Consumer Law & Policy Blog

Times Articles on the Tort War, Illinois' Suit Against Countrywide, and Google's Marketing

Recent articles from the Times of interest:

Yesterday's edition contains "Google Tries Tighter Aim for Web Ads" about how Google uses what a consumer searched for a few minutes ago to target ads for that user.  Another article, "Post-Spitzer, A New Breed of Reformer," explores the differences between former New York Attorney General Eliott Spitzer's and the current New York Attorney General Andrew M. Cuomo's approaches to bringing cases against the financial industry.

Here is Wednesday's report on the Illinois case against Countrywide, a case Alan White reported on yesterday.

Last Sunday's issue brought "To the Trenches: The Tort War is Raging On," about business's attempts to take on the trial bar.  Some excerpts:

Businesses count among the victories federal legislation passed in 2005 that made it harder to file class-action lawsuits in state courts, where judges and juries were often perceived as hostile to business. In state courts, where most civil litigation plays out, the number of suits involving auto accidents, allegations of medical malpractice and the like fell steadily from 1995 to 2005, according to the National Center for State Courts. The Chamber of Commerce says the number of megaverdicts for more than $100 million dropped to 2 last year, from 27 in 2000.

NEVERTHELESS, there are battles in individual states over judicial campaigns and legislative initiatives.  * * *

Strikingly absent from debates over who should be able to sue whom, when and for how much is any discussion of the fairest and most effective way to make sure that true victims are appropriately compensated for injuries and that people without authentic injury are not compensated.

“That’s not the conversation we’re having,” because the only voices heard belong to advocates of one side or the other, said Robert L. Rabin, a law professor at Stanford. “Those advocates reflect advocacy interests — that is, either defense-side interests or plaintiff-side interests — rather than some overview of global fairness.”

States going after Countrywide

By Alan White

Illinois, California and Washington all filed actions against Countrywide this week alleging a variety of deceptive practices and fair lending violations. The California complaint attacks a variety of origination practices, especially involving negative amortizing mortgages (so-called pay option ARMs) and hybrid ARMs. The Washington DFI's complaint proposes to revoke Countrywide's license to make mortgage loans in the state, based among other things on evidence of race discrimination in mortgage pricing. Illinois Attorney General Lisa Madigan's particularly thorough and well-researched complaint focuses on unreasonable forecosure risk as a violation of consumer fraud and fair lending laws, but also challenges other origination and servicing practices.

North Carolina's Banking Department entered into a consent order with Countrywide last March, and Countrywide has surrendered a number of branch licenses in New York. It seems likely that other states will join, and perhaps organize a multi-state task force, as was done in the Ameriquest and Household Finance cases, among others. If any commenters are aware of other state filings I will be happy to add links to this post. (HT NY Post for the graphic.)

All this on the heels of the shareholders' approval of the merger between Countrywide and BankofAmerica. Approval by the Countrywide shareholders, that is.

UPDATE: The June 30 complaint filed by the FLORIDA attorney general is available here.

Mortgage Relief Bill Stalls in U.S. Senate

A bill to provide mortgage relief to hundreds of thousands of Americans has stalled in the Senate because Senator John Ensign (R-Nev.) says that he won't allow the bill to go forward until the Senate tacks on tax breaks to encourage the production of renewable energy (such as solar and wind power). As the Washington Post reports, Ensign's tactic has upset expectations of Senators who believed Congress was on the verge of passing the mortgage relief bill.

Kurt Eggert Paper: What Prevents Loan Modifications?

Kurt Eggert has written What Prevents Loan Modifications? 18 Housing Policy Debate No. 2.  Here's the abstract:

This comment describes the barriers to preventive servicing for securitized residential loans and assesses the importance of loan modifications, given the recent increases in default and foreclosure rates for subprime loans. Several hurdles slow or reduce such modifications, even those that help borrowers and investors alike. For example, self-interest may reduce servicers' willingness to modify loans rapidly.

