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Mar
28

New Panel Data!

By | Securitization-MBS

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The Fed has just released their data from the 2007-2009 panel Survey of Consumer Finances.  The SCF, conducted every three years, includes hundreds of variables on the assets, liabilities, income, and financial product shopping and utilization of American consumers.  Some questions include "what was the most important factor in your decision to refinance your mortgage?" and "during the past year, have you taken out a payday loan?".  The 2007-2009 panel data set is especially valuable because it offers a picture of household finances before and after the Global Financial Crisis; the 2007 survey respondents were resurveyed in 2009.  There is also a separate 2010 SCF survey, but those data have not been released yet. 

Possible research subjects one might explore with this data set include the relative wealth loss of different racial and ethnic groups, what type of consumers chose different types of mortgage loans and other credit products, and how financial product choice interacted with changes in consumer finances as the crisis unfolded.

The Fed staff's own summary of the data is here.  The paper describes wealth losses by wealth category and geographic region, but not by race or ethnicity.

Mar
21

GUEST POST: Good for the Banks, Good for the Borrowers by Law Professor, Lauren E. Willis

By | HAMP, Housing & Economic Research, Loan Modification, News for the Patriot

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Good for the Banks, Good for the Borrowers

By Lauren E. Willis, Professor of Law, Loyola Law School Los Angeles

February 17, 2012

Beginning in 2007, the federal government took drastic action to save the nation’s banks. The banks were underwater, with liabilities that exceeded assets by any honest accounting. In response, we committed to them not only $700 billion in much-ballyhooed TARP funds, but also, hidden from public view, trillions of dollars in loans at rates as low as .01 percent, far below what any private investor or bank would have given them.

Although the banks have made much of having paid back much (but not all) of the face value of TARP funds extended, they have not paid a market rate of interest on the money they borrowed. They have even kept what Bloomberg calculates to have been a neat $13 billion in profit from lending the money they borrowed back to American consumers and businesses at higher rates. The American people not only threw the banks a life raft, but pulled most of them ashore.

Yet over four years later, millions of American homeowners are still sinking. About twelve million homeowners are underwater, summing to the ironic number of about $700 billion. To avoid foreclosure, these homeowners will have to make, month after month, year after year, payments totaling far more than their homes are worth.

Many will not be successful. Best estimates are that if we stay on our present course, we are only half way through the foreclosures precipitated by dropping home values, and that the economy will remain in its feeble state for years. The social costs of foreclosure will roll on, increasing the tax burdens and decreasing the quality of life for all households, renter, former homeowner and current homeowner alike.

There is as yet no Troubled Asset Relief Program for homeowners, despite the Obama Administration’s many incarnations of its “Home Affordable” programs. Many Americans’ most troubled asset is their over-mortgaged home, and the government has neither committed $700 billion to help them, nor extended them .01 percent interest rate loans. The $17 billion in principal reductions just agreed to by the banks to settle charges that they lied to the courts in foreclosure documents and charged homeowners bogus fees is less than three percent of the total housing debt overhang.

But what was good for the banks would be good for homeowners, and for renters too.

How would a TARP for homeowners work? Through the power of eminent domain. Eminent domain allows the government to take private property for a public purpose, so long as the owner is paid just compensation. Eminent domain can be used to correct deficiencies in the market, particularly when they threaten public tranquility and welfare.

Homeowners trapped underwater threaten the welfare of our society. After sending inflated monthly payments off to banks, they have little left to spend each month in their communities. They cannot sell because they cannot afford to pay the mortgage balance that exceeds any price their houses could command. Stuck in place, they cannot move to cheaper housing, better jobs,
or training opportunities.

With so many Americans removed from the pool of potential buyers, those who own their homes with smaller mortgages or outright cannot sell their homes for decent prices, trapping them too in place and forcing some to delay retirement. The low house prices do not even benefit renters, who cannot easily buy – in communities that are not decimated by foreclosures, sellers cannot afford to sell, and in communities that are decimated by foreclosures, banks refuse to lend.

With everyone frozen where they were when the housing bubble burst, the workforce is not nimble enough to follow businesses that have quickly changing needs, and so American businesses outsource the work to companies in other countries – both to assemble products and to assemble the engineering teams to develop those products.

Eventually, underwater homeowners will have too little income to make their payments or will give up trying. Further foreclosures will not only drag housing prices down further, but lead to property hazards, fires, crime, and other social costs, threatening the nation’s tranquility.

The logistics of providing homeowners relief from their troubled assets are not particularly complex, and similar programs have been done before. Any jurisdiction with eminent domain authority – the federal government, state governments, or in some states, local government bodies – could do it.

Two general methods could be used, either triggered by a petition of the homeowner. One, which I first proposed in 2008, would allow the government to take primary residences at risk of foreclosure and then sell the homes back to the homeowners at current market prices, with new fixed rate mortgages that do not exceed the value of the home. Because just compensation in eminent domain is measured by the market value of the property, today’s fire-sale home prices would be a boon to this plan. Lenders and investors would receive the lesser of the mortgage balance or the amount paid by the government as just compensation.

A more elegant method, similar to one proposed by Professor Howell Jackson at Harvard Law School, would allow the government to take mortgages at risk of foreclosure, reduce the principal balances and renegotiate the terms with homeowners, without title to the home changing hands. The government would pay the lenders the market value of the mortgages, meaning what an investor today would pay for them; no investor would buy these mortgages for more than the value of the collateral securing them.

The government could sell the new or renegotiated mortgages to private investors directly or could sell bonds backed by the mortgages. So long as the government underwrites the mortgages well, with documentation of borrower income and assets, fair appraisals and monthly payments the borrowers can afford, banks and investors will buy the mortgages or bonds.
This plan is not entirely unprecedented; eminent domain has been used to boost homeownership in the U.S. before.

