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.

***
Johnny Cash – Folsom Prison Blues (Live)

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How Can We Get the “Rip Us Off Now” Sign Off Our Back?

student_debtNew Orleans    I just have to wonder why when we are in a period of historic wealth and income concentration at the top, there are so many outfits trying to rip off low-and-moderate income families at the bottom? The hustles keep rolling down on our people like an avalanche.

The Student Debt Project issued a report saying that the average graduate is now leaving school with $29400 worth of debt. Ok, maybe colleges and universities are not rip-off artists, but the evidence is piling up that even if so many of our folks signed the loans willingly, the institutions were predatory, waving a dream with one hand, while pulling out the rug of reality with the other.

Everyone is finally discovering how predatory payday lending is on low-and-moderate income families, as if it were news. Some hope the relatively new, Elizabeth Warren promoted, Consumer Finance Protection Board may zero in on these companies. Their reports are devastating and worth repeating:

 

…of about 12 million payday loans issued across more than 30 states only 15 percent of borrowers could raise the money to repay the entire debt without borrowing again within 14 days. Twenty percent of these borrowers eventually defaulted. Nearly two thirds renewed a loan and were on the hook for fees that could put them on the road to financial ruin; three out of five payday loans were made to people whose loan fees exceeded the amount borrowed.

 

Yes, like student loans, there is no benchmark of affordability being used here.

And, how about auto loans.

Capital One is leading the pack with Wells Fargo right behind in pushing these loans out the door, and, low-and-moderate families are gobbling them up. We made it through the recession on repairs and now in 2014 the old buckets of bolts are just past repair, and people have to have the wheels under them to get to work, school, and wherever. Flooded with money, since banks were not making loans, we have the home financing bubble and securitization schemes coming back along with no interest teasers and high interest balloons creating a new subprime market in auto loans.

 

Wells Fargo, for example, made $7.8 billion in auto loans in the second quarter, up 9 percent from a year earlier with $52.6 billion in outstanding car loans. 17 percent of the total auto loans went to borrowers with credit scores of 600 or less.

 

And, yes, like student loans and payday loans, there is no benchmark of affordability, meaning ability to pay back the loans, being used here.

What does it take to get some real action by the government at the local, state, and federal level to take the “Rip Us Off Now” sign of the back of working families?

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The Attack on Lower Income College Students is Widespread and Predatory

studentloansLittle Rock       When it comes to looking at the plight and prospects for students from lower income and working families it is not a matter of “no news is good news,” but all the news is bad news!   Let us count just some of the ways….

The Supreme Court kicks affirmative action to the curb and many argue that diversity can be achieved by accelerating the recruitment of students from lower incomes.  The record is not good in this areas.   In 2011, roughly 75% of the students at the 200 most highly rated colleges came from families in the top quartile of income while only 5% from bottom quartile.  That was up from 3% in 1994, but that’s really not much progress in almost 20 years, is it?

No matter.  All of the studies indicate that they’re just passing through anyway while the schools wave them in and process them out.  40% of US students start 4 year colleges and haven’t gotten a degree in 6 years.  Including 2-year schools more than half don’t get a degree, worse than all industrial countries but Hungary.  A lot has to do with income.  One-quarter in the bottom half of income won’t have a degree at 24, but 90% in top quarter of family income will finish.   Exciting work at the University of Texas indicates that a lot of the failure is rooted in the callousness of administrators, just turn stiling.  When an administrator put students from more challenged backgrounds in different, smaller classes, being taught the same exact material by the same professors, they did equally as well as the others without the fear of failure and disregard.

Not that many of the administrators were paying attention to that kind of thing.  In an Institute for Policy Studies report, they found that student debt and the number of adjunct professors both grew faster than average at 25 public universities with the highest-paid presidents.  Topping the list were Ohio State, Penn State, University of Michigan and University of Washington.

Meanwhile for their trouble and dreams, many will mainly just get deeper in debt.  Between one-third and one-quarter of student loan borrowers are late on their very first payment.  The feds estimate 35% under 30 years old are more than 90-days delinquent.  Half of all 25 year olds will have credit reports reflecting student loan problems.  And of course the amount of debt can be staggering, as we all know.

