Tag Archives: fixed rate mortgage

New RICO-Fraud Class Action Against Ocwen For Abusive Fee Schemes Against Home Loans Serviced

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by
Reclaim Our Republic

This new class action against Ocwen addresses the marked-up default services fees that Ocwen is charging homeowners, particularly distressed homeowners, as part of a scheme of self-dealing with companies such as Altisource, and with the involvement of William C. Erbey, Executive Chairman, who has a leadership role on the Board of Ocwen and Altisource:

Weiner v Ocwen Financial Corporation a Florida Corporation COMPLAINT.
Weiner v. Ocwen Fin. Corp. and Ocwen Loan Servicing, LLC, No 2:14-cv-02597 (E.D.Cal.), filed Nov. 5, 2014.

52. Ocwen’s scheme works as follows: Ocwen directs Altisource to order and coordinate default-related services, and, in turn, Altisource places orders for such services with third-party vendors. The third-party vendors charge Altisource for the performance of the default-related services, Altisource then marks up the price of the vendors’ services, in numerous instances by 100% or more, before “charging” the services to Ocwen. In turn, Ocwen bills the marked-up fees to homeowners.

58.Thus, the mortgage contract discloses to homeowners that the servicer will pay for default-related services when reasonably necessary, and will be reimbursed or “paid back” by the homeowner for amounts “disbursed.” Nowhere is it disclosed to borrowers that the servicer may engage in self-dealing to mark up the actual cost of those services to make a profit. Nevertheless, that is exactly what Ocwen does.

[Ed.: Explanation of Modern Relationship Between Loan Servicers and Home Loan Borrowers]

America’s Lending Industry Has Divorced itself from the Borrowers it Once Served

18. Ocwen’s unlawful loan servicing practices exemplify how America’s lending industry has run off the rails.

19. Traditionally, when people wanted to borrow money, they went to a bank or a “savings and loan.” Banks loaned money and homeowners promised to repay the bank, with interest, over a specific period of time. The originating bank kept the loan on its balance sheet, and serviced the loan — processing payments, and sending out applicable notices and other information — until the loan was repaid. The originating bank had a financial interest in ensuring that the borrower was able to repay the loan.

20. Today, however, the process has changed. Mortgages are now packaged, bundled, and sold to investors on Wall Street through what is referred to in the financial industry as mortgage backed securities or MBS. This process is called securitization. Securitization of mortgage loans provides financial institutions with the benefit of immediately being able to recover the amounts loaned. It also effectively eliminates the financial institution’s risk from potential default. But, by eliminating the risk of default, mortgage backed securities have disassociated the lending community from homeowners.

21. Numerous unexpected consequences have resulted from the divide between lenders and homeowners. Among other things, securitization has led to the development of an industry of companies which make money primarily through servicing mortgages for the hedge funds and investment houses who own the loans.

22. Loan servicers do not profit directly from interest payments made by homeowners. Instead, these companies are paid a set fee for their loan administration services. Servicing fees are usually earned as a percentage of the unpaid principal balance of the mortgages that are being serviced. A typical servicing fee is approximately 0.50% per year.

23. Additionally, under pooling and servicing agreements (“PSAs”) with investors and note holders, loan servicers assess fees on borrowers’ accounts for default-related services. These fees include, inter alia, Broker’s Price Opinion (“BPO”) fees, appraisal fees, and title examination fees.

24. Under this arrangement, a loan servicer’s primary concern is not ensuring that homeowners stay current on their loans. Instead, they are focused on minimizing any costs that would reduce profit from the set servicing fee, and generating as much revenue as possible from fees assessed against the mortgage accounts they service. As such, their “business model . . . encourages them to cut costs wherever possible, even if [that] involves cutting corners on legal requirements, and to lard on junk fees and in-sourced expenses at inflated prices.”3

25. As one Member of the Board of Governors of the Federal Reserve System has explained:
While an investor’s financial interests are tied more or less directly to the performance of a loan, the interests of a third-party servicer are tied to it only indirectly, at best. The servicer makes money, to oversimplify it a bit, by maximizing fees earned and minimizing expenses while performing the actions spelled out in its contract with the investor. . . . The broad grant of delegated authority that servicers enjoy under pooling and servicing agreements (PSAs), combined with an effective lack of choice on the part of consumers, creates an environment ripe for abuse.4 (citing See Sarah Bloom Raskin, Member Board of Governors of the Federal Reserve System, Remarks at the National Consumer Law Center’s Consumer Rights Litigation Conference, Boston Massachusetts, Nov. 12, 2010, available at http://www.federalreserve.gov/newsevents/speech/raskin20101112a.htm (last visited Jan. 23, 2012).

Americans Pay More For Slower Internet

internet speeds

When it comes to Internet speeds, the U.S. lags behind much of the developed world.

