Times Articles on Subprime Crisis, Debt Collection, the CPSC Bills, Reverse Mortgages, and Online Privacy

I've accumulated a huge backlog of recent Times articles on consumer law issues, so here goes an attempt to reduce the backlog.

Many of the articles involve the mortgage crisis and plans to do something about it.  For example, the lead article in today's Times is headlined "White House Offers Plan to Ward Off Credit Crisis."  Here's an excerpt:

The plan, which relies primarily on state regulators and private industry to tighten their oversight of financial markets, calls on states to issue nationwide licensing standards for mortgage brokers.

The plan would also require lenders to make more complete disclosures about payment terms to home buyers. And it would curtail possible conflicts of interest at companies that assign levels of risk to packages of mortgages that are sold to investors.

* * *

But in many ways, the plan relies on the same market participants — from mortgage brokers to credit-rating agencies and Wall Street firms — that government officials and other experts blame for the current crisis.

The Times criticizes the proposal as too little and too late in an editorial.  An editorial back on February 27, "Getting Real About the Rescue," suggests this explanation for why banks might cooperate with proposals to help homeowners:

Some big banks are supporting new proposals to rescue homeowners who owe more on their mortgages than their houses are worth, but let’s get one thing straight: the banks haven’t been struck by a sudden urge to help the needy. Rather, by advocating bailouts, the lending industry is trying to head off a possible change in the law that would let troubled borrowers modify their mortgages in bankruptcy court — where lenders, not taxpayers, would be stuck with the losses.

Here is the lead article in Wednesday's  issue about how the Fed is allowing investment banks "to borrow up to $200 billion in Treasury securities in exchange for hard-to-sell mortgage-backed securities as collateral."  A risk for the Fed in that transaction is that if the value of the securities declines with further defaults, the Fed's collateral could be worth less than what it loaned. Yesterday's issue included "Bill to Propose Expanded U.S. Backing of Home Loans" about Barney Frank's proposals that would:

significantly expand an effort already under way to refinance onerous subprime mortgages with loans that are guaranteed by the Federal Housing Administration. * * *

Like other proposals floated by banks and regulators, Mr. Frank’s plan would have mortgage companies write down the value of loans to their current market price before they are refinanced and given F.H.A. backing. Participation would be voluntary, however.

On February 23, the Times provided a news analysis of proposals for a bailout, titled "A 'Moral hazard'' for a Housing Bailout: Sorting the Victims From Those Who Volunteered."  An excerpt:

* * * Bank of America [which is in the process of acquiring Countrywide] suggested creating a Federal Homeowner Preservation Corporation that would buy up billions of dollars in troubled mortgages at a deep discount, forgive debt above the current market value of the homes and use federal loan guarantees to refinance the borrowers at lower rates.

* * *

In practice, taxpayers would almost certainly view such a move as a bailout. If lawmakers and the Bush administration agreed to this step, it could be on a scale similar to the government’s $200 billion bailout of the savings and loan industry in the 1990s. The arguments against a bailout are powerful. It would mostly benefit banks and Wall Street firms that earned huge fees by packaging trillions of dollars in risky mortgages, often without documenting the incomes of borrowers and often turning a blind eye to clear fraud by borrowers or mortgage brokers.

A rescue would also create a “moral hazard,” many experts contend, by encouraging banks and home buyers to take outsize risks in the future, in the expectation of another government bailout if things go wrong again.

If the government pays too much for the mortgages or the market declines even more than it has already, Washington — read, taxpayers — could be stuck with hundreds of billions of dollars in defaulted loans.

But a growing number of policy makers and community advocacy activists argue that a government rescue may nonetheless be the most sensible way to avoid a broader disruption of the entire economy.

Princeton professor Alan S. Blinder compares such proposals to the New Deal era Home Owners' Loan Corporation in "From the New Deal, a Way Out of a Mess."

Here is a piece on a proposal to delay foreclosures in New York by a year.  Local governments throughout the country are trying to help, as described in "Foreclosure Aid Rising Locally, As Is Dissent." If anyone still cares, soon-to-be-ex-Governor Spitzer's proposal to require lenders to warn borrowers in advance of foreclosure proceedings and meet to negotiate is described here.  How serious is the crisis?  Read "In Parts of U.S., Foreclosures Top Sales."

The Times cites Katherine Porter's study (thereby proving that what law professors do matters) finding that many foreclosing creditors don't show proof of ownership in a March 4 article titled "Fighting for a Home." 

A front page article back on February 29 titled "Facing Default, Some Abandon Homes to Banks" explored the wisdom of that strategy.  An excerpt:

For some people, then, foreclosure becomes something akin to eviction — a traumatic event, and a blow to one’s credit record, but not one that involves loss of life savings or of years spent scrimping to buy the home.