It’s hard to tell the predators except by degree, since neither are giving degrees.  The Obama administration are cracking back at some of the more predatory for-profit education and training mills that rely on federal student aid for up to 90% of their income by limiting loan payments to no more than 20% of income after expenses or 8% of total earnings.  Even those rules seem grossly inadequate according to the Institute for College Access and Success that found 114 of the for-profits had higher loan default rates than graduation rates.

Politicians of all stripes can preach the platitudes of erasing inequalities with education, but the present state of higher educational enterprise seems to be a come-on for low-and-moderate income students for a dream pushing, pocket pilfering shakedown.

The daughter of the founder of Gore-Tex, now heading a rightwing think-less tank, was quoted as saying “I don’t think government should have anything to do with education.”  Wow!  Governments created public education, mandate attendance, and fund it from pre-K to past college degrees, so they are all over education.  Maybe if they would finally force accountability and programs that protect and advance students rather than making them simply grist for the mill and prey for feasting, we would finally have the educational opportunity so often touted and never delivered.

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Important Suit to Stop Diversion of Foreclosure Relief Funds for Other Purposes

A foreclosure sale sign sits in front of a house in Miami BeachPeterborough    Three California-based nonprofits, the National Asian American Coalition, COR Community Development Corporation, and the National Hispanic Christian Leadership Coalition sued Governor Jerry Brown and his team in California demanding replacement of $369 million obtained for the state for mortgage foreclosure relief and diverted to pay for state debts.  The suit alleges that according to the New York Times that, “Under California law… money placed in a so-called special deposit fund …can be transferred to the state’s general fund only “if the transfer does not interfere with the object for which the special fund was created and the transferred amount is repaid when feasible.” 

            California is certainly not all by its lonesome in diverting the funds from this multi-billion dollar foreclosure relief.  Gretchen Morgenson also cites a report “by Enterprise Community Partners, a nonprofit organization that promotes affordable housing …that half of the 49 states in the settlement had used about $1 billion of the homeowner counseling money for other purposes, like putting it into their general funds or toward non-housing needs.”  Some are claiming that California used the monies to pay down debt from building low income housing, but, frankly, that’s also not the same as foreclosure relief is it?   This whole gubernatorial diversion scheme is troubling and largely smells like a state slush fund at the whim of governors and legislators unwilling to be accountable.  We’ve previously beat the drums about how little of the tobacco settlement money paid by the state actually goes to health programs of any kind or to any sort of smoking abatement programs, and this mortgage relief money wink-and-nod reeks of the same thing.

At the same time this suit is intriguing because there seem to be multiple back stories.  The three nonprofits are smaller, largely unknown players in the long running foreclosure relief battles over recent years and seem to have longer names than their footprints in home buyer counseling and similar endeavors, which made me head scratch a bit, but seeing a picture of Robert Gnaizda, acting as their general counsel, made me start to put two and two together.  Gnaizda’s quote in the paper was peculiar since it was less “advocate” than “insider” in talking about the groups having told the governor they opposed the move but held the suit during the state’s financial crisis until Governor Brown started touting a $10 billion surplus by the end of his second term.  For most organizations fighting for relief in the foreclosure wars, it was either wrong or it wasn’t, and California’s decision to divert funds intended for homeowner relief would have had nothing to do with how much money might have been in their wallets when families were being thrown out on the street, and this money was intended to help them.

