Bank Mortgage and Foreclosure Problems Won’t Go Away

zombies1-300x237New Orleans  No matter how many billions banks pay to try to whitewash their devastatingly destructive behavior in milking home owner mortgages and turning homeowners every way but loose, they can’t make the mess go away.  The stains and scandals are indelible and their refusal to change their culture or their standard operating practices guarantees that no matter how much they run, the stench – and headlines – will surely follow.

            Here are yet more recent examples.

·      A judge has refused to allow Wells Fargo to offload $49 billion worth of home mortgage servicing to Ocwen Financial of Florida, because the judge is not convinced that Ocwen will not make a mess of it.

·      A nonprofit, public interest group called Better Markets, Inc. sued the Department of Justice claiming that the $13 billion with JP Morgan Chase, just doesn’t get it.  Better Markets argues that there should have been criminal charges and the bill of particulars should have been presented in court where everyone could view the full range of conduct. 

But, my favorite is the action being taken by New York’s Attorney General, Eric Schneiderman, who has signaled that he is going after banks for their failure to take responsibilities for what the industry affectionately calls “zombies.”  So what are zombies in this modern banking nightmare of the walking dead?   After banks foreclose and push a family out of their homes or a family just realizes there is no hope and abandons the property, the banks don’t do what it takes to maintain the property, thereby extending the damage past the affected family to the entire community.  Numerous studies have found that an abandoned house can lower the property values in an entire neighborhood from 1 to 2% if such a house is located within blocks of your home up to a half-mile away. 

The response from bank spokespeople?  The long whine!   They claim they do their best.  They claim that they keep boarding up, but it is those damn vandals.   But, who believes this?  It is well established that the maintenance and security of a property can cost a bank $50,000 or more, and in negotiating with banks about modifications, we were always careful to remind them that pushing a family out of their home was not a free ticket to ride.  They know there are costs, but here’s rooting for New York, and then all of the rest of states to make them pay.

The real reason we have zombie properties rather than homes where families live, is because we still have ghost banks protecting the inflated values of their supposed assets on home values before the recession rather the reality of the market now.  But in the land of the walking dead, where ghosts and zombies are now part of American communities, banks need to learn that there is no running from them or themselves, until they finally, simply do right.


Credit Card Act Shows a Win for Disclosures to Consumers

credit_cards.topNew Orleans  I have to confess I have often been skeptical of programs claiming to protect consumers that trumpet transparency as a major feature of the reform.  I can show the scars still from negotiations with predatory lenders and tax preparation companies, who would easily agree to full disclosure of their effective interest rates and offer to put them on posters or computer screens even when they stated clearly that the interest might be 300 or 400% annually. 

            All of which had me reading closely a column featuring an analysis of the impact of the Credit Card Accountability Responsibility and Disclosure Act or Card Act (yes, they are sometimes so cute in Congress!) written by Floyd Norris in his “High and Low Finance” column in the Times looking at a study by economist Neale Mahoney from the University of Chicago and others of the impact of the Act on bank and card company practices.   To most of their surprise, this effort at regulation seems to have actually worked, saved consumers what will likely end up being $20 billion in bank rip-offs, and hasn’t led to banks larding up fees to compensate, although there’s a likely reason for that we’ll get into later.

            The success seems to have turned on two sets of very important things.

            On the consumers’ side there are several very clear things that it turns out we concentrate on, which helps us focus and sort out the various bank offers:  most importantly the stated interest rate, then whether there is an annual fee, and any sort of awards for card usage, which some folks like.

            On the banks’ side the law and its regulations plugged a lot of the holes in the dike that banks had been using to siphon off billions.   Consumers were given 21 days, not 14 to pay.  There was a 45 day notice on rate changes and they could not be applied to purchases already made.  Only one late charge or overpayment charge could be assessed.  There were also limits on the size of the fee and on other charges like paying by phone or internet.   You get it; they actually took their jobs seriously and reined in the banks.

            The study of course found that the banks were making the most from the most predatory products and desperate customers, who were their subprime borrowers.  In fact Mahoney says that in the aftermath of the Great Recession, “…when banks were hemorrhaging money on subprime loans, subprime credit cards were a major source of profits.” 

