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Mortgage servicers go to extreme lengths to skirt new regulations

WASHINGTON — Companies overseeing millions of mortgage loans appear to be skirting new federal regulations and legal settlements intended to stop them profiteering at the expense of troubled homeowners.

They are selling or have sold nearly nonexistent insurance agencies — in some cases with no offices, no websites and only a single registered agent — in multi-million dollar deals, as new rules prohibit them from collecting commissions on insurance they force homeowners to buy.

The deals illustrate how regulators are still wrestling with messy banking practices more than six years after the housing market’s collapse. They also mean that newly sold insurance agencies have an incentive to compel struggling homeowners to buy costly policies, to justify the high sales prices commanded when the insurance agencies were sold.

The deals involve “force-placed insurance,” 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.

Even before the housing boom, mortgage servicers found ways to profit from buying insurance with other people’s money. Insurance carriers paid banks including JPMorgan Chase, Wells Fargo and Citigroup to buy policies at inflated prices, according to an investigation by New York’s Department of Financial Services. To hide this “kickback culture,” as New York regulators described it, some servicers created virtual insurance agencies and disguised illicit payments as commissions.

New rules by the 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 of the largest subprime mortgage servicers in the country — companies that handle the troubled loans most likely to be subject to the insurance policies — appear to skirt those rules or have already made profitable business arrangements that comply with them.

Because people tend to stop paying insurance when they’re struggling to keep up with their mortgage, the collapse of the housing market after 2007 turned the practice into a multi-billion dollar industry. In many ways, force-placed insurance’s rise reflected the behavior that fed the housing bubble: After profiting from putting borrowers in homes they couldn’t afford, mortgage companies were profiting from inflated insurance bills they assigned to homeowners at risk of foreclosure.

The country’s second largest non-bank mortgage servicer, Nationstar Mortgage Holdings Inc., has been trying to sell an insurance agency for roughly $100 million, according to people familiar with the deal who spoke on condition of anonymity because they were not authorized to discuss the sale.

Nationstar’s insurance agency, Harwood Service Co., has no website and no independent offices. The switchboard operators at Nationstar’s headquarters in Lewisville, Texas, said they haven’t heard of it. Employees of Assurant Inc., the insurance carrier whose policies Harwood sells, say the company is “just the name used when Nationstar refers us business.”

Harwood’s only registered insurance agent, a Nationstar consultant named Dennis DiMaggio, initially told The Associated Press he was semi-retired. Asked how he could run a $100 million business in semi-retirement, DiMaggio ended the call then later said he had been joking.

Nationstar’s first attempt to sell its affiliated insurance agency fell through early this month after the AP raised questions about the deal, prompting New York’s Department of Financial Services to look into the deal.

“We have some concerns with the proposed transaction,” said Matt Anderson, a spokesman for the financial regulator, four days before the expected buyer withdrew. Nationstar is still seeking to sell the insurance agency, said one person who is familiar with its efforts but not authorized to discuss its business affairs.

Nationstar declined to discuss details of Harwood’s business. Assurant Inc. also declined to discuss its relationship with Nationstar. The insurer said it complies with the federal government’s new rules against affiliate commissions but “may pay commissions to unaffiliated agents in compliance with laws and regulations for work performed.”

In court, however, Assurant and Nationstar have not defended their arrangements. Earlier this month, the companies reached a deal to settle a class-action lawsuit in the U.S. District Court for the Southern District of Florida that alleged Harwood exists solely to “funnel profits ” to Nationstar at borrowers’ expense.

If Nationstars’ attempts to sell Harwood are successful, the deal would render the agency immune from bans on commissions — much as a similar agency owned by the country’s largest subprime mortgage servicer already is.

That servicer, Ocwen Financial Corp, oversees more than one-quarter of the country’s outstanding subprime loans, according to data from trade publication Inside Mortgage Finance. Last March, Ocwen sold off a force-placed insurance affiliate called Beltline Road Insurance Agency as part of an $86 million deal with Altisource, a company spun out Ocwen in 2008, led by former Ocwen executives and partially owned by Ocwen’s founder.

