New Orleans

Here are some of the likely elements of the deal:

• Foreclosure staff will finally have to be properly trained which seeks to correct the problem of hiring, literally, from Burger King drive-by windows.
• Third-party groups, including the shyster “mod-shops” and law firms.  I know Phoenix and there will be a lot of folks in this sub-industry looking for new jobs!
• Every homeowner in default will have one “single point of contact” which would finally put an end to the anarchic madness and referral phone banks from Guatemala used by Bank of America for example.

All of that is nice and there’s an indication that there might be fines in the future for the scofflaws who don’t mend their ways, but there are two ingredients that made a profound difference for the victims and could be game changers if there is finally a fair deal for the beleaguered folks trying to hold onto their homes and in some cases having them stolen from them.

• I’ve talked endlessly over the last year about the case of Frances Gomez in Phoenix.  While in the process of negotiating and being approved for a loan modification on her family home of 30 years, Bank of America foreclosed on her home and took it out from under her.  With pressure from the media, Advocates & Actions, and others, Bank of America admitted publicly that they had made a mistake.  They claimed that they bought the house back from foreclosure. They assigned it to a law firm in Phoenix to supposedly return the home to Ms. Gomez.  Now moving on almost a year later, Frances still does not have her home and has been caught in an endless “catch-22” which I have often shared with her as she has tried to get the “old deal” revived and seen Bank of America and its agents try to restore the original loan terms, pretending that this is a modification, that are almost three times the current value of the home.  Sure she could have the home back, but she would have to be crazy or rich, and she’s neither, so she continues to rent with her daughter and son-in-law and mourn the loss.  Well, this agreement may finally provide some relief, even if not her home!  The servicers will be required to employ an “independent consultant” who will review foreclosures over the last two years (why two?!?), and if homeowners were ripped off by predatory practices and fees or errors, incompetence, and theft as Frances experienced, then “they will be compensated.”  Let’s fight for that, Frances!
• Furthermore, this agreement reportedly will prevent there being more “Frances Gomez” cases in the future.  It will bar servicers from being able to foreclose while home owners “are pursing loan modifications that might allow them to stay in their homes.”  That’s what we’re talking about, and that will make a difference in dealing with these scalawags.

At least maybe it will.  Nothing has worked so far and no promises have been kept to date by any of these bums from the street to Pennsylvania Avenue.

The difference could be that finally there may be some real weapons we have to fight with to force a fair deal and a little justice for homeowners trying to hang on, and that’s hope that can fuel a plan!

New Orleans

In a significant concession HSBC, the main lender to the large preparers, announced that it was departing the business in what they described to me, and I reported in Citizen Wealth, as “reputational” concerns.  Despite the fact that they were making almost $200M per year from this business, there was no way to disguise its predatory nature.  JP Morgan-Chase was another big player in a session where they were conceding that they would lower rates, asked me sarcastically if we thought it would be “better if they got out of the business,” to which we answered “yes!”  Santa Barbara Trust was the last major lender still hanging in the business.  HSBC has assured us that they were on a step down, transitional contract, which would pull them completely out of the business with H&R Block by the end of 2009 while they dropped other companies immediately.

Given that background, I was both disappointed and delighted to read the news from H&R Block that they were scrambling to replace HSBC as their lender and credit source for RALs for the 2011 tax season.  This should not have been a surprise to them, but it was a surprise to me to see that HSBC had continued to stand behind the RALs in 2011, long after they had assured me that they would be out of the business completely.  Clearly in the last 2 ½ years since I left ACORN the organization had taken its eye off of the target and the consequences had not been good for lower income working families who are dependent on professional preparers.  That is disappointing.

Delightful was seeing that the IRS finally did the right thing after having been an enabler to this thievery for so many years and eliminated a code this last summer that allowed tax preparers to know whether or not the likelihood was good that the filer would receive their entire refund sufficiently to cover the charges and fees being larded on by the preparers.  The IRS was effectively doing a low grade “credit check” for the preparers.  Disgusting!  Once they did that the Office of the Controller of the Currency (OCC), one of the many federal bank regulators, issued a determination barring HSBC and the like from such lending by classifying it now as too risky, despite a last minute contract extension that Block (after filing suit against HSBC for reneging on the contract) had negotiated with HSBC for the 2011 season where Block would cover all HSBC losses.  Finally the federales did the right thing!