            Good intentions are not protecting us, but it turns out that even without highway robbery fees they still make crazy money, so the banks are restraining themselves, and probably more importantly given the consumer razor like focus on the actual interest rates on the cards, the banks are forced to keep their hands out of our pockets because the card business is so competitive. 

            The fierce competition in the general credit card market backed up by the Card Act is probably the only thing as well that makes disclosure actually work in this case.   On credit cards banks are forced to compete for our business, rather than in more predatory situations where our own desperation makes us sheep for the slaughter.


Banks Charging through Loopholes to Rip Off the Poor!

New Orleans   Every time we think we might be surprised at the avarice of major financial institutions, we are reminded that in the real world, there are no limits either to greed or the willingness for banks to rip off anyone available including preying on desperate, poor families.   More sickening evidence was available in a story in the Times on how big time banks are trying to exploit loopholes in consumer protections and the regulations covering payday lenders by stealing from the poor.

The hammer hit the nail early in the story:

An increasing number of the nation’s large banks — U.S. Bank, Regions Financial and Wells Fargo among them — are aggressively courting low-income customers alike … with alternative products that can carry high fees. They are rapidly expanding these offerings partly because the products were largely untouched by recent financial regulations, and also to recoup the billions in lost income from recent limits on debit and credit card fees.

The story carried a picture of a fellow who had borrowed $1000 to pay for medicine for his cystic fibrosis where he paid $100 in fees and stands to pay even more if he’s late on payments.  If that doesn’t make you want to do something between weeping and pull down a wall with your bare hands, then there is just plain something wrong with you, and please immediately see someone for that.

The loophole is that legislation regulating payday lenders does not apply to the big boys, so they are trying to grab what others can no longer touch.  Payday lending has been a huge campaign for ACORN Canada, so this leads me scurrying back to make sure we didn’t leave this backdoor unlocked in the Great North.  Spokespeople for the newly organized Consumer Financial Protection Bureau were reportedly looking to see if any of this was out of whack, but I’m afraid that will be a vain search.

It goes without saying that some banks won’t think twice about steering lower income customers towards more expensive products.  Can you say “subprime mortgage loans!”

Many of these scalawags charge costly fees for transactions on “prepaid” cards.  These are cards loaded by the holder with cash money so there is NO RISK.

There ought to be a law but there probably won’t be one at the federal level.  In some place maybe a state might be willing to shut the loophole.  In other it will simply be another sad, tragic example of business as usual which in cases like these ought to have the same criminal penalties as grand theft robbery has.


Chinese Banks, Student Loans, Foreclosures, and Political Impasse

Wen Jiabao

New Orleans   Are you kidding me?  The Chinese Premier Wen Jiabao called for breaking up the banks because they are making too much money and charging too much interest.  It turned out he was actually calling for breaking up banks in China, rather than elsewhere, but how refreshing to have a head of state calling for accountability and economic contribution from state owned banks.

We forget sometimes in the handwringing impotence of US government officials before Wall Street and big banks and the problems they have wrought that in fact banks only exist as a matter of state and federal charter, are extensively regulated by numerous branches of state and federal government, have money supply and interest controlled by the U.S. Federal Reserve System, and therefore operate in this country as private institutions within the structure of governmental forbearance.   And, I’m not even talking about the fact that there has not been so much as a thank you note for gazillions of dollars in bailouts for the banks after they triggered the Great Recession!  So much power in the hands of US governmental officials and so much impotence when required to use it, that it simply boggles the mind.

Meanwhile every layer peeled back on the recent $25+ billion foreclosure settlement with the bank indicates more sweet deals and credits received, and therefore less real progress on mortgage loan modifications or principal adjustments.  The latest outrage is the fact that banks will get credit for minimal community service and upkeep on some of their properties if done in the name of community service or marketing.

In the richest and cruelest irony yet in the emerging Presidential campaign, Mitt Romney in celebrating his victory in Wisconsin accused President Obama of being “out of touch” and cited the ineffective action on foreclosures as one of the prime pieces of evidence for the charge.  Thank Larry Summers, Tim Geithner, Jamie Daemon, and a host of others for this emerging debacle, Mr. President.

