Consumer Law & Policy Blog

What if all trade associations told the truth?

"The Predatory Lending Association (PLA) is dedicated to extracting maximum profit from the working poor by increasing payday loan fees and debt traps. The working poor is an exciting, fast growing demographic that includes: military personnel, most minorities, and a growing percentage of the middle class."  Check out their website here!

Looking Into the Foreclosure Process

by Deepak Gupta

The media and policymakers have been paying lots of attention lately to the plight of homeowners facing foreclosure. Most of that attention has been on preventing foreclosures from being initiated in the first place, and rightly so.  But it's also worth considering what happens in the foreclosure process itself: What kinds of notice and opportunity to contest the proceedings do homeowners get, what kinds of fees are they being charged, and how accurate are the claimed debts?

Fees and Overstated Claims:  A front-page article in the New York Times earlier this week reported on new research by University of Iowa law professor Katie Porter concerning exorbitant collection fees and overstated claims in mortgage foreclosure cases. The various fees charged to consumers facing foreclosure (late fees, "demand" fees, overnight delivery fees, fax fees, payoff statement charges, etc.) represent a substantial and growing percentage of the profits reaped by loan servicers. Porter's research--which is based on an examination of the actual behavior of mortgage companies in a set of 1,700 consumer bankruptcy cases--will be published in a forthcoming law review article entitled Misbehavior and Mistake in Bankruptcy Mortgage Claims (SSRN).

Because there is little oversight of foreclosure practices and the fees that are charged, bankruptcy specialists fear that some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures.  Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question. . . . .

In an analysis of foreclosures in Chapter 13 bankruptcy, the program intended to help troubled borrowers save their homes, Ms. Porter found that questionable fees had been added to almost half of the loans she examined, and many of the charges were identified only vaguely. Most of the fees were less than $200 each, but collectively they could raise millions of dollars for loan servicers at a time when the other side of the business, mortgage origination, has faltered.

Notice Procedures:  Next, consider the adequacy of foreclosure notice procedures--an issue that Public Citizen is currently litigating in the Maryland Court of Appeals (Griffin v. Bierman) and the Michigan Supreme Court (Sidun v. Wayne Co.), building on a due process challenge we won in the U.S. Supreme Court last year (Jones v. Flowers). 

If you owe me a small amount of money and I want to sue you to get a judgment and collect on the debt, I've got to make sure you learn about the lawsuit.  I've got to get a process server to track you down and give you notice.  But if I'm a mortgage lender and I want to foreclose on your home--a case in which the stakes are obviously much higher--in some states I'm entitled to give you as little as ten days notice by mail, after which I can sell your house at auction without you even knowing about it.  That's what happened to Maryland resident Joyce Griffin. She lost her house in a foreclosure sale because she never received notice until it was too late for her to save her home.

Frank bill lets Wall Street off the hook

by Alan White
Assistant Professor, Valparaiso U. School of Law

   Many thanks to Deepak for inviting me to post here. I'd like to begin with a note about the serious flaws in HR 3915, the predatory lending bill introduced by Barney Frank recently. Yesterday's New York Times editorial alluded to the bill's shortcomings. There has also been some false advertising on the part of the sponsors, who claim that "securitizers" will be liable for violations. This poorly-defined term simply camouflages the fact that the bill immunizes most subprime mortgage assignees from any liability. Consumers with loans from bankrupt lenders will be out of luck.

The bill would require mortgage originators to make a reasonable determination of repayment ability, and prohibit making loans without a tangible net benefit to the borrower. So far so good. However, the bill also bars any liability for "pools of loans" or "securitization vehicles". The critical language is buried in proposed Section 129B(d)(9). For most subprime mortgages, trusts, which are nothing more than pools of mortgage loans, are the entities that are the legal owners of the mortgage, and the only entity with any assets or ability to provide consumer redress. This is particularly true when the original lender has filed bankruptcy, as in the case of New Century and countless others.