Though this may be the death knell for RALs, which are a loan with interest, against the sums, some of the other predatory schemes will still survive.  Block announced that it would continue to fund refund anticipation checks, which are more like advances, through its own bank, the H&R Block Bank.

These predatory operations have been crack cocaine for the big-time preparers for years, so it will take some time and effort to cut the heads off of theses snakes, but at least more of the tails are now going.

Thanks to Eileen A.J. Connelly and David Pitt, AP personal finance writers for a great story on these developments!

New Orleans

The New York Times’ Ron Lieber in his “Your Money” column recently listed seven suggestions to get her working in the right direction.  Most of his suggestions seemed more “small ball” than the scope and hopes for the Bureau.  The items weren’t trivial, because he included making sure that student loan disclosures be sufficient to advise students where they could get cheaper loans and some information that would be helpful to consumers like knowing the default rate at for profit colleges and being able to access credit scores for free or reasonably and before landlords and creditors muck around with them.

Ironically none of this really would be a game changer for consumers themselves.  Many of the suggestions were a “right to know” kind of thing without necessarily recommending eliminating predatory abuses or giving real “consumer financial protection.”  Surely, Warren will have a better list.

But, what was most surprising was the absence of anything really attacking predatory practices in housing loans, providing real protections and requirements for loan modifications, or curtailing and cleaning up the payday lending operations which have devastated lower income working communities.  Nothing was on the list about discriminatory practices in lending either?

Professor Warren is only going to be shepherding this Bureau for a short time.  Seems like she should be trying to score some runs for consumers, rather than just walk around a couple of bases.

Let’s make a real list and make it happen!

New Orleans

A front page article in the Times while I was off the grid in talking about home equity loans says it plainly:  “…one of the paradoxes of the recession:  the more money you borrowed, the less likely you will have to pay up.”

The banks are writing off these home equity loans at record levels and the default rate on such loans, given the collapse of housing prices in many markets, is busting the charts compared to other default rates.  In 2009 lenders wrote off $19.9 billion in home equity loans and in the first quarter of 2010 wrote off $7.88 billion in such loans.  It goes without saying that big bank balance sheets are probably carrying untold billions of dollars in bad loans that they are sequencing for write-offs in the future that are probably uncollectible but still on the books.  When any collection is made, it seems little more than 10 cents on the dollar is being collected.  The article quoted a Utah collection outfit plainly stating that anything more than $10-15,000 was simply uncollectable.

Damn!

The plain math for this weird mix of tragedy and opportunity is that if someone pulled out $100,000 or so in Arizona, California, Florida or wherever when the market value of their homes was soaring, then they might end up losing their home because they are underwater (though as I have counseled previously, in many cases their economic self-interest is already better from walking away rather than paying forever to never achieve equity), but they would have pocketed $90,000 free and clear.  Bigger whoops with million dollar places might end up walking away with two, three, five times that amount.

Before the crying towel gets pulled out for the banks, remember that the default rate is still less than 5% and falling slightly, so it’s not like there aren’t a lot of chickens like me and fewer foxes out there, but don’t talk about “moral hazard,” because in this bubble the banks and the borrowers were co-dependents all the way up, and now, all the way down

Shreveport

Why would there be an IPO and hovering investors in something that ostensibly is a tool for poverty reduction?  Why is there so much money to be made from the poor?  Are these loans predatory?

Part of the answer is well known and needs a much brighter light:  the interest rates on these loans are too high and verge on the predatory.  At the scale of these mega-microfinance outfits the business model is based on the gross profits from predatory interest rates.  We need to stop pretending microfinance at this level is about poverty reduction and be honest that this is simply a distribution system for high interest loans to the poor.

