Supreme Court Sinks More Homeowners into Permanent Debt

dead_economy-300x199New Orleans    In a startling unanimous decision, the US Supreme Court overturned an 11th Circuit Court of Appeals decision finding in favor of Bank of America that even bankruptcy protection does not allow underwater homeowners the ability to escape the obligations of second mortgages.  The impact of the decision allows zombie banks to continue operating on the basis of balance sheets reflecting virtually lifeless real estate holdings and makes these beleaguered homeowners into walking dead debtors with virtually no hope of a second chance.The Supreme Court once again reminds Americans that the Constitution is fundamentally about property rights and that the sanctity of a contract trumps all vestiges of common sense.

Generally speaking, a home is commonly classified as “underwater” if the value of the outstanding mortgage is 25% higher than the current market value of the home.  Remember the mortgage we are talking about here is the first mortgage.  The second mortgage is satisfied after the first is fulfilled.  Many of these second mortgages are home improvement loans.  Others arose from the need to finance children’s education or medical emergencies by attaching what has historically been the primary asset creating citizen wealth for the vast majority of low and moderate income families in the country.   Bank of America in their court filings estimated that there were 2.1 million underwater homeowners with second mortgages at the end of 2014.   Others like Zillow estimated that there are still 8 million homeowners who are underwater and most real estate experts estimate that it is likely that half of them have some kind of “second” on their homes.  This is not an insignificant problem in either the economic recovery or the hope for narrowing the equity gap.

Of course not all of these families had declared bankruptcy, partially because banks and others have done an amazing job over recent years with Congress in making bankruptcy both harder to achieve for desperate families and less valuable as a chance for a clean slate and a second chance.  Filing for bankruptcy does not allow someone to wipe out a mortgage debt or a student loan debt for example.  The mortgage obligation is what forces an underwater homeowner into foreclosure.  The best hope for the debtor is that surrendering what used to be an asset to the bank, calls quits to that debt.  In 2007 and 2008 when ACORN was negotiating with big banks and mortgage loan servicers as the implosion began, I was at some of those meetings.Executives then believed that they would just have to wipe out their second mortgage portfolios as worthless.

The Supreme Court’s decisions says, “no way, you’re stuck.”Hey, some day in the by and by, real estate values may go back up, allowing the loan to be collected.  Some of these properties are so far underwater that it won’t be a year but a generation for that to happen.  For the banks paying a dollar on that loan every 90 days allows them to still call it a performing loan, helping their zombie balance sheets, and leaving the debtor, desperate for a clean start, carrying even more weight. The Justices say, “dude, it’s a contract, didn’t you get that?”  The debtors, like millions of others, were on the merry-go-round being pushed by these same bankers and promoters in the real estate bubble into these sucker bets.  These weren’t contracts as much as cons.

Only death relieves some of these debts.It’s already legal for 25% of someone’s social security to be attached.  Now the Supreme Court has just locked another ball and chain onto untold numbers of families with little hope for the future but dragging the weight behind them, sentenced to a life as walking dead, not in debtors’ prison, but in a permanent debtors’ probation of sorts with little or no chance of escape.

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Johnny Cash – Folsom Prison Blues (Live)

Bank of America Record Settlement with Remorse

BANK OF AMERICA SIGN ON BRANCH - MIDTOWN MANHATTAN NEW YORK CITY USAMissoula     Accurate reports seem to indicate that the Justice Department is in the final drafting of a record setting, highest corporate penalty ever paid with Bank of America for mortgage related abuses. The price tag is going to be slightly north of $16 billion with $9 billion going to the government by way of a fine and $7 billion being some modest relief for some of the homeowners caught in the misdeeds.

At one level part of me says, hah, got the bastards finally! The Justice Department had hard bargained Bank of America to almost its original demand. Bank of America had been trying to organize a pity party for itself claiming that they had done the government and the rest of us big favors by picking up Countrywide and Merrill-Lynch so they should be in line for an attaboy rather than billions in fines, so that bubble was finally burst.

But, closer reading still gives me buyers’ remorse on closing the deal with Bank of America.

