Consumer Law & Policy Blog

Times Reports on Housing Bill, Identity Theft, and Student Loans

Here is the Time's report in today's edition on the Senate passage of the housing bill; it now goes to the President for signature.  On Friday the Times ran "A Housing Bill That Has Something for Nearly Everyone" which summarized the features of the bill.  An excerpt from the part of the article about the foreclosure issues:

Part of the bill is devoted to the creation of a program that may allow some people to cancel their old mortgage loans and replace them with new fixed-rate loans lasting at least 30 years. The amount of the new loans would be no more than 90 percent of what their property is actually worth now.

So who is eligible? You need to have originated your troubled loan or loans on or before Jan. 1, 2008. The loans in question must be on your primary residence. Vacation homes and investment properties are ineligible. You will also need to verify your income, which many borrowers did not have to do in recent years.

Also, as of March 1, 2008, your monthly housing payment (including the principal on all your various mortgage payments, interest, taxes and insurance) has to have been at least 31 percent of your monthly household income. So if you were earning $5,000 a month and had housing payments of $3,000, you are eligible. But if you had payments of just $1,400, you would not be, presumably because that loan is affordable given the size of your income.

Lenders, however, are not required to give you a better deal under the new law, even if you do meet the qualifications. They may not be willing to negotiate unless they think you are truly on the cusp of foreclosure.

The bill contains other restrictions.  Some critics think that few borrowers will end up taking advantage of it.  Other aspects of the bill change the rules for reverse mortgages, redefine jumbo loans for purchases by Fannie Mae and Freddie Mac, and change tax rules.

Bob Tedeschi's Mortgages column in today's Times reports that "Thieves Tap Into Home Equity" about a report from the Identity Theft Assistance Center that identity thieves are targeting consumers with good credit records "because such people often have substantial untapped home equity."  The article also notes the effect of the subprime crisis on identity theft:

Now that lenders have vastly tightened their lending criteria, criminals who specialize in mortgage fraud have little choice but to move upstream and seek out victims with good credit.

A particularly troubling article yesterday titled "How Shopping Around Can Cost You" reports on how students shopping around for student loans can end up paying higher interest rates. That's because when student apply to different student loan companies, the companies obtain the students' credit reports, and the repeated inquiries can lower credit scores.  Fair Isaac does not drop credit scores when consumers shop around, and therefore trigger multiple inquiries, for mortgages and car loans, but Fair Isaac does not have the same arrangement for student loan applicants.   Fair Isaac doubts that the repeated inquiries actually damage credit scores.  Personally, I'm constantly amazed at how little regulation we have of credit scores.

Times Articles on Mortgage Regulation, Privacy, and Marketing

by Jeff Sovern

Here is the article in today's Times on the new Fed rules that Alan blogged about yesterday.  Saturday's edition noted in "By Large Margin, Senate Votes to Help Homeowners and Overhaul Loan Agencies" that the Senate had approved the bill intended to help borrowers avoid foreclosure.  The bill now returns to the House.  Sunday's issue included "The Silence of the Lenders," which tells the story of the email Angelo R. Mozillo, Countrywide's chief executive called "[d]isgusting."  The email was from a borrower, Dan A. Bailey, Jr., and sought a loan modification that would permit him to keep his home.  As the headline implies, the article is about how borrowers are having difficulties getting the attention of loan servicers. Excerpts:

* * * As of the most recent quarter, 2.67 percent of the loans that Countrywide services were more than 90 days delinquent. (The Bank of America Corporation acquired Countrywide on July 1 and is now overseeing the Countrywide portfolio.)

Lenders and servicers like Countrywide are inundated with requests for help from borrowers who cannot afford their loans. Alas, these companies’ operations weren’t set up for such work; servicing units were originally intended to collect monthly checks from borrowers and then disburse the payments to mortgage holders. During the boom years, there was little need to advise borrowers or restructure loans.

* * *

That said, foreclosures are vastly outnumbering loan workouts today, a year and a half after the subprime mortgage debacle began creeping into the headlines. In May, for example, even as Hope Now conducted 70,000 loan modifications, an estimated 85,000 families lost their homes to foreclosure. That same month, 276,000 loans either entered or completed foreclosure.

Seventh Circuit: CAFA Means What It Says About Its Appeal "Deadline"

by Brian Wolfman

For a few weeks now, I've been planning to let you know about the Seventh Circuit's June 11 Class Action Fairness Act (CAFA) decision in Spivey v. Vertrue, Incorporated, No. 08-8009. So, here goes:

In Spivey, Judge Frank Easterbrook broke from all other circuits to have addressed the question and held that 28 U.S.C. § 1453(c)(1) means what it says: A petition for permission to appeal a district court’s remand order under CAFA must be filed with the court of appeals “not less than 7 days after entry of the order.” (emphasis added). Read literally, section 1453(c)(1) means that a petition for permission to appeal a remand order filed during the first six days after the order is entered is untimely. Even the most irrational Congress would not have meant that, so a number of other circuits have held that "less" means "more" -- that is, that a petition for permission to appeal is timely only if it is filed within the first seven days of the remand order. Judge Easterbrook's responds with typical bluntness: "That Congress has written a deadline imprecisely, or even perversely, is not a sufficient reason to disregard the enacted language. ... Turning 'less' into 'more' would be a feat more closely associated with the mutating commandments on the barn’s wall in Animal Farm than with sincere interpretation."