The deal closed the same month that the Federal Housing Finance Agency formally proposed banning commissions and New York reached a legal accord with Assurant, OCwen’s principal force-placed insurer, banning payments to affiliates like Beltline. By selling the company to Altisource, however, Ocwen got cash upfront — and handed the lucrative business of collecting commissions to Altisource, a company characterized in financial filings as a related party.

In a statement to the Associated Press, Ocwen noted that it had only owned the insurance agency for a short period after acquiring it along with the assets of a smaller mortgage servicer. Ocwen no longer collects any commissions from Beltline and sold the agency to Altisource solely because the agency didn’t fit in with Ocwen’s business model, the company said. Altisource, which does collect commissions on Ocwen’s force-placed insurance, did not return calls and emails from the AP over several weeks seeking comment.

Ocwen and Nationstar service roughly 5 million home loans. The third-largest servicing company, Walter Investment Management Corp., paid $53 million on 147,676 such insurance policies on its portfolio of 1.95 million loans in the first three months of this year, according to its Securities and Exchange Commission filings. If Nationstar and Ocwen were billing for policies at the same rate, their practices could be affecting more than 350,000 borrowers nationwide.

It’s unclear how or whether the Federal Housing Finance Agency, the industry’s principal U.S. regulatory agency in Washington, will respond to such sales. In a statement, it expressed concern about the deals but said it could not stop servicers from selling their insurance agencies.

“If servicers are circumventing the Enterprise lender-placed insurance requirements, we will work with Fannie Mae and Freddie Mac to address it,” the agency said.

Walter disclosed in its SEC filings that rules banning commissions will cost it roughly $20 million a year and said it is “actively looking at alternatives” to giving up the cash. A spokeswoman, Whitney Finch, declined to explain further but said the company will comply with all rules and regulations.

Another company, Carrington Mortgage Services LLC of Santa Ana, California, didn’t sell its insurance agency. It just agreed to let someone else collect the profits.

In an Irish bond prospectus filed last year, Carrington’s parent company disclosed that a buyer had paid it $21.25 million in late 2012. If Carrington doesn’t send back at least that amount to the agency’s buyer in commissions, it will have to give back some of the money it received.

Carrington executives denied that its obligation to deliver $21.25 million of commissions would in any way affect homeowners or mortgage investors, and noted that it is not subject to the finance agency rules because it services loans owned by private investors. In its Irish prospectus, however, Carrington warned that some regulators believe the commissions “may constitute an improper ‘kickback’,” and added: “Should any regulator decide to take action, we may be forced to pay restitution.”

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Twitter Chat: Is social media a weapon in modern warfare?

Over the last two weeks, many Twitter users have observed some unusual sponsored tweets in their feeds like this one:

It’s not surprising that Israel’s Prime Minister Benjamin Netanyahu has been using his account on the social media site to garner support for Israeli actions in the conflict in Gaza. By purchasing sponsored tweets, a feature of the site typically used by advertisers, he ensures that his messages appear in the feeds of more Twitter users, not just those who follow his account. This strategy is just one example of the evolving role of social media in war and conflict.

For its part, Hamas’ military wing maintains a presence on Twitter in English. Its Arabic feed was recently suspended, along with a Hebrew account, used to communicate with Israelis.

The use of social media as a tool in times of war, uprising and military conflict is nothing new. Extremist groups such as the Islamic State group, formerly known as ISIS or ISIL, have incorporated the use of social media into their broader military strategy. During the Arab Spring, Twitter was both a catalyst for social unrest, demonstrations and revolution, and a valuable resource for journalists reporting on the situation.

Social media can be used to circulate true information in the face of censorship. It can also cause false information to go viral. It has powered revolutions, but it is also used to expand the reach of violent extremists. What is the role of social media in modern warfare? How has this changed as the medium evolves? What responsibility do sites such as Facebook and Twitter have to regulate (or restrict) users’ promotion of military actions?