NCLC Releases Report on Predatory "Credit Cards"

by Jon Sheldon

Yesterday, NCLC released a new report on a less well-known form of predatory lending, involving predatory "credit cards" that offer very little actual available credit, at the cost of enormous fees. 

The report, Fee-Harvesters: Low-Credit, High-Cost Cards Bleed Consumers, opens a window on a shadowy submarket where savvy card companies extract hundreds of millions of dollars in fees and other revenue from the pockets of consumers in the so-called subprime market.  One of the fee-harvester cards featured in the NCLC report comes with a credit limit of $250. However, the consumer who signs up for this card will automatically incur a $95 program fee, a $29 account set-up fee, a $6 monthly participation fee, and a $48 annual fee - an instant debt of $178 and buying power of only $72.

The report is available here.  A press release is also available at this link, and an audio recording of yesterday's press conference is available here.  The primary author of the report is NCLC Consumer Advocate Rick Jurgens, rjurgens@nclc.org.  Also contributing was NCLC staff attorney Chi Chi Wu, cwu@nclc.org. 

NPR: Countrywide and Housing Group Strike Deal to Prevent Foreclosures

by Deepak Gupta

NPR's Chris Arnold had a story this morning about an intriguing deal between mortgage lender Countrywide and housing advocates to attempt to prevent foreclosures.  The company says it will refinance or modify approximately $16 billion worth of loans for consumers whose loans will soon hit an unafordable interst rate or those who've already fallen behind in their payments.  The company is also hiring the Neighborhood Assistance Corporation of America to act as its "contractor" to help many more people prevent foreclosure.   The story also quotes Ira Rheingold, the president of the National Association of Consumer Advocates, expressing his skepticism about Countrywide's plans.

Predatory Lending Legislation Introduced in U.S. House of Representatives

by Brian Wolfman

Legislation was introduced yesterday in the U.S. House of Representatives to curb predatory mortgage lending. One of the bill's key supporters is Rep. Barney Frank (D-MA), chair of the House Committee on Financial Services. The basic purpose of the legislation is to limit lending to situations where the borrower is reasonably able to repay.  You can get information on the legislation from the Financial Services Committee's website, which includes links to the entire bill and a section-by-section analysis. Today's New York Times has an article on the legislation as does today's Washington Post.

Mortgage Lending and Race

This article in yesterday's New York Times describes a new data analysis by New York University's Furman Center for Real Estate & Urban Policy showing that home buyers in black and Hispanic neighborhoods are more likely than those in non-Hispanic white neighborhoods to get home mortgages on unfavorable lending terms.  According to the Times, "[t]he analysis showed that even when median income levels were comparable, home buyers in minority neighborhoods were more likely to get a loan from a subprime lender." The Furman Center's analysis is available here.

U.S. PIRG's Campus Counteroffensive Against Credit Card Marketers

U.S. PIRG's consumer blog has this informative post about PIRG's new program, just beginning on campuses across the nation, to counter credit card companies' aggressive marketing tactics to college students.  The campaign's logo and tag line -- "Free gifts now.  Huge fees later" -- appear to the left.

Final Defense Department Regulations On Loans To Service Members Go Into Effect

  Final Defense Department regulations implementing federal legislation to curb predatory lending aimed at service members and their families went into effect yesterday, October 1, 2007.  The legislation was intended, among other things, to limit short-term interest rates charged to military families.  But the implementing regulations carve out large exceptions, including credit cards and other open-end credit, causing consumer advocates to charge that the DoD has created a road map for evading Congressional intent.  The Washington Post has this story on the new rules.  The CL&P Blog has covered the issue extensively here, here, and here.  Read the Defense Department's press release here.  To view the final Defense Department regulations, go here. 

Subprime Songs

Today's Times points out these YouTube videos: "Mortgage Servicing Pie," to the tune of Don McLean's "American Pie," and "Takin' Care of (Subprime) Business," to the tune of Bachman-Turner-Overdrive's "Takin' Care of Business."