Insurance Claims And Issues

If Commercial Construction Loans Default, Insurance and Bond Claims May Follow.

    Fears continue of possible mass defaults on many Commercial Construction Loans.  Fear of Default has been embedded in the Commercial Construction Loan Market for months.  See generally Floyd Norris, "Off the Charts/Construction Loans Falter, a Bad Omen for Banks" p. B3, col. 1 (New York Times Nat'l ed., "Business" Section, Saturday, September 5, 2009).  As compared with the woes of loans for the construction of single-family homes, reportedly "[i]t is in commercial real estate construction -- be it stores or office buildings -- that the pain seems likely to rise."  Id.

    In particular, a research firm cited in the linked article predicts that "the biggest problems are in loans for condominium construction, with 38 percent of all construction loans troubled."  Id.  [Emphasis added.]

    If Commercial Construction Loans go into Default in large numbers, Insurance and Bond Claims will not be far behind.

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Calling All Mediators: Help Lenders, Borrowers in Foreclosure Mediations, Avoid Evictions.

    A Task Force assembled by the Supreme Court of Florida recently recommended that all of Florida's Trial Courts adopt a policy to require Mediations in Foreclosure Cases.  This is part of an effort to avoid evicting people from their homes whenever eviction can be avoided by mutual agreement between the Lender-Plaintiff and the Borrower-Defendant in the Foreclosure Case.  Report of the Florida Supreme Court Task Force on Residential Mortgage Foreclosure Cases, August 17, 2009:  Download Filed_08-17-2009_Foreclosure_Final_Report.  Foreclosure Mediations may be ordered in Foreclosure Cases, but Mediator participation at greatly reduced rates is voluntary.

    This policy is already in effect in many if not all Florida Circuit Courts.  Mediators who are willing to volunteer their time and services in this effort in the Ninth Circuit in the Orlando, Florida area only have to link to the Orange County (Florida) Bar Association here to volunteer.

    Volunteer Mediators in the Seminole County, Florida area may send their resume, a copy of their Mediator Certificate, and a cover letter to:

Seminole County Circuit Court

Mediation Department

301 N. Park Avenue

Sanford, FL  32771

Re:  Seminole County Fixed Fee Foreclosure Mediation Panel.

     If there is a program of Foreclosure Mediation in your jurisdiction, and if you are a Certified Mediator, please consider volunteering your time and services, too.

    If there is no program yet in your jurisdiction, please consider starting one.  Then be among the first volunteer Mediators in the Mediation Foreclosure program in your Court.  Without you, it cannot be done nearly as well.

To rephrase an insight penned by Albert Camus:

This may be a world in which people are evicted from their homes.  We may not be able to do anything about that.  But we can lessen the number of people who are evicted from their homes.  If you do not help in this effort, who will?

An identical call to Mediators is posted on this same date on Insurance Claims and Bad Faith Law Blog at www.insuranceclaimsbadfaith.typepad.com.

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Mortgage Modification Motivations: Impure But Insurable.

    The pending Congressional amendments to TARP apparently include encouraging mortgage modifications for potentially impure motives, according to some persons.  These objections are reported by Gretchen Morgenson, "Fair Game/A Reality Check on Mortgage Modification" p. 1, col. 2 (New York Times Nat'l Ed., "SundayBusiness" Section, Sunday, April 26, 2009).

    If enacted, these amendments would encourage two outcomes for reasons that these persons find objectionable:

1. The proposed amendments encourage mortgage modifications by mortgage servicing companies.  If the servicer of a mortgage was also the initial lender, then in that case reportedly the proposed amendments would immunize the servicer for correcting the original abusive mortgage terms, even though that same company was the lender in that case and when it made the loan it unfairly insisted on the abusive mortgage terms.  In other words, the mortgage would be modified, which is a good thing according to the great majority of the Members of Congress who have so far voted for these amendments, but mortgages would be modified for the wrong reason if the service companies intended to be immunized rather than turn about and do the right thing for the right reasons.

2. The other impure motive that would be counted on to produce desired results if these amendments are adopted by Congress, concerns lien priorities.  Reportedly, many mortgage servicing companies are Banks that hold second liens, second in priority to first mortgages that were bundled and sold to 'innocent' investors wrapped into and parceled out from "securitizations".  (Securitization is at the heart of the Credit Collapse of 2007-2009, which we are living through right now.)  If these mortgage service companies modify the onerous terms of the first mortgages on the same properties on which they themselves hold second liens, they will reportedly be harming the priority status of the first lienors.  It is readily apparent how this might adversely affect the predatory lenders who insist on enforcing abusive first mortgages and adamantly obstruct any attempt to ameliorate the harshness of those terms.  It is inconceivable, however, that modifying the abusive first mortgages could do anything but assist the mortgagors -- that is, the borrowers -- including to pay most of the mortgages back to the parties that claim the right to be paid under the first mortgages.