At one time in Hawaii, concentrated land ownership was injuring the public tranquility and welfare by preventing ordinary families from owning the property on which they lived. To fix this market failure, the state took land from large landowners and compensated them at fair market value. The state then sold the property to the families who had been living there and paying rent, offering them mortgages through the Hawaii Housing Authority. The Supreme Court had no trouble finding this to be constitutional.

Naysayers will predict that banks will never lend to homeowners again in any jurisdiction that implements this plan. But banks are not giving out many new mortgages now. A state or locality with homeowners that are no longer weighted down by excessive debt would be the best place in America to lend.

Others will say that forcing banks to realize the true deflated values of the mortgages on their books will send them back under. But history says otherwise. During the Great Depression, and against the strenuous objections and predictions of doom by creditors, the federal government nullified all clauses in contracts that pegged debt to the price of gold. By taking these contracts off the gold standard, debts were reduced by roughly 40 percent.

Economist and former Federal Reserve Board Governor Randall Kroszner examined the effects of this sweeping debt reduction and found that both stocks and bonds responded favorably. Despite their prior opposition, creditors decided that the elimination of debt overhang and the avoidance of threatened corporate bankruptcies more than offset the cost to creditors of receiving 60 cents on the dollar.

Like the abrogation of the gold standard clauses, eminent domain is a blunt instrument, one that inevitably will be more generous to some than others. Politicians may proclaim that irresponsible homeowners should not be given a helping hand. But in four years, underwater homeowners have already learned all they are going to learn, and to continue punishing them unfairly punishes the rest of us.

Now that we know the Wall Street bailout will not flow out to buoy up the rest of the country’s families and businesses, it is time to help ourselves.

# # #

Lauren E. Willis is a Professor of Law at Loyola Law School Los Angeles, and an expert on the regulation of consumer financial products, including home mortgages.

Professor Willis earned her BA with high honors in general scholarship from Wesleyan University, and her JD, with distinction and Order of the Coif, from Stanford Law School where she was on the senior staff of the Stanford Law Review, a co-founder of the Stanford Public Interest Law Students Association, and a Foreign Language and Area Studies (Russian) Fellow.  Lauren received the Block Civil Liberties Award, the Stanford Women Lawyers Scholarship, and the University Goldstein Award for Scholarship on Children at Risk. 

After law school, Lauren clerked for the Office of the Solicitor General of the United States and for Judge Francis D. Murnaghan, Jr. of the United States Court of Appeals for the Fourth Circuit.  Before coming to academia, Willis was a litigator in the Housing Section of the Civil Rights Division of the U.S. Department of Justice and worked with the U.S. Federal Trade Commission on predatory mortgage lending litigation.   She currently serves on the Research Advisory Council of the Center for Responsible Lending in Washington, D.C.

Lauren taught at Stanford Law School as a Fellow, joined the Loyola faculty in 2004, and spent the 2008 Spring semester as a Visiting Associate Professor at the University of Pennsylvania Law School.  She was honored by Loyola’s graduating day class with the 2008 Excellence in Teaching award.

In her lecture, panelist, and media appearances in the U.S., the E.U., Korea, and South Africa, Willis has discussed regulation of the U.S. home mortgage market, predatory lending, financial literacy education, behavioral decisionmaking, and a variety of consumer law topics.  She is a member of the State Bars of Maryland and Massachusetts.  Currently she teaches: Civil Procedure, Consumer Law, Contracts, and Problems and Reforms in the Home Mortgage Market.

Other papers written by Professor Willis I think you’ll find of interest…

Willis, Lauren E., Will the Mortgage Market Correct? How Households and Communities Would Fare If Risk Were Priced Well (August 5, 2009). Connecticut Law Review, Vol. 41, No. 4, 2009; Loyola-LA Legal Studies Paper No. 2009-25. Available at SSRN: http://ssrn.com/abstract=1444615
Willis, Lauren E., Decisionmaking and the Limits of Disclosure: The Problem of Predatory Lending: Price. Maryland Law Review, Vol. 65, p. 707, 2006; Loyola-LA Legal Studies Paper No. 2006-27. Available at SSRN: http://ssrn.com/abstract=927756
# # #
Professor Lauren Willis can be contacted via email at: lauren.willis@lls.edu
Nov
15

2004 GAO Report | Federal and State Agencies Face Challenges in Combating Predatory Lending

By | Bankruptcy, Foreclosure Fraud, News for the Patriot

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Executive Summary Purpose Each year, millions of American consumers take out mortgage loans through mortgage brokers or lenders to purchase homes or refinance existing mortgage loans. While the majority of these transactions are legitimate and ultimately benefit borrowers, some have been found to be “predatory”—that is, to contain terms and conditions that ultimately harm borrowers. … Read more Related posts:
  1. Subprime Standardization: How Rating Agencies Allow Predatory Lending to Flourish in the Secondary Mortgage Market
  2. 2004 Report on Predatory Lending & Servicing Practices & Their Effect on Corporate Compliance, Conduct, Ethics & Accounting
  3. Predatory Grizzly “Bear” Attacks Innocent, Elderly, Poor, Minorities, Disabled & Disadvantaged With Predatory Lending Scams & Frauds!
Nov
07

Change.org Petition Plays Part in BoA Debit Fee Reversal

By | Securitization-MBS

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In early October of 2011, Bank of America announced that it would begin charging its customers an additional $5 users fee for using its debit cards. In my financial literacy class the weekend after the announcement, some students were resigned to it, some furious, but we all vowed to switch banks if we banked at BofA. Yet we all also knew what would happen next, if history was any indication. Other banks would follow suit and eventually we’d all get charged the fee, which would just go up even more over time. It turns out, at least for now, the ending is happier. People mobilized around recent college grad Molly Katchpole’s online petition requesting a reversal of the fees.The petition was brilliant in its simplicity, stating simply this:

Greetings,
I'm writing to express my deep concern over Bank of America's decision to charge customers $5 a month to use their debit cards when making purchases.