We invited you to weigh in in a Twitter chat. John Little (@BlogsofWar), who blogs about international relations and national security on his website Blogs of War, and PBS NewsHour foreign affairs producer @PJTobia participated as guests. Read a transcript of the conversation below.

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Are Israel and Hamas violating international laws of war?

A missile is launched by an "Iron Dome" battery, a short-range missile defence system designed
         to intercept and destroy incoming short-range rockets and artillery shells, on July 15, 2014 in southern Israeli. Photo by
         David Buimovitch/AFP/Getty Images

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JUDY WOODRUFF: With the late-breaking news of a humanitarian cease-fire due to take effect within hours, we return now to the ongoing battle between Hamas and Israel and questions being raised about whether either side is violating the laws of war.

Joining us are retired Lieutenant Colonel Gary Solis. He had a 26-year career in the Marine Corps, served two tours in Vietnam and became a military lawyer and judge. He’s now on the faculty at both George Washington and Georgetown University law schools. And retired Lieutenant Colonel Geoffrey Corn, he had a 22-year career in the Army, where he served as a lawyer. He’s now a professor at South Texas College of Law in Houston.

And we welcome you both to the NewsHour.

To you first, Colonel Corn. We want to talk about both sides in this conflict. Let’s start with Hamas. What is it that you believe Hamas is doing that violates international law?

LT. COL. GEOFFREY CORN (RET.), South Texas College of Law: Well, I think the two most obvious examples are the deliberate attack on civilian population centers, with apparently no effort to target specific military targets in Israel.

Just firing missiles in the direction of Israeli population centers is a clear violation of the law. And the other is locating their vital military assets within the midst of the civilian population in an apparent attempt to make it more difficult for the Israeli Defense Forces to target those assets, which is also a clear violation of the law.

JUDY WOODRUFF: And what international law are you referring to?

LT. COL. GEOFFREY CORN: Well, the international law that I’m referring to — and I’m sure my friend Gary will refer to — we call the law of war, or it’s often called international humanitarian law.

And it’s one of the oldest bodies of international law. Many of these rules are codified in treaties that are binding on nations throughout the world, including the Israelis. And even the rules that are not applicable as a matter of treaty law apply to all parties to a conflict as a matter of what we call customary international law.

And there is almost universal agreement that these rules apply to all sides of this conflict, the Israelis and Hamas collectively.

JUDY WOODRUFF: Colonel Solis, you’re general — you’re nodding. You generally agree that these are laws that this discussion is based on?

LT. COL. GARY SOLIS (RET.), The George Washington University: Yes, entirely agree.

JUDY WOODRUFF: Well, what about his point that when it comes to Hamas — he made two points, that they are deliberately firing into civilian areas, that civilians are the target, and, number two, they are commingling what are called military assets, weapons, rocket launchers with their own civilians?

LT. COL. GARY SOLIS: I think that Geoff is entirely correct. And of course we much see the same thing going on in Israel.

JUDY WOODRUFF: And I want to ask you about Israel in a minute. But essentially you are two — the two of you are in agreement about what Hamas is doing?

LT. COL. GARY SOLIS: We are.

I think Hamas is clearly in violation of law of armed conflict, international humanitarian law, for the very reasons that Geoff has mentioned.

JUDY WOODRUFF: So, no ifs, ands or buts?

LT. COL. GARY SOLIS: No.

JUDY WOODRUFF: All right.

Well, let me turn to how you view, Colonel Solis, how you view Israel, because I know you — as you just said, you believe Israel is also violating international law.

LT. COL. GARY SOLIS: Yes, I’m afraid so.

I think that Israel is violating the core principles of the law of armed conflict, of distinction and proportionality. That is, they’re not distinguishing between military objectives and civilian objects and civilians themselves.

And in regard to proportionality…

JUDY WOODRUFF: Well, just back up. Can you expand on what you mean by that?