That’s one of the conclusions from a new report by the Open Technology Institute at the New America Foundation, which looked at the cost and speed of Internet access in two dozen cities around the world.

Clocking in at the top of the list was Seoul, South Korea, where Internet users can get ultra-fast connections of roughly 1000 megabits per second for just $30 a month. The same speeds can be found in Hong Kong and Tokyo for $37 and $39 per month, respectively.

For comparison’s sake, the average U.S. connection speed stood at 9.8 megabits per second as of late last year, according to Akamai Technologies.

Residents of New York, Los Angeles and Washington, D.C. can get 500-megabit connections thanks to Verizon, though they come at a cost of $300 a month.

There are a few cities in the U.S. where you can find 1000-megabit connections. Chattanooga, Tenn., and Lafayette, La. have community-owned fiber networks, and Google has deployed a fiber network in Kansas City. High-speed Internet users in Chattanooga and Kansas City pay $70, while in Lafayette, it’s $110.

The problem with fiber networks is that they’re hugely expensive to install and maintain, requiring operators to lay new wiring underground and link it to individual homes. Many smaller countries with higher population density have faster average speeds than the United States.

“Especially in the U.S., many of the improved plans are at the higher speed tiers, which generally are the most expensive plans available,” the report says. “The lower speed packages—which are often more affordable for the average consumer—have not seen as much of an improvement.”

Google is exploring plans to bring high-speed fiber networks to a handful of other cities, and AT&T has also built them out in a few places, but it will be a long time before 1000-megabit speeds are an option for most Americans.

The Hybrid ARM Is Back – And It’s A Smart, Customizable Mortgage Option

Source: Forbes

Fast forward to last May, as much noise was swirling around the Fed’s tapering strategy: 30-year fixed rates ascended a full percentage point in less than 30 days, based only on the conversations of the small screen financial talking heads, and all before the Fed announced anything!  Not long afterwards, borrowers started to ask me about hybrids.   3/1, 5/1, 7/1, 10/1, what is the spread between the 30-year fixed, what are the caps, what is the index, how do they work?

Let’s review the mechanics:

Hybrid ARMs as the name implies, have a fixed rate component on the front end of the mortgage term (3 years, 5, 7 or 10) and an adjustable rate component on the back end of the mortgage term, when the interest rate can change/adjust annually.  For example; a 5/1 ARM in today’s market could have an interest rate that is fixed for the first 5 years at 3.00% compared to a 30-year fixed rate mortgage at 4.50%. For a $200,000 mortgage, that would save $170/month.  After 5 years/60 months, the interest will adjust annually based on an index (1 year LIBOR or 1 year Treasury/CMT), plus a margin of somewhere between 2.25% and 2.75%.

Of course there are caps on the interest rate adjustments.  Typically the initial adjustment cap is 2% above the start rate, unless the initial term is 5 years or longer, then the initial caps can be as high as 5%. The periodic or yearly caps are typically 2% above (or below) the existing rate and the lifetime cap is 5% or 6% above the initial fixed rate, depending on the term.

Since birth, hybrid ARMs have maintained  space on the entrée side of the menu, for a time even expanding to include interest only variations, which have become scarce now that QM is sheriff.  While fixed rates have enjoyed a prolonged period of historical lows, the demand for hybrid ARMs has fallen dramatically.

Enter the current generation of mortgage consumers with a seemingly much lower tolerance for rising interest rate pain than their counterparts of 20 years ago, and demand for hybrid ARMs is seeing traction.  Technology has given buyers access to more information than ever before, comparing options for individual circumstances results in savvy mortgage consumer financing choices.

So just why are hybrid ARMs a good fit if 30-year fixed rates are still close to historical lows?  Fact is that although most people opt for 30 year mortgages, very few actually stay in the property or the mortgage for that long.  People move, families grow, personal economics rise and fall and for lots of other reasons, the lifespan of a mortgage tends to be far less than the 30 years it is amortizing.

The buyer with a five year planning horizon choosing the $200,000 5/1 ARM over the 30-year fixed mentioned earlier, would save $10,200 and enjoy the security of a fixed rate for those five years.  If plans change as they so often do (when life shows up), the adjustment caps can protect those savings while plans are adjusted and new mortgage financing strategies are considered.  This is the nature of today’s generation of mortgage consumer; they are sophisticated, they have access to more information for more informed consideration and they want what best fits their personal financial universe.

At some point in the future, mortgage interest rates will begin the inevitable climb to higher norms and Hybrid ARMs will have a louder voice in the mortgage financing conversation.  As with virtually everything else, organic evolution has led to 3/3 ARMs and 5/5 ARMs and other variations that together offer consumers a menu of custom made mortgage financing options for just about every circumstance.  Learning the mechanics of how these loans work and matching planning horizons with adjustment periods can be a useful tool in an overall financial planning portfolio.