Consumer Law & Policy Blog

Norm Silber on How Opposition to the CFPA Connects to Traditional Anti-Consumer Protection Efforts

Here.

Federal/State Agencies Obfuscate on Bankruptcy

Foreclosurebuzz has done an interesting survey of government web sites purporting to offer aid to consumers facing foreclosure.  Most agency web sites do not mention bankruptcy at all, despite the fact that Chapter 13, and in some cases Chapter 7, can provide an array of tools to restructure debt, and in the case of underwater second mortgages, eliminate debt.  The Comptroller of the Currency characterizes bankruptcy as a scam, more or less.  The FTC also implies that bankruptcy is not a legitimate option, discussing it only in the context of rescue scams. Senator Durbin is right - the banks own Washington (and apparently many state bank regulators as well.)

October Foreclosure Crisis Update

By Alan White

October’s mortgage securities investor reports are out and the news is discouraging.  The foreclosure inventory is unchanged and modifications are still down from earlier this year.  There is little evidence that Treasury’s Home Affordable modification program is yielding more permanent modifications than were being done before.  We’ll know more when Treasury releases their October numbers in the second week of November.

The data also continue to show wide random variation among mortgage servicers.  Some are modifying a lot, and some are foreclosing a lot.  The chart above shows raw numbers of modifications and liquidation sales from the October (9/25-10/26) Columbia collateral file (not all servicers are represented), which covers about 5% of mortgages and 20% of foreclosures nationally.

Vincent DiLorenzo on Market Deregulation and Moral Hazard in the Mortgage Market

My colleague, Vincent DiLorenzo of St. John's, has written Mortgage Market Deregulation and Moral Hazard: Equity Stripping Under Sanction of Law.  Here's the abstract:

This article examines the failure of the current regulatory structure to adequately protect consumers against risks in a home mortgage lending market characterized by complexity and limited transparency. It explores the reliance of bank regulators, particularly the Federal Reserve Board, on market discipline to control risks and the failure of market discipline. It also explores the Federal Reserve’s view that market intervention is only justified based on net societal benefits. This is a viewpoint that prevented regulatory intervention until the financial sector was in crisis, and a viewpoint that is at odds with the view of the Congress. This article urges a rejection of the net societal benefits standard as the determinant of regulatory intervention in the mortgage market.

NCLC Report on How Subprime Abuses and Scammers Now Hit Reverse Mortgages

The same subprime mortgage abuses and even the same individual scam artists are showing up in the reverse mortgage market, putting at risk the equity and savings of millions of seniors.  According to NCLC’s Subprime Revisited: How the Rise of the Reverse Mortgage Lending Industry Puts Older Homeowners at Risk (Oct. 2009) (24 pp.), written by Tara Twomey, “well-funded marketing campaigns and perverse incentives to brokers are targeting seniors’ home equity and using reverse mortgages as their tools.”

 

Annual reverse mortgage volume has topped 110,000 units and $17 billion, with top banks like Wells Fargo and Bank of America and large insurance companies like Genworth and MetLife leading the way. Despite a slowdown in originations due to the recession, reverse mortgage originations in 2009 still continue at a record pace.

 

Mortgage brokers see it as a new source of rich fees. Predators who once reaped profits from exotic loans have now focused on wresting more wealth from vulnerable seniors. And securitization, which allowed subprime loan originators to disassociate themselves from the downside risks of abusive lending, is becoming commonplace in the reverse mortgage industry.

 

To see the report on NCLC's website, click here. 

 

NCLC Report on Why Mortgage Servicers Foreclose When They Should Modify Loans

A new NCLC report, authored by Diane E. Thompson, finds that mortgage servicers—including many large banks—have found it cheaper to foreclose on homeowners than to offer loan modifications that would benefit homeowners and investors.  Americans who might be able to stay in their homes under a loan modification plan are being moved right past that option and on to foreclosure.  

“Why Servicers Foreclose, When They Should Modify, and Other Puzzles of Servicer Behavior,” (Oct. 2009) (50 pp.) includes a detailed examination of loans in foreclosure from 1995-2009 and how components of servicer compensation affected the likelihood and speed of foreclosure. It also looks at oversight of servicers by credit rating agencies and bond insurers, and how that oversight too often encourages servicers to foreclose.

Among the report’s findings are that “Loan modifications inevitably cost the servicer something. A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified, and no penalty, but potential profit, if the home is foreclosed.”  The report also found that servicers often deny homeowners principal and interest rate reductions because as servicers they find it profitable to offer repayment plans or forbearance agreements that do little to reduce homeowners’ debt burdens.