LT. COL. GARY SOLIS: Distinction?

Yes. The law of armed conflict says that parties to a conflict, be it an interstate conflict or a non-interstate conflict, in other words, a state on one side and an armed opposition group on the other, in such conflicts, the parties are bound to target only civilians — excuse me — only combatants, and not target civilians purposely or civilian objects, either one.

To do so is a violation of distinction, perhaps the principal, core concept in the law of war, and Israel is doing that.

JUDY WOODRUFF: And you’re saying they’re not making that distinction and they should be.

Colonel Corn, what about that point about what Israel is doing?

LT. COL. GEOFFREY CORN: Well, I would have to respectfully disagree with my friend Gary.

I think, first off, we don’t have enough information to conclusively to establish that Israel is violating even the principle of distinction or proportionality. Both of these principles are applied in a fact- and situation-specific context.

I think there have been incidents that raise concern that there may be violations. But we have to know more details about why targets were attacked. We have to have more details about what was in proximity of those targets. Did Hamas have military assets embedded in civilian areas?

And maybe even the possibility that there were mistakes made, that a round went off course or that a soldier or a pilot simply made an error. What I would say is, I think we see an overall effort on the part of the IDF to apply the law in good faith. They have issued more warnings than I can think of any professional military organization issuing in an urban attack, to my knowledge.

They embed military lawyers at every level of battle command to advise commanders on their obligations. So I think we have to be a little bit cautious about reaching that conclusion at this point.

JUDY WOODRUFF: Colonel Solis, so he’s saying, number one, there’s not enough information and, number two — well, you heard him. I won’t repeat it.

LT. COL. GARY SOLIS: No, I disagree with Geoff.

I think that the facts that we have seen on the ground, the statements from the U.N., the photographs we have seen are indicative of a unit, of a command that is not overly concerned with distinction. And I think the Israelis have the ability to be much more discerning in their targeting. And they are not, in my opinion.

JUDY WOODRUFF: Why do you think they have the ability to be more discerning?

LT. COL. GARY SOLIS: Because their weaponry is more sophisticated and more advanced. They have drones in the air. They have helicopters in the air.

They know where they are firing their weapons. And although artillery is not a pinpoint system, it has the ability to home in on specific targets, which ability is not being exercised fully.

JUDY WOODRUFF: Colonel Corn, what about that?

LT. COL. GEOFFREY CORN: Well, first off, I think if the facts play out and establish that, there needs to be an investigation. And individuals who violate these rules should be held accountable by the Israelis themselves.

But I would note that this is the most difficult type of combat that any military can engage in. Every military commander is trained from inception to avoid close combat in an urban environment at all costs. The fact that the Israelis have put ground troops into this environment, I think, indicates how serious they see this strategic objective.

But it also means that this is an incredibly complex and difficult tactical environment. And you cannot just look only at the effects of combat, because that can provide a distorting effect on the analysis. You have to look at the entire situation to decide whether or not there was a violation.

JUDY WOODRUFF: You want to respond to that quickly?  And then I have a final question.

LT. COL. GARY SOLIS: No, I just — I simply disagree with Geoff. I believe that there is sufficient evidence of an awareness of proportionality and its disregard by the Israelis. And I believe that is evidenced by the facts on the ground.

JUDY WOODRUFF: When a conflict is under way, as it has been there for more than 20 days, how much does it matter whether laws, international laws are being violated? Are — is one side or another going to be held accountable, do you believe, Colonel Solis?

LT. COL. GARY SOLIS: I believe that they will not, at the end of the day, although the violations, in my opinion, are clear.

And that’s because the U.N. Security Council will have a member, the U.S., who will exercise a veto should Israel be brought before them. And I don’t believe that the ICJ is going to take up this case, nor is the ICC, the International Criminal Court.

JUDY WOODRUFF: Excuse me.

Colonel Corn, should one side or another be held or both sides be held accountable?

