Wells Fargo Caught Again in Predatory Lending Scheme

WellsFargocolorFLYERLittle Rock       We need to get rid of the three strikes program for people and institute it for banks, whose criminal conduct continues to rage unabated. Wells Fargo, the West Coast based banking center, is a serial abuser of mortgage borrowers using predatory practices. Cook County, home of Chicago, and 5 million good people, has sued the bank under the Fair Housing Act for racially discriminatory practices targeting African-American and Latino families from the point of origination past the point of payment and even foreclosure to make sure they always get theirs in a practice Cook County called equity stripping.

According to Bloomberg News,

“Equity stripping is an abusive form of ‘asset based lending’ that maximizes lender profits based on the value of the underlying asset and onerous loan terms, while in disregard for a borrower’s ability to repay,” according to the complaint. Aimed also at minority women, the bank’s fee structure and its practice of bundling mortgages to sell as securities allowed the lender to make money off loans even in the event of a foreclosure, the county said.

Who is surprised anymore?

Cook County is asking for $300 million in relief from Wells Fargo. The bank of course denies everything, but they can’t possibly have any credibility left with anyone. As always, they were obnoxious and combative in their response, having a spokesman say that it would be better if Cook County kept wasting its time trying to work with them rather than getting justice for their citizens.

Cook County is not the first metro area to push forward to protect its citizens these days with a Fair Housing claim. Earlier similar suits have been filed in Miami and Los Angeles against banks for similar practices. Miami’s suit was dismissed as untimely and is on appeal, but attempts to throw out the California claim have been unsuccessful.

Banks have been paying billions to settle mortgage abuse suits in record fines, yet little seems to have led them to stop such predatory practices. Suits have also been brought recently in other cities under the Community Reinvestment Act for direct discrimination in lending.

The New York Times and others continue to argue that the only proven path to citizen wealth is home ownership, and there is some merit to the claim, but with prices outstripping any possibility of ownership in many cities, and banks, like Wells Fargo, arguably targeting the very working people trying to create income security through home ownership, there seems to be a giant “L” for loser on the foreheads of low-and-moderate income families throughout the country. Recently Massachusetts Senator Elizabeth Warren announced her refusal to vote for approval of an undersecretary in the Treasury Department saying that the President and others needed to get the message that Wall Street should no longer be allowed to set the economic policy for the United States.

As long as banking and its allies play “throw the rock and hide the hand” in a persistent criminal conspiracy, working families can’t build wealth, and Warren and Cook County are right that we need more protection from these crooks.

Another Deal Coming for the Bankers, Unlikely to Benefit Consumers

Dauphine Island       New reports have finally trickled out on a “last and final” deal between government regulators and the nation’s big banks over their irresponsible, immoral fleecing of consumers around home mortgages leaving millions as foreclosure victims.  Nothing about this settlement sounds really good for consumers particularly.  The whole thing smacks of end of the year, desk cleaning for government bureaucrats and bank lawyers looking to end the year with a big payday.

Take for example these snippets that have emerged on the deal so far:

  • Negotiations were top secret with word only coming out recently.
  • Cost of the paperwork trying to establish how banks fleeced consumers is mired in huge time sucking cost overruns (about 20 hours per loan file), and the estimated multi-year delays from these dilatory and expensive bank reviews could drag out for years.
  • Regulators proposed a $15 billion settlement on all outstanding matters, which would be cheap at 5 times that price, and the terms are already down to a potential $10 billion dollar deal.

You want to know more?  Are you sure?

All 14 of the major banks are reportedly ready to sign.  Let me tell you something for certain.  The only thing all 14 major banks would ever be ready to all sign is the list for a free lunch!    This all has the feeling of a velvet pillowcase being pulled over all of our heads so that the banks can get back to business without this in the background.  Was it only a week or two ago that we read the report that the banks are ticking off the Federal Reserve officials because they are profiteering on interest rates and refusing to move them down to the level allowed by the cheap money policy of the Reserve?  This settlement can be paid out of the margins of what they are fleecing on new loans right now!

What’s the money for?  According the Times report without them saying so, it’s “same ‘ol, same ‘ol.”  Almost $4 billion would be used as a pittance for people who have already lost their homes because of all of this chicanery.  The other $6 billion would be used to pad the balance sheets of the banks in the same way as past settlements:

Under the terms of the settlement being negotiated, $6 billion would come from banks to be used for relief for homeowners, including reducing their principal, helping them refinance and donating abandoned homes, the people said.