First, there are few of us that don’t realize that the “soft” $7 billion part of the settlement is as much accounting tricks helping Bank of America’s own balance sheet as it is real relief for the homeowners who faced – and continue to face – foreclosure. There’s still not much relief in store for them as these chapters close and everyone else moves forward, while family’s hopes and homes are both in tatters.

Secondly, it turns out that Judge Jed Rakoff, a Manhattan federal judge, is once again a hero to those of us who would like real justice from Wall Street. According the Times his recent decision for 17000 home owners awarding a $1.2 billion against Bank of America punctured the last of their lawyers’ lame rationales, and brought them within 24 hours to a deal with Justice that had been slipping away.

And, here’s the hurting part about this. Even with a record settlement it seems there is also the likelihood that many more multiples of billions may have been left on the table!

The bank’s top lawyers and executives, who made the ill-fated decision to fight that case in Judge Rakoff’s court rather than settle, appeared to recognize that another courtroom battle would not only be futile but extremely expensive, according to two of the people briefed on the matter. The remaining cases, which by contrast would involve billions of dollars in securities backed by home loans, could have cost the bank multiples more than Judge Rakoff’s penalty, perhaps even more than a settlement with the Justice Department.

Let’s just face it. There’s never going to be a way or a day that this will all feel good.

Banks and Wall Street got over. They’re paying to play now essentially, but the victims are not going to ever be made whole and none of us are ever going to feel happy about any of this at this point.

Bad Math and Foreclosures are Twin Towers of Banking

zzbofaNew Orleans  I know you are sick about hearing about foreclosures.  I sure am!  This has all gone on so long and so painfully, and now even the so-called settlements and cleanup of the mess is extending the tragedy.

            What do we have now?   Bank of America makes an accounting error and the miscalculation adds $4 billion in assets that don’t exist, so, big whoops, there goes the stock buyback program, a whooping percentage of its stock price, and any discussion of improving the dividend.  You know how much their big brass at the top of the financial pyramid are paid?  Do this at home on your tax returns or loan applications, then plead that the rules were confusing and you didn’t get, it and you could be facing fraud charges, brothers and sisters.   I think we can agree that the strengths of big bankers may be sitting on their paychecks, but clearly it is well proven now that math is not one of their close friends.

            Now new government reports on the mess banks made in mismanaging the foreclosure modification program for their friends at the Treasury Department are once again proving what we already knew about banking math mayhem.  Remember the tragic problem where the Federal Reserve and the Office of the Comptroller found that overly burdensome and lengthy reviews by bank-hired consultants were costing hundreds of mega-millions and needlessly dragging out compensation for borrowers who had been victimized by banking errors, often forcing them into needless foreclosures, while the bank buddies ran up the bills.  Sure you do, even if you don’t want to admit it.

            Correctly figuring that this crony self-regulation was going to make the bill for finding the mistakes almost as high as the bill for correcting the mistakes, the regulators figured the preliminary error rate at 6.5% and made a deal with 15 banks for $10 billion to give some, and frankly too few, foreclosure victims a modicum of relief.   Well, now it turns out that an unnamed bank that had completed more reviews found an error rate of 24% compared to a look at borrowers’ files for 11 banks having done less.  Controversially, of the $10 billion only $3.9 billion was going to involve cash payments to 4.4 million victims, which was small potatoes for big pain anyway you look at it.

            What if real investigators had been doing the work, and getting it done quickly, rather than bank buddy consultants milking the process?  What if the rate was really closer to 24% than to 6.5%, which is to say 3.7 times higher?   Well, then, everything being equal, which we’re finding out in the US is never true anymore, the settlement should have been $37 billion and 4.4 million victims would have shared almost $14 and a half billion within the terms of the deal. 

            I know we’re not supposed to deal with math and banking in the same breath anymore, but your average foreclosure victim might have noticed the difference in one check that was $3295 dollars versus the one they got which was only $886 bucks.  None of which seems enough for losing your house, but one seems more like a rounding error than justice to me.  Either way, it’s time to stop believing any math coming from banks that has to do with foreclosures or anything other than the accuracy of their own paychecks and what they pay their buddies.

