the popular press which for our purposes includes what might be called "the business press," Citigroup, Inc. and the Plaintiffs in Casey have agreed to a settlement in which Citi will pay $110,000,000.00 or $110 Million to the Plaintiffs-homeowners.

          Let's take that figure at face value.  Let's assume that Citi will pay up to $110 Million in cash.  First off, Citi reportedly only has to pay Plaintiffs who 'present a claim'.  Not all class members in any class ever known actually end up 'presenting a claim,' of course.  From the beginning, it is obvious that Citi's 'payment' may not be a payout to all the people affected in this case by lender force placed insurance practices.

          "Hazard" insurance and Flood insurance were both placed on the class.  The homeowners in the group of lender force placed hazard insurance were reportedly charged $758,000,000.00 or $758 Million in premiums for that insurance.  Citi's cut was 15% in "commissions".  The popular reporting does not reflect what this figure would be.  It is $113,700,000.00.  (That calculation is my own, and so are all similar calculations noted in this article.  These calculations are not published in the popular press reports of this settlement agreement.)

          In the settlement agreement in Casey, the parties reportedly agreed to request Court approval of Citi paying 12.5%.  I calculated that figure as $94,750,000.00.

          I then calculated the difference between the two figures -- what Citi reportedly received as "commissions" for force placing "hazard insurance" at a commission rate of 15%, versus the amount Citi reportedly will pay 'back' on the same amount at the rate of 12.5% -- and the difference is $18,950,000.00.

          Parenthetically, Citi will not have to give up ever charging "commissions" again on lender force placed insurance.  They and the class action homeowners are requesting the Federal Court to approve a moratorium of 6 years and then Citi can resume the practice of charging commissions if the Federal Court in the Casey case gives its approval of this practice.  If that practice is approved by the Federal Court in this settlement, the Court's approval is almost certainly far more than Citi could have hoped to obtain by litigating the practice.

          Lender force placed Flood insurance was also at issue in the Casey case.  Reportedly, homeowners were charged $173,000,000.00 or $173 Million in premiums for it and reportedly, Citi did not collect "commissions" on those premiums but will pay 8% of that figure in addition to its 'payout' on the lender force placed "hazard" insurance claims.  Taking this reporting at face value as well, this would mean that Citi would pay cash of $13,840,000.00 to settle all the Casey class action lender force placed Flood insurance claims.

          Citi would still make a profit.  After all these "ifs," Citi would still be ahead of the game by $5,110,000.00, a figure not reported in the popular press.  That is the difference between what Citi reportedly took in as "commissions" from the homeowners represented in this class action lender force placed insurance case -- $113,700,000.00 -- versus what Citi reportedly would pay out to them if Citi pays cash to all the affected homeowners -- $108,590,000.00.

          Now, having said all that, let's return to those "ifs" I mentioned.  There are a lot of them.  First, even if -- really in all probability, not if but "when" -- this proposed settlement is approved, not all homeowners in the class will benefit.  Citi will only have to 'pay' those homeowners in the class who make claims after the Court approves the settlement, which by experience well known to Citi and to others does not mean all the homeowners affected by the lender force placed insurance practices at issue in Casey.

          Second, although defendants in past lender force placed insurance class action cases may have settled exclusively for cash, I am not aware of them.  Citi's 'payout' is almost certain to be a mix of a relatively small amount of cash, coupled with "credits" to Citi for such things as mortgage principal reductions which do not involve the payment of cash but which settlement agreements in these cases involve "credits" for stated values treated as cash for purposes of the settlement, including for purposes of the ensuing press releases which inevitably follow these agreements.

          Third, these figures are based only on popular reports concerning "commissions".  It is unclear how much money Citi allegedly earned, let alone how much money it did take in, from other lender force placed insurance practices if any.

         Finally, no-one should forget that, reportedly, Citi successfully bargained in this case for its legal ability to charge "commissions" on lender force placed insurance.  That is huge for Citi.

          More to come, after I have the time to review the settlement documents.  In the meantime, a reminder:  March 14, 2014, as noted above, is the date set by the Federal Judge for hearing the parties' arguments to approve their proposed mutual class action settlement against lender force placed insurance practices in the Casey case.  The hearing will be held in Utica, New York before U.S. District Judge David N. Hurd.