The American people bailed out Bank of America during a financial crisis the banks helped create. You paid zero dollars in federal income tax last year. And now your banks profiting, raking in $2 billion in profits last quarter alone. How can you justify squeezing another $60 a year from your debit card customers? This is despicable.

The American people bailed out Bank of America during a financial crisis the banks helped create. You paid zero dollars in federal income tax last year. And now your banks profiting, raking in $2 billion in profits last quarter alone. How can you justify squeezing another $60 a year from your debit card customers? This is despicable.

American consumers can't afford these additional fees. We reject any claims by BofA that this latest fee is somehow necessary.

Please, do the right thing. Reverse your decision to charge customers $5 each month for using their debit cards to make purchases.

[Your name]

Party because of the petition, Bank of America announced on November 1, 2011 that it would not move forward with implementing the debit card fee. BofA co-chief operating officer David Darnell stated in a press release that “We have listened to our customers very closely over the last few weeks and recognize concern with our proposed debit usage fee. Our customers’ voices are most important to us. As a result, we are not currently charging the fee and will not be moving forward with any additional plans to do so.”

Hundreds of thousands of consumers joined the movement to push Bank of America, and its competitors, to eliminate its $5 debit card fee. In less than one month, Bank of America went from announcing the fee, to reeling under huge pressure from the media, Congress and Change.org. When Bank of America announced that it was restructuring the fee, Molly and others continued to push the Bank until it agreed to end the fee for all customers.

Pretty amazing for Molly and the over 306,000 other customers who signed her petition. Using Change.org, Molly was able to recruit hundreds of thousands of people across the country to join her in successfully challenging one of America’s most powerful financial institutions – and also in influencing the behavior of other major banks.

Obviously, Molly’s petition was not the only expression of customer complaint. Plenty of others were mad too. Andy Borowitz, of the Wonderful Borowitz Report, posted this spoof letter about the fee reversal:

NOVEMBER 2, 2011
A Letter from Bank of America
An Apology to Our Customers

NEW YORK (The Borowitz Report) – The following letter was sent today by Bank of America to all of its debit card customers:

Dear Valued Customer:

As most of you probably know by now, last month we instituted a $5 monthly fee for all of our debit card users.  To say that what followed this decision was a shitstorm would be a massive understatement.

Considering that just three years earlier taxpayers had bailed us out with billions of their hard-earned dollars, it’s understandable that Bank of America was compared to a person who, as he is pulled from a burning building, turns and kicks the fireman in the nuts.

That’s why we are writing to you today with a simple message: “Our bad.”  And to tell you that we are refunding the $5 to you, effective immediately.  All you have to do is pay a simple, one-time $10 refund fee.

You can receive your refund online, or pick it up at your nearest Bank of America branch, where a teller will hand the money directly to you for a simple, one-time $15 handling fee.

If you do visit your branch, feel free to use any of our services, including our state of the art ballpoint pens and deposit slips.  (Prices on request.)

Again, accept our apologies for instituting the debit card fee.  We have learned our lesson, and we make this solemn promise: next time we squeeze money from you, we'll do it in a way you won’t notice.

Sincerely,

Bank of America

While yesterday’s New York Times says banks will always find ways to charge us more anyway, I am posting this to encourage consumer to speak out.  In this case, the American consumer actually stemmed this tide.  How inspiring! 

Aug
11

Consumers, Cast Your Vote

By | Securitization-MBS

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The Consumer Financial Protection Bureau has launched the first project in its "Know Before You Owe" initiative with the release of proposed mortgage disclosures. While the CFPB did its homework in designing these forms, including getting feedback from a wide variety of sources, it is taking field-testing to a new level by asking American consumers to review two proposed forms. Consumers can then vote for the form that they think best conveys the key information needed to understand a home mortgage loan. The choices, named "Azalea" and "Camellia" for the fictional banks on the sample disclosures, are available here. (Simply click to view them as a PDF and then vote for your favorite.)

The first page of the forms are the same. There, I really like how attention is called to the balloon payment, and the way a section is entitled "Comparison: Use this information to compare this loan with others." The comparison part is especially important given research showing that many consumers do not in fact shop for their mortgage loan. The Azalea form goes on to highlight kinds of closing costs, such as inspections, that a borrower can shop for. The main difference in the forms is on page 2, where the the Camellia form provides much more detail on closing costs.

Now admittedly, we like to think that Credit Slips readers are wee bit more interested in borrowing than the typical American, but that shouldn't stop you from reviewing the forms, casting your vote, and passing along the link to all your family and friends who always want advice on their consumer debt issues from you. And feel free to discuss your vote and your preference in the comments. It'll be interesting to see the preferences of the Credit Slips readers--and to see if the CFPB comes to the same conclusion.

Dec
18

Watch Which Words You Use With Republicans – They Could Take Their Toys and Go Home

By | Housing & Economic Research, Loan Modification, Weidner

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Derivatives, deregulation, Wall Street, shadow banking, interconnection… all words that might be used to describe the financial crisis that has thrown this country into an abyss so deep, that I don’t think anyone can even fathom just how much pain it will ultimately cause as the years awaiting a recovery that never seems to come, flow by.

They’re also good words to have on hand if you’re part of a Financial Crisis Inquiry Commission responsible for authoring a report on what caused the nation’s financial crisis, how the largest financial institutions managed to become permanently insolvent in unison, how these same geniuses managed to destroy the global credit markets and our country’s regulatory credibility over a single summer, and then how they managed, after being shamelessly bailed out by American taxpayers, to maintain their smug and entitled attitudes, all the while doing whatever they could think of to abuse and torture American consumers.

