$100M for firm without offices, websites, 1 agent?

• Author: Horwitz, Jeff
• Position: Business

Byline: Jeff Horwitz

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 multimillion-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...