San Diego CA - Harpaxophobia is the fear of
(consumers) losing money and it drives the ICFE to learn
about these schemes and issue consumer alerts when
appropriate. Here is a new, somewhat negative, twist for
homeowners who have mortgage insurance.
The new issue involves the rise of mortgage insurance
premiums, without any sort of adverse action notice going
to the insureds that has caught the attention of the
Federal Trade Commission (FTC) last month.
An adverse action notice is required by the Fair and
Accurate Credit Transactions Act (FACTA) when a consumer
is denied credit or the cost of their existing credit has
increased, or other costs, such as an insurance premiums,
or security deposits go up, based on information found in
their credit files, be it correct or not.
Raising mortgage insurance rates, based on negative
information in one s credit file is a form of universal
default. The problem the FTC has with these increases is
the insurers are doing it silently without disclosing it
or the reason for the increase to the insured homeowners.
The basis of the lawsuit was the negative information
found in the insured s credit file, that triggered the
rise in premiums was, in fact, inaccurate. The insured
sued the mortgage insurer and, now, the FTC on March 17th
filed an amicus brief in the case involving mortgage
insurer Radian Guaranty, based in Philadelphia, and one of
their insured homeowners. The meaning of an amicus brief,
a Latin term, is friend of the court . It is the name of
a legal brief filed with the court by someone who is not a
party to the case.
In this case, the insured s premiums for the mortgage
insurance had been assessed at over $900 a month, way
more, almost triple, what they had anticipated. Radian had
reviewed the credit files and as a result the homeowners
appeared to be a terrible credit risk, so the company
priced its premiums to cover the perceived risks, which in
the end, were based on faulty information in the credit
files.
The FTC contends in their amicus brief filing (see below)
that an adverse action notice was required to be given to
the insured, because the rise was based on the credit file
information.
FTC approval of amicus brief filing: The Commission has
approved the filing of an amicus brief in the currently
pending case Whitfield et al v. Radian Guaranty, Inc., No.
05-5017 (3d Cir.). The brief addresses a lower court
ruling that held that a mortgage company was not required
to provide a consumer with a Fair Credit Reporting Act (FCRA)
adverse action notice even though, as a result of the
information in a consumer report, the company had charged
a higher mortgage insurance premium, and that premium was
paid by the consumer. The district court based its holding
on the fact that the lender, not the consumer, obtained
the policy and was the policy s beneficiary.
In the brief, FTC staff urges the Third Circuit to
overturn the lower court s decision, stating that it erred
by ignoring the adverse action notice requirement imposed
by Section 615 of the FCRA on users of consumer reports.
The brief argues that setting a higher initial rate for a
mortgage constitutes adverse action, as that term is
defined in the FCRA. The brief then points out that
Section 615 of the FCRA requires a user to provide a
consumer with an adverse action notice whenever that user
takes adverse action with respect to that consumer. Even
though the consumer was not the policy's beneficiary,
Radian s action was with respect to the consumer because
the consumer was required to pay the higher insurance
premium.
The Commission vote approving the filing of the amicus
brief was 5-0. A copy of the brief can be found as a link
to this press release and on the FTC s Web site. (FTC File
No. P062104; the staff contact is Lawrence DeMille-Wagman,
Office of General Counsel, 202-326-2448.)
ICFE suggests homeowners who have mortgage insurance
coverage now, check with their mortgage lenders to
determine their notification procedures and also if they
have included a universal default provision into their
loan agreements which also would cover the insurance
policy. New homeowners and especially first-time
homebuyers, should get their mortgage insurance quotes in
advance and strive to have the universal default
provisions removed.