And, speaking wholesale erosion of citizen wealth, how can we not look at a similar inability to meaningfully deal with student debt in the heavily governmentally subsidized higher educational institutions of the US.  We have now crossed $1 Trillion in student debt.  The average student debt is now $25,000 per person.  30% of all student loans are past 30 days due (that’s $300+ Billion, sports fans!).  $36 billion of the total student debt is owed by borrowers over 60 years of age and by law 25% of social security checks can be taken to repay that debt when they are 65.  80% of the loans are guaranteed by the government.

Meanwhile Republican candidates for President are complaining that the system was taken away from private banks in what Romney called a “government takeover.”  What?!?  80% of the debt is guaranteed by the government, yet the government should have continued to allow banks to make billions just for mailing out envelopes.  What rock does he live under?!?  Nonetheless, any proposals for making real progress on this issue including practical plans for creating repayment alternatives for students faced with a declining job market have gone nowhere with the divided Congress, so thanks to compounding interest, penalties, etc, the debt will continue to soar.

Might be time for Obama to go all “Chinese” on banks and Wall Street now, and take a couple of licks at college and university costs while doing so!


Fire in the Mercado, Usury at Los Bancos

Tegucigalpa    Within minutes of hitting central Tegucigalpa we were on our way to a series of markets directly across the picturesque but fetid river running alongside the capitol not far from the original palace.  ACORN Honduras in Tegucigalpa had been working with stall vendors over the last month who had asked for help after a sudden fire overnight had wiped out the public market where they had been selling for many years.  More than a hundred had been displaced.

Signs of the fire were still everywhere, even though the space was bustling with activity where the shopkeepers were hammering, sawing, and constructing rough plywood type structures and shelving to hold their wares.  Next door another market had also been damaged and the bent steel and twisted sheeting was still being cleaned up and wheelbarrowed away.  The small merchants we met with under a blue tarp (the common cloth of disasters large and small) felt some satisfaction at the fact that a recent meeting with the Mayor had gotten the cleanup moving next door.  

What the merchants had on the agenda for discussion with us was their problem with banks.  They weren’t the only problem, but they were the boulders in the road to recovery.  To restock would cost each of them about $6000 USD.  They were worried of course that under their tarps their customers would diminish with the heat until some semblance of order was restored or the new building was long on the way.  Many of them had existing bank loans at 19% which they couldn’t pay and had been given some limited (and expensive!) forbearance for three months, but in trying to refinance to restock the same banks were now saying they wanted 28%, and they all wanted it now.  A look around made it clear that repayment was impossible.  Dilcia Zavala, ACORN’s organizer, said there was a law that mandated forbearance for up to a year after disasters, but even meetings with the Mayor and Governor had not seemed to convince the banks to relent from their harsh terms.

These banks were not local moneylenders.  Talking to the small vendors the names sometimes sounded local like Banco Pro Creidito, but that bank was German.  HSBC and Citi both were involved and have visible offices in central Tegucigalpa.  This was big business and a 28% it was usurious.

We had research to do, but clearly the only hope that these women had to not end up as sharecroppers in the square for international banks the rest of their lives was if they had some leverage.  The only leverage seemed to be to force the government to give the law enough teeth to buy some time so that they could survive in the marketplace long enough to get on their feet, even though they might be shackled later with 28% interest.

They call this disaster profiteering for a reason!


Daily Litany of Citizen and Consumer Smackdowns

New Orleans     Like a modern version of the 12 days before Christmas, I think we could all start listing a daily beating we are taking from business, government, or both.

Yesterday news came out that a fair chunk of the $26 billion settlement with banks over their home mortgage scandals and abuses with the state attorney generals includes getting credits for second mortgages at some level, all of which should have been written off as total losses years ago.

Today we find that health insurance companies in the face of the changing law continue to blatantly discriminate in the charges for women compared to men for no defensible reason.

Apple, the darling of trendy and elite consumers everywhere and sweatshops throughout China is going to announce what they intend to do with their $100 Billion – yes, $100 billion!!! – cash hoard, accumulated at premium pricing in the developed world and starvation wages in the developing world.

Meanwhile in the same papers stories run quoting the growing consensus of economists that societies decline as inequities increase.  It seems that societies can only succeed economically if there is resource sharing with the poor.  These economists expressed little hope for the United States especially given the increasing impact of money in politics and the consequent control of Congress by elites.

Can we get a break or is the only race we are now able to win is the one heading for the bottom?