> Those of you who regularly complain/mock/kvetch about the BLS methodology for measuring CPI prices — and I am as guilty as anyone else — should check out the “Billion Prices Project @ MIT.” The idea behind the Billion Prices Project is that we can track inflation by collecting prices from hundreds of online retailers…Read More
> I posted this in a race to beat the 1000th email. The title is a play on the the Japanese attack on Pearl Harbor Tora! Tora! Tora!
Category: Federal Reserve
Following the Investors Intelligence reading of newsletter writers yesterday where bulls rose to a 6 month high, today’s measure of individual investor sentiment is even more enthusiastic. Bulls in the AAII survey rose to 57.6, the highest since Jan ’07 vs 48.2 last week. There is nothing like an 83% rally off the low to…Read More
My friend Paul Kedrosky and I were discussing the absurdity of pricing the market in Gold last week. Paul is “always uneasy about these ‘Let’s price Thing X in Commodity Y’ exercises. (See his chart of the Dow priced in gold since 1900 here). I decided to take that to another level, and make my…Read More
Florida’s Rocket Dockets get the Matt Taibbi treatment. The underlying issue is not the deadbeat homeowners, but rather the “vast landfills of deceptively generated and essentially worthless mortgage-backed assets.” While there are no “Vampire Squids” in the court system, we do get a new phrase: Too Big for Fraud. Here’s an excerpt: “The foreclosure lawyers…Read More
The G20 is getting underway in South Korea. High on the agenda is the brewing currency battle between China and the United States.
Need a primer on the issues? Check out our US-Sino Currency Rap Battle, featuring Chinese president Hu Jintao and American president Barack Obama.
As of this post, 302 views
Note: This was originally written by Felix Salmon, and was circulated without his byline. My apologies for the confusion . . .
American Banker’s Jeff Horwitz has a powerful article in the American Banker. In it, he delves into a rather obscure corner of the mortgage-servicing world: Losses from Force-Placed Insurance Are Beginning to Rankle Investors. About now, you should be asking yourself WhatTF is force-placed insurance?
When a homeowner fails to keep up their insurance premiums on a mortgaged residence, their loan servicer has the option/obligation to step in to buy a comparable insurance policy on the loan holder’s behalf, to ensure the mortgaged property remains fully insured.
Of course, these weasels being opportunistic immoral slugs, abuse the practice. And when the servicer owns the insurer, abusive practices, excessive commissions, and self-dealing transactions have become the norm.
Consider one case found by Horwitz. A homeowner’s $4,000 insurance policy, was paid by the loan servicer, Everbank via escrow. But Everbank purposely let that insurance policy lapse, and then replaced it with a different policy – one that cost more than $33,000. To add insult to injury, the insurer, a subsidiary of Assurant, paid Everbank a $7,100 kickback for giving it such a lucrative policy — and, writes Horwitz, “left the door open to further compensation” down the road.
That $33,000 policy — including the $7,100 kickback – is an enormous amount of money for any loan servicer to make on a single property. The average loan servicer makes just $51 per loan per year.
Here’s where things get interesting: That $33,000 insurance premium is ultimately paid by the investors who bought the loan.
These investors are not happy.
Felix Salmon goes into the details on what the banks are doing:
“There are lots of variations on the force-placed insurance scam. For instance, JPMorgan Chase buys overpriced insurance from a third-party insurer, which then reinsures the property with JPMorgan Chase. This is doubly evil: it not only means that investors are paying far too much money for the insurance, but it also means that, as both the servicer and the ultimate insurer of the property, JPMorgan Chase has every incentive not to pursue claims on the houses it services. Investors, of course, would love to recoup any losses from the insurer, but they can’t bring such a claim — only the servicer can do that.
> Back on the Kudlow Report at 7:00 pm this evening with Chris Whalen. We are discussing the Market, the Fed, and the Deficit. For a preview, some bullet points: Market 1. Markets look like they trade poorly, but refuse to go down. A very powerful bid is beneath 2. Stocks are reasonably priced –…Read More