 

The report is found on NCLC's website and by clicking here.

Can we talk? How servicers undermine mediation

By Alan White

More than 25 states and localities are using mediation programs of various kinds to address the foreclosure crisis.  These programs assume that many foreclosures could be prevented if only the servicer and homeowner could break through all their communication problems and talk until they reach an agreement.  Homeowners won't return calls, the mortgage industry complains, and if only we could talk, we could work it out.

A new study of 800 settlement conferences held in New York City in June and July 2009 found that homeowners came committed to serious negotiation, and in nearly half of the cases with documents and/or having made a loan modification proposal.  Servicer attorneys, on the other hand, came to conferences without settlement authority, without documents and without knowing the servicer's settlement position or even the status of a modification request.   

The National Consumer Law Center's report on state mediation programs points out the limitations of voluntary conciliation programs that do not require mortgage servicers to participate in good faith.  Very few mediation programs deny foreclosure relief until the servicer has completed a modification analysis and explained their decisionmaking.  The mounting evidence is that servicers do not provide timely and accurate responses when homeowners seek foreclosure alternatives.  It will be interesting to see Treasury Department reports on servicer compliance with HAMP Directive #7, which calls for homeowners to have their modification request acknowledged in 10 days and decided upon in 30 days.

Does this sound as crazy to you as it does to me?

by Brian Wolfman

Among other things, the Fair Credit Reporting Act gives consumers the right to dispute inaccuracies on their credit reports and to have the reports corrected. That's a good thing because credit reports are amazingly inaccurate. So, you'd think that there'd be no punishment for disputing your credit report.Think again. This article in today's Washington Post explains that the fact that a consumer has disputed her credit report can undermine her ability to get a home loan, even when the consumer was correct in the dispute. Am I misreading this article?

New Tennessee trial court decision on Internet anonymity

by Paul Alan Levy

The Citizen Media Law Project carries word of a ruling by a Tennessee Circuit Court judge in Schwartz v. Doe (October 8, 2009), which ordered identification of Doe defendants but only after adopting a tough legal standard that follows New Jersey's Dendrite v. Doe ruling closely in requiring notice, an opportunity to respond, a showing of legal sufficient, as well as evidence of wrongdoing, and  then applying an express balancing test once the other aspects of the test were met.  Court declined to take a position on “summary judgment” versus “prima facie case” as a formula for applying this prong of the text, but says the point is to make sure that there is a “substantial legal and factual showing that the claims have merit before permitting discovery of an anonymous defendant’s identity.” 

Fabulous Philadelphians

By Alan White

Besides having a world-class orchestra and  baseball team, and stunning Art Deco hotel for this week's National Consumer Law Center conference, Philadelphia boasts a wonderful legal community that continues its extraordinary collaborative effort to tackle the foreclosure crisis.  This afternoon I stopped by now-famous room 676 City Hall weekly foreclosure court. Out of about 80 new judicial foreclosure filings scheduled for mediation conferences where the defendant was served, about 60 defendants actually showed up and began the process of negotiating a resolution.  A 75% response rate from foreclosure defendants is amazing, as any counseling agency, hotline or mortgage servicer will attest.  The key to Philadelphia's success is a combination of aggressive outreach and mandatory, automatic scheduling of conferences in every new foreclosure case.  Whenever a new foreclosure is filed for an owner-occupied home, the plaintiff serves the homeowner with a court-generated case management Order scheduling a date, time and place for the mandatory conciliation conference.

A quick look at mortgage investor reports reveals that Philadelphia is well ahead of the nation in foreclosure prevention.  In the month of September 2008, about 4% of Philadelphia mortgages in foreclosure were liquidated and sold by servicers, compared with a 12% foreclosure liquidation rate for the month nationwide.  Meanwhile modifications that month amounted to nearly 10% of Philly mortgages in foreclosure, compared with 7% nationwide. 

The success of the Philadelphia program is not due merely to good intentions.  The City government, bar association, legal services programs, housing counselors and court system have joined together to do the necessary outreach, staffing of weekly mediation conferences, follow-up and the tedious work of getting mortgage servicers to yes.  The system is not free; good mediation and foreclosure prevention costs money, for counselors, lawyers, mediators, and court time.  It also requires a community commitment to results, shared by lawyers for servicers and borrowers and the judicial system.  Makes me proud to be a Philadelphia lawyer.