In addition, underlying securitization agreements may impede servicers' ability and discretion in this area. Further, tax laws that govern a common securitization entity may limit modifications, as may accounting standards. Finally, "tranche warfare," the sometimes contradictory fiduciary duties servicers have toward investors holding different tranches of securitized pools, may decrease their ability or their willingness to modify loans.

This comment concludes that barriers to effective loan modifications should be reduced or eliminated where feasible, but that the securitization of subprime loans creates risks for borrowers.

Soaring Mortgage Foreclosure Rate in Washington, D.C. Region Among Highest in Country

This front-page story in today's Washington Post explains that the mortgage foreclosure rate in the Washington, D.C. area has exploded in the last year and is now among the highest in the country. An excerpt:

The Washington region now has one of the fastest-growing foreclosure rates in the nation, as 15,613 homes went into foreclosure during the one-year period ending in February, an analysis to be released today has found. Although communities have felt the effects of the housing crisis for months, the report reveals that foreclosures in the Washington region have been increasing at a surprisingly quick pace, outstripping those of most major metropolitan areas. Over the past year, the number of foreclosures per 10,000 homes jumped from 23 to 131 locally, while the national average increased from 58 to 87.

The story briefly describes what local government and non-profits are trying to do to cushion the problem.

ACORN Names State Attorneys Generals Doing the Most to Battle the Foreclosure Crisis

by Brian Wolfman

The grassroots organization ACORN has just released a report that I think our readers will find interesting. The report looks at the reaction of the attorneys general of the 50 states and D.C. to the current foreclosure crisis and honors six "A+" recipients: Lisa Madigan of Illinois, Lori Swanson of Minnesota, Tom Miller of Iowa, Andrew Cuomo of New York, Martha Coakley of Massachusetts, and Richard Blumenthal of Connecticut. It discusses the best practices of the AGs in the areas of legal strategy, constituent services, public advocacy, and data collection. Read the full report and ACORN's press release. And, while you're at it, listen to a press call with three of the A+ attorneys general: Madison, Swanson, and Blumenthal.

ACORN's effort was spurred by its belief that the AGs' efforts to deal with foreclosures have been under-reported, and that although a number of AGs are doing great work, too many are still sitting on the sidelines and haven't yet tuned in to the crisis. ACORN hopes that the A+ AGs will serve as role models for the others.

The Philadelphia Plan

Philadelphia's county court has combined a 3-month moratorium on selected foreclosures with an intensive counseling and mediation program, in order to prevent unnecessary foreclosure sales. Owner-occupants with pending sheriff's sales must first go to free counseling. If that does not produce a workout, the homeowner is assigned an advocate and attends a court-supervised mediation with the mortgage servicer's attorney. The Residential Mortgage Foreclosure Diversion Pilot could serve as a model for other courts clogged with foreclosure cases. Details in the Inquirer story.

2.5% of Home Mortgages in Forecslosure; More than 6% delinquent

Check out this post from Credit Slips discussing a survey done by the Mortgage Bankers Association showing that 2.47% of home mortgages are in bankruptcy and 6.35% are delinquent.

UPDATE (on June 9, 2008):  My apologies to co-blogger Alan White, who last Friday posted a detailed analysis of the survey.  You can read Alan's post here.

An Interesting Take on the Subprime Crisis

A stick figure explanation for the subprime crisis. (HT to Brian Leiter).

It's Bad Out There

Highlights of the First Quarter National Delinquency Survey
By Alan White

For the third quarter in a row, foreclosures and mortgage defaults are rocketing upwards, according to the Mortgage Bankers Association report on foreclosures and delinquent mortgages as of March 31, 2008. Not surprisingly, delinquencies and foreclosures are up dramatically in almost all categories, compared with the December 31, 2007 report, which already had record numbers.

As of March 31, MBA counted 1.12 million mortgages in a pending foreclosure, in its sample of about 80% of the market. This extrapolates to 1.4 million American homes that were in foreclosure at the end of the first quarter (up a quarter of a million from December 31, 2007.) About 53% of pending foreclosures are on subprime mortgages. Adding 60- and 90-day delinquencies brings the total to nearly 3 million homes. Even allowing for some investors, this crisis is directly affecting more than 5 million people.