Consumer Law & Policy Blog

Home Affordable's weak start

By Alan White

            Two important reports on the foreclosure crisis and the Administration’s plan to end it were released on Friday.  So far the Home Affordable modification program (HAMP) is looking like an expensive failure.  Most disturbing is the conversion rate of temporary modifications to permanent ones, which is less than 4% for temporary mods initiated last April and May.  Servicer performance remains wildly inconsistent, and hundreds of thousands of homeowners who want to save their homes are slipping through the cracks.  The good news, I suppose, is that HAMP stimulated servicers to find half a million homeowners who appear to be suited for modifications rather than foreclosures.

            Treasury’s report of September data continues the approach of jealously guarding information about HAMP that does not cast it in a positive light.  The October monthly data report consists mostly of useless fluff, i.e. a bar graph showing the cumulative number of trial modifications, rather than simply reporting month-by-month totals, as HOPE NOW did.  The monthly totals of temporary modifications for July, August and September are around 100,000 to 120,000, basically the same number as the permanent modifications the industry was doing voluntarily before HAMP.  In fairness, servicers also closed 50,000 to 70,000 permanent modifications during those months, without HAMP subsidies.

            Treasury chose not to reveal the number of permanent modifications in September, which are appallingly low.  That information appears in the Congressional Oversight Panel’s report on HAMP.  After six months and 487,000 trial modifications, HAMP has resulted in fewer than 1,800 permanent modifications.  Nearly half of the permanent mods were done by a single servicer, Ocwen.  Even if we consider only the 50,130 temporary mods reported for the first two months of HAMP (April and May), the conversion rate is shockingly low.  The policy wonks who came up with the trial modification plan assumed that after culling out the homeowners who failed to make three payments, the rest of the trial mods would seamlessly convert to permanent mods in month four, given that three months should be sufficient to get the necessary paperwork in place.  It seems highly doubtful that 96% of homeowners with April and May trial mods were not able to make three payments.  The problem, therefore, must lie in servicers obtaining and completing the income verification and written agreement necessary to conclude a permanent mod. 

Joe Nocera Column Calling for Consumer Financial Protection Agency

by Jeff Sovern

Joe Nocera has a terrific column in today's Times, Have Banks No Shame?, supporting the Consumer Financial Protection Agency.  The column should be required reading for anyone interested in consumer protection.  Here's my favorite part:

The current bank regulators, [bankers] point out correctly, already have consumer protection as part of their portfolios. “All they need to do is enforce the regulations already on the books,” one top banker told me recently.

Exactly!  But they won't because the existing regulatory structure discourages regulators from enforcing consumer protection.  That's why we need the CFPA--because regulators focused on other matters (safety and soundness, for example) lose sight of consumer protection. And because the existing structure, with financial institutions able to choose which regulator they will be subject to, pits regulators against each other in a competition for financial institutions to regulate.  Regulators competing for financial institutions are not likely to impose strict rules on those institutions; instead, they have every incentive to race for the bottom.  And that is undoubtedly a big part of the reason financial institutions prefer the current system: they would rather control the regulators than be controlled by them.

Could a Consumer Financial Protection Agency Have Prevented the Economic Crisis?

That's the title of my op-ed at FinReg21.  Here are the first two paragraphs:

The economic crisis was caused in part by millions of borrowers taking out loans on which they later defaulted. Perhaps if the Obama administration’s proposed Consumer Financial Protection Agency (“CFPA”) had existed in time, things would have been different. The administration’s proposal would give the CFPA the power to ban unfair, deceptive, and abusive lending practices, as opposed to the laws in place at the time of the borrowing binge, which required lenders to disclose loan terms to borrowers and assumed—incorrectly, as it turned out—that that was all borrowers needed to make good decisions.

We are still studying why disclosures failed to warn borrowers off of the doomed loans. Until recently, mortgage originators were not obliged to show many borrowers their final loan terms until the closing. My research assistant, Sabihul Alam, and I recently conducted a survey of more than a hundred mortgage brokers in 26 states to discover how borrowers use those disclosures. The brokers, who collectively participated in over fifty thousand loan closings, were nearly unanimous in saying that borrowers never withdrew from a loan after reading the final disclosures at the closing, and never used those disclosures for their stated purpose of comparison shopping for loans. Our survey also indicates that many consumers spend a minute or less with the disclosures—even though a mortgage may be the largest, longest-term, and most complex obligation a consumer ever assumes. In other words, we cannot depend on these disclosures to keep consumers from entering into loans with toxic terms.

