CL&P Blog

Obama Administration doubles down on HAMP

The Administration has sent a clear signal that its primary foreclosure mitigation initiative, the Home Affordable modification program (HAMP), is not working.  In a press release today, Treasury and HUD announced new efforts to convert three-month trial modifications to permanent mortgage restructuring.  Of 650,000 homeowners in 3-month deals so far, 375,000 are said to be coming to the end of their trial periods by December.  In October the Congressional Oversight Panel revealed that only about 1,700 permanent modifications had been completed. 

Treasury promises to tell us for the first time in its December report, due around the 8th or 9th, how many trial mods each servicer should have made permanent by now, and how many have actually converted.  While the tone of the release suggests that much of the problem lies with homeowners failing to provide documents on time, the evidence from counselors and mediators is that there is a massive systems failure on the part of the mortgage servicing industry.  While some of the temporary mods are likely to fail, so far reports are that 80% of homeowners in the program are making their payments.  It would be unconscionable for these homeowners to lose their homes on account of missing paperwork.

Mortgage Broker/Lender Scripts/Training Materials Wanted

by Jeff Sovern

For some research I'm doing, I would love to see training materials or scripts mortgage brokers and lenders use  (or used when subprime borrowing was more common) for approaching borrowers.  If anyone has them and cam make them available, please email me at sovernj at stjohns dot edu.

The Racial Impact of the Current Economic Depression

Unemployment rates among young African American males have hit Great Depression levels.

The White House Gatecrashers' Bankruptcies

By now, you probably know that Tariq and Michaela Salahi snuck in to the state dinner the other night at the White House. But I'd bet that you don't have all the details about their companies' bankruptcies and how those bankruptcies may illustrate an under-the-radar form of congressionally-sanctioned bankruptcy abuse. Adam Levitin over at Credit Slips has this long and interesting report on the topic. Here's a taste:

Some of the news reports on the White House dinner crashers (Tariq and Michaela Salahi) have noted that they own a winery that filed for Chapter 11 (reorganization) bankruptcy and then converted to Chapter 7 (liquidation) bankruptcy. My prurient interest was engaged, so I tracked down the petitions and relevant filings (linked below).  What follows is my attempt to sort out the Salahi family's business doings, as well as some musings about where we should really look for bankruptcy abuse--small business filings where the business is the alter ego of the owner, but where corporate law might not allow veil piercing.  In these cases the sophisticated creditors get personal guarantees, but the tax authorities, tort creditors, and unsophisticated creditors get screwed by the corporate form.

A $698,000 Mistake: A Real Story from the Mortgage Crisis

Yesterday's Washington Post includes this long article about a Maryland woman who bought a $700,000 house in the distant Washington, D.C. suburbs during the housing/credit boom only to be foreclosed just months after moving in. The foreclosure was hardly surprising. The buyer had recently been a recipient of Section 8 housing assistance, she had never before paid more than $700 per month for housing, her previous year's earnings were about $15,000, and she was now expected to take care of a mortgage payment of more than $5,600 a month. The story of (over) optimism, gullibility, greed, and deception -- the loan papers flat-out lied about the buyer's income -- is worth reading.

Obama Administration To Launch Cash-for-Clunker Appliance Program

This morning's Washington Post reports in this article that the Obama Administration, building on its cash-for-clunkers car program, will soon unveil a cash-for-clunkers appliance program. The program will enable consumers to get rid of their old appliances for new, more energy efficient models. Presumably, as under the car program, the "old" appliances will have to be destroyed. The article discusses the divide among economists about whether these programs make sense.

Here's the "pro" from the President's Council of Economic Advisors:

[Clunkers] is one of several stimulus programs whose purpose is to shift expenditures by households, businesses, and governments from the future to the present. Such time-shifting is valuable in a recession, when the economy has an abundance of unemployed resources that can be put to work at low net economic cost.

The "con" from UCSD economics professor James D. Hamilton, who, the Post says, has blogged about the clunkers rebate:

The premise seems to be that for Americans to be richer, they need to throw out their old appliances faster -- I don't see it that way. I don't like the idea of just spending money for its own sake.

U.S. PIRG Issues 24th Annual "Trouble in Toyland" Report

In advance of the holiday-season toy-buying orgy, U.S. PIRG has issued its 24th annual "Trouble in Toyland" Report, which warns parents of unsafe toys --- toys that pose choking hazards for young kids, that contain lead, phthalates, or other toxic substances, and that are dangerously loud. The Report's Executive Summary contains both a synopsis of current problems and suggestions for future legislative and regulatory reform.

Today's Washington Post contains this article on the Report and the Consumer Product Safety Commission's recent efforts to rid toys of dangerous chemicals, and a video clip from PIRG's press conference featuring Liz Hitchcock, PIRG's public health advocate. 

PIRG's press release highlights four of the Report's findings:

• Despite a ban on small parts in toys for children under three, PIRG researchers found toys that pose serious choking hazards. U.S. PIRG’s analysis of CPSC recalls and other actions in 2009 showed that these hazards were the cause of more than 5 million products being recalled from store shelves. Between 1990 and 2008, at least 196 children died after choking or asphyxiating on a toy or toy part; three died in 2008 alone.

• Some toys tested exceeded 85 decibels sound level, which is the volume threshold established under American Society for Testing and Materials standards. Almost 15 percent of children aged 6 to 17 show signs of hearing loss.

