Paper on the Role of Securitization in Mortgage Renegotiation

Sumit Agarwal and Gene Amromin of the Fed, Itzhak Ben-David of the Ohio State University - Finance Department, Fisher College of Business, Souphala Chomsisengphet of the OCC, and Douglas D. Evanoff, also of the Fed, have written The Role of Securitization in Mortgage Renegotiation.  Here's the abstract:

We study the effects of securitization on post-default renegotiation of residential mortgages over the current financial crisis. Unlike prior studies, we employ unique data that directly observes lender renegotiation actions and covers more than 60% of US mortgage market. Exploiting within-servicer variation in this data, we find that bank-held loans are 26% to 36% more likely to be renegotiated than comparable securitized mortgages (4.2 to 5.7% in absolute terms). Also, modifications of bank-held loans are more efficient: conditional on a modification, bank-held loans have lower post-modification default rate by 9% (3.5% in absolute terms). Our findings support the view that frictions introduced by securitization create a significant challenge to effective renegotiation of residential loans.

President Obama, Batman, and The Role of the Consumer Attorney

by Steve Berk

President Obama recently announced a government-wide review of federal regulations. The project’s aim is two-fold:

• Cut back on redundant, undue, over expensive regulation; and
• Ensure that dangerous products are kept off of consumer shelves by redoubling efforts         where needed.

As I read about what I thought was just another example of the President “turning to the right” and currying favor with big business (which may not be bad politics), I was comforted by my memories of  Batman. Yes, Batman. The protector of the common man.

As a kid, my favorite television show, without doubt, was “Batman." The old Batman. The “POW” “SMACK” days of Adam West, Burgess Meredith, and Frank Gorshen. As I grew up, so did “Batman.”  Its newest iteration, a bunch darker, but skillfully pulled off by Christian Bale (as Batman) and Michael Caine (as Alfred) turns the comic strip legends toward a new and interesting direction. Our hero is needed to clean up Gotham, but hardly beloved by those he serves.  (Hmmmm....  sounds like some folks who may read this blog). He is largely misunderstood, often vilified and must work at the fringes, in the alleys at night so as not to be in the spotlight where the glare of public opinion will surely be unfavorable and potentially compromise his work.

This new Batman is a lot like a plaintiff’s attorney. (I hear the groans and chuckles from coast to coast.  No really.  Just hear me out).  The plaintiffs’ bar is part of the regulatory system in this country no less than the State Attorney Generals or bureaucrats in Washington.  But state and federal regulators wield their regulatory sword with the help of subpoena power, statutory fines and in some instances even the threat of criminal prosecution.  The plaintiff’s bar proceeds with far fewer tools in their tool box and sadly a tarnished sword.  Tarnished by the powerful corporation’s they regulate and a concerted campaign they have funded to discredit their work.  And yes some blame falls back on the plaintiffs’ ATTORNEYS for excesses and show boating that even our hero Batman is guilty of from time to time (remember that bat mobile speeding well above posted limits on its way back to the bat cave). 

Does Comcast's Takeover of NBC Harm Consumers?

Michael Hiltzik of the LA Times says that "[w]ith his proposed conditions on the deal, FCC Chairman Julius Genachowski is trying to sugarcoat a terrible regulatory decision that underscores the derelict condition of government regulation in our age." Read the whole article here.

Times Editorial: Debit Card Predators

Here.  They argue that instead of the Fed's opt-in rules, under which the Times claims banks have used deceptive practices to persuade consumers to opt in, the Fed (or CFPB, when it takes over) should adopt the FDIC rules obliging banks to explain overdraft costs clearly and should consider using a Credit CARD Act-like approach of limiting banks to reasonable and proportional charges for overdrafts.

The Good Old Days, When the Big Consumer Protection Problems Were Things Like Spam

Before the subprime meltdown, and its associated consumer protection problems (foreclosures, robosigners, predatory lending, etc.), one of the consumer protection issues that generated the most media attention was spam.  Congress enacted the CAN-SPAM Act to deal with it, but sadly, spam is still very much with us.  Depending on your perspective, CAN-SPAM could either be a lesson in the limits of consumer protection laws at dealing with some problems, or a lesson in poor statutory drafting. 

