New Study - Foreclosures' Impact on Families

The National Council of La Raza and the Center for Community Capital at UNC have published The Foreclosure Generation: The Long-Term Impact of the Housing Crisis on Latino Children and Families.   This unique study draws on interviews of families who lost homes to foreclosure to provide detailed descriptions of the financial, physical and emotional toll suffered by foreclosed homeowners.  This research will provide a vital missing piece in any discussion of the costs and benefits of policy responses to the foreclosure crisis.

Puffing—Turning a loss into an advertising win.

by Richard Alderman

In its recent advertising, Domino's uses the phrase “puffery,” as a negative term to describe its rival Papa John’s advertising claims of a "better" pizza. Look at the current Domino's ad,  and the Domino's commercial. Domino's declares that Papa John's ad is nothing more than "puffery."

Is the “puffery” claim itself deceptive? What does “puffery” mean? Is the legal definition one the average person would understand? Domino’s says “puffery” is “an exaggerated statement based on opinion, not fact,” possibly leading the consumer to conclude that the claim is untrue. Is that what the legal definition is designed to imply?

Domino’s use of the word “puffery” is based on a case involving Pizza Hut. Pizza Hut sued to stop Papa John’s from saying their pizza was “better,” and lost. The court found the slogan was not actionable. Here is how the court viewed the issue in Pizza Hut v. Papa John’s, 227 F.3d 489. Note how Domino's has now turned this opinion around and uses it as an advertising tool:

Drawing guidance from the writings of our sister circuits and the leading commentators, we think that non-actionable "puffery" comes in at least two possible forms: (1) an exaggerated, blustering, and boasting statement upon which no reasonable buyer would be justified in relying; or (2) a general claim of superiority over comparable products that is so vague that it can be understood as nothing more than a mere expression of opinion.

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We will therefore consider whether the slogan standing alone constitutes a statement of fact under the Lanham Act. Bisecting the slogan "Better Ingredients. Better Pizza.," it is clear that the assertion by Papa John's that it makes a "Better Pizza." is a general statement of opinion regarding the superiority of its product over all others. This simple statement, "Better Pizza.," epitomizes the exaggerated advertising, blustering, and boasting by a manufacturer upon which no consumer would reasonably rely. See, e.g., In re Boston Beer Co., 198 F.3d 1370, 1372 (Fed. Cir. 1999) (stating that the phrase "The Best Beer in America" was "trade puffery" and that such a general claim of superiority "should be freely available to all competitors in any given field to refer to their products or services"); Atari Corp v. 3DO Co., 1994 U.S. Dist. LEXIS 8677, 1994 WL 723601, *2 (N.D. Cal. 1994) (stating that a manufacturer's slogan that its product was "the most advanced home gaming system in the universe" was non-actionable puffery); Nikkal Indus., Ltd. v. Salton, Inc., 735 F. Supp. 1227, 1234 n.3 (S.D.N.Y. 1990) (stating that a manufacturers claim that its ice cream maker was "better" than competition ice cream makers is non-actionable puffery). Consequently, it appears indisputable that Papa John's assertion "Better Pizza." is non-actionable puffery.

Moving next to consider separately the phrase "Better Ingredients.," the same conclusion holds true. Like "Better Pizza.," it is typical puffery. The word "better," when used in this context is unquantifiable. What makes one food ingredient "better" than another comparable ingredient, without further description, is wholly a matter of individual taste or preference not subject to scientific quantification. Indeed, it is difficult to think of any product, or any component of any product, to which the term "better," without more, is quantifiable.

Bogus Mortgage Assignees

Over at 4closurefraud.org there is an interesting story reporting that mortgage assignments are being filed in many states transferring mortgages to "Bogus Assignee".  Literally.  One of my personal favorites is a transfer of a mortgage from M.E.R.S., which arguably already subverts our title recording systems, to Bogus Assignee.  Property records down the rabbit hole.  This practice, if it is indeed widespread, would certainly throw another monkey wrench in the legal system to foreclose mortgages, while layering another coat of murk over efforts to hold lenders and servicers accountable for their misdeeds.

Mortgage Refinancing Not So Easy

When mortgage rates drop, people with higher rates refinance, right? Maybe not. You still need someone willing to lend. Yesterday's Washington Post reports here that despite mortgage rates near historic lows some people are finding it difficult to refinance. The article explains that

[m]any borrowers who tried to refinance have found they're stuck because the value of their homes has tumbled and their equity has melted away. Others have been shut out because lenders tightened their requirements, demanding stellar credit and low debt. (emphasis added)  An effort by the Obama administration to overcome some of these challenges has fallen flat, frustrating many homeowners -- especially with mortgage rates expected to rise by year's end, if not sooner.