Okay, so now you're thinking that section 1453(c)(1) gives a prospective appellant forever to seek permission to appeal a remand order. Not so, says Judge Easterbrook. He says that 1453(c)(1) is governed by Federal Rule of Appellate Procedure Rule 5(a)(2), which says that a "petition [for permission for to appeal] must be filed within the time specified by the statute or rule authorizing the appeal [see, e.g., 28 U.S.C. 1292(b)], or, if no such limit is specified, within the time provided by Rule 4(a) for filing a notice of appeal." Because that period is 30 days, Judge Easterbrook says that the 30-day period governs CAFA removals. I'm not so sure. Is CAFA really a statute under which "no such time limit is specified?" CAFA is a statute that "authoriz[es] an appeal" of certain class action remand orders, and doesn't section 1453(c)(1) "specif[y]" a time in which the petition "must be filed?" I suppose one could say that "not less than seven days" is so open ended that it is not a time "limit" "specified by the statute," because, read literally, section 1453(c)(1)'s "limit" is limitless. But that may be a stretch. Presumably, FRAP 5(a)(2)'s default rule was aimed at statutes that do not address at all the time period for filing a petition for permission to appeal, not statutes that address it in funky, inelegant ways.

For more on other circuits' rulings on this topic, see an earlier post here.

U.S. Plans Rescue of Fannie Mae and Freddie Mac and Backs Off - - for Now

This story in today's Washington Post describes the federal government's emergency plan for the bail out of the huge mortgage backers Fannie Mae and Freddie Mac and that the government backed off after signs that the institutions were stable -- for now. The article also describes the failure of a major California bank. Here's a taste of the story:

Senior government officials prepared emergency steps yesterday to rescue troubled mortgage giants Fannie Mae and Freddie Mac but stopped short after a campaign of public statements eased immediate concerns about the stability of the institutions.

But federal regulators were forced yesterday to seize California-based IndyMac Bancorp after a run by depositors led to the second-largest failure ever of a U.S. financial institution. The bank, which was taken over by the Federal Deposit Insurance Corp., became the first major bank to shutter its doors since the savings and loan crisis of the early 1990s. One of the country's largest home lenders, IndyMac saw its holdings battered by the downturn in the housing market.

Obama on Bankruptcy

Yesterday, at Credit Slips, Elizabeth Warren posted this interesting piece on Obama's views on bankruptcy policy and his view that the law needs to be substantially revised. She explains why she thinks Obama has taken on the bankruptcy issue even though that may not be politically expedient.

Times Articles on Credit Card Law Reform, Online Privacy, and New York's Foreclosure Legislation

The weekend's consumer law harvest from the Times:

The Times reported on Saturday that Credit Card Overhauls Seem Likely.  The entire article is worth reading, but here's an excerpt:

Working with the Office of Thrift Supervision and the National Credit Union Administration, the Federal Reserve introduced its proposals in early May. It has asked for comments and expects to formalize proposals by the end of the year.

At the same time, the legislation most likely to succeed in both the House and Senate sets similar rules on consumers’ behalf. Representative Carolyn B. Maloney, the Democrat of New York who wrote the House bill, and Senator Christopher J. Dodd, the Democrat of Connecticut behind the Senate measure, said they planned to bring their measures to the floor for votes before Congress adjourns in September.

The House and Senate bills as well as the Federal Reserve require that lenders apply payments to the debt with the highest interest rate. All would ban “double cycle” billing, in which interest is charged on some already repaid debt, and all would extend the time required, currently 14 days, between a statement mailing and payment due date.

All the measures would, under various conditions, prohibit lenders from raising interest rates on existing debt. The central bank proposes that except for increases caused by changes in stated variable and introductory offers, lenders may increase interest rates only if minimum payments are more than 30 days late.

Only the Dodd bill prohibits charges for paying by mail, phone or online, and restricts marketing and offers of credit to consumers under 21.

Friday's edition included Google Told to Turn Over User Data of YouTube, about a decision that has privacy advocates concerned.  An excerpt:

For every video on YouTube, the judge required Google to turn over to Viacom the login name of every user who had watched it, and the address of their computer, known as an I.P. or Internet protocol address.

Both companies have argued that I.P. addresses alone cannot be used to unmask the identities of individuals with certainty. But in many cases, technology experts and others have been able to link I.P. addresses to individuals using other records of their online activities.