More on the HHS Report on Pre-Existing Conditions

Yesterday, we blogged about the soon-to-released report of the Department of Health and Human Services estimating that up to 129 million non-elderly Americans suffer from pre-existing conditions as defined under the Affordable Care Act. (Beginning in 2014, the Act will generally prohibit insurers from disadvantaging customers and prospective customers on the ground that they already suffer from illnesses or other adverse health conditions.) The new HHS report itself is here. You also may be interested in HHS's press release and in reading more about the Affordable Care Act's policies on pre-existing conditions.

Paper on the History of Credit Reporting

Kenneth Lipartito of Florida International University has written The Narrative and the Algorithm: Genres of Credit Reporting from the Nineteenth Century to Today.  Here's the abstract:

Credit reporting is a contested process whereby parties with distinct interests (borrowers, lenders, and intermediaries) jointly construct the form, method, and style of credit assessment. In contrast to theories that argue information should grow more secure and credit relationships more transparent over time, the conflicted struggle over representation produces different styles or “genres” of credit evaluation that are compromises between the interests of the different parties. Thus, in the United States, trade credit reporting in the nineteenth century evolved an enduring narrative reporting style, incorporating heterogeneous forms of information not easily reducible to a single quantitative score. Lack of institutions for sharing information between creditors, legal precedents, and strong resistance among borrowers to overly intrusive surveillance made the narrative report the best means to handle the diverse business credit market. By contrast, lenders in the consumer credit market established information sharing capabilities, which were enhanced after World War II when banks developed the credit card and card verification systems. Fair credit laws in the 1960s and 70s actually reinforced the move to quantitative scoring based on information shared among creditors, eventually institutionalizing the FICO score as the prime method of consumer credit evaluation.

HHS Study Finds Up to Half of U.S. Has Pre-Existing Health Conditions

The Department of Health and Human Services will release a study today showing that tens of millions of Americans have pre-existing conditions, according to this article in the Washington Post. Republicans in Congress and the health care industy say the numbers are bloated to underscore the need for the 2010 health care legislation, which most Republican legislators want to repeal. Here's an excerpt:

As many as 129 million Americans under age 65 have medical problems that are red flags for health insurers, according to an analysis that marks the government's first attempt to quantify the number of people at risk of being rejected by insurance companies or paying more for coverage. * * * Republicans immediately disparaged the analysis as "public relations." An insurance industry spokesman acknowledged that sick people can have trouble buying insurance on their own but said the analysis overstates the problem. The study found that one-fifth to one-half of non-elderly people in the United States have ailments that trigger rejection or higher prices in the individual insurance market. They range from cancer to chronic illnesses such as heart disease, asthma and high blood pressure.

Lawsuit Loan Sharks?

Check out this New York Times article on the lawsuit loan industry, which loans money to people with pending lawsuits for a cut --- sometimes a huge cut -- of the proceeds if the suit succeeds. The industry is unregulated, and, as the article explains, some people are urging better disclosure of loan terms and that the industry be subjected to consumer protection laws applicable to many other loans.

One Foreclosure Defense Lawyer's Unusual Tactics

The LA Times reports that California foreclosure defense lawyer Michael Pines advises his clients after their homes have been foreclosed to break into and squat in them. In fact, he's done it himself on behalf of clients: "The 58-year-old attorney admits to breaking into homes at least half a dozen times, ... leaving the clients to squat in their homes while he defends their legal right to possession. His unconventional methods have gotten him fined by a judge in San Diego, arrested in Newport Beach and threatened with contempt — and jail — in Ventura." The Times article suggests that the squatting strategy may make it easier for Pines to be paid: "'I tell my clients that if you're living in a house for free, you should be able to afford to pay a lawyer,' Pines said, adding that he usually charges an hourly rate of $650."