Happy Talk from Treasury

By Alan White

Today Treasury released the October monthly report on the Home Affordable modification program.  Once again Treasury gives us only the good news - 650,000 temporary 3-month payment plans with homeowners since the program started in April.  By now, we should be seeing significant numbers of permanent modifications, but Treasury again refuses to divulge this key data.  I am hearing that the conversion of temporary modifications to permanent ones is still appallingly low.  We the taxpayers have contracted to pay the servicers billions of dollars to prevent foreclosures and modify loans, and so far they are not doing the job.  It will not do at this point to keep pointing the finger at homeowners, hundreds of thousands of whom are entering payment plans and making payments.

There are also early indications that two-thirds to three-quarters of homeowners on temporary modifications have made all their payments, but fewer than one in a hundred has a permanent modification after three months.   In some cases, legal aid lawyers are going to court to stop foreclosure sales for homeowners who are making payments on a temporary modification plan.  Treasury needs to demand performance from BankofAmerica, Chase, Citi, Wells Fargo, and the other mortgage servicers who are slated to receive billions in HAMP subsidies (not to mention all the other TARP subsidies).  Treasury also needs to start reporting the temporary-to-permanent conversion rate, and the homeowner default rate on temporary modifications.  If this emperor has no clothes, then let's get the tailor working on a new outfit.

NHTSA Recalls for October 2009

Go here for the October 2009 vehicle safety and related recalls issued by the National Highway Traffic Safety Administration.

Banks Fear Consumer Confusion as House Moves Up Effective Date for Credit CARD Act

by Jeff Sovern

Earlier this week, as the Times reported, the House passed a bill to move up the effective date of some of the Credit CARD Act provisions to December 1.  Here's an excerpt from the Times article:

Industry executives, however, said the move could backfire by prompting companies to restrict the availability of credit at a time when the economy is in a recession.

“This will create significant confusion for consumers and will further restrict access to credit for both consumers and small businesses, all to the detriment of the broader economy,” said Kenneth J. Clayton, a senior vice president at the American Bankers Association.

It's a relief to see that banks are concerned about consumer confusion.  I wish that concern extended to their consumer contracts.

Jenzabar Tries to Forbid Blogging About Its Abusive Trademark Litigation

The educational software company Jenzabar, whose abusive trademark claims were criticized in my own blog post here as well as by another Public Citizen employee on the Citizen Vox blog last month, is now claiming that such blogging is illegal.  According to Jenzabar, a blog post nominating Jenzabar for the “Trademark Abusers Hall of Shame” will “create controversy” and “cause prejudice to Jenzabar,” and any lawyer who engages in such blogging is in violation of Massachusetts court rules. 

Jenzabar has sued the Long Bow Group for placing Jenzabar’s name in the keyword meta tags for a web page about Jenzabar, which, Jenzabar claims, has unfairly placed this web page among the top search results when Internet users do a search for “Jenzabar.”  This placement, Jenzabar protests, allows university IT personnel who are trying to decide whether to buy Jenzabar’s software and services to learn adverse facts about Jenzabar which might, in turn, lead them to decide not to do business with Jenzabar.

Jenzabar is particularly exercised that my blog post cited a statement by Google back in September announcing that its search rankings have not employed keyword meta tags for many years.  This information, Jenzabar insists, is not admissible in court because Matt Cutts’ statements on the subject on the Google’s blog for webmasters, which Google calls “Official News,” is not an “official statement by Google.”  It appears to be Jenzabar's position that blog posts about a lawsuit must comply with the rules of evidence.

Interestingly, earlier this year, Long Bow published on its own web site, at the request of Jenzabar's counsel, a lengthy statement about the litigation.  During her deposition, Jenzabar founder and former Tiananmen student leader Chai Ling testified it was Jenzabar’s own lawyers who wrote that “extrajudicial statement.”  It seems that what is sauce for the goose is not sauce for the gander in Jenzabar’s book.

Jenzabar’s persistent efforts to suppress criticism continue to raise questions of hypocrisy in light of the company's use of its founder's life story, as a symbol of the resistance to tyranny in China, to promote its business.