Esther Duflo, the well regarded, highly objective head of the MIT Poverty Action Lab, was the subject of a long piece in the New Yorker several months ago, which was interesting to me because she tried ever so gently to indicate that there was no real indication that micro-lending was doing much of anything to reduce poverty.

The more she and many others look at the claims versus the facts, the more clear it is becoming common sense needs to come to the fore:  debt cannot reduce poverty.

The disgusting and avaricious amendment to that simple truth is furnished in these new stories of private and institutional riches being created off the backs of predatory interest to the poor that we are now seeing.  There are too many wolves in sheep’s clothing.

Once upon a time there were just “bounced check” fees. One of the first thing all of us learned when we got a checking account is that we paid the piper if we didn’t either balance our checkbooks (which I didn’t) or at least keep up closely with our cash flow (which I did). The penalty for a mistake was getting an NSF (non-sufficient funds) notice in the mail, having to make good on some payments, having a fee deducted, and living through the embarrassment.

That was then, but not now. The quaint “bounced fee” world only accounts for $6 billion of the take for banks when we overextend past the money in our accounts. And, although I’ve got some beefs here, I’ve got to say that pretty much, “fair is fair.”

The banks found a profitable niche of business though in figuring out how to essentially make high interest predatory loans of our mistakes and charge exorbitant and unconscionable fees on top of it, largely by exploiting the new technological ease of ATM’s, debit cards, and online bill payment. According to a chart in the New York Times complied from Moebs Services, banks make almost $12 billion from check and online bill payment overdraft fees and over $20 billion from debit and ATM card overdraft fees which is their big kill.

I’m feeling smug here, because I feel like I have been rewarded for being a slow adopter since I’m old school and still won’t allow automatic bill payment from my account. My school was “stretch, float, and burn,” which allowed some management of meager cash flow against the hordes of bill collectors. Even paying more of my bills in a timely fashion as I got older, my view remained: you just never know! And, the notion of not being able to get them out of my account once they were “in,” was also frightening to a penny pinching Luddite.

I get the feeling that these bloodsucking banks aren’t quite being transparent with their customers. When reportedly Bank of America says it won’t charge a fee if the overdraft is less than $10 (Chase says $5) and will only hit the customer with a maximum of 4 overdraft fees per day (Chase says 3 per day!), I’m confused, since they should be able just to say “declined” when you hit the cards, right? I can guarantee you that’s what most of them do on credit cards! Given the way overdraft fees have soared, someone who went over the line could be hit with $100 or $200 in overdraft payments, which when the money is at low water could be the freaking reason the charges are bouncing in the first place.

The banks are promoting the fact that customers should continue to be sheep for the slaughter by opting in for “emergencies,” but from what I can tell, if citizens have the good sense to NOT opt in, then dollars to donuts, the banks will come up with a premium “emergency” product that will meet that niche just fine for whoever wants a AAA bank plan, though I don’t think it will make then $20 or $30 Billion.

Just say no!

Quepos           

            Partially, it was simply the “one that got away.”  It’s footprint was smaller with a base in Santa Barbara that was too far away from our groups and members to do much damage.  They had gotten into this predatory business and done very well, but were impervious to the impacts.  What did it matter to their normal customer base  in Santa Barbara after all?

            Direct discussions with Jackson & Hewitt, when I was with ACORN, when round-and-round, with J&H always claiming they would not “unilaterally disarm,” but would do so as H&R Block did so and others like Liberty Tax Services.  H&R Block was going to move from HSBC to its own bank.  I’m not sure if that happened or not.  Liberty was also a big customer for Santa Barbara. 

            The actions of OCC and other banking regulators are key here, because the withdrawal of Santa Barbara from this line of lending could finally push RALs out of the market, which would be huge.

            This was the Christmas present report from Bloomberg News:

Regulators ordered Santa Barbara Bank & Trust to stop providing the loan money, which covered about 75 percent of Jackson Hewitt’s financial products program, according to a regulatory filing by Jackson Hewitt.

Shