Wednesday, December 29, 2010

Where we are at, Part One

We can start with the case of Imogene Hall, whose story was told a month ago in the Miami Herald. The details a bit complex, so you should read the article, but in outline for, it's this:

Hall wanted to tap the equity in her house to help pay the bills while looking for a job. So she refinanced the house - or rather, she thought she did. The agent who was supposed to handle the deal - it was supposedly his business - was a fraud. He got a "straw buyer" to pretend he was buying Hall's house, got an inflated assessment, and got a mortgage of $230,000 - of which he gave $50,000 to Hall and kept the rest. She made her mortgage payments on the refinance to him, that is, the "refinance agency." That money never went to the bank that granted the mortgage.

Subsequently, Deutsche Bank of Frankfurt, Germany, acting as trustee for the mortgager, claimed she was months in arrears and moved to foreclose.

So this is a case where clearly both Hall and the bank were victims of fraud. And while you can say she didn't exercise due diligence, neither did the bank: It granted a $230,000 mortgage to an applicant who claimed his income came from working at a nonexistent Blockbuster Video store in New York. Just how much do banks think people working at video stores, particularly nonexistent video stores, make?

Here's the thing: In July, the case came up in the new foreclosure-only division of the Miami-Dade County Court. It's the place from which the term "rocket docket" emerged, which tips you to what comes next in Hall's story. Even though all the evidence of fraud is in the court records, right down to the phony receipts Hall was sent each month, it still took the judge - who had never encountered the case before - just 15 minutes to issue a summary judgment in favor of the bank, a time period during which, Hall says, neither she nor her lawyer got in a word.

The simple fact is that when the choice comes down to who has to suffer, the individual or the bank, it's just no contest. It is the powerful that must be protected.

This does not simply arise under crunch of circumstance or press of numbers; it is done carefully, with considered thought. McClatchy reported early this month that
[a]s Americans continue to lose their homes in record numbers, the Federal Reserve is considering making it much harder for homeowners to stop foreclosures and escape predatory home loans with onerous terms.
The issue here is a provision of the Truth in Lending Act, passed in 1968, which gave homeowners the right to cancel loans anytime during the first three years of the loan if the buyer wasn't provided with proper and legally-required disclosures at the time of closing.
[H]omeowners — usually those facing financial problems or foreclosure — hire an attorney to scour their mortgage documents for possible violations regarding the actual cost of the loan or payment terms. ...

Creditors that end up rescinding a loan are then required to cancel their "security interest," or lien, on the property.

Once that occurs, the homeowner must then pay the outstanding loan balance back to the lender — minus the finance charges, fees and payments already made.
The idea is that one the lien is canceled, homeowners can refinance while being protected against foreclosure, pay off the balance, and be left with terms they can afford.

And that, according to the Fed, it just too good a deal for homeowners.
The Fed proposal would require homeowners who seek a loan rescission through the courts, to pay off the entire loan balance before the lender cancels the lien.

"This, of course, would be almost impossible for most consumers to do because they can't come up with the money until they get out of the loan. And they can't get out of the loan until the lien is released," said Barry Zigas, director of housing and credit policy at the Consumer Federation of America. "None of us are quite sure what purpose is being served by this proposal or what prompted it."
To the contrary, Mr. Zigas, the purpose is clear: By making recissions almost impossible to get, this would de facto gut the Truth in Lending Act. Because we know who it is that must be protected.

Just how true is that? Writing in The Nation a couple of weeks ago, Katrina vanden Heuvel described a little-noticed but revealing example:
[T]he recent Fed audit revealed over $3.3 trillion in emergency assistance to the banks and other corporate behemoths during the financial crisis—no strings attached. ... [N]o demands to increase lending to small businesses, or modify mortgages for unemployed homeowners, for example.

Then consider the 19 states which are recipients of the Hardest Hit Fund (HHF)—a portion of TARP money set aside to help homeowners in states struggling with the highest unemployment rates and steepest declines in the housing market.

Some of those states ... wanted to use some of those funds to assist legal aid groups that help individual homeowners.
The Treasury Dept., after asking for an opinion from a law firm connected to the financial industry, said no. Not allowed. No can do. Uh-uh.
Huh? Hold on a sec—is this the same TARP that granted the Treasury Secretary all those "extraordinary powers" to protect people's home values, preserve home ownership, promote economic growth, etc.?
Yeah, it's the same TARP. And TARP would love to help people be able to keep right on shoveling their money to the banks. But helping individuals homeowners protect themselves against the ripoffs, bullying, misleading claims, and outright fraud by the banks? Out of the question. We know who must be protected.

Rep. Marcy Kaptur and Senator Sherrod Brown, both of Ohio, introduced bills to let states do what Treasury prevented them from doing - but Kaptur's died on December 17 when it fell far short of the 2/3 vote needed to suspend the rules and pass the bill. Brown's bill, for its part, vanished into the Committee on Banking, Housing, and Urban Affairs, where it will die when the Congressional session ends January 4.

Because we know who must be protected.

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