But none will be used in the upcoming report to be issued by the Republican members of the Commission, who have decided to jump out in front and publish their own report, ostensibly because the 500 page report to be released next month by the Democrats just wasn’t robust enough for their liking.  And besides, it talks about all that excessive risk taking, unscrupulous practices by lenders, and lack of derivatives regulation that the Republicans see as having nothing to do with the economic meltdown.

The Republican’s version of the report is said to be a whopping 13 pages long, and is expected to place the blame for the crisis squarely on the shoulders of poor people who wanted to buy houses, and how some combination of Fannie, Freddie and the Community Reinvestment Act, facilitated their wanton irresponsibility.  If those damn poor people could have just paid their mortgages as they agreed to, everything would have been fine.

Well, that… and that handy little agreement Geithner forced AIG to sign before the bankrupted insurance giant received its two hundred billion dollar bailout, saying that AIG can’t sue Goldman Sachs for lying, cheating or stealing.  I’m paraphrasing there, of course.

The Republicans involved in this foray into censorship and revisionist history were former California congressional representative, Bill Thomas, Keith Hennessey, who was an economic adviser to President George W. Bush; Douglas Holtz-Eakin, who you might remember as the three names running the CBO a while back, and Peter J. Wallison, one time White House counsel to President Ronald Reagan.

Shahien Nasiripour, writing for Huffington Post, covered the Commission’s partisan demise… I mean hissy fit… thoroughly in his article posted on December 12th.

“During a private commission meeting last week, all four Republicans voted in favor of banning the phrases “Wall Street” and “shadow banking” and the words “interconnection” and “deregulation” from the panel’s final report, according to a person familiar with the matter and confirmed by Brooksley E. Born, one of the six commissioners who voted against the proposal.”

“I think a number of us had really pulled for” bipartisan consensus, said Born, a Democratic commissioner who famously tried to regulate certain derivatives as head of the Commodity Futures Trading Commission. “But this action by the Republicans indicates they have decided to go their own way.”

But, without question, it was Yves Smith of Naked Capitalism who grabbed for and got the brass ring, with her blog post on the actions of the Republicans on the Commission’s progress, or lack thereof, titled: Republican Members of FCIC to Promote Crisis Urban Legends, Shift Blame From Banks.”

Responding to the Republicans contention that the crisis was primarily caused by Fannie and Freddie, Smith put it this way:

“Let’s look at a few inconvenient facts.  We had housing bubbles in the UK, Australia, Ireland, Spain, Iceland, Latvia, Canada, and a lot of Eastern Europe.  Can we blame the CRA and Fannie and Freddie for that?  How about the M&A boom, which resulted in a ton of leveraged loans being issued at super low spreads?  If the Fed and other central banks had not driven rates to the floor, we’d see a good bit more distress and dislocation in this sector of the market.  Oh, and how about the fact that banks in Continental Europe, which had no housing bubble in their home markets, and no evil Fannie or Freddie analogues, also nearly keeled over in the crisis?

This whole line of thinking is garbage, the financial policy equivalent of arguing that the sun revolves around the earth.”

I told you… is she hot or what?  And when she chimes in somewhere in the middle of a piece, she goes: “Yves here.”  Totally hot.

My first reaction to reading Nasiripour’s article was that we needed to send a tenured elementary school teacher to run these types of Commissions in the future because there’s no way an experienced teacher of third grade would put up with four out of ten of her students picking up their toys and going home in the middle of an assignment.

The Republicans demanding that certain words be omitted from the final report was a goofy idea, in my mind… I mean, you can’t use the words “Wall Street?” in a report about… well… Wall Street?

For a moment I considered the idea of these guys being the biggest babies ever seen in such a setting, but then I remembered that I was talking about the U.S. House of Representatives, so that wasn’t likely to be the case.

But seriously… how can you talk about the financial crisis we’re still enduring without using the word “deregulation?”  Or the word: “derivatives?”

I suppose you could take a page out of Ben Bernanke’s handbook on how to avoid using the word: “deflation,” and talk about “somewhat reduced regulatory expectations,” or some such drivel.  But “derivatives?”  There’s no way to touch the subject matter without specifically discussing the impact of derivatives.

I wonder if after the Republicans made their demands to omit certain words, if some of the Democrats started using the words even more frequently, until the Republicans started putting their fingers in their own ears, saying “La, La, Las… we can’t hear you…”  And then the babies ran out of the room crying?  I don’t know, just thinking out loud.

Yves again…

“This pathetic development shows how deeply this country is in thrall to lobbyists. But these so-called commissioners, who are really no more than financial services minions out to misbrand themselves as independent, look to have overplayed thier hand.  This stunt shows more than a tad of desperation on the part of banks and their operatives in their excessive efforts block any remotely accurate, and therefore critical, report on the industry.”

I couldn’t agree more, and there’s no reason for me to say anything further about that, as Yves has phrased it flawlessly.  And check out what she said towards the end of her blog post:

“It may also suggest that the banking industry is feeling more cornered than its continued high-handed posture might suggest.  I continue to receive reports from industry insiders confirming that the biggest banks in the US are insolvent.  The only sensible resolution of the mortgage mess involves deep principal mods, which will force the top four banks to write down their second mortgage books, blowing big holes in their balance sheets, and raising numerous, embarrassing questions (how could they and the Treasury defend paying back the TARP, much the less the level of 2009 and 2010 bonuses?)”

And finally Yves puts a bow on the whole thing…

“In other words, the banks may be worried about the possibility of a backlash that might actually be effective.  But they are already too late to stop the inevitable.

