One can point fingers in a myriad of directions as to who is ultimately responsible for the housing crisis, even years after it reached a boiling point in 2008. The fact is we all contributed our part, and pointing fingers isn’t going to change anything. Jailing those responsible won’t help, and, as The Wolf of Wall Street illustrates, even demonizing Wall Street won’t satiate the greed.
What’s necessary is real regulation, and Dodd-Frank simply isn’t doing enough. The first step is repealing the Gramm-Leach-Bliley Act, which gave financial institutions the power to put profit over people in the first place. Here’s a brief rundown of what this despicable bill is, the power it gave banks, and why its repeal would finally fix our economy.
Three Unwise Men
In 1999, three Republican Congressmen, Sen. Phil Gramm from Texas, Rep. Jim Leach from Iowa, and Rep. Thomas J. Bliley, Jr. from Virginia, successfully repealed important provisions in the Bank Holding Company Act and the Glass-Steagall Act. The passage appeased banks, brokerages, and insurance companies, who were already pushing the rules in order to make more money, but it ruined everyone else.
The most important thing this act did was allow one organization to act as an investment bank, commercial bank, and insurance company. From a layman’s perspective this may not seem like such a bad thing, but those who work in the industry have seen how this setup can be easily abused. My particular expertise is in the gray area between insurance and collateral lending, a system that should be adversarial, but was corrupted by Gramm-Leach-Bliley.
Inside the Belly of the Beast
I spent the majority of my banking career working for Balboa Insurance Group, which was a subsidiary of Countrywide Home Loans until 2011. Not only were the insurance and mortgage companies one in the same, we serviced and insured loans for a variety of mortgage and auto loan servicers (including Lehman Brothers, IndyMac, and GMAC, all of these companies, in case you don’t remember, crashed and took our economy down with them).
From 2005 to 2008, our servicing centers were chaos. Located in Pennsylvania, California, Texas, and Arizona, we were a far cry from Wall Street, but the culture of greed was still prolific in our businesses. Walking throughout our processing center in those days, nobody knew who worked for the insurance company and who worked for the loan servicer.
My team worked on premium administration, escrow services, and data integrity, at the intersection of insurance and lending. We were a catch-all that did anything and everything to make sure the company profited, and we were good at what we did, although even we didn’t know exactly who we were doing it for or how it affected the real world.
Lending and Insurance Shouldn’t Mix
The reason lending institutions (including loan servicers) and insurance companies shouldn’t mix is the same reason a plaintiff and defendant shouldn’t have the same attorney – it’s a conflict of interest. In this particular conflict of interest, the party that loses out is the consumer and investor, who is ultimately the taxpayer. Here’s how it works:
Let’s say a hurricane or storm destroys your home, as happened with Hurricane Katrina, Superstorm Sandy, etc. In this scenario, both you and your lender have an interest in the home that must be protected.
The job of your insurance company is to financially secure both of your interests. If the insurance company is the lender (or any subsidiary, servicer, or vendor thereof), they are incentivized to only look out for themselves, leaving the borrower (and investors) out in the cold.
Lenders and Insurance Companies Are in Cahoots
Normally, when your insurance company doesn’t pay the contractor rebuilding your home or the collision center repairing your car, they’ll stop working and put the onus on you. Your only option in this scenario is to call your lender to have them take on the fight for you. This is where the problem comes in.
Are you aware that you’ve never spoken to your lender?
You only ever talk to a loan servicer, who charges the lender a fee to service your loan. More often than not, these loan servicers then pay multiple third-party vendors to perform customer service, foreclosures, insurance tracking, etc. In the case of many insurance companies (especially force-placed insurance), you’re talking to the same vendor representing both the lender and the insurance company.
You, as the borrower and, ultimately, the tax-paying investor of your own loan, are rendered completely powerless by the current financial system in place. Gramm-Leach-Bliley is what enabled this.
Stopping the Madness
I’ve done everything I can to lobby against this atrocity; I met with analysts and regulators for the state Attorneys General Coalition, the Consumer Financial Protection Bureau, the Federal Housing Finance Agency, the New York Department of Financial Services, and every politician I could get a hold of. The money involved is too much for one man to speak out against, though.
In order to see real change, more people need to educate themselves on mortgages and insurance. More borrowers need to voice their opposition to an unfair financial system that is clearly rigged in favor of the insurance and financial institutions. We, the people, need to stop this madness.
Unfortunately I’ve been at it for over three years now, and I don’t see it ever stopping. We’ve become too complacent, and the Occupy movement, which was supposed to call attention to income inequality, instead called attention to how little protesters truly understood about the financial crisis.
If you want true change, I’ve been pointing the right direction for over three years…all you have to do is look at the shadowy intersection between insurance and lending, and you’ll see the greed staring you in the face. Forcing our regulators to stop banks and insurance companies from profiting off our suffering is essential to fixing our economy.
Until that day, we’re stuck in a downward economic spiral, fueled by corruption and greed…and it will never end…
Brian Penny is a former Business Analyst at Bank of America turned whistleblower, freelance consultant, and troll. He’s a frequent contributor to The Street, Huffington Post, Cannabis Now, and Fast Company.