CL&P Blog

Listen to Panel on the Home Foreclosure Crisis

by Jeff Sovern

For those who can't keep up with all the readings to which this blog links, but who want to learn more about the home foreclosure crisis, you can click on this link to the predatory lending page maintained by the National State Attorneys General Program at Columbia Law School and scroll down to find an excellent panel discussion that you can download to your computer and MP3 player.  I've been listening to it while driving.  The speakers include Jane Azia, Director of Consumer Protection, New York State Banking Department, Margaret Becker of the Predatory Lending and Foreclosure Prevention Project, Staten Island, New York Legal Services, Professor Ronald Mann of Columbia, and Tam Ormiston, Chief Deputy Attorney General of Iowa.  The moderator is James Tierney, Director of the State Attorney General Program & former Attorney General of Maine. 

But if you do want more reading about the crisis, click here for Times columnist Bob Herbert's moving column in today's paper about one family's loan tragedy.  An excerpt:

One aspect of the so-called mortgage crisis that hasn’t been adequately explored is the extent to which predatory lenders have committed fraud against vulnerable homeowners. They have pushed overpriced loans and outlandish fees on hapless victims who didn’t understand — and could not possibly have met — the terms of the contracts they signed.

In some cases, corporate con artists have deliberately targeted and seized the equity of financially strapped and unsophisticated owners. In some cases, homes have been stolen outright.

This is an issue crying out for a thorough federal investigation.

Another Class Action Waiver Falls

by Brian Wolfman

The First Circuit today struck down a class action waiver contained in an arbitration agreement as unconscionable under Massachusetts law. In Skirchak v. Dynamics Research Corp, Nos. 06-2136, 06-2180 (Nov. 19, 2007), the court found the class action waiver unconscionable on the particular circumstances of the case -- which involved wage and hour claims.  Although the court noted academic commentary arguing that class action waivers are always unconscionable in small-claims cases, the court declined to rule on that larger question.  Worth a look.

A Comment on Investor Liability and H.R. 3915

by Jeff Sovern

I have not yet had time to study the new predatory lending bill passed by the House, H.R. 3915, which others have blogged about here and here, among other places, and so I am still forming my views on it.  Still, one thing that strikes me about the rationale for the bill is the stated need to limit the remedies  against holders of the troublesome loans.  The fear is that investors would no longer purchase loans if by doing so they were exposed to liability and so imposing liability would destroy, or at least damage, the secondary market in such loans. 

It may be that that fear is entirely justified for reasons of which I am unaware.  But it is interesting that similar arguments were made back when state legislatures, courts, and the FTC abrogated the holder in due course defense in certain consumer loans back in the sixties and seventies. See, e.g., Banta, Negotiability in Consumer Sales: The Need for Further Study, 53 Neb. L. Rev. 195, 196-97 (1974) ("many banking and financial institutions argue that if they were subject to consumer defenses, consumer credit might vanish or become so expensive as to be prohibitive."); Jordan & Warren, The Uniform Consumer Credit Code, 68 Colum. L. Rev. 387, 436 (1968) ("The reason for preferring the [lender] over the [buyer] is not that he is in any better moral position but because a holding in his favor should further the flow of commercial paper and stimulate investment."); Comment, Implied Consumer Remedy Under FTC Trade Regulation Rule--Coup de Grace Dealt Holder in Due Course?, 125 U. Pa. L. Rev. 125 U.Pa. L. Rev. 876, 880 (1977) ("The policy justification for this allocation of risk is that it promotes the availability of credit essential to healthy commerce."); see generally Jeff Sovern, Paradigm and Paradox in New York Consumer Credit Law: After Holder in Due Course, 6 Annual Rev. Banking L. 119 (1987).  Of course abolition of the HDC doctrine did not end consumer credit, and while it is impossible to know whether consumer credit would have been cheaper if the HDC doctrine had persisted in such consumer transactions, it seems clear that whatever increase abrogation of the doctrine produced has not been crippling to consumer loans.  In addition, imposition of liability on lenders also serves an important policing function--something lenders are better equipped to carry out than consumers--by giving lenders an incentive to remove dishonest operators from the market by refusing to purchase obligations from them.  Perhaps the situation today is different from the situation back then, but it seems to me that once such claims have proven false in the past, the burden of proof is on those who make the claims again to explain why we should take them seriously.

Some Particularly Good Journalism on the Subprime Mortgage Crisis

by Deepak Gupta

BBC News has been running a compelling series of articles on the subprime mortgage foreclosure crisis, including a particularly interesting article focusing on how the crisis is playing out in Cleveland, Ohio, which the BBC calls "the sub-prime capital of the United States."  The article collects some very alarming statistics and charts and includes an interactive map of Cleveland that lets you see the correspondence between subprime lending, foreclosures, and race.

Relatedly, an article by John Leland in yesterday's New York Times took a look at how the foreclosure crisis is affecting tenants.  "In the foreclosure crisis of 2007," the article begins, "thousands of American families are losing their homes without ever missing a payment. They are renters in houses whose owners default on their mortgages — a large but little noticed class of casualties."