They refuse to halt the juggernaut, a doomsday machine that continues to grind up families and communities and saddle innocent bystanders with the costs of higher taxes, unemployment, sagging infrastructure, and poor prospects for their children. This next two years may be the last window to leash and collar a parasitic financial services industry.

If the authorities fail yet again, the cost will be both the rule of law and our unwritten social compact. If you tear asunder structures that fundamental, expect to reap a whirlwind.”

Here, here, Yves Smith!  Very well said.

Mandelman out.

Jul
18

Elizabeth Warren or Bust, I’m Drawing the Line

By | Bankruptcy, HAMP, Housing & Economic Research

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One of the only aspects of the so-called “financial reform” bill that might actually protect American consumers from the banking and financial services industry’s well-known and widely documented abuses, is the creation of the Consumer Financial Protection Bureau, which, since 2007, has been proposed by Harvard Professor, outspoken consumer advocate, and one of my favorite people on the planet, Elizabeth Warren.

Ms. Warren should unquestionably be asked to head up this new Consumer Financial Protection Bureau, bribed, begged and/or pleaded with, if need be.  Without her philosophy and leadership setting the standards and tone of this new bureau as it is established, it should simply be disbanded… we don’t need another federal bureau to let the banks do whatever they’d like to the American consumer.  We already have every other federal agency and regulatory body for that.

Treasury Secretary Tim Geithner opposes Elizabeth Warren being appointed to head up the new bureau, and that’s why I’m writing this… to make my views on this crystal clear.

If Geithner succeeds and we end up with his witless pal, Assistant Treasury Secretary Michael Barr instead of Elizabeth Warren in this position… well, then stick a fork in me ‘cause I’m done with this administration.  Well done.  Burnt.  It simply cannot be allowed, and I’m asking everyone I know or that’s reading this to write their representatives today to let them know that Elizabeth Warren’s appointment to head up the Consumer Financial Protection Bureau is not optional… it’s a do or die situation.

Like Dubya said: You’re either with us, or you’re against us.  I’m sorry, but that’s the way it is, as far as I’m concerned.

Elizabeth Warren is the Leo Gottlieb Professor of Law at Harvard Law School.  She teaches contract, bankruptcy, and commercial law.  She has spent the past 30 years studying the economics of middle class families.

She became well-known to the public when she was selected to chair the Congressional Oversight Panel that was set up to investigate the Troubled Assets Relief Program, or TARP, which put her in the unenviable position of being the critical check on the U.S. Treasury Department.  In that role, she became a leading proponent for increased accountability and transparency, I wonder why.

If you aren’t already familiar with Liz Warren, here’s a paragraph that will give you an idea of how she thinks and what she thinks about.  She wrote the following last year in an article she published online:

“It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street–and the mortgage won’t even carry a disclosure of that fact to the homeowner. Similarly, it’s impossible to change the price on a toaster once it has been purchased. But long after the papers have been signed, it is possible to triple the price of the credit used to finance the purchase of that appliance, even if the customer meets all the credit terms, in full and on time.

Why are consumers safe when they purchase tangible consumer products with cash, but when they sign up for routine financial products like mortgages and credit cards they are left at the mercy of their creditors?  Indeed, the pain imposed by a dangerous credit product is even more insidious than that inflicted by a malfunctioning kitchen appliance.”

That’s a darn good question, Ms. Warren.  And I can’t imagine anyone not wanting to know the answer.

The other reason I think she’s not only the obvious, but quite literally the only choice to head up the new Consumer Financial Protection Bureau is that she’s about the only person I’ve seen who understands that we’re having a foreclosure crisis, and that it’s not just that we’re all terribly irresponsible.  Here’s a few of the things she’s said over the last couple of years:

“Americans are drowning in debt. One in four families say they are worried about how they will pay their credit card bills this month. Nearly half of all credit card holders have missed payments in the past year, and an additional 2.1 million families missed at least one mortgage payment. Last year, 1.2 million families lost their homes in foreclosure, and another 1.5 million families are likely headed into mortgage foreclosure this year.”

“Nor are all costs associated with debt measured in dollars; not surprisingly, the effect on family life is considerable. Anxiety and shame have become constant companions for Americans struggling with debt. About half won’t tell a friend their credit card balances, and 85 percent of those who file for bankruptcy are struggling to hide that fact from families, friends, or neighbors.”

“Some people are in trouble with credit because they simply use too much of it. Others are in trouble because they use credit in dangerous ways. But that is not the whole story. Lenders have deliberately built tricks and traps into some credit products so they can ensnare families in a cycle of high-cost debt.”

“When markets work, they produce value for both buyers and sellers, both borrowers and lenders. But the basic premise of any free market is full information. When a lender can bury a sentence at the bottom of 47 lines of text saying it can change any term at any time for any reason, the market is broken.”

“The consumer financial services industry has grown to more than $3 trillion in annual business. Lenders employ thousands of lawyers, marketing agencies, statisticians, and business strategists to help them increase profits. In a rapidly changing market, customers need someone on their side to help make certain that the financial products they buy meet minimum safety standards. A Financial Product Safety Commission would be the consumers’ ally.”

“How did financial products get so dangerous? Part of the problem is that disclosure has become a way to obfuscate rather than to inform. According to the Wall Street Journal, in the early 1980s, the typical credit card contract was a page long; by the early 2000s, that contract had grown to more than 30 pages of incomprehensible text. The additional terms were not designed to make life easier for the customer. Rather, they were designed in large part to add unexpected–and unreadable–terms that favor the card companies.”