LT. COL. GEOFFREY CORN: Well, first off, I think it’s clear that international law matters. That’s why we’re talking about this on this venue.

That’s why the international community is so concerned about what’s happening, because they’re focused on the law and the expectations of compliance with the law. I agree with Gary that it’s unlikely that there be an international criminal accountability for these actions.

But I don’t think that means there won’t be accountability. I tend to believe that, if the Israelis conclude, after the conflict, after they review everything, that some of their commanders acted improperly, that they will take action against them, and they have done that in the past. I’m not sure Hamas will be subjected to any responsibility.

JUDY WOODRUFF: Colonel Geoffrey Corn, Colonel Gary Solis, we thank you both.

LT. COL. GEOFFREY CORN: Thank you.

LT. COL. GARY SOLIS: Thank you.

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News Wrap: Ukraine suspends offensive to allow investigators access to MH17 remains

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GWEN IFILL: A team of investigators finally reached the Malaysia Airlines crash site in Eastern Ukraine today. The Ukrainian military suspended its offensive against pro-Russian separatists for a day so they could get through. The experts were escorted by armed troops and armored vehicles. One of their tasks is to bring back victims’ remains and personal belongings. Dozens of bodies have yet to be retrieved.

The head of the Dutch recovery mission recounted the day.

PIETER-JAAP AALBERSBERG, Head, Dutch Recovery Mission: We also succeeded today in salvaging DNA samples from 25 victims. We now also have the personal belongings of 27 victims in our possession. The belongings and the DNA samples were in the mortuary in Donetsk and have been handed over to the Dutch and Australian experts.

GWEN IFILL: All 298 passengers and crew members aboard the flight were killed when a missile brought the plane down two weeks ago.

JUDY WOODRUFF: Seven hundred and twenty-nine people in West Africa have now died from the worst Ebola outbreak on record. The World Health Organization estimates 57 of those deaths happened over a three-day time period last week. U.S. health officials warned Americans not to travel to Guinea, Liberia and Sierra Leone.

And travelers around the globe were under new scrutiny. In China, airports began screening passengers’ body temperatures using thermal scanners.

GWEN IFILL: Stocks plunged on Wall Street today, erasing nearly all of this month’s gains. It was largely attributed to jitters over Europe’s economic woes and a jump in U.S. labor costs. The Dow Jones industrial average posted its first monthly decline since January, plummeting 317 points to close at 16,563; the Nasdaq fell 93 points to close above 4,369; the S&P 500 lost 39 points to close at 1,930, its worst day since April.

JUDY WOODRUFF: Argentina slid into its second debt default in 13 years today. The country failed to reach a deal with bondholders in down-to-the-wire emergency meetings last night in New York. The hedge funds want full payment plus interest to the tune of a billion-and-a-half dollars. That left the future of the South American nation’s economy in question. It is already in a recession, has a shortage of dollars, and has one of the highest inflation rates in the world.

GWEN IFILL:
The director of the CIA has apologized to Senate leaders for searching their office computers earlier in the year. An internal CIA investigation found officers improperly accessed a classified computer network as they prepared a report on the CIA’s interrogation program.

Agency Director John Brennan said he’s convened an accountability board to look into the matter.

JUDY WOODRUFF: Congress raced towards a shifting finish line it its effort to get out of town for an August recess. The House rejected the Senate version of a bill that would fund transportation projects through the end of the year. Instead, representatives sent their own $10.8 billion plan back to the Senate to fund it through next May.

And an immigration bill in the House faltered, forcing Republicans to regroup and not leave for recess yet. We will have on how the border funding bill unraveled later in the program.

GWEN IFILL: The Wisconsin Supreme Court upheld two controversial state laws today. It ruled a Republican-passed law requiring photo identification at the polls is legal, even though that law is currently blocked in federal court. And it upheld the 2011 law that effectively ended collective bargaining for public workers. That law led to a recall election for Republican Governor Scott Walker and sparked massive protests.

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