A consumer advocacy group is trying to derail the sale of Financial Guaranty Insurance Corp. (FGIC) to investors led by The PMI Group, Inc., citing PMI's ties to the troubled Fairbanks Capital Corp.
Matthew Lee, executive director of the Bronx-based Inner City Press/Community on the Move, filed a 14-page protest with the New York State Insurance Department (NYSID), which must review the proposed sale. Lee describes Fairbanks as a "predatory mortgage servicer" and says PMI, as a 57% owner of Fairbanks, should be held accountable for questionable behavior at Fairbanks.
PMI spokesman John Wozman responded with a prepared statement, saying Fairbanks has a new senior management team - appointed in May - that is improving how the company operates. "PMI believes it has acted responsibly as a significant Fairbanks shareholder," the prepared statement said.
PMI, which operates primarily as a mortgage insurer, announced in August that it would lead a group of investors paying $2.16 billion for FCIG, a New York-based bond insurer and a unit of General Electric Capital Corp. (GECC). PMI would have a controlling 42% stake in FGIC after the acquisition, which it expects to finalize sometime in the fourth quarter.
The other investors are three private equity firms: the Blackstone Group and the Cypress Group, which would each own about 23% of FGIC, and CIVC/Bank of America, which would own 7%. GECC would retain 4.5% of the company.
But the consumer advocacy group contends the sale would not be in the best interest of the public.
When an insurance company is purchased, the new owners are subject to a review that, under the state statute, encompasses a series of factors, including their integrity and track record, Lee said. He contends the problems at Fairbanks should be enough of a red flag for state regulators to bar PMI from any new acquisitions.
"They've harmed consumers. They're currently harming consumers, we believe. They shouldn't be allowed to buy another company until they stop doing that," Lee said in a phone interview.
Fairbanks, the nation's third-largest mortgage servicing company, is the target of numerous lawsuits around the country. The lawsuits contend that errors at Fairbanks caused mortgage customers to come close to foreclosure and, in some cases, even lose their homes. Other accusations include charging late fees for payments that were made on time and forcing more expensive property insurance on people who already had sufficient policies.
Because of such charges, Fairbanks is under investigation by the Federal Trade Commission (FTC) and the U.S. Department of Housing and Urban Development's Office of Inspector General (HUD). PMI, in its prepared statement, said, "Fairbanks is cooperating with regulators at every level."
Fairbanks lost its top servicer status from all three rating agencies in the spring. Standard & Poor's cited "systemic servicing issues" when lowering Fairbanks from "strong" to "below average" in April. S&P said the issues might be partly attributable to significant growth at Fairbanks, including the acquisition of two major portfolios, ContiMortgage's $9.4 billion and EquiCredit Corp.'s $26 billion, within the previous year and a half. But other factors that might be contributing to a "compliance-adverse environment" also concerned S&P, including insufficient management oversight and inadequate technology and training.