* * *

Carrie Newhouse, a real estate agent who also works as a loss mitigation consultant for mortgage lenders in Minneapolis-St. Paul, said she saw many homeowners who looked at foreclosure as a first option, preferable to dealing with their lender. “I’ve had people say to me, ‘My house isn’t worth what I owe, why should I continue to make payments on it?’ ” Mrs. Newhouse said.

* * *

Though many states give banks recourse to sue borrowers for their losses, Mr. Case said, in practice it’s not often done “It’s tough to do recourse,” he said. “It’s costly, and the amount of people’s nonhousing wealth tends to be pretty slim.”

The fallout from the mortgage crisis includes an increase in the number of debts in collection, so today's Times has a front page article, "As Debt Pile Up, the Collectors Try to Put On a Friendlier Face."  As the headline implies, the article, complete with quotes from ACA International, the industry trade group, is about how the debt collection industry is working with what they style as "our customers" rather than browbeating them.  It also focuses on the role of attorneys in debt collection.  Some excerpts:

* * * So many people are in so much debt that the government says bill collecting is one of the fastest-growing businesses. By 2016, employment in it is projected to exceed half a million workers, up 23 percent in a decade.

* * *

* * * In 2005, 150,000 such debt collectors took in $51.4 billion, a PricewaterhouseCoopers study indicated.

* * *

[The National Association of Retail Collection Attorneys] represents an increasingly prominent part of the debt industry: law firms that are hired by creditors or that buy delinquent accounts outright. If phone calls to the indebted person do not produce the desired results, the lawyers sue, and may seek to have paychecks garnished.

Association membership has jumped 44 percent in the last five years, to 820 law firms. * * *

“We’re trying to create an awareness that attorneys collect debt ethically,” [the Association's president,] Mr. Markoff, whose practice is in Chicago, said. “To lump us in with a high school graduate who has not received similar training is not fair.”

On another subject, Monday's edition had a front page piece titled "To Aim Ads, Web is Keeping Closer Eye on What You Click."  An excerpt:

A new analysis of online consumer data shows that large Web companies are learning more about people than ever from what they search for and do on the Internet, gathering clues about the tastes and preferences of a typical user several hundred times a month.

As for the Consumer Product Safety Commission bills, the Times editorializes here in favor of the Senate version. 

Back on March 2, the Times ran an important front page story about problems with reverse mortgages, "Tapping Into Homes Can Be Pitfall for the Elderly."  An excerpt:

* * * In surveys, many borrowers say reverse mortgages have improved their lives and provided money they needed for retirement.

But hundreds of people who have sought reverse mortgages — in lawsuits, surveys and conversations with elder-care advocates — have complained about high-pressure or unethical sales tactics they say steered them toward loans with very high fees. Some say they were tricked into putting proceeds of their loans into unprofitable investments, while sales agents pocketed rich commissions.

“Every scam artist is getting into this business,” said Prescott Cole, an elder-care advocate who has worked with numerous reverse mortgage borrowers. “Because reverse mortgages are so complicated and give you money up front, years can pass before a senior realizes they’ve lost everything.”

Comments

[Yale Hauptman]

Your readers may be interested in our audio podcast on elder law issues found at www.elderlawtodaypodcast.com

[John Gregory]

The governments and the financial institutions that allowed the dodgy mortagages should be held responsible for the current crisis. Is a mass lawsuit by all those mortagage borrowers and investors against financial institutions and governments a possibility? Surely the lawyers will stand to gain if the lawsuits were successful.

[Ben (Debt Guy) Tanner]

"The governments and the financial institutions that allowed the dodgy mortagages should be held responsible for the current crisis. Is a mass lawsuit by all those mortagage borrowers and investors against financial institutions and governments a possibility? Surely the lawyers will stand to gain if the lawsuits were successful."

I'm not sure that will do the trick. Why not teach the people to not get into the mess in the first place? What ever happened to the old addage "Buyer beware"

[Taylor]

The last part of your article is a great example of how reverse mortgages can truly be a godsend for those that need it.

Another way that reverse mortgages have been coming to the rescue of some older homeowners recently, is that they have actually saved many seniors from foreclosure.

With the current housing crises and the turmoil in the credit markets, some seniors that unknowingly took out a negatively amortizing or adjustable rate mortgage in recent years, have found themselves stuck in unaffordable loans. If they have enough equity, they should never face foreclosure, but rather they should consult with a licensed reverse mortgage expert about whether a reverse mortgage could save their home.