“Banking is based on trust. The banks get our paychecks and hold our savings; they know where we spend our money and they keep it private. If we don’t trust them, the whole system breaks down. Yet for years, Wall Street CEOs have thrown away customer trust like so much worthless trash.”

~~~~~~~~~~~~~~~~~

“Banks and brokers have sold deceptive mortgages for more than a decade. Financial wizards made billions by packaging and repackaging those loans into securities. And federal regulators played the role of lookout at a bank robbery, holding back anyone who tried to stop the massive looting from middle-class families.”

Okay, so you agree… she pretty darn terrific, right?  I mean, think of it this way… we sure as heck don’t have two of her in government today.  She knows what’s going on in the real life of the American consumer, not theory, but fact.  And she doesn’t think whatever the banks want, they should get.  I don’t know about you, but when I read over the things she has said in the paragraphs above, I want her to run for president, and if she does… I’m VOLUNTEERING, and I do mean that in all caps.

Now, let’s get to the unpleasant part… Robbin’ Tim Geithner and his Band of Scary Men.

It seems that Tim “Never-Met-A-Banker-He-Didn’t-Like” Geithner doesn’t like Elizabeth Warren at all.  Personally, I find that to be indicative of a serious personality disorder, but we don’t have time to fix him, we just have to make sure his distorted view doesn’t spread like a disease and ultimately prevail.

Timmy wants Assistant Treasury Secretary Michael Barr, a man who takes the “fun” out of “dysfunction” to assume the leadership position at the new Consumer Financial Protection Bureau.  I thought it might be interesting to contrast Liz Warren’s statements with a few from “The Best of Michael Barr” CD.  So, here goes:

“This Administration has acted quickly and aggressively to confront the economic challenges facing our economy and our housing market.”

“HAMP’s pay-for-success structure aligns the interests of servicers, investors and borrowers in ways that encourage loan modifications that will be both affordable for borrowers over the long term and cost-effective for taxpayers.”

“At this early date, HAMP has already been more successful than any previous similar program in modifying mortgages for at risk borrowers to sustainably affordable levels, and helping to avoid preventable foreclosures.”

“As Secretary Geithner has noted, we are committed to transparency and better communication in all of Treasury’s programs.  Accordingly, Treasury is focused on continued transparency and servicer accountability to maximize the effectiveness of HAMP.”

“The banks are not doing a good enough job.  Some of the firms ought to be embarrassed, and they will be.”

“Mr. Barr said the government would try to use shame as a corrective, publicly naming those institutions that move too slowly to permanently lower mortgage payments. The Treasury Department also will wait until reductions are permanent before paying cash incentives that it promised to mortgage companies that lower loan payments.”

“They’re not getting a penny from the federal government until they move forward,” Mr. Barr said.

I know what you’re thinking… like twins, right?  Like, maybe they’re the same person, that’s why you never see them together at the same time?  Probably not.  In fact, these two couldn’t be more different.  How in the world Warren and Barr could possibly be seen as being qualified for the same job is beyond me.

And it’s not like Warren getting the job makes it a certainty that consumers will be more protected in this country.  Elizabeth Warren could be God’s gift to consumer protection, but she’s still up against a huge contingent that doesn’t want anything that she wants.  And an awful lot of folks in our government have a huge financial incentive to support what’s in the best interests of the banks and financial services industries.  But in my view, if Mike Barr, or any of his peers, ends up running the new agency, then it’s not even worth having the new agency.

Yet, Geithner doesn’t like her because she went after him on four separate occasions when he appeared before her panel charged with investigating where the TARP funds went… and we all know how that went.  And according to lots and lots of sources, Geithner not liking like Warren is no secret.  And that is so 7th grade, don’t you think?

Geithner’s tried to backpedal on his opposition to Warren in the last day or so, but it doesn’t matter… who could possibly believe him?  In fact, the more I hear him support her, the more nervous I’ll become.

Naked Capitalism, one of my favorite blogs, by the way, had the following to say:

“Warren is the obvious choice to head the otherwise-guaranteed-to-be-a-joke consumer financial services agency due to set up its shingle at the Fed. She has been a tireless consumer advocate, is trusted and well liked by the public at large, an effective communicator and a respected legal scholar, and is willing to stare down political opponents. All those qualities make her hugely threatening. Banksters and their lobbyist allies have been saying loudly and clearly that they are firmly opposed to having Warren head the new consumer agency. So, predictably, Geithner acts as their water-carrier.”

So, you know… here’s the deal.  I’ve been holding back on tearing into the Obama Administration, believe it or not.  Some may think that’s funny, because I have been critical… very critical at times.  But, I’m talking about drawing-the-line type critical.

I’ve put up with watching the administration trumpeting a health care reform bill that has no potential whatsoever to reduce or even control the rising costs of health care or health insurance in this country.  I’ve held back when faced with a credit card reform bill that should have made everyone involved deeply ashamed.  I’ve been forced to watch a debate over the financial reforms that was so flagrantly corrupted by industry lobbyists, that it turned my stomach at times.  But, I didn’t pile on the president, choosing to believe that that he was doing what he could do, Washington D.C. being the place it is.

But this is completely within President Obama’s control.  He can appoint Elizabeth Warren to this new created post.  He doesn’t need to do what Tim Geithner, or anyone else wants him to do, and I have to believe he sees that she is the only real choice.

So… this is it, Mr. President.  Bring us Elizabeth Warren as the Director of the new Consumer Financial Protection Bureau.  Let her lead the fight against the banking lobby on behalf of the American consumer.

If you don’t… well, that will be enough hope and change for me.

Jun
08

The Great Unwind and the Final Redemption, by O. Max Gardner III

By | Bankruptcy, HAMP, Housing & Economic Research

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When it comes to bankruptcy law, fighting for the rights of American consumers, and knowledge of our latest economic collapse, I cannot think of anyone that knows more than Max Gardner.  And that’s not just anyone saying that, I’ve written almost 300 articles on these and related topics, so I’ve called or emailed  just about everyone on planet that’s supposed to be an “expert” at one thing or another, and Max stands alone.