Should this really come as a huge surprise?  It is often said that the mortgage meltdown was caused, at least in part, by lenders pushing huge debts that they knew the borrowers could not afford. One way to deal with that is to tighten borrowing requirements -- requirements that may be self-imposed by lenders or demanded by the government.

Tedeschi Report on Effect of the New RESPA Disclosure Regulations

by Jeff Sovern

Bob Tedeschi's Mortgages Column in today's Times reports on the effect of the new RESPA disclosure regs, which went ino effect January 1.  According to the column, "some brokers say that borrowers are asking more questions, and are very likely becoming better informed as a result, if a bit frustrated at times. Others report a mere shift in the nature of borrower confusion."  The column also notes that a Wolters Kluwer Financial Services survey of loan officers conducted last year found that "36 percent of borrowers asked five questions or fewer during the loan process," suggesting that there's a lot of room for improvement in borrower involvement.  The new disclosures are also said to slow down the process.  I wonder if we're going to see a backlash to delays at some point, akin to the reaction to the original version of RESPA decades ago, which mandated a 12-day lag between disclosure and closing, leading to consumer anger at having to wait to move into their homes

Dishonest Ad Attacks CFPA Bill

by Jeff Sovern

Ed Mierzwinski of the excellent US PIRG Consumer Blog has a mind-boggling piece in the Huffington Post about an ad opposing the financial regulatory bill the House passed in December that would, among other things, create a Consumer Financial Protection Agency.  The ad, which purports to be made by the Committee for Truth in Politics is so dishonest that I hope it's a spoof.  It claims that the bill would provide for a $4 trillion bailout to banks.  In fact, as explained by the Annenberg Public Policy Center's Fact checkers, the bill would limit the Fed's existing unlimited authority to $4 trillion.  Is broadcasting lies the best opponents of the CFPA can do?

Karikari Paper on CRA and Subprime Lending

John A. Karikari of the US Government Accountability Office (GAO) has written The CRA and Subprime Lending in Neighborhoods: Myth or Reality?  Here's the abstract:

I examine the CRA’s impact on approvals of non-prime loans for riskier borrowers largely responsible for the current mortgage crisis in the United States. Using loan applications data for several major metropolitan cities, and recognizing the existing CRA regulations on assessment areas and affiliate lending, I find that while CRA lenders were likely to disproportionately approve subprime loans than FHA loans in most cities, these lenders were not more or less likely to approve subprime loans in low and moderate income (LMI) communities. Thus, the CRA may have played a role in proliferation of subprime lending across communities, but not disproportionately in LMI communities - the areas receiving the most intense CRA scrutiny.

The Big Push for the Consumer Financial Agency

Following up on Jeff's post from Tuesday, today's Washington Post has this article on what may be the final big push from consumer advocates to establish a federal Consumer Financial Protection Agency.

CFPA Supporters Need a Soundbite; Any Ideas?

by Jeff Sovern

I am convinced that one reason the CFPA has run into trouble in the Senate is that it's an issue that can't easily be boiled down to a soundbite, and hence generates little passion.  By contrast, Congress voted for the Credit CARD Act, despite opposition from the same bank lobby that opposes the CFPA, because voters felt credit card issuers had taken advantage of consumers.  It's harder to generate that same kind of passion about which agency should regulate consumer credit transactions, however, because the connection between who makes the rules and what those rules are, is complex, and explaining how competition between regulators for business generates a race to the bottom, or that the Fed has paid too little attention to consumer protection cannot be explained in a single phrase.  So I'm announcing a contest: if you have a good soundbite for the CFPA, post it in the comments below.  I don't have a prize to offer, except my congratulations.

My own entrant: "The banks have plenty of government agencies looking out for them; consumers want just one."

And now, an update on the CFPA: The Huffington Post reportsthat Senator Dodd, chair of the Senate Banking Committee will unveil his latest Consumer Financial Protection Agency bill later this month, and perhaps as early as this week.  Though HuffPo characterizes the Dodd version of the CFPA as independent in the headline, the article indicates that it will "likely" be housed within the Treasury Department.  Meanwhile, Elizabeth Warren, has an op-ed in the Wall Street Journal (paid subscription required) arguing for the CFPA.

Are Bankers Buying Opposition to the CFPA?

by Jeff Sovern

Today's Times reports that banks and bankers that formerly donated to Democrats are instead contributing to Republicans.  The article lists the Consumer Financial Protection Agency as one of the Democratic proposals that has bankers riled up.  Indeed, the article notes that CFPA opponent Richard Shelby has received one bank PAC's largest contribution, $10,000, along with four other Republican opponents of the adminstration's regulatory agenda.  Opposing the CFPA won't help the country but it seemingly helps generate campaign contributions from banks.