American Home Mortgage Investment Corporation (AHM), among America's biggest mortgage lenders, recently filed for bankruptcy on account of its sub-prime lending exposure. This, in turn, alarmed large AHM clients like Freddie Mac and Ginnie Mae, which promptly terminated client-servicing agreements with AHM and asked it to return client files, meaning mortgage files for individual home owners serviced by AHM on their behalf, including data related to mortgage principal, interest, property taxes and insurance (PITI).I take it that the process of "returning the files" is both literal and euphemistic. Literal, as it pertains to the paperwork, and euphemistic, since surely the data is available in AHM databases; providing copies of AHM databases would presumably satisfy the immediate requirements of Freddie Mac and Ginnie Mae clients, even as the paperwork would follow.
AHM, however, refused to return the files.
AHM's logic was simple. Realizing that the loan files are one of its few substantial remaining assets, AHM proposed to sell the loan files to the highest bidder and use the money to pay off creditors and fund restructuring. This put Freddie Mac and Ginnie Mae in a bind, along with thousands of its homeowner customers. AHM not only had the files, it also had collected PITI payments from homeowners. Without access to the files and the payment details, Freddie Mac would be unable to process insurance premiums and property taxes on behalf of homeowners, who were then put at risk of losing their properties, even in cases where the homeowners had paid their installments in a timely manner.
(There is a comedic sideshow to this sordid tale. According to the Wall Street Journal, American Home says that Ginnie Mae representatives "stood in a line in front of the doors and sat on the stairs, preventing AHM Servicing employees from entering the office," while Freddie Mac says American Home "had its security personnel escort the Freddie Mac representatives out.")
The ending to this story was good, at least in part - AHM retreated on its position and Freddie Mac and Ginnie Mae were able to process the payments. However, this raises troubling questions about data ownership. Who owns the payment data, for example, the fact that a payment has been received but not yet processed? Would it be AHM or its clients like Freddie Mac and Ginnie Mae…or the homeowners? Regardless of what the homeowners sign away, did AHM have the right to withhold the data to the detriment of the homeowners?
Alert consumers, zealous media and active legislators notwithstanding, information ownership is a rising mountain of an issue, and we can but hope that there is no volcano hiding inside it, waiting to erupt and burn us all.
Rajan Chandras is a consultant with a global IT consulting, systems integration and outsourcing firm, and can be reached at [email protected].Think the sub-prime mortgage crisis is someone else's problem? Here's an eye-opener. Lending giant American Home Mortgage (AHM) recently filed for bankruptcy due to its sub-prime lending exposure. AHM clients Freddie Mac and Ginnie Mae promptly terminated client-servicing agreements and asked AHM to return client files, including data related to mortgage principal, interest, taxes and insurance (PITI)... AHM, however, refused to comply.