All of those things the banks should be doing on their own, and simply uses the money pitched in by the 14 banks to spread out losses on their balance sheets, transfers the money back to them in fact, and claiming “all the way to the bank” that they are helping their victims.

Hard to see any justice in this, but the point from the government and bankers seems to be to at least put us all out of the misery of continuing to read about it or foolishly hope that there will ever be any real relief or justice at the end of this fiasco.

FACE to Face is Reducing Foreclosures in Hawaii

FACE community meeting

New Orleans   Given how little of any significance has been done on any governmental or financial level to stem the tide of foreclosures in the USA, I read with interest a blurb in an on-line Shelterforce alert about progress in Hawaii.  It seems the Gameliel affiliate, FACE (Faith Action for Community Equity), directed by our old friend and colleague, Drew Astolfi, had put the pieces together in the state legislature and the results are indicating that they have made a huge difference.

Looking at the fact that Hawaii had risen to 9th highest among foreclosure states, Astolfi and his team, initiated a statewide survey and recognized the mainland trend that much of the foreclosure activity was being driven by the big banks (Citi, Wells, etc) and their servicers in fact were responsible for more than 97% from their numbers.  They came to the common sense conclusion that the local banks that had to meet directly with the mortgage victims were delaying foreclosures while the big banks, often lacking loan offices in the island, were simply pulling the trigger.   One thing led to another, as these campaigns develop, and working with allies in the state legislature, FACE was instrumental in getting a bill passed that offered some relief.

The bill passed in March 2011, almost 18 months ago, required some simple steps that turned out to make a difference and a huge one at that:

The new law, called Act 48, gave owner-occupants of residential property in non-judicial foreclosure the ability to meet face-to-face with their lenders to modify their loans or work out a payment plan within three months. Banks were barred from carrying out non-judicial foreclosures without the face-to-face sit-down, and any previous foreclosure proceedings were frozen during the three-month process.

Foreclosures in Hawaii dropped by more than half from May 2011 to January 2012. “Personal bankruptcy rates plummeted, and the Council of State Governments recommended that every other state adopt a similar law,” says Rep. Herkes.

As encouraging as this is, it is depressing to find – 18 months later – that other state governments and even the federal government did not jump on this idea and implement it.

The insight of the campaign and the legislation is the power of “community” even in banking, when finance is forced to confront families.  When communities have the same voice and can be heard as clearly as Wall Street, then as Hawaii has now proven, foreclosures can actually be modified and reduced.

FACE to face has worked in Hawaii, so why not force face-to-face in finance in the mainland?

Mortgage Disclosures and Modification Appeals are not Enough Reform

San Francisco    There is no question that the new federal level Consumer Financial Protection Bureau (CFPB) is a good thing and that its initiative to reshape and clarify the disclosure forms for homebuyers is important and necessary work.  Writing such forms in plain and simple English is a needed step and requiring full transparency of costs and fluctuations in interest rates over the term of the loans are all steps forward.  All good!

At the same time, no one anywhere should even remotely be deceived that this is a reform of some kind in the mortgage lending industry or that it will change by more than a minimal degree the possibility of homebuyers being skinned alive and stripped bare as they were in the subprime debacle we continue to wallow in throughout the USA.  As long as brokers and mortgage agents are not regulated, properly licensed, and more than modestly supervised by their employers, including the big banks that own so many of them, and are allowed to have financial incentives that drive the sale of the property, the opportunity for flimflam and total fraud at the point of home closings will be exactly the same.  Potential buyers are so motivated to make the deal and buy their home that they will listen to what they are told, not what they might read, and it is the voice in their ear that turns the lies in front of their eyes every time.

Furthermore, the experience of predatory lending in these and other situations always depends on having people in a situation where they can be exploited and essentially have limited choices.  In Citizen Wealth and elsewhere I have told the story of negotiating and implementing agreements with tax preparers like H&R Block, Jackson-Hewitt, and Liberty, all of whom agreed in giant posters and on their computer screens to clearly divulge the 150 to 250% effective interest rates of their refund loan products.  Why not?  If someone was desperate for the money, they already knew they were going to pay a premium that was immense because they had no choice.  Many potential homeowners in these situations are in exactly the same situation.