In my mind, there are three things that make Max special:

  1. He speaks English fluently… I mean English even I can understand.  It doesn’t matter what the subject is, if Max explains it, my 6th grade class would get it.  I’m sure he can legalese with the best of them, but he doesn’t do it in public, and I for one appreciate that… a lot.
  2. He’s a teacher and a doer… The old axiom says that those who can’t do, teach, but Max completely shatters that idea.  He teaches lawyers through his famous Bankruptcy Boot Camp program, but he’s also very much a practicing attorney.  So, when he tells me something, I know it’s not just a theory, it’s a fact.
  3. He truly understands… There are many who have knowledge, but not everyone “understands” and cares about what people are going through, and I knew from the first time I talked with Max that he does.

Okay, so what can I tell you, I love the guy, and I’m very much looking forward to attending his Bankruptcy Boot Camp at the beginning of July.  And you can count on me writing a lot about what I learn while I’m there.

So… as my readers know, I’ve never had guest columnists or posted what others have written, but when I read the article that follows, which was written by Max and his associate Bob Goodwin on June 1st of this year, and then found myself reading sections of it to several people while we were talking on the phone, well… I knew I had to post it.

Max and I are talking about publishing some things together in the future as well, and I think we’ll make a great team.  He’s got the knowledge and then some, and I’ll do the jokes.  LOL

So… here it is… I know you’ll enjoy the article that follows, but I’m also sure you’ll learn something important as well.  I know I sure did.  It’s titled: The Great Unwind and the Final Redemption, by O. Max Gardner III, but you can think of him as “Max”.

The Great Unwind and the Final Redemption

Written on June 1, 2010 by O. Max Gardner III with Bob Goodwin

What we are experiencing is called the global credit crisis for a reason. There is too much debt in the world. There is too much oil in the Gulf of Mexico and too little oil in the rest of the world.  What used to be up now seems to be down.  The stock market is going up on Monday and dropping more than 1,000 points Tuesday afternoon.  The economy is in a “recovery mode” but the unemployment numbers keep going up and up and up.  What is wrong with these pictures?

More and more economists are talking about the threat of a deflationary crisis ahead. Some are discussing hyperinflation.  Others refer to a “double-dip” recession.  A few even predict another depression.  What we know for sure is that Greece, Italy and Spain are broke.  The Euro has lost more value than the latest big fish just lost in Vegas.  Foreclosures are at historic highs and unemployment keeps going up.

So, what does this mean for you? Well, if you have a house that is under water, or more debt than you can reasonably hope to repay, your best options may be the unthinkable as in filing for personal bankruptcy. But it really should not be unthinkable to default on a loan or even to declare bankruptcy. Don’t stop reading. It is really a good option for many; it is moral, legal and good for the country. It has also become very common. You and your children will look back in a generation with pride.

In small amounts, debt is good. Home ownership is only possible for the young with mortgages, and many college degrees seem to be totally supported with student loans (don’t get me started on student loan debt). Working capital for growing businesses allow for inventory and distribution expenses. Lenders benefit as well: high interest rates are paid to pensioners on their life savings.

When debt exceeds a certain level it becomes a cancer on society. Easy credit fuels speculation which triggers bubbles. These bubbles lead to a temporary lift in apparent wealth, which increases economic activity beyond its sustainable level. But eventually more and more debt triggers economic decline with the inevitable glut of goods produced by an overheated economy.

What people are discovering too late is that their debt is not repayable. Not now, not in the future, not ever. They once had a hope they could wait out their bad times. This is true of many homeowners, many businesses and many governmental bodies. The “great unwind” is now upon us and is picking up reverse speed every day.  And, the unwind is going to be deflationary. Prices and salaries will decline, jobs will become more scarce, and debt will continue to increase.

The earlier you pull the rip cord the better off you will be later. In many states mortgage loans are non-recourse debts. This means that the homeowner has no personal liability for the debt after foreclosure.  Never make another mortgage payment in these states. Turn over the keys after foreclosure. You will lose all of your down payment, but the lender can never get another penny from you. Your credit score will fall. But you do not want any more credit. Right? If you are trying to quit crack, how would feel about your pusher reducing your crack score? Does that make sense?  If you plan to fight the war on drugs, you fight to win, right?  Stay off crack (I mean credit) for a few years, and they will take you back with open arms.  Just be sure to look before you leap back into the credit patch.

There should no longer be any moral question about whether it is wrong to walk away from debt legally. The advent of limited liability corporations and the legal ‘personhood’ of corporate shells have allowed business to create one sided bets for years, and they happily walk away from “corporate debt” when the tide shifts. Donald Trump, the famed “Donald”, surely knows how to play this game.  The Donald is a credit gamer.  Whatever you say about Trump, the guy is a real player at in the debt cancellation game.  This may even be the basis for a new show—The Bankrupt.

But, Trump is not the exception to the rule.  The Trumpum tactics are the calculus of 21st century finance, and you are a bit player in this game.  The Big Players are General Motors, Chrysler, Lehman Brothers,   Bear Stearns, Washington Mutual and Countrywide.  They have either eliminated their heavy debt-loads by bankruptcies or by forced liquidations and mergers with the FDIC picking up the financial pieces.  And, even the Great Mortgage Bankers Association of America recently accepted a $40 million dollar short sale and walked-away from its former world headquarters on K Street in Washington along with about $45 million in unpaid debt.  If you want to talk about moral hazards, then these are the players to talk about.  Forget about John and Mary Smith on Main Street.  John and Mary are mere pebbles in the sand on a very large beach.  Nobody notices John and Mary and from my point of view nobody in Washington really cares.