But Gnaizda has long been an interesting voice on the California scene, both as a scourge of many of institutions with countless lawsuits dating back to his time directing California Rural Legal Services on to his more recent decades driving the Bay Area-based Greenlining Institute.  At the same time he has been a well-connected California political and establishment figure whether as part of first Brown Administration in several positions or through his constant shoulder rubbing with other big time lawyers and their clients on either side of the table.  He knows his way around the state, both inside and out.  He could be difficult to deal with though and never bridled at attacking other organizations, including ACORN, on our various national banking settlements, based on what he perceived to be California’s special interests and pleadings.  I don’t know the story of his retirement from the Greenlining Institute, but he now claims a role as general counsel for many of the same kinds of CDCs and other groups, similar to the Greenlining Institute’s own coalition of sorts.  I wonder if he was looking for a different platform for his own particular brand of legal advocacy.  Certainly, the Greenlining Institute and the National Asian American Coalition have been publicly linked together on other issues, including the call to eliminate the mortgage income tax deduction, which I heartily agree desperately needs reform. 

With Gnaizda pulling the strings behind this suit it’s certainly serious and not going away, which is promising for whatever reason.  Another interesting tidbit involving this litigation is the fact that they were able to recruit Neil Barofsky, a partner at Jenner & Block and a former special inspector general for the federal Troubled Asset Relief Program.   Barofsky is a hero in the fight for just foreclosure modifications for his argument that a problem in the TARP program was the lack of action on foreclosures and the way the Treasury Department toadied to the big banks and allowed them to make a mockery of any pretense of mortgage modifications.

This suit will never see a trial, I would bet, because it spells deal and settlement in big letters all over the front of it.  Gnaizda and his allies have certainly positioned this matter in every way possible from timing to avoiding all of us rowdies to picking the lawyer to front the case for a big time political deal and a quick settlement, and I’m rooting for them to set a precedent in trying to stop this kind of hijacking of money won for just cause being diverted to separate and unrelated pockets.

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Modern American Debtors’ Prisons

New Orleans    Lord please help the poor, because in America these days it has become a crime to be poor!

Local jails are becoming debtors prisons thanks to the fact that local courts, where justice is rumored rather than meted out it seems, in many areas have outsourced fines and fees leaving people with a “go to jail” card and no “get out of jail” possibility.  Add this to the discussions we have had previously about judges who sent juveniles to prison to pay for the jail system and potentially pad their pockets and the similar pyramiding fee that has left some former students with mountains of debts because of the larded on fees and penalties for missed payments.

Today’s Times included a story by Ethan Bronner featuring two people in Alabama that had gotten traffic tickets and started sliding down the slippery slope of missed appearances and inability to pay (and tell me which of us has not been there!) and ended up doing jail time (in one case over 2 years worth during a decade of joblessness!) while still carrying the debt (up to $10,000 now!).  This defines debtors’ prisons that most Americans have thought we left in England a couple of hundred years ago when we came to this country.

Various lawyers and law professors are quoted reminding people that the Supreme Court has determined that this shouldn’t be the case by ruling that there have to be alternatives for the poor in lieu of inability to pay various fines and fees.  Problem is that these for profit blood suckers don’t feel any obligation to tell folks this and, clang, that’s the sound of the door shutting on the jail cell.  As despicable is the fact that some judges are using the fines and fees to pay for their own retirement benefits.  In fact there’s a dispute right now in the Orleans Parish courts about an additional retirement plan for the judges that no one seemed to know about and all involved seem convinced may be unethical.  It seems that this is common in a number of states according to a study cited particularly in the South by the Times.

I was talking to a judge last week in Ontario (yes, that’s in Canada) who was surprised to have courted some controversy because he had taken the radical step of using the fees his court has collected as something other than a slush fund for local feel good causes and instead was using the $200,000 plus as a mini-cy pres operation that funded nonprofits directly related to changing the conditions that led to the problems, provided rehab, and were involved in the criminal and juvenile justice system.  Have you got this?  It’s controversial and perhaps radical to use such fees to fund improvements in the system, but increasingly standard operating procedure for courts to use such funds for their own perks and pad the pockets of slick operators, while the poor carry the weight of the debt and do hard time for what might have started as a single speeding ticket.

This neo-liberal, pay-as-you-go-down system of criminalizing and impoverishing the poor has to be stopped.  By any means necessary!

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Dunning the Debt Collectors

New Orleans    The Federal Trade Commission stepped up to the play in behalf of citizens/consumers yesterday and finally put a boot on the butt of scumbag, lying debt collection operations with a $2.5 million fine levied on Asset Acceptance of Warren, Michigan.