An article in the back pages of the San Francisco Chronicle by Hugh Son, a Bloomberg writer, was instructive on this score today.  He was reporting on the “surprise” expressed by  Bank of America that they were getting a weak response from their offer to 60,000 mortgage holders that they were willing to reduce principal on mortgage loan modifications by up to $150,000 as part of the attorneys general settlements.  BofA thought maybe it was “borrower fatigue.”  Consumer advocates believed it was likely also the fact that BofA no longer had any credibility with their mortgage holders since they were the same servicers that had gotten them in the mess and maintained it:  why believe someone who had robbed you earlier?   Many may have also abandoned the property or maybe be underwater more than $150K which would make this offer of little value, pennies late and dollars short.  Previously we have also discussed that in many cases this settlement also gave credit for reductions in amounts and interest that were already achieved or waived fines and larded up penalties that the banks themselves had imposed for late or nonpayment.

Disclosures and big ticket settlements are still not reforms and continue to be ineffective as real solutions for the mortgage crisis for millions of families.  After all of these years, why wouldn’t people give up and believe that banks are criminal enterprises and their governments have abandoned them?

Banks Not Victims Get Yet Another Foreclosure Bailout

New Orleans    We were all clear when the Obama Administration announced changes last year to the HARP (Home Affordable Refinance Program) that seemed to favor refinancing that these changes were not going to provide relief to homeowners desperately trying to hold on and resist foreclosure.   I thought that was the real issue with the latest lame, weak kneed attempt of the Administration to finally deal with the housing crisis rather than being pimped out by the big bankers.  I was wrong.  It now turns out not only has it been an ineffective tool for foreclosure victims, but is what now seems like yet another bailout and windfall for big banks that own mortgage servicers.

The new tune on HARP was basically a market driven incentive program to allow that set of homeowners who were holding on to mortgages that were underwater, yet were still making the monthly payments no matter how crazy or sentimental the lack of economic self-interest, to refinance the houses in order to make the monthly payments lower and ostensibly more manageable.  Since the program was designed to impact on the re-fi fees and the other things that banks lard onto closings, I had thought the banks were only going to benefit because they were holding people into mortgages without having to reduce the value or balances.  This was certainly not going to be relief for anyone facing foreclosure since by definition those millions of homeowners were already behind on their notes.  Nor were these changes going to help folks who were underwater (owing more than the current value of the property).  It was all about assisting some folks to continue to tread water with some minor adjustments in the rules.

How the banks have (once again!) made out like bandits is clearer to me now, since I had been focused on the victims and not the middleman at the banks who were of course getting subsidized by HARP on their usual exorbitant fee structure to effect the refinancing.  According to Christian Berthelsen and Alan Zibel in the Wall Street Journal, banks like Wells Fargo and J.P. Morgan Chase are expecting a huge revenue boost from HARP that could hit $12 billion this year on the fees.  Borrowers who are refinancing might save between $2.5 and $5 billion according to the WSJ analysis of data released on all of this by Nomura Holdings.

Isn’t this exactly the way everything about the Administration’s ineffective response to the critical foreclosure crisis has developed:  a dime for the victim and a dollar for the banks!

Even the Administration seems unhappy that the take-up rate on the re-fi’s are lining the bank pockets.  Suddenly, HUD Secretary Shaun Donovan, has come to the late-in-the-game recognition that there is “essentially a monopoly on refinancing” among the largest banks.  There also is a lot of finger pointing about whether or not the banks in fact pushed up their closing fees in order to harvest a bonanza on the refinancing.  Donovan is saying that they are “seeing very high fees,” which in some ways is nothing new.  The banks, as is their wont, deny everything as they sit on their pile of ill gotten gains.  There is an argument between government agencies about whether the predatory rates are half-a-percentage point (as an independent analyst argues) or a 10th of a percentage, but everyone is clear there’s some fleecing of the poor sheep once again.

HUD’s solution?  None, really.  They are talking about legislation or a regulation that might encourage refinancing through smaller outfits now that they have finally realized that less than a half-dozen of the biggest banks in the country control 60% of the market.

Once again, where have they been?  Many days late and now dollars short which are ending up going from folks hardly holding to the big boys on Wall Street!

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!