WASHINGTON – A company with ties to the nation’s largest overseer of subprime mortgages announced under pressure Wednesday it will stop collecting controversial insurance fees from homeowners whose properties were under foreclosure. The announcement came three months after The Associated Press highlighted its business practices.
Shares in Altisource Portfolio Solutions S.A. of Luxembourg, a major subprime mortgage services provider, fell by 17 per cent on the news, causing a drop of more than $200 million in the company’s market value. The AP reported in July that companies overseeing millions of mortgage loans appeared to be skirting new federal regulations and legal settlements intended to stop them from profiteering at the expense of troubled homeowners. In August, New York’s top state financial regulator, Benjamin Lawsky, said he intended to investigate complex business arrangements the AP described between Altisource and Ocwen Financial Corp.
Altisource said Wednesday it will cease collecting commissions on “force-placed” insurance, a type of backup property insurance that its clients buy to protect the homes of otherwise uninsured properties. The company did not say when it will stop collecting the fees. In a statement, it described its business as unique and beneficial for consumers and investors but said it was ending the fee collections “in the best interest of the company and its shareholders.”
Consumer advocacy groups said similar practices were still common in the industry.
“Commissions aren’t the only way kickbacks are paid,” said Bob Hunter, insurance director of the Consumer Federation of America. “The regulators have a long way to go. There are below-cost services and outright gifts of money.”
The Federal Housing Finance Agency, which oversees government-backed mortgage giants Fannie Mae and Freddie Mac, pledged to take further steps to bring down the cost of force-placed insurance this year. It made the effort one of its priorities for 2014, but did not immediately return a phone call from the AP to discuss its efforts.
Following the market collapse in 2008, force-placed insurance became a multibillion-dollar industry as homeowners fell behind on their insurance bills. Banks and other mortgage servicers found a way to profit from the insurance. Instead of buying insurance directly at the lowest price possible for homeowners, consumer advocates alleged that mortgage companies purchased coverage at a higher price through middlemen that offered a commission or shared profits through convoluted reinsurance deals.
Following public scrutiny of the costs of the insurance billed to homeowners, major banks including JPMorgan Chase & Co. and Wells Fargo & Co. renounced such payments. In June, the Federal Housing Finance Agency formally banned mortgage companies from profiting on insurance that is billed to government mortgage giants Fannie Mae and Freddie Mac.
The AP’s investigation found that despite these prohibitions, many of the country’s largest caretakers of subprime mortgages sought ways to continue to profit. One major servicer, Nationstar Mortgage Services, attempted to sell its largely non-existent insurance agency, Harwood Service Co., to a third party for $100 million, a deal that New York regulators scuttled after the AP inquired about it. The AP also reported that although Ocwen did not directly take commissions it was routing its insurance business through Altisource, a company that Ocwen created and supplies with much of its business.
Ocwen declined to comment, and Altisource executives did not immediately return phone calls from the AP asking about its decision.