Who is it, then, that reportedly objects to these amendments proposed by Congress?   The objectors are "some" unknown, unnamed "investors and securitization lawyers".  Id.

     If the mortgagors totally default on the mortgages, why is there no mention of the Mortgage Insurance if any which any prudent mortgagee would insist upon at the same time that she, he or it takes back a mortgage as security for any loan?

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FICO Scores Mortgage Insurance.

    Somethihng called FICO affects whether home buyers hoping to refinance, have to also pay for Mortgage Insurance.  Without a high enough FICO score, homeowners may not be able to refinance without first establishing equity in thier homes of a minimum of 20% of the home's value.  Nobody knows that FICO stands for  Most people just call the standard credit score your FICO credit score.  See Tara Siegel Bernard, "Costs And Tighter Rules Thwart Refinancings" p. B1, col. 2 (New York Times Nat'l Ed., "Business Day" Section, Saturday, January 24, 2009).

    Mortgage Insurance is becoming less available and more expensive.  Mortgage Insurance Companies reportedly will not issue Mortgage Insurance Policies to just anyone who wants to refinance their homes.  The purchasers of such Policies must prove that they can afford to pay the Premiums.  That is where a high FICO score comes in.  Reportedly, in States like Florida, Arizona, California and Nevada where housing markets have been hit very hard, "at least two [Mortgage] insurers are now requiring borrowers to have at least 10 percent equity in their homes and a credit score of more than 720."  Id.

    Actually, this much is know about what FICO stands for:  The "F" and the "I" stand for Fair Isaac, a corporation that made and markets the credit scoring involved in FICO.

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Existing Mortgage Modifications ("Cramdowns") May Affect Mortgage Insurance Premiums: UPDATE.

      It was previously reported that Mortgage Insurance Premiums may be affected by proposals pending in the U.S. Congress.  "Latest Legal Irk:  'Cramdown Provisions,'" January 12, 2009, posted in the Categories of Market Performance and Mortgage Insurance.

    One Creditor's "Cramdown Provision" may be a Debtor's "Mortgage Modification Provision".  The Bankruptcy Law for a long time has contained such provisions, allowing Federal Bankruptcy Judges, as a part of Chapter 13 Bankruptcy proceedings, to "reduce what you owe on credit cards, auto, boat and student loans and even second-home mortgages."  Kenneth D. Harney, "The Nation's Housing/Saving Homes With a New Bankruptcy Rule" (Washington Post online, Saturday, February 7, 2009).   The proposal pending in Congress would allow for Mortgage Modifications for Debtors, or Cramdowns for Creditors, on Mortgages for primary residences.  If adopted, the proposal may considerably lower the rate of Foreclosures, and greatly affect an increase in the number and scope of 'workout provisions.'

    The proposal may also affect the Premiums charged by Mortgage Insurance Companies for Mortgage Insurance.

Please Read The Disclaimer.

Latest Legal Irk: "Cramdown Provisions".

    Lenders including Bankers and Mortgagees have until now dictated the framework available to Homeowners to find solutions, other than Foreclosure, to their inability to repay their Home Loans.  How is that going?

    Citigroup reportedly has agreed to support amendments to the Federal Bankruptcy Laws to allow a limited authorization of so-called "cramdown provisions".  Citigroup's support of these proposed amendments has irked Bankers and Mortgagees and other Lenders immensely.  See, for example, Renae Merle and Binyamin Appelbaum, "Industry Recoils at Citi's Mortgage Deal/Banks Seek More Limits on Bankruptcy Judges' Authority to Rework Mortgages" (Washington Post.com, Saturday, January 10, 2009).

    "Cramdown provisions" authorize Bankruptcy Judges to take certain actions, which reportedly include:

Lowering the interest rate on a loan;

Reducing the Principal; or

Extending the time over which the loan must be repaid.

See id.  "Currently, judges are allowed to modify the terms of a mortgage for a second or vacation home but not a primary residence."  Id.  [Emphasis added.]  Citigroup's support, however, concerns only existing mortgages and loans.  Citigroup reportedly does not support -- and the proposed amendments do not provide for -- authorizing "cramdown provisions" for future mortgages.  See id.

    What if any effects such amendments would, if adopted, have on Insurance are open to speculation.  It seems clear however that Premiums on Mortgage insurance Policies will be subject to change as well.

Please Read The Disclaimer.

Credit Ratings Agencies, Credit, and Civil Rights Damages Claims.

    Two Credit Rating Corporations, Moody's Investors Service (a subsidiary of Berkshire Hathaway) and Fitch Ratings, allegedly "enriched themselves by assigning high ratings to bonds backed by mortgages," according to a recently filed complaint.  The junk mortgages allegedly imposed unfair payment terms and were disproportionately sold to African Americans and Latinos who purchased homes across the nation.

