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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A Break in the Remittance Campaign Comes from the Somalian Hawala Crisis!

Hawala in Minneapolis, St. Paul

New Orleans   ACORN International’s Remittance Justice Campaign has begun to pick up steam.  A private member’s bill to cap rates has now been introduced in Queen’s Park for the Ontario provincial government.  Similar efforts are being pushed in British Columbia and later this year legislators have committed to introducing measures in Honduras and perhaps even Mexico once the election fever settles down today.   The hardest nut to crack has been in the United States, but we may have a break from an unexpected quarter:  32,000 Somalians in Minnesota.

The failed state of Somalia in the wake of its civil war sent refugees around the world, including the United States, and particularly the Twin Cities area.  There is currently no banking system in Somalia which makes transmitting remittances from relatives in the USA back to desperate relatives in Somalia very difficult.  Somalians have been using the largely informal hawala system which is a critical piece of the money transfer system especially in India (where it is illegal), other south Asian countries, and some parts of Africa.  According to an excellent story by Miriam Jordan and Erica E. Phillips in the Wall Street Journal, about $100 million is moving through federally licensed US-based Somali hawalas.  ACORN International had done a report recommending the expansion of hawalas because their cost is usually less than 1.5% rather than the more predatory pricing of Western Union, MoneyGram, and of course the banks.  Most money transfer organizations (MTOs) are licensed at the state and provincial level, so it was a revelation to us to find that hawalas were under federal jurisdiction and licensing in the USA, contrary to our earlier research.

The crisis is that mainline US-based banks in the wake of the banking regulations implemented post-9/11 ostensibly in the name of homeland security, have increasingly been refusing to handle transactions for hawalas.   “U.S. banks are permitted to deal with hawals, typically small businesses that have anti-money laundering, reporting, and record keeping obligations in the U.S.”  This is unique since many hawalas have operated for centuries on the basis of trust and personal handling with no records.  U.S. banks are bridling now because of concerns that the money might be funneled to terrorist groups.  Families are demonstrating, especially in Minnesota because their families are “starving” without being able to receive the remittances.

Representative Keith Ellison (D-Minnesota) is drafting legislation to deal with this crisis.  Representative Carolyn Maloney (D-NY) has attempted to deal with this issue in the past.   Scott Rembrandt of the US Department of Treasury’s Office of Terrorist Financing and Financial Crimes has argued that the hawalas should not be shunned, which raises hopes as well.  According to the Journal he says that the Treasury “doesn’t assume money transmitters present a uniform or unacceptably high risk of money laundering, terrorist financing or sanctions violations.”  Such a position would seem to point, not surprisingly, at the larger banks like Wells Fargo and U.S. Bancorp as being overly cautious and therefore squeezing Somalians and others desperate for reasonable relief for high costs and for workable solutions.

Deborah Bortner, a regulator in Washington state, correctly notes that without a system that works legally to transmit money, “it’s going to go underground,” which is exactly what is happening with many hawalas around the world and precisely one of the arguments that ACORN International has made about the need for regulations in this area.   We can only hope that this crisis will finally force all of our voices to be heard and allow progress for immigrants families and migrant workers who are desperate for remittance justice.

Ad from Western Union steering folks away from hawalas

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Editorial Support Lines up for Remittance Cap in Key Ontario Papers

ACORN Canada fighting for Justice in Remittances

Delhi   With the introduction of a member’s bill in the provincial parliament of Ontario by New Democratic Party MPP Jagmeet Singh from Toronto to amend the Consumer Act to put a 5% hard cap ceiling on remittances as requested by ACORN International and ACORN Canada as part of the Remittance Justice Campaign, support is lining up for the bill.  The influential Toronto Sun editorialized in favor and the Ottawa Citizen joined in the call for support for the measure.

The Ottawa Citizen had an interesting take with a conservative twist:

The best way to drive costs down is to encourage competition. For some recipient countries, new players and technologies have led to better prices. For others, there’s an oligopoly and high prices. It seems unlikely that the most punitive fees will come down without regulation.

In 2009, the G8 vowed to bring global costs for remittances down to five per cent by 2014. Market-based approaches, such as greater transparency in fee structures, are crucial to this effort. But they haven’t brought fees down very far.

The Citizen got it.  The standard business ideology may make predatory practices and glib assurances standard operating procedure, but when such rapaciousness cannot be impacted by fairness, it is time for legislation and regulation.

The Toronto Star started perhaps in a better place of understanding the importance of remittances and the cost structure, but they also made a powerful point:  all parties needed to support the legislation.  In other words this is too important to allow narrow partisanship to stand in the way and allow Money Gram and Western Union to fleece the pockets of migrant and immigrant workers.

No other province caps remittance fees, but the idea is no different in principle from limiting the interest charged on payday loans to prevent low-income earners from being gouged. Ontario did that in 2008.

All parties at Queen’s Park should back Singh’s bill. It would be an excellent step toward helping out some of the hardest working and most deserving people among us.

The same arguments could be made throughout the world, but for now the momentum is building in Canada where the leadership is, and the quick editorial support puts the pressure on for change!

Check out ACORN International for more information on remittance campaigns and how you can help.

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Freezing Private Sector Exec Pay

SEIU Canada

SEIU Canada

Toronto Sharing the pain is taking on a new meaning in Ontario, Canada’s biggest province, where there are 1 million public employees now enduring a proposed 2-year wage freeze as part of the Liberal party government anti-recessionary measures, and recently the Finance Minister publically agreed that some of these same wage controls should extend to the private sector, specifically the for profit health and nursing companies that are reimbursed by the government for care.

Union leaders representing tens of thousands of private sector health care workers, like Jacob Leibovitch of SEIU Canada and Ken Lewenza, head of the Canadian Auto Workers (CAW) have jumped into the mess arguing that the pill would have to be swallowed at the top not just at the bottom.  CAW argues that private companies should be exempted, but when all of the dollars come from public reimbursements it’s hard to argue very long that private companies “should not be part of public policy,” as Lewenza told the Globe and Mail last month.  SEIU’s Leibovitch seems to be beating the drum more clearly that the private companies would have bear the brunt as well.

“The companies know if they refuse to get on board, it could sink one of the province’s flagship policies,” said Jacob Leibovitch, executive director of SEIU Canada, which represents 50,000 health-care workers in Ontario. He said that the idea of a suspension, freeze or cut of the payouts that the nursing home companies make to their investors has also been floated.

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