Baltimore v Wells Fargo - Targetting Blacks for Subprime

The Consumerist blog has posted the full text of the two remarkable Wells Fargo loan officer affidavits that describe in detail the lender's systematic targetting of Black homeowners to sell them high-price subprime mortgages, regardless of how good their credit might have been. The case of City of Baltimore vs. Wells Fargo Bank, 1:08-cv-00062-BEL in the Maryland Federal District Court, is now in discovery, Judge Legg having denied a motion to dismiss in July.  

Jeff Gelles Column on How Credit Card Issuers Used the Long Effective Dates of the Credit CARD Act

Here.  An excerpt:

[Under the Credit CARD Act,] card issuers such as Citibank and Chase will have to quit a set of practices that regulators and lawmakers have finally outlawed as unfair or deceptive.

But not right away. In a concession to the arguments of the card industry that it needed lots of time to adjust, most of the new rules were delayed until February. Some won't take effect until August.

The result? According to a new study by the Pew Charitable Trusts, the nation's dozen largest card issuers - led by banks that taxpayers have spent billions to bail out - have doubled down on the practices that got them in trouble in the first place.

* * *

Last week, researchers from Pew's Safe Credit Cards Project said every bank credit card they had looked at, nearly 400, bore at least one of the terms that will soon be outlawed as unfair or deceptive.

I wonder what this will do to the credibility of financial companies the next time they claim they need time to implement changes. The House Financial Services Committee is trying to move the effective date forward.

Shauhin A. Talesh on the Privatization of Public Legal Rights

Shauhin A. Talesh has written The Privatization of Public Legal Rights: How Manufacturers Construct the Meaning of Consumer Law, 43 Law  & Society Review 527 (2009).  Here's the abstract:

This article demonstrates how the content and meaning of California’s consumer protection laws were shaped by automobile manufacturers, the very group these laws were designed to regulate. My analysis draws on and links two literatures that examine the relationship between law and organizations but often overlook one another: political science studies of how businesses influence public legal institutions, and neo-institutional sociology studies of how organizations shape law within their organizational field. By integrating these literatures, I develop an ‘‘institutional-political’’ theory that demonstrates how organizations’ construction of law and compliance within an organizational field shapes the meaning of law among legislators and judges.

This study examines case law and more than 35 years of California legislative history concerning its consumer warranty laws. Using institutional and political analysis, I show how auto manufacturers, who were initially subject to powerful consumer protection laws, weakened the impact of these laws by creating dispute resolution venues. The legislature and courts subsequentlyincorporated private dispute resolution venues into statutes and court decisions and made consumer rights and remedies largely contingent on consumers first using manufacturer-sponsored venues. Organizational venue creation resulted in public legal rights being redefined and controlled by private organizations.

 

Huffington Post Op-Ed on the Law Professor Letter Supporting the Consumer Financial Protection Agency

Here.  And here's the concluding paragraph:

Perhaps those of us who have studied and taught consumer protection law are as much to blame as the banks and regulators for the mishaps of the recent past: we were too quiet while they made the mistakes that led to the economic crisis. We law professors have learned from our mistakes. We hope Congress has, too.

Federal Legislation Pending Regarding Bank Overdraft Fees

by Brian Wolfman

Check out this article in today's Washington Post by Jeff Plungis concerning proposed federal legislation on bank overdraft fees. The article's focus is on legislation championed by Rep. Barney Frank that would make overdraft protection on debit cards available on an opt-in basis only. Right now, some banks enroll customers in overdraft protection on debit cards without their consent and then charge nearly $40 after a customer makes a purchase when the customer's account lacks sufficient funds to cover the purchase. As Frank puts it:

We wouldn't be in a situation where we're considering legislation if you would have had an opt-in regime from the beginning. Don't do people favors without asking them.

CPSC Recalls for October 2009

Go here for the Consumer Product Safety Commission's product safety recalls for October 2009.

Norm Silber on How Opposition to the CFPA Connects to Traditional Anti-Consumer Protection Efforts

Here.

Federal/State Agencies Obfuscate on Bankruptcy

Foreclosurebuzz has done an interesting survey of government web sites purporting to offer aid to consumers facing foreclosure.  Most agency web sites do not mention bankruptcy at all, despite the fact that Chapter 13, and in some cases Chapter 7, can provide an array of tools to restructure debt, and in the case of underwater second mortgages, eliminate debt.  The Comptroller of the Currency characterizes bankruptcy as a scam, more or less.  The FTC also implies that bankruptcy is not a legitimate option, discussing it only in the context of rescue scams. Senator Durbin is right - the banks own Washington (and apparently many state bank regulators as well.)

