One of the largest overseers of troubled home loans in the United States, Nationstar Mortgage Holdings Inc., is trying to sell a $100 million insurance agency that doesn't appear to exist.
Harwood Service Co. has no website, no independent offices and only a single registered agent. According to ABC News, the switchboard operators at Nationstar's headquarters in Lewisville, Texas, haven't heard of Harwood.
Call-center employees of Assurant Inc., the insurance carrier whose policies Harwood sells, say the company is just a name used to refer Nationstar business.
So why would anyone pay $100 million for an agency that doesn’t appear to exist?
The company has long collected commissions on high-priced insurance that Nationstar compels otherwise-uninsured homeowners to buy. If homeowners can't pay for this ‘force-placed’ coverage, Nationstar forecloses on their homes and sends the bill to mortgage bond investors.
New rules by the U.S. Federal Housing Finance Agency, investigations by state regulators and class-action settlements now prohibit servicers from collecting commissions on such insurance policies, and the country's biggest brand-name banks have renounced the practice.
But some large subprime-mortgage servicers appear to be trying to skirt those rules.
They are selling or have sold the nearly nonexistent insurance agencies or have already made profitable business arrangements to try to comply with the new rules. (continued.)
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Following the U.S. housing market collapse of more than six years ago, U.S. regulators are still wrestling with messy banking practices south of the border.
And that means newly sold insurance subsidiaries have an incentive to compel struggling homeowners to buy costly policies, to justify the high sales prices commanded when the insurance agencies were sold.
Harwood collected more than $40 million in 2013 on more than $200 million worth of insurance billed to homeowners, according to two people familiar with Nationstar's confidential sales pitch for the business but who spoke on condition of anonymity to ABC News, because they were not authorized to discuss it.
Force-placed insurance in the U.S. is a type of backup property insurance meant to protect mortgage investors' stake in uninsured properties. Standard mortgages require borrowers to maintain homeowners insurance and authorize the loan's servicer to buy coverage when borrowers don't.
If the borrowers don't pay for the new insurance, servicers foreclose on their properties and stick the bill to mortgage investors.
Canada’s strict lending and mortgage regulations – and the mandate of the Canada Mortgage and Housing Corporation to safeguard mortgages written in this country – preclude the need for a company like Nationstar or its subsidiary Harwood. (continued.)
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Nationstar's first attempt to sell Harwood fell through early in July after The Associated Press raised questions about the deal, prompting New York's Department of Financial Services to take a look. Nationstar is still seeking to sell the insurance agency, said one person who is familiar with its efforts and also requested anonymity to discuss its business affairs without authorization to do so publicly.
Nationstar has declined to discuss details of Harwood's business.
In court, however, Nationstar has opted not to fight to defend its arrangements. Just last month, Nationstar and Assurant Inc. reached a deal to settle a class-action lawsuit in the U.S. District Court for the Southern District of Florida that alleged Harwood existed solely to ‘funnel profits’ to Nationstar at borrowers' expense.
It's unclear how or whether the FHFA will respond to such sales. In a statement to the press, it did express concern about the deals. But it said it could not stop servicers from selling their insurance agencies, even as it said it would work with Fannie Mae and Freddie Mac if the companies were circumventing the new rules.