Consumer Class Action Filed Against "Free File Alliance"

The Free File Alliance program is a partnership between the Internal Revenue Service and about 20 tax preparation software companies, including an affiliate of the mammoth tax preparer H & R Block. The Alliance is supposed to facilitate the free electronic filing of tax returns. A consumer class action filed last Tuesday in federal court in Philadelphia alleges that the Alliance has, in fact, charged fees to millions of U.S. taxpayers in excess of the amounts permitted by federal law. See 31 U.S.C. 9701. An article in the Kansas City Star describes the suit. Read the complaint here.

Consumers' Union Survey Shows Gift Cards Go Unused

Gift cards are good idea . . . for the folks who are selling them. This survey conducted by Consumers Union shows that an astounding $8 billion in gift cards went unredeemed last year and that  27% of cards purchased last year are still unused. The survey also revealed that more than 60% of all shoppers intend to buy gift cards during the coming holiday season.

Identity Theft Protection Services

by Jeff Sovern

Yesterday's Times reports on services--other than those operated by the big three credit bureaus--for preventing or catching identity theft, in an article titled "In ID Theft, Some Victims See Opportunity."  The piece describes services that, for a fee, notify you of attempts to open credit accounts in your name or place credit freezes on your account.  A couple of excerpts (chosen to reflect my perspective):

Among its peers, LifeLock has attracted the most attention — much of it negative. In radio and television ads, Todd Davis, chief executive of LifeLock, gives out his Social Security number to demonstrate his faith in the service. As a result, he has been hit with repeated identity theft attacks, including one successful effort this summer in which a check-cashing firm gave out a $500 loan to a Texas fraudster without ever checking Mr. Davis’s credit report.

* * *

Many consumer advocates say that no one should have to pay anything to defend against identity theft. “Having to renew a fraud alert every 90 days is a pain, and I can see why there’s demand for these services,” said Gail Hillebrand, a senior lawyer at Consumers Union. “But the ultimate solution is not for consumers to pay someone extra. It’s for the credit agencies to make this an easier process and to extend fraud alerts for a year.”

Mortgage Bill Passes House

The House of Representatives has passed H.R. 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007, by a vote of 291-127.  Not a single House Democrat opposed it.  CNN is reporting that the bill faces an "uncertain future" as it heads to the Senate--not because of opposition by consumer groups, mind you, but because industry lobbyists, the White House, and many Republicans don't want to see any regulation in this area at all.  (In recent days, we've blogged about the bill here, here, here, and here.)

Consumer Groups Oppose Predatory Lending Legislation

by Deepak Gupta

  A coalition of twenty national and local consumer and anti-poverty groups -- including Consumer Action, National Association for Consumer Advocates, National Consumer Law Center, Public Citizen, and U.S. PIRG -- came out in strong opposition to  H.R. 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007, scheduled for a vote today in the U.S. House of Representatives.   We've previously blogged about this legislation here and here.

In a letter sent to Congress, the groups said that the bill, designed to address abuses in the lending market, would leave consumers worse off than if Congress did nothing at all.  The organizations decry the bill’s insulation of Wall Street and the removal of key state protections that borrowers use to protect their homes. 

“At a moment when the economy is being rocked by the subprime mortgage crisis and when predatory loans are sending millions of Americans into foreclosure, it is shocking that the House of Representatives is protecting Wall Street, instead of the consumers who are at risk of losing their homes,” said Joan Claybrook, president of Public Citizen.

Foreclosures Hit a Snag for Lenders

by Michael Quirk

  In today's New York Times, Gretchen Morgenson has an interesting article about an even more interesting federal district court opinion dismissing 14 home foreclosure actions based on lack of standing by the foreclosing bank trust.  The federal court's dismissal of these foreclosure cases is significant because the court found that the trust lacked standing to pursue the foreclosures because it could not demonstrate its ownership of the mortgages at issue, a problem that experts interviewed in the Times article say is exceedingly common in foreclosure cases throughout the country.

The federal court in In re Foreclosure Cases, No. 1:07CV2282, et al. (N.D. Ohio 10/31/07), Judge Christopher A. Boyko had demanded that foreclosing plaintiff Deutsche Bank National Trust Company produce copies of the Assignment of the Note and Mortgage in each of the 14 cases Deutsche filed showing that it was the owner of the mortgage loans at the time the cases were filed.  Instead, Deutsche produced Assignments stating a present intent to convey all rights.  The court found that this belied Deutsche's assertion that it owned these mortgages, and concluded that Deutsche therefore lacked standing to foreclose.  In addressing and rejecting Deutsche's arguments for recognizing its standing despite this lack of proof, Judge Boyko used a particularly colorful and effective analogy:

The Court will illustrate in simple terms its decision:  'Fluidity of the market' - 'X' dollars, 'contractual arrangements between institutions and counsel' -'X' dollars, 'purchasing mortgages in bulk and securitizing' - 'X' dollars, 'rush to file, slow to record after judgment' - 'X' dollars, 'the jurisdictional integrity of United States District Court' - 'Priceless.'

The Times article conveys the potentially enormous significance of this decision by interviewing market analysts and consumer advocates specializing in foreclosure prevention, all of whom say that this type of scenario where the foreclosing party cannot document ownership of the securitized mortgage is extremely common in foreclosure cases across the country.  This article is accessible here.