The Times reported the following:

The company’s collectors also failed to inform consumers that paying even a small portion of the amount owed would revive the debt — in other words, making a payment would extend the amount of time the collector could legally sue.

Among other things, the complaint also contended that the company reported inaccurate information about the consumers to the credit reporting agencies.  It also said that Asset Acceptance failed to conduct a reasonable investigation when it was notified by one of the credit agencies that a debt was being disputed. Moreover, the complaint says that the company used illegal collection practices and that it continued to try to collect debts that consumers disputed even though the company failed to verify that the debt was valid.

The proposed settlement with Asset Acceptance requires the company to tell consumers whose debt may be too old to be collected that it will not sue.  It also requires the company to investigate disputed debts and to ensure it has a reasonable basis for its claims before going after the consumer.  It is also barred from placing debt on credit reports without notifying the consumer.

We’ve discussed this before.  These are citizen wealth issues.

Debt expires and becomes uncollectable in some states as early as 2 years and in others after 15 years.  If you live in a state which has a long timeline for debt (like I do – Louisiana can run 10 years!), then it’s worth thinking about moving!  According to the CreditInfoCenter.com:

State

Oral

Written

Promissory

Open-ended Accounts

State Statute: Open Accounts

AL

6

6

6

3

§6-2-37

AR

3

5

3

3

§16-56-105

AK

6

6

3

3

§09.10.053

AZ

3

6

6

3

§12-543

CA

2

4

4

4

§337

CO

6

6

6

6

§13-80-101

CT

3

6

6

3

§52-581

DE

3

3

3

4

§2-725

DC

3

3

3

3

§12-301

FL

4

5

5

4

§95.11

GA

4

6

6**

4

§9-3-25

HI

6

6

6

6

HRS 657-1(4)

IA

5

10

5

5

§614.5

ID

4

5

5

4

§5-222

IL

5

10

10

5

735 ILCS 5/13-205

IN

6

10

10

6

§34-11-2

KS

3

6

5

3

§84-3-118

KY

5

15

15

5

§413.120

LA

10

10

10

3

§3-118

ME

6

6

6

6

§14-205-752

MD

3

3

6

3

§5-101

MA

6

6

6

6

c.260, §2

MI

6

6

6

6

§600.5807

MN

6

6

6

6

§541.05

MO

5

10

10

5

§516.120

MS

3

3

3

3

§15-1-29

MT

5

8

8

5

27-2-202

NC

3

3

5

3

§1-52(1)

ND

6

6

6

6

28-01-16

NE

4

5

5

4

§25-206

NH

3

3

6

3

382-A:3-118

NJ

6

6

6

6

2A:14-1

NM

4

6

6

4

§37-1-4

NV

4

6

3

4

NRS 11.190

NY

6

6

6

6

§2-213

OH

6

15

15

6

§2305.07

OK

3

5

5

3

§12-95

OR

6

6

6

6

§12.080

PA

4

4

4

4

§5525

RI

15

15

10

10

§6A-2-725

SC

10

10

3

3

SEC 15-3-530

SD

3

6

6

6

§15-2-13

TN

6

6

6

6

28-3-109

TX

4

4

4

4

§16.004

UT

4

6

6

4

78B-2-307

VA

3

5

6

3

8.01-246

VT

6

6

5

3

§3-118

WA

3

6

6

3

RCW 4.16.080

WI

6

6

10

6

893.43

WV

5

10

6

5

§55-2-6

WY

8

10

10

8

§1-3-105

The Midwest is some rough country but there’s definitely not much love for someone with more mouth than money in Kentucky, South Carolina, or Louisiana!

The point is when the needle goes past the limitations, collection companies cannot come after you or threaten to sue.  Hear, hear!  I mean it!

Now did you realize that if you even cough up a partial payment, you then extend the time for them to come after you?   Talk about no good deed going unpunished!  Seems the only sure fired protection if you are in a jam is:  HANG UP!

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