Rulings in the Casey case were previously discussed in this article posted here on August 1, 2013.

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

MORTGAGE RELIEF MEANS TAXES TO HOMEOWNERS, TAX REDUCTIONS TO 'BANKS'.

          Mortgage reductions will mean taxable income to homeowners because their debt has been reduced.  In turn, because 'banks' which reduce mortgage debt have forgiven debt, they will get a tax deduction or a tax exemption.  Congress would have to enact a law to change this tax situation.   See Shaila Dewan, "Welcome Relief, Then Tax Bill" p. B1, col. 2 (New York Times Nat'l ed., "Business Day" Section, Wednesday, February 5, 2014).  If you don't like the color blue, don't hold your breath waiting for the U.S. House of Representatives to do anything like enacting a law.

          This adds insult to obvious injury.  Mortgage reductions are generally given to those homeowners who are "under water" on their mortgages, meaning that their homes are worth less than the unpaid balance on their home mortgages.

          Taking the insult a step away from  the direction of bad faith, banks and underwater homeowners are not the only parties on the scene with incentives in the situation.  Mortgage insurance companies have an interest in not paying out on their policies.  In other words, mortgage insurance companies have an interest in homeowners paying their mortgages.  If homeowners stop paying on their mortgages, banks may claim that they are owed the full policy limit of the original mortgage policy which was issued for the full unpaid balance due of the mortgage involved.  It is in the interest of mortgage insurance companies to see that homeowners keep paying on their mortgages.

 

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

Please Read The Disclaimer.

Say It Ain't So.

   I just read that the "Red Hot Chili Peppers Faked It at Super Bowl," by Dave Itzkoff, p. C3, col. 6 (New York Times Nat'l ed., Thursday, February 6, 2014).  Their lead bassist is quoted as saying that the band's instrumentals were prerecorded, although the band was presented live and went through the motions of strumming electric guitars that were not actually plugged in.  He says it was the NFL's idea.

   The halftime show was marketed as a live performance.  Clearly it would have destroyed the illusion if the fact was made public before the event, that at least part of it was prerecorded.

   What's next?  Next thing we know, will someone tell us that, shh, the game itself was also previously recorded ahead of time?

   That's impossible too.  Say it ain't so.

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

Please Read The Disclaimer.

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OBAMA CAUSED HEALTH CARE PREMIUM INCREASES IN 2007, SOME SAY.

   A couple of retailers have recently cut health insurance benefits for their part-time employees.  Target is the most recent example, joining Home Depot and Trader Joe's (if you call them retailers) in cutting health insurance benefits for part-time employees.  Alex Wayne, "Target to Drop Health Insurance for Part-Time Workers" (Bloomberg, posted on January 22, 2014).

   They blame Obamacare.  See id.  There are a couple of problems with this line.  For one thing, the Affordable Care Act a/k/a "Obamacare" does not require employers to provide health insurance to part-time workers.

   Further, blaming Obama for healthcare premiums is misplaced.  The trend toward cutting health insurance benefits for part-time employees began sometime around 2007.  George W. Bush, not Barack Obama, was President.  Obamacare was not even thought of and it was not enacted into law until 3 years later.

   So, do you think that these employers will give any part of the money back by paying higher wages?

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

Please Read The Disclaimer.

  

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BAD FAITH STANDARD OF LIABILITY APPLIED IN FLORIDA: PREFERRING INTERESTS.

          In a bad faith case arising in the Northern District of Florida, the Federal Court applied Florida law and granted a liability insurance company's motion for summary judgment.  The bad faith case was based on allegations of bad-faith-failure-to-settle.

          The Court applied the national standard of extracontractual liability which prevails in most bad-faith-failure-to-settle cases.  "Here, there is a complete absence of evidence that State Farm acted solely on the basis of its own interests as to Coulter's claim."  Coulter v. State Farm Mut. Auto. Ins. Co., 2014 WL 197693 *6 (N.D. Fla. January 16, 2014).

 

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

Please Read The Disclaimer.

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