Alternative Mortgage Lending Tiptoeing Around a Broker-based Implosion – Again!

REUTERS/Chris Helgren

New Orleans   In the 2008 Great Recession, fingers pointed wildly in all directions and in some cases in little Taliban caves around the country they are still doing so, and trying to play the blame game at the expense of the victims. One of the more troubling terms to emerge from those terrible days for borrowers trying to stay in their homes was the notion of “liar’s loans,” as the subprime industry called some of these mortgages. The haters tried to claim the borrowers were the liars, though our work repeatedly found that the culprits – the big liars in the affair – were almost invariably mortgage brokers channeling huge volumes of paper to subprime lenders and blowing up the numbers on “stated” income mortgages.

ACORN understood the value of stated income mortgages because many of our lower income families worked in contingent employment that was impossible to verify because of cash transactions without social security statements. Tipped employees were just one of the examples. As we met with subprime company after subprime company (four in one wild day in Orange County, California, the subprime ground zero!), we raised our concerns about the supervision of brokerage networks accounting for much of the loan volume in the portfolios they were assembling and the incredibly high percentage of stated loans, often approaching or exceeding 50% of the lending they were making and packaging. They would then flannel-mouth something about a risk algorithm that was protecting them and assure us they were on top of it all, when in fact as it developed, they were doing the happy dance to bankruptcy and blindsiding our members, many of them whom had no idea what numbers brokers had claimed to be their income, often without so much as a wink-and-a-nod, and were shocked to find in some cases that their social security income had now been converted to six figures.

All of ACORN’s fights against predatory practices by subprimes came roaring back to mind when ACORN Canada shared an article with me about the cash-crunch and turmoil that ousted the top officials and plummeted the share price of Home Capital Group, a leading company in what the Financial Post called the “alternative mortgage lending” space, which is just another name for subprime loans. The problem was simply described:

Home Capital’s current crisis began on April 19, when the Ontario Securities Commission accused the company and some of its officials of misleading disclosure. The OSC alleges that the company misled shareholders because it knew there was fraud in its broker channels before July 2015, when it announced the findings of its internal investigations and disclosed it had cut ties with 45 brokers as a result.

The Post commentators were aghast that regulators were investigating Home Capital for what they viewed as dated and minor problems with the company’s brokerage channels and accused the OSC of what Republicans in the US would now call “regulatory overreach.”

How quickly people forget! The Ontario Securities Commission fortunately had some memory cells left from watching the real estate American meltdown a decade ago, and recognized what US regulators have still failed to grasp in the patchwork quilt that regulates and licenses brokers in this country on a state by state basis. Broker fraud is inevitable in the mortgage supply chain whenever brokers are substantially paid by commissions based on closings, rather than standards that include buyer affordability. We always demanded, and often won, though sometimes too late, agreements that US-subprimes not allow mortgage brokers in their networks to be paid that way. Given the hammering of stock prices for all the companies in the Canadian subprime industry, smarter investors must suspect that all of them are only loosely supervising brokerage networks, and that’s scary.

Low-and-moderate income families need a subprime market so that they can access mortgages for houses and apartments, but they also have to demand that the companies not be predatory and that they work as hard to keep their acts together as families do who are busting their butts to pay their bills and their house notes. Let’s hope Canadians are coming to grips with these companies and have learned the lessons that Americans are living in denial and still trying to forget.

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Western Union and Money Mart Lobby Up to Fight Remittance Justice

New Orleans   Finally, the big-time money transfer organizations and the gazillions in predatory profits for moving money for migrant workers and immigrant families are at least hearing our footprints coming after them in the distance.

Several months ago Ontario NDP Member of Parliament Jagmeet Singh introduced a bill we had collaborated in writing under the provincial consumer protection statutes that would achieve the 5% ceiling on costs related to transfers supported by all of the G-8 countries and the World Bank.  Realistically, since the NDP is the minority party, it is hard to get a bill passed.  In Ontario lobby registration rules require lobbyists to register expressly on which bill or bills they are retained.  Bells and whistles went off for all of us in recent days when two lobbyists, jointly employed by Western Union and Money Mart, registered specifically on our 5% cap bill.

The obvious question was whether or not these slick operators had already started putting the squeeze on the McGinty government on our bill?  In the question period in the Provincial Parliament, MPP Singh asked the questions.  The answer was a non-answer and a classic runaround response, that I will share here with all of you in case for your personal and political enjoyment.

It’s on!

CONSUMER PROTECTION

Mr. Jagmeet Singh: My question is to the Minister of Consumer Services. In May, I introduced Bill 98 to stop large companies from charging unfair international money transfer fees. Now we have learned that the two biggest money transfer companies operating in Canada, MoneyGram and Western Union, have registered to lobby both the Ministry of Consumer Services and the Ministry of Finance on this bill.

Has the minister met with these advocates for these powerful companies, and what are they saying to her?

Hon. Margarett R. Best: I thank the member for the question. Certainly, consumer protection is an important issue for our government, and we are reviewing the bill that the member has put forward. As always, we’re reviewing this bill with a view to improving consumer protection in the province of Ontario. It is important to note as well that the federal government has a role to play in protecting consumers with regard to federally regulated financial services.

The ministry continues to analyze the bill, and we continue to look at options to improve consumer protection for Ontario consumers with regard to remittance fees. This is an issue which certainly impacts a great number of people in the province of Ontario, including myself and many of us in this Legislature—I would no doubt think that—and it’s an issue that also impacts many people who are new Canadians, so this is an issue which we find very important to us.

The Speaker (Hon. Dave Levac): Supplementary?

Mr. Jagmeet Singh: Again to the Minister of Consumer Services: When Ontarians send their hard-earned money to relatives overseas, multinational companies should not be allowed to siphon off as much as they please. Now, powerful US-based companies are fighting against a bill that would protect Ontarians.

Ontarians need to know: Will the minister take action to protect Ontarians from predatory money transfer companies, or will she capitulate to the high-paid lobbyists for these US companies?

Hon. Margarett R. Best: I would like the member opposite to know that this is an issue on which we continue to listen to all the interested parties, all the interested stakeholders, and certainly our consumers in the province of Ontario.

This issue, as I said, is a very complicated issue. There are many complicated factors that require a very thorough review of the bill. Because of the complex nature of this issue, we continue to review this bill carefully, the proposed legislation that has been put forward by the member opposite.

We continue to look at other ways to protect consumers in the province of Ontario, which is an issue which is very important to me and to our government.

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