• Effective February 2009, toys and other children’s products containing more than 0.1% of phthalates were banned. Still, PIRG researchers found children’s products that contained concentrations of phthalates up to 7.2%.

• Lead has negative health effects on almost every organ and system in the human body. In August 2009, the allowable level of lead in the paint on a children’s product was reduced to 90 ppm, and the allowable level of lead in a children’s product was reduced to 300ppm. The CPSC has announced recalls and other regulatory actions involving nearly 1.3 million toys and other children’s product in 2009 for violations of the lead paint standard. PIRG researchers found three children’s toys or jewelry containing high levels of lead or lead paint. U.S. PIRG notified the CPSC in October of one preschool book that contained lead paint at 1900 ppm, or more than 20 times the allowable maximum of 90 ppm.

Texas AG settles $4.5 million suit, including $100K to Center for Consumer Law

 by Richard Alderman

Conn's, a Beaumont based electronics retailer, has agreed to pay $4.5 million to a customer restitution fund to settle a state lawsuit against it involving deceptive trade practices. They will also pay $250,000 in attorney's fees and $100,000 to the University of Houston Law Center's Center for Consumer Law. The money will be used by the Center to support the Texas Consumer Complaint Center.

The Consumer Complaint Center was founded three years ago through a similar grant from the state attorney general. The CCC is staffed by two attorneys and six law students, and works closely with the Law Center Consumer Clinic. Since its inception, the CCC has assisted thousands of consumers, resulting in recoveries and savings of over $2 million dollars.

The lawsuit came after reviewing more than 3,500 complaints received over three years by the state and the Better Business Bureau. The CCC’s Robert Johnson was instrumental in focusing the attorney general’s attention on the acts and practices of Conn’s. The attorney general said the retailer failed to honor warranties, deceptively exchanged refurbished products as new, and used aggressive sales practices to sell warranties to customers. In complaints, according to the state, consumers said Conn's delayed repair appointments for weeks or months, didn't repair items properly, ignored calls and ultimately refused to give refunds or replace the defective products. Often, customers who paid between $100 and $1,000 for warranties received used, refurbished goods instead of new products, the state claims.

Under its settlement, Conn's must provide customers copies of the extended warranty agreement at the time of sale, ensure that its sales personnel accurately represent rights, remedies or obligations in the warranty agreements, and refrain from adding extended warranty or credit insurance to invoices without written consent. If a product fails within 72 hours of purchase or delivery, Conn's must also replace it. If the product fails at the time of delivery, the company must remove and exchange it.

Alaska Supreme Court Rejects Debt Collectors' First Amendment Defense

by Deepak Gupta

With increasing frequency, debt collectors accused of engaging in abusive tactics in the context of consumer collection litigation have been raising a novel defense based on the Petition Clause of the First Amendment, which guarantees a right of access to the courts. They argue that their conduct constitutes protected petitioning activity and is thus completely immune from liability under the Petition Clause, and the Noerr-Pennington doctrine that developed out of it. In the last few weeks, I've seen new notices of constitutional challenges raised along those lines in several federal district courts.

In May, I flew out to Anchorage to argue the issue in the Alaska Supreme Court, on appeal from a lower-court decision dismissing a consumer's case on petition-clause grounds. (You can find our briefs here and here.)

I'm pleased to report that, on Friday, the Alaska Supreme Court ruled that debt collectors who employ unfair or deceptive tactics during collection lawsuits are not shielded by the First Amendment. The decision is the first appellate ruling on the issue by any court nationwide.  As I say in the Public Citizen press release about the case, "the Alaska Supreme Court’s ruling sends the message that debt collection companies can’t get away with abusive tactics simply by hiring lawyers. The court rejected a dangerous new immunity defense that would have created a gaping hole in consumer protection law."

Our case arose out of an attempt by an Anchorage collection agency to sue Robin Pepper, a mentally disabled woman, without providing her with proper notice. The agency sent papers to a nonexistent address, misrepresented to the court that Pepper was competent, and tried to get a default judgment against her. Pepper, represented by Alaska Legal Services, then brought a separate lawsuit, alleging that the collection agency’s practices violated the state Unfair Trade Practices Act. The collection agency asked the court to dismiss Pepper’s case on the theory that its litigation conduct was protected by the First Amendment, and the lower court agreed. Alaska Legal Services asked Public Citizen to handle the case on appeal.

The Alaska Supreme Court broadly rejected the debt collector’s immunity defense, ruling that the First Amendment’s petition clause does not extend to conduct that was unfair, deceptive, and in violation of the Unfair Trade Practices Act. Quoting our brief, the court ruled that debt collectors have “no legitimate interest in pursuing collection litigation without notifying debtors, or in seeking to default incompetent debtors without notice to their lawyers or guardians.”

"Problem" Home Mortgages Hit Record High

This story in today's Washington Post explains that a new bank industry survey shows that the percentage of home mortgages delinquent or in foreclosure is at a record high. Here's a couple paragraphs to give you a flavor:

More than 14 percent of borrowers were in trouble on their mortgage during the third quarter, a new record, according to an industry survey released Thursday, which also suggests that the foreclosure rate is likely not to peak until next year as unemployment rates continue to rise. * * *

About 9.6 percent of borrowers were delinquent on their mortgage during the third quarter, according to the survey, and another 4.5 percent more were somewhere in the foreclosure process. Overall, about 14 percent of mortgage loans or 7.4 million households were delinquent or in the foreclosure process during the quarter, according to the group.

Ugh.