October Foreclosure Crisis Update

By Alan White

October’s mortgage securities investor reports are out and the news is discouraging.  The foreclosure inventory is unchanged and modifications are still down from earlier this year.  There is little evidence that Treasury’s Home Affordable modification program is yielding more permanent modifications than were being done before.  We’ll know more when Treasury releases their October numbers in the second week of November.

The data also continue to show wide random variation among mortgage servicers.  Some are modifying a lot, and some are foreclosing a lot.  The chart above shows raw numbers of modifications and liquidation sales from the October (9/25-10/26) Columbia collateral file (not all servicers are represented), which covers about 5% of mortgages and 20% of foreclosures nationally.

Vincent DiLorenzo on Market Deregulation and Moral Hazard in the Mortgage Market

My colleague, Vincent DiLorenzo of St. John's, has written Mortgage Market Deregulation and Moral Hazard: Equity Stripping Under Sanction of Law.  Here's the abstract:

This article examines the failure of the current regulatory structure to adequately protect consumers against risks in a home mortgage lending market characterized by complexity and limited transparency. It explores the reliance of bank regulators, particularly the Federal Reserve Board, on market discipline to control risks and the failure of market discipline. It also explores the Federal Reserve’s view that market intervention is only justified based on net societal benefits. This is a viewpoint that prevented regulatory intervention until the financial sector was in crisis, and a viewpoint that is at odds with the view of the Congress. This article urges a rejection of the net societal benefits standard as the determinant of regulatory intervention in the mortgage market.

NCLC Report on How Subprime Abuses and Scammers Now Hit Reverse Mortgages

The same subprime mortgage abuses and even the same individual scam artists are showing up in the reverse mortgage market, putting at risk the equity and savings of millions of seniors.  According to NCLC’s Subprime Revisited: How the Rise of the Reverse Mortgage Lending Industry Puts Older Homeowners at Risk (Oct. 2009) (24 pp.), written by Tara Twomey, “well-funded marketing campaigns and perverse incentives to brokers are targeting seniors’ home equity and using reverse mortgages as their tools.”

 

Annual reverse mortgage volume has topped 110,000 units and $17 billion, with top banks like Wells Fargo and Bank of America and large insurance companies like Genworth and MetLife leading the way. Despite a slowdown in originations due to the recession, reverse mortgage originations in 2009 still continue at a record pace.

 

Mortgage brokers see it as a new source of rich fees. Predators who once reaped profits from exotic loans have now focused on wresting more wealth from vulnerable seniors. And securitization, which allowed subprime loan originators to disassociate themselves from the downside risks of abusive lending, is becoming commonplace in the reverse mortgage industry.

 

To see the report on NCLC's website, click here. 

 

NCLC Report on Why Mortgage Servicers Foreclose When They Should Modify Loans

A new NCLC report, authored by Diane E. Thompson, finds that mortgage servicers—including many large banks—have found it cheaper to foreclose on homeowners than to offer loan modifications that would benefit homeowners and investors.  Americans who might be able to stay in their homes under a loan modification plan are being moved right past that option and on to foreclosure.  

“Why Servicers Foreclose, When They Should Modify, and Other Puzzles of Servicer Behavior,” (Oct. 2009) (50 pp.) includes a detailed examination of loans in foreclosure from 1995-2009 and how components of servicer compensation affected the likelihood and speed of foreclosure. It also looks at oversight of servicers by credit rating agencies and bond insurers, and how that oversight too often encourages servicers to foreclose.

Among the report’s findings are that “Loan modifications inevitably cost the servicer something. A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified, and no penalty, but potential profit, if the home is foreclosed.”  The report also found that servicers often deny homeowners principal and interest rate reductions because as servicers they find it profitable to offer repayment plans or forbearance agreements that do little to reduce homeowners’ debt burdens.

 

The report is found on NCLC's website and by clicking here.