The amount of data covered by the order is staggering, as it includes every video watched on YouTube since its founding in 2005. In April alone, 82 million people in the United States watched 4.1 billion clips there, according to comScore. Some experts say virtually every Internet user has visited YouTube.

And on Sunday Bob Tedeschi had a column, Mortgage Brokers as Naysayers, about the new New York foreclosure legislation, passed by the legislature, but not signed by the Governor, at least as of the time Tedeschi's piece went to press--though the article states that the Governor is expected to sign it into law [I should note that last week I posted that the bill had been enacted by the legislature, which was premature].  More excerpts:

* * * [The bill provides] that brokers have a “duty of care” to offer appropriate loans to subprime borrowers — those with poor credit.

Brokers are asking, however, what constitutes an appropriate loan, and what happens if a borrower disagrees with a broker’s recommendation.

* * *

* * * Mr. Tricozzi[, president of the New York Association of Mortgage Brokers] said, the legislation requires brokers to weigh a borrower’s future earnings in selecting appropriate loans. For some borrowers, like pregnant women or workers nearing retirement, such prognostications might be unreliable. Yet refusal to offer loans to such borrowers could be construed as age or gender discrimination, he said.

* * *

* * * some advocates want to hold mortgage brokers to the same legal standard as stockbrokers and other financial advisers, who carry a fiduciary duty to act in their clients’ best interests and offer only “suitable” financial products. New York’s proposed law specifically stops short of the suitability standard, said Richard H. Neiman, New York’s banking superintendent.

Obama on Consumer Debt

Barack Obama discusses his legislative agenda regarding consumer debt with Michelle Singletary of the Washington Post. Obama notes that until he cashed in on his best-selling books, he and his wife were carrying significant student loan debt. "We were making payments the size of a mortgage every month," Obama said.

New Study on Elderly Abuse by Banks

Banks charged over $1 billion in overdraft fees to elderly consumers dependent on Social Security for most of their income. This is one of the many findings in a report issued this week by the Center for Responsible Lending, relying both on consumer survey data and a database of bank account records. In one case study, an elderly consumer whose only apparent income was a $1,000 Social Security monthly benefit was charged $448 for overdrafts never exceeding $220. Perhaps this helps explain why so many elderly consumers are going bankrupt.

Bounce loans, the Fed rule and the unbanked

By Alan White

The Federal Reserve has proposed a rule to allow consumers to opt out of their bank's discretionary overdraft payment and fee harvesting programs, better known as bounce protection or bounce loans. In the past four or five years banks have adopted the practice of not only paying overdrawn checks at their discretion (and charging a fee of about $35) but also paying debit card purchases, and even ATM withdrawals, and charging the fee. Some banks add a $1 per day fee so long as the account remains overdrawn. Recently banks have started permitting overdrafts at ATMs, with a vague warning that "this withdrawal may result in an overdraft", and without mentioning the $35 fee. Some banks even include a discretionary overdraft limit in the consumer's balance on ATM receipts, misleading the consumer into incurring bounce fees. For more details on bank overdraft practices, read here and here.

At this week's Consumer Advisory Council meeting, industry representatives pushed back hard against the idea of requiring consumers to opt IN to bounce loans. The banks are unsure exactly how they would disclose their programs, because they assert that they retain the discretion whether or not to approve a particular overdrawn check, debit card payment or ATM withdrawal, so they make no contractual promises. It is indeed difficult to describe a contract term that allows one party to provide or not provide a service and price it at its whim.

Particularly compelling were the comments of credit counselors and financial educators, who complained that bounce fees and random overdraft policies make financial education for "unbanked" populations much more difficult. Many unbanked consumers are understandably wary of checking accounts, because of recent salient experiences they or their acquaintances have had paying bank fees. Teaching consumers how to use a checking account is now much more difficult because the tricks and traps keep proliferating. Reason enough to restrict or ban the practice, and force banks to offer the safer cheaper alternatives of linked savings accounts and lines of credit.

HT to Prawfsblawg for the graphic.

Fed staff reads behavioral economics literature

For you law (or economics) professors out there writing about behavioral economics, take heart. Sometimes people who write regulations are listening (and reading.) The new credit card unfair practices rule proposed jointly by the Federal Reserve, OTS, and NCUA makes reference to hyperbolic discounting in discussing the practice of charging penalty rates on existing credit card balances. (See fn 47 of the proposed rule, citing among others, Angela Littwin's article.) The context: the proposed rule prohibits charging an increased, penalty APR on balances owed before the event causing the APR increase (such as a late payment.) The regulators contend that consumers cannot reasonably avoid this practice, and it is therefore unfair, in part because of hyperbolic discounting. I would argue that overconfidence bias and disregarding nonsalient terms are also behavioral tendencies that support the argument for the new rule.