Explosion in Non-Profit Organizations Costing U.S. Treasury Billions

Check out this article in the New York Times concerning the explosion of non-profit public charities organized under section 501(c)(3) of the Internal Revenue Code. A new study by researchers at Stanford, entitled "Anything Goes: Approval of Nonprofit Status by the IRS," shows that about 99.5% of all applications for charitable status are approved by the IRS. And, after a group is formed, there's little oversight of its supposedly charitable work. A new group is approved by the IRS about every 10 to 15 minutes. The number of 501(c)(3)s has increased by 60% in the last decade. 501(c)(3)s pay no taxes.

Bank of America To Pay Back Bailout Funds, Allowing It To Offer A New CEO Whatever It Wants

Here's one that I missed. This Washington Post article explains that Bank of America will be the first corporate recipient of "extraordinary federal assistance" to pay back all of its Treasury Department bailout funds --- in BOA's case, $45 billion. The main focus of the article is that the pay-back will free BOA from government pay czar Ken Feinberg's executive compensation oversight and allow it to offer whatever it wants in trying to attract a new CEO.

Why Jenzabar expert's affidavit about Google search rankings is unreliable

by Paul Alan Levy

Last month, I posted briefly about an affidavit from Frank Farance, the former high school math wizard whose expert testimony has been offered by Jenzabar to contradict Google’s announcement that it does not use keyword tags in computing search ranking.  The affidavit was submitted to try to stave off summary judgment in a case where Jenzabar is suing documentary film-makers Long Bow Group claiming trademark infringement because Jenzabar’s name is in the meta tags for a page about the later life of Ling Chai, who founded Jenzabar but was a leading character in a Long Bow documentary.

Drawing in part on useful responses to my post by commenters on Techdirt and Dave Farber’s Interesting People, we have submitted a brief explaining why Farance’s affidavit fails the Daubert test for reliability of expert testimony. 

This post was a useful experiment in crowd-sourcing the analysis of technical testimony.  We also received private communications from individuals who either are former Jenzabar staff, or knew Farance personally, and who provided valuable insights about both of them.  We are grateful for their assistance.

House to Consider Consumer Protection Bill Next Week

According to the House Financial Services Committee, it has completed work on the Wall Street Reform and Consumer Protection Act, (H.R. 4173), which would create the Consumer Financial Protection Act and also contains mortgage reform and anti-predatory lending provisions, and the House is scheduled to vote on the bill next week.

Congressional Hearing on Legislation to Overrule Iqbal and Twombly

We blogged here last July about legislation introduced by Senator Specter to overrule the Supreme Court's decisions in Bell Atlantic v. Twombly and Ashcroft v. Iqbal, which heightened pleading requirements for plaintiffs. Civil rights and consumer organizations, among others, have argued that the decisions are unfairly keeping plaintiffs out of court.

Today, there was a Senate hearing on the legislation. This Legal Times blog entry explains that some Senators, including newby Al Franken, gave lawyer Greg Garre a hard time for maintaining that there was not enough evidence to show that Iqbal and Twombly were unfairly hurting plaintiffs. Garre won the Iqbal case when he was in the Solicitor General's office.  (He's now in private practice.)

Jeff Gelles Columns on How Opting Out of Overdraft Protections Didn't Help One Consumer

Here and here.  The consumer had opted out of overdraft coverage of his debit card charges and had moved money into his account to cover the charges, but still got hit with $630 in fees for overdrafts.

Federal Housing Administration To Make It Tougher To Get A Home Loan

The days of "just sign here and worry about payment later" may have really ended in the home mortgage market. The Washington Post reports here that the Federal Housing Administration is proposing to toughen rules for home-loan borrowing in two key ways: demanding more up-front money and higher credit scores. As the Post explains:

The Federal Housing Administration is proposing to increase the up-front cash paid by borrowers as part of an effort to shore up the agency's finances, which have been staggered by rising defaults in its flagship mortgage insurance program, according to FHA officials.

The changes also include raising minimum credit scores for borrowers who receive FHA-backed mortgages and limiting the amount of money sellers can kick in, including paying closing costs or giving free upgrades.

Currently, the FHA backs about 30% of initial home loans and 20% of refinancings.

American children are not getting enough to eat

The New York Times reports that one in four American kids are now on food stamps. But, only two thirds of those who qualify actually receive assistance.

HAMP class action filed

New York City homeowners have filed a class action lawsuit alleging that Aurora Loan Servicing has systematically breached its contract with Fannie Mae to receive subsidies in return for modifying mortgages under the Home Affordable modification program (HAMP).  The lawsuit raises a number of interesting legal questions, including whether homeowners can sue as intended third-party beneficiaries of the contracts between Fannie and mortgage servicers, and how to apply contracts that call for one party, the U.S. government, to modify and add terms by directives (i.e. by fiat.)  The complaint also alleges that homeowners have a sufficient property interest in HAMP assistance to require servicers, Treasury and Fannie Mae to provide due process before denying assistance.

A preliminary injunction was denied in a similar lawsuit filed in July in Minnesota, on the basis that plaintiffs were not likely to prevail on the merits, because the court found that HAMP did not create protected property interests.  These will be interesting cases to watch.

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.