Can we talk? How servicers undermine mediation

By Alan White

More than 25 states and localities are using mediation programs of various kinds to address the foreclosure crisis.  These programs assume that many foreclosures could be prevented if only the servicer and homeowner could break through all their communication problems and talk until they reach an agreement.  Homeowners won't return calls, the mortgage industry complains, and if only we could talk, we could work it out.

A new study of 800 settlement conferences held in New York City in June and July 2009 found that homeowners came committed to serious negotiation, and in nearly half of the cases with documents and/or having made a loan modification proposal.  Servicer attorneys, on the other hand, came to conferences without settlement authority, without documents and without knowing the servicer's settlement position or even the status of a modification request.   

The National Consumer Law Center's report on state mediation programs points out the limitations of voluntary conciliation programs that do not require mortgage servicers to participate in good faith.  Very few mediation programs deny foreclosure relief until the servicer has completed a modification analysis and explained their decisionmaking.  The mounting evidence is that servicers do not provide timely and accurate responses when homeowners seek foreclosure alternatives.  It will be interesting to see Treasury Department reports on servicer compliance with HAMP Directive #7, which calls for homeowners to have their modification request acknowledged in 10 days and decided upon in 30 days.

Does this sound as crazy to you as it does to me?

by Brian Wolfman

Among other things, the Fair Credit Reporting Act gives consumers the right to dispute inaccuracies on their credit reports and to have the reports corrected. That's a good thing because credit reports are amazingly inaccurate. So, you'd think that there'd be no punishment for disputing your credit report.Think again. This article in today's Washington Post explains that the fact that a consumer has disputed her credit report can undermine her ability to get a home loan, even when the consumer was correct in the dispute. Am I misreading this article?

New Tennessee trial court decision on Internet anonymity

by Paul Alan Levy

The Citizen Media Law Project carries word of a ruling by a Tennessee Circuit Court judge in Schwartz v. Doe (October 8, 2009), which ordered identification of Doe defendants but only after adopting a tough legal standard that follows New Jersey's Dendrite v. Doe ruling closely in requiring notice, an opportunity to respond, a showing of legal sufficient, as well as evidence of wrongdoing, and  then applying an express balancing test once the other aspects of the test were met.  Court declined to take a position on “summary judgment” versus “prima facie case” as a formula for applying this prong of the text, but says the point is to make sure that there is a “substantial legal and factual showing that the claims have merit before permitting discovery of an anonymous defendant’s identity.” 

Fabulous Philadelphians

By Alan White

Besides having a world-class orchestra and  baseball team, and stunning Art Deco hotel for this week's National Consumer Law Center conference, Philadelphia boasts a wonderful legal community that continues its extraordinary collaborative effort to tackle the foreclosure crisis.  This afternoon I stopped by now-famous room 676 City Hall weekly foreclosure court. Out of about 80 new judicial foreclosure filings scheduled for mediation conferences where the defendant was served, about 60 defendants actually showed up and began the process of negotiating a resolution.  A 75% response rate from foreclosure defendants is amazing, as any counseling agency, hotline or mortgage servicer will attest.  The key to Philadelphia's success is a combination of aggressive outreach and mandatory, automatic scheduling of conferences in every new foreclosure case.  Whenever a new foreclosure is filed for an owner-occupied home, the plaintiff serves the homeowner with a court-generated case management Order scheduling a date, time and place for the mandatory conciliation conference.

A quick look at mortgage investor reports reveals that Philadelphia is well ahead of the nation in foreclosure prevention.  In the month of September 2008, about 4% of Philadelphia mortgages in foreclosure were liquidated and sold by servicers, compared with a 12% foreclosure liquidation rate for the month nationwide.  Meanwhile modifications that month amounted to nearly 10% of Philly mortgages in foreclosure, compared with 7% nationwide. 

The success of the Philadelphia program is not due merely to good intentions.  The City government, bar association, legal services programs, housing counselors and court system have joined together to do the necessary outreach, staffing of weekly mediation conferences, follow-up and the tedious work of getting mortgage servicers to yes.  The system is not free; good mediation and foreclosure prevention costs money, for counselors, lawyers, mediators, and court time.  It also requires a community commitment to results, shared by lawyers for servicers and borrowers and the judicial system.  Makes me proud to be a Philadelphia lawyer.