    The administrative complaint is a precondition or first step to the filing of a Federal Civil Rights lawsuit.  It is a first-of-its-kind complaint filed by the National Community Reinvestment Coalition with the Federal Department of Housing and Urban Development, it is reported by Kenneth R. Harney, "Civil Rights Complaint Targets Wall Street Rating Firms" (Los Angeles Times Online, Sunday, November 30, 2008).

    There is a related post on www.insuranceclaimsbadfaith.typepad.com. 

Please Read The Disclaimer.

Courts, Lawsuits to Shape Securitization as Way of Life.

     The way many people live will almost certainly be decided by the Courts in future cases.  In cases to come, nothing less than determining what financing practices will be acceptable in the future, and what arrangements will be legally enforced with respect to collateral provided by borrowers to lenders, will be the issues.

    Countrywide Financial Corporation has been sued by Greenwich Financial Services, for example.  Greenwich filed its lawsuit in New York State Court.  If the lawsuit stays there, then the Greenwich lawsuit against Countrywide will be decided outside of the expected forum of a Federal Bankruptcy Court.

    Countrywide is allegedly a mortgage servicing company.  The mortgages are backed by securities.  Essentially, Greenwich is suing Countrywide on apparent claims for breach of contract because Countrywide is not foreclosing on all of the homeowners who cannot make their payments.

    Greenwich and other large investors hold securities backed by the homeowners' mortgages.  Greenwich Financial Services is a hedge fund.  Its claims of liability on the part of Countrywide are not entirely clear, but breach of contract certainly appears to be among them.  See Vikas Bajaj, "Fund Investors Sue Countrywide Over Loan Modifications" p. B8, col. 3 (New York Times Nat'l Ed., Business Day Section, Tuesday, December 2, 2008).

    The basis of Greenwich Financial's lawsuit against Countrywide Financial lies in the settlements Countrywide recently reached with many State Attorneys General.  The A.G.'s apparently claimed that Countrywide engaged in predatory lending practices.  Countrwide settled those claims by modifying mortgage terms.  Greenwich claims that Countrywide owes it and other investors a lot of money, as much as $150 Billion, by agreeing with the States to modify mortgage terms to "provide $8.4 billion in relief to borrowers".  Id. 

    To say again, the future of financing, and the practices Courts will be willing to enforce in future transactions involving the securitization way of doing business, are the issues that will be determined in this lawsuit and in other lawsuits like it.  It seems clear now that the securitization way of life will be shaped or halted in the Courts.

There is a related post on this lawsuit at www.insuranceclaimsbadfaith.typepad.com.

Postscript of Wednesday, December 10, 2008:

This lawsuit is also the subject of a post on the New York Times' "DealBook" web log, by "The Deal Professor," Steven M. Davidoff (New York Times Online, Wed., December 10, 2008).  At the end of the post, there is a link to the Greenwich complaint, among other things.

Please Read The Disclaimer.  

Barely Plans, Bear Stearns, Bailout: "Where's The Insurance?": updated.

    More words have appeared and should be added I supposed to the one-page "fact sheet" of unknown Republican Members of Congress, posted here on Friday, 09.26.08:  See Edmund L. Andrews, "House Republicans Support A Plan That Would Insure Troubled Mortgages" p. A16, col. 1 (New York Times Nat'l Ed., Saturday, September 27, 2008).  More words.  Not more clear..  It is possible to say the same thing in many different words at many opportunities and still say nothing new at the end of the day.

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Barely Plans, Bear Stearns, Bailout: "Where's The Insurance?"

    An unspecified number of Republican Members of Congress are reportedly working from a "fact sheet" on a plan that "calls for a mortgage-backed security insurance fund".   Alison Vekshin and James Rowley, "House Republicans Undercut Bush on Rescue, Slow Talks (Update 1)" (Bloomberg.com, Friday, September 26, 2008).  Few details are reported at this time.

    However, this much is known.  One of the talking points on the fact sheet "plan," if you will, is more deregulation because in the eyes of the unspecified group of Republican Members of Congress, the government is still a problem standing in the way of private capital formation which they trust will restore the economy to where they want it, i.e., with value intruded into hedge funds, collateralized debt obligations, and credit default swaps.

    They offer a fact sheet as a substitute for the three-page sheet that Treasury Secretary Henry "The Hammer" Paulson released at 1:00 A.M. last Sunday morning to take over the economy of the United States.

    It comes as no surprise that politics reportedly intruded on the day and derailed an agreement on restoring confidence to the nation's economy.  According to many reports, the intrusion was led by the failed campaign of John McCain.  Report published by the Miami Herald including material provided by the Associated Press, and by McClatchy Newspapers:  "GOP Rebellion Could Derail Bailout" (Miami Herald Online, Friday, September 26, 2008).

    Do any of these people spend any of their time thinking about the national economy, or is it all always about their hold on power?

    If more details are forthcoming about insurance for bailouts, they will be posted here.

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