David Reiss on Regulation of Subprime and Predatory Lending

David J. Reiss of Brooklyn has written an entry for the International Encyclopedia of Housing and Home on Regulation of Subprime and Predatory Lending.  Here's the abstract:

This is an entry on the Regulation of Subprime and Predatory Lending for THE INTERNATIONAL ENCYCLOPEDIA OF HOUSING AND HOME (Elsevier Ltd, 2010). This entry provides a brief introduction to the explosive development of the subprime mortgage market. It then enumerates the abusive practices that were found in that market until it was effectively shut down at the outset of the ongoing credit crisis. It then reviews the limited federal and state legislative and regulatory responses to various abusive practices. It concludes that abusive practices will likely resurface once underwriting standards loosen, as they inevitably will.

Times on Prepaid Debit Card Fees and Blogger Disclosure Rules

by Jeff Sovern

Today's Times includes two interesting consumer law pieces.  First, Prepaid, but Not Prepared for Debit Card Fees lists some of the amazing fees charged for prepaid debit cards, including application fees (up to $99), activation fees ($9.95), ATM withdrawal fees, balance inquiry fees, fees for using the card for a purchase, monthly maintenance fees (what's that? do they clean the card for you?), a fee for inactivity (so you pay a fee for using the card and for not using the card), customer service fees, a "shortage fee" in case you use more money than you've loaded onto the card, and others.  This sounds like an area ripe for regulation.  I predict something like this: the industry resists regulation, but as regulation becomes inevitable, calls for disclosures.  Disclosing all these fees proves useless to consumers--too much information--and so consumers continue to incur the fees.

The second article reports on the FTC's new Guides requiring that bloggers disclose whether they were paid by advertisers or received free products.  The Guides also address testimonials and endorsements generally.

NHTSA Recalls for September 2009

Go here for the September 2009 National Highway Traffic Safety Administration vehicle safety recalls.

Adaptive Marketing Backs Off Suit to Identify Blogger -- but Claims Victory

Adaptive Marketing, whose advertisements for “free credit scores” featuring Ben Stein were criticized by the anonymous blogger “Flaneur de Fraude,” has given up its quest to identify the anonymous blogger.   Unfortunately, rather than admitting that it had no basis for seeking the discovery, Adaptive sought to save face by claiming that its request for discovery is “moot”  because it claims that it has identified the blogger.  According to its court filing, the villain whom they want to sue for defamation is Franklin Seegers, who allegedly lives in Washington, DC.

A few minutes research online would have told them how wrong that is. According to the Washington Post, in 2006 DC resident Franklin Seegers was sentenced to 40 years for his role in a violent drug gang known as Murder Inc.  Federal Bureau of Prisons records show that Seegers can now be found at the Butner Federal Correctional Complex in North Carolina.  These are the brilliant sleuths who charge $29.95 per month for protection against identity theft for Internet users who call to get their “free” credit score?

Is Bankruptcy Law Too Tough on Student Loan Debtors?

by Brian Wolfman

Over the past several decades, federal law has become increasingly tough on student loan debtors. Statutes of limitations have been eliminated, and the bankruptcy law makes it very difficult to discharge student loan debt in both chapter 7 and chapter 13 cases. Under 11 U.S.C. 523(a)(8), a student loan debtor must show "undue hardship" to obtain a bankruptcy discharge, and the courts generally have interpreted that provision narrowly.

National Consumer Law Center student loan expert Deanne Loonin has just co-authored congressional testimony explaining why the  bankruptcy law ought to be more forgiving. Written in conjunction with a recent House Judiciary subcommittee hearing, Deanne's testimony discusses why treating student loan debt more like most other unsecured debt would be good for debtors, creditors, and taxpayers. Worth reading.

CPSI Sues Drug Maker Bayer Over Selenium Claims

by Brian Wolfman

Here is one of many news accounts about the Center for Science in the Public Interest's new suit against Bayer for allegedly deceiving consumers that the mineral selenium, contained in Bayer's One-a-Day Multivitamins for men, helps "support prostate health" and "reduce[s] the risk of prostate cancer." CSPI's suit says that Bayer's claims are just plain false. The news stories quote CSPI's litigation director (and CL&P blogger) Steve Gardner as saying

that "[g]iven Bayer's long history of wrongdoing in other cases, CSPI is acting to ensure that Bayer is permanently stopped from deceiving consumers about selenium." Striking a similar theme, CSPI's Executive Director Mike Jacobson noted what he called "Bayer's long history of flouting the law." Here's the complaint in the case, which was filed on September 30 in state court in San Francisco.

Consumer Product Safety Commission Recalls for September 2009

Read the Consumer Product Safety Commission recalls for September 2009.