The current administration is implementing a policy of recapitalizing the banks (whose assets are still worth far less than their own debts) by lending them money through the Fed for nothing and borrowing back the money through the treasury for a lot more. This is called transferring debt from the banks to the government. But government debt has the same drag on societies in the long-run, they can just hold their breath longer.  And, the so-called HAMP program is nothing more than a smoke and mirrors game designed to make us think that something is being done when in fact nothing is happening other than secretly extending the day of the final reckoning.  In short, there is no value in the Net Present Value Test of HAMP.

In the end debt default always occurs in these situations. The debts cannot be paid by the combined debtors in a society. The default may occur when inflation destroys the value of the debt over time. Or the default may occur with the eventual death of the debtor. Or the debt is discharged legally.

The longer this process takes, the more damage occurs to the society. And this process, in my view, is the true moral hazard for America.  The hazard of not legally and effectively dealing with these mountains of consumer debt.  There are strange incentives that a person has when their debt is unpayable. Why would you try to earn more? The more you earn the more debt you pay. But you cannot earn enough to get out of debt. So you stop trying. If you owe too much on your house, you might decide you have nothing more to lose on your house so you will simply decide to wait it out. You will minimize the repairs and improvements on the house, rent the house out to frat boys and hope for the best.  You might as well best your nest-eggs on winning the Power Ball next Wednesday. The odds are not in your favor.  The wait it out strategy will only prolong the financial and emotional agony.

The banks are great examples of distorted incentives. They have sucked up well over $3 trillion of government money. They are still paying huge bonuses. They are not lending to businesses in need. They are not lending to consumers.  They have “raised” their consumer credit standards.  They have not changed any of their prior internal “standards.”  Distorted incentives indeed.

In the ancient days the Christian nations would have a debt Jubilee every 30 years. It sounds like a party because it was. Debts were forgiven en-masse when societies became constipated with debt.  And, in the days of the Old Testament, individual debts were discharged once every 7 years.  It was also considered a sin to try and collect debts after this 7 year discharge.

Suffice it to say we are currently a nation of many, many sinners, the vast majority of whom are trying to collect debts owed by consumers.  The only way to run these money changers out of the temple, and to secure true redemption, is to declare personal bankruptcy.  You need to legally purge yourself of your debts and your houses and your expensive cars and start working for yourself and for your family.  Praise the Lord and pass around those bankruptcy petitions.  Like now. Like yesterday.

O. Max Gardner III & Bob Goodwin

Aug
04

Mortgage Hardship: Solutions to Avoid Foreclosure

By | Foreclosure Rights, Forensic Loan Audits, Homeowner Resources

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Here’s a link to my similar article at EZinesArticles.com: http://ezinearticles.com/?Mortgage-Hardship—Solutions-to-Avoid-Foreclosure&id=2710389

If you are facing a hardship with making your mortgage payments, you’re not alone. The national foreclosure rate is now at one in every 555 households. If you live in the Ft. Myers/Cape Coral area, that statistic jumps to 1 in every 18 households now in foreclosure.

A mortgage hardship is very common with unemployment numbers rising daily and US homeowners losing the values in their homes on a monthly basis as well

When someone loses their income they go through all sorts of emotions when they cease to have the ability to pay their bills. Fear can easily be all-consuming when facing a mortgage hardship and foreclosure.

The first thing I tell my clients is to not be afraid. Fear can take a root in our lives and cripple us from taking action and acting wisely.

Don’t cave in to the fear tactics of your mortgage servicer or lender – or any other creditor for that matter. You’re still in control even though you may not feel like it.

There are precise steps you can take to protect yourself and your interests. There are legal rights that you possess and can use to help yourself in difficult times. The biggest challenge is that most American consumers and homeowners don’t know they have legal rights. You have foreclosure rights…when you’re facing a mortgage hardship, all hope is not lost.

We have helped families stay in their home for an extra 6 months, 8 months and over a year. We never provide a precise time frame or outcome. There are so many variables… if you have a company giving you a bunch of promises and charging a lot of money upfront for now finite service, be extremely wary and cautious.

Another very likely issue is that the financial institution attempting to collect and/or foreclose doesn’t even own your loan or have the legal right to collect. Over 80% of all foreclosures filed in Florida right now contain a “Lost Note” count alleging that they (the plaintiff) have lost the most important document as evidence of the debt they claim you owe – the Note

There are several affirmative defenses that a qualified and competent foreclosure attorney will know how to bring in your case.

A TILA mortgage rescission may be something that you can assert if there are material disclosure violations found in a forensic loan audit of your loan documents. Obtaining a true forensic loan audit is probably the best first step you as a homeowner in mortgage hardship can take.

A forensic loan auditor will truly break down the entire package of loan documents and examine them for state and federal loan violations along with a forensic examination for fraud and failure to disclose, appraisal fraud and loan application and underwriting fraud.

Be certain that you are truly dealing with a reputable and knowledgeable auditor. I find that a very select few of us really know what to look for and truly know the laws. So many people will tell you what you want to hear without preserving integrity and honesty.

There is a litany of scams out there so be careful. Take your time, ask questions, find a professional who will help and educate you. Knowledge is truly power. The more you know and understand your foreclosure rights, the better off you’ll be.

Quantified violations of the Truth in Lending Act (TILA) and other federal violations can be used a Claims in Defense by Recoupment in any foreclosure action brought against you. A forensic loan audit (done right) is highly valuable for you.

You’ll land on your feet. You’ll make it through this tough time. Be a sponge for information, read it with common sense in mind and find a person or two who can be your mentor or advisor through this time. You’ll make it… I promise.

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