How can Billion Dollar Fines be Little More Than Water off a Duck’s Back?

indexNew Orleans   I hate to admit it, but to me a billion dollars still seems like a whole lot of money.  Unfortunately, I’m afraid saying so makes me hopelessly hide bound and old school.

            Why?

            Because the government seems to be passing out billion dollar fines like candy to banks, utility companies, oil companies, automobile manufacturers, and others and it seems to have no discernible impact on their behavior whatsoever.  I’m sure you’ve noticed the same thing.  The government takes a victory lap, a couple of months or maybe a year goes by, and the same corporate culprit is doing the same perp walk to the ATM to pay out another billion dollar fine.  Billion dollar fines seem to have replaced the space on corporate balance sheets where they once wrote “goodwill,” and now it’s an item called “reserve” for a future expenditure for bad behavior.  Cheating consumers has simply become a mundane part of corporate culture.  Rapacious capitalism is no longer an insult, but a rally cry.

            How many gazillions has Bank of America now paid out for example due to the mortgage mess and their acquisition of Countrywide?  It hardly matters it seems as they get ready to pay another $800 million because they couldn’t keep themselves from selling non-existent products to their credit card holders.  One financial institution after another these days from HSBC to storied European banks are lining up to pay huge, billion plus fines for laundering money for Iran and other countries under sanctions by the international community.  JP Morgan Chase, only a few years ago was basking in arrogance with financial folks hanging on Jamie Dimon’s every word, but the number of fines it has paid for cheating and stealing from its customers makes him seem like the boss for a serial criminal mob.  Citicorp is running around in crisis having failed a “stress test,” not because they want to get a good grade on Wall Street it seems, but largely because they may be the only big bank fine payer not able to increase the dividend to their investors, and of course having somehow lost $400 million through their Mexican subsidiary they are claiming fraud, and the government is investigating, what else, but money laundering to drug cartels in that country.

            But speaking of a criminal enterprise, how about Wall Street itself?  I’m more than half-way through Michael Lewis’ new book called Flash Boys, where the real story is about the billions that some companies are making and that all of the big banks are abetting of front-running stock trades through high-frequency trading , which is of course totally illegal,.  And, yes, the FBI is now investigating, and the SEC is embarrassed, and the Attorney-General of New York State is letting subpoenas rain down like tickertape on Wall Street, but all that means is that the outcome of this latest scandal is likely to be, yes, you know, more fines!   An analysis of super-investor Warren Buffet’s portfolio over the last 5 years says he has even underperformed the Standard & Poor’s 500 stock index.  Friends, if he can’t beat the house on Wall Street in the biggest gambling casino in the world, you know on one else has a fair chance.

What’s the answer?  If it’s not fines, is it jail?  Hardly, since the big whales only offer up the small fry to do time. 

It’s time to clean house, but it looks like the walls are so rotten and the foundation is so shot, that it’s gut rehab time, but from top to bottom there doesn’t seem to be anyone willing and able to take on the job.

What a heckuva a mess!  Seems like if we have five dollars we might as well hide it in our shoe and take our chances on street crime, since no one seems able to stop Wall Street crime.

Banks Shirking Responsibility for Foreclosed Property Maintenance

bank-owned-foreclosures-12New Orleans  I woke up to headlines indicating that the National Fair Housing Alliance has accused Minneapolis-based U.S. Bank of effectively “red lining” blight into largely African-American and Latino neighborhoods in 35 different cities in 15 metropolitan areas.  Recently the alliance added New Orleans, Dallas, New Haven, and Hampton Roads, Virginia to an amended complaint charging that US Bank had not maintained foreclosed properties in minority neighborhoods compared to what it does in white areas.  Similar complaints have been filed against Bank of America and Wells Fargo, though reportedly Wells Fargo settled with the group.

            So, what says U.S. Bank?  Their defense is that they are simply the corporate trustee for a security pool of investors and claim that they have no legal right to maintain the properties.   Well, I’ve been there and heard that, so at best U.S. Bank and the rest of these banks are hiding behind half-truths.   They are the legal trustee for the properties though and it’s their name on the property titles.  In reality at best U.S. Bank is trying to have its cake and eat it too.  They get paid to be the holder of the investment pool and the named owner of the mortgage properties, but they are essentially trying to sing a verse with the old rock group, Dire Straits, and “get money for nothing and get their chicks for free.” 

ACORN struggled with this problem for years and interestingly in negotiating with Deutsche Bank, which at the time in 2007-2008 was a trustee for a huge number of mortgage security pools, we learned quite a bit about how it really works. The bottom line is that the banks know the owners, and in a wink-and-nod in those days, Deutsche agreed to give us the information on specific properties that were problems in our neighborhoods when they became issues.  My point in that U.S. Bank and the other bankers are in effect earning their money by allowing the real owners and their lack of maintenance to hide behind their corporate veil, so they deserve to go down.

And, their problem just gets bigger when the fair housing alliance and others do the ground work around the country and bust them for not lifting a finger to take care of properties that are foreclosed in black and brown neighborhoods, while in fact making sure that properties are maintained in white areas. 

Call it redlining or just flat out racial discrimination, U. S. Bank and the boys can keep whining about it, but they are just shucking and jiving for the real owners and it is past time for them to do right and stop ruining our neighborhoods with callous disregard, while they count their money for doing nothing.  They can either name out the real owners or take the weight and step up.

Debit and Credit Card Security

payroll-debitcardLittle Rock  There was an interesting piece in the paper about what one commentator jokingly referred to as a “hot bank on bank” story based on First American Bank of Chicago going public and shaming Bank of America and Mastercard for not shutting down and issuing warnings about taxicab machines that were perpetrating debit card thefts.  They had caught the problem one day when a couple of dozen of their customers were hit, and had issued almost 500 new cards to try to prevent the problems, but went public after 18 days when they couldn’t get any action or response from Bank of America and Mastercard who were handling the transactions.   These days it feels like all of us either have “been there, done that,” or are preparing for the worse to come someday soon because the card folks just aren’t doing right on protecting security.

             The card companies say, no problem, they have a “zero liability” policy, meaning that customer doesn’t absorb the burn, but the article correctly points out that this is little comfort for many, and that’s what I want to underline here.  Increasingly companies are moving to direct deposit or where lower income workers are “unbanked,” issuing debit cards that are loaded with their pay.  In negotiating one of these programs recently for a 400-worker unit represented by Local 100, the company had gone as far as they reasonably could to assure us that this would work better for our unit, and in fact we had a petition going around the worksites complaining about payroll snafus, so we were a ready audience.

            But, look at the problems even in the best of circumstances and with the best of intentions.  There was an offer for the workers to choose either Chase or Bank of America for their cards, but once we looked Bank of America in fact had shut down all of their ATMs in Baton Rouge and these workers were concentrated in that city as well as Lafayette and New Orleans, so clearly that was not going to work for 150 workers there, and if they mistakenly chose the wrong bank, there would be a charge on every other ATM they were using to access their money.   The cards were designed so that there were no charges if you took all of your pay in cash in one lump, but we all know that many ATMs, especially in our neighborhoods, limit the amount of withdrawals so that’s another problem.  You could use the debit cards to buy some things without charges, but there were hidden shoals sure to crash some of our members’ boats. 

            We’ll work it out as best we can, but there’s only so much the union and company can do, when the credit card outfits and their banks refuse to take security seriously.  When there is a problem these will be workers with no money and a deluge of bills and problems.  Recently we found a charge of almost $1000 on a corporate American Express card at Fair Grinds Coffeehouse.  The company says no problem, we’ll figure it out, but that was a couple of weeks ago, and this is the Chicago bank’s complaint.  They waited 18 days.  We’ve been waiting at least that, but lower waged workers are in no position to hang out with no money for 24 hours much less 24 days.

            I also can’t get the story out of my mind of the McDonald’s workers in New York City who were paid on debit cards as well, but the franchise operator was less careful than our company and the cards were loaded down with charges driving the workers’ wages below the minimum as they tried to access their money.  The settlement is on its way, but they’ve been waiting and without in the meantime.

            A business model that screws the customers because the companies don’t want to use cards with embedded chips or take other security measures seems destined to fail, but in the meantime the rough edge is dragging, particularly on lower waged workers and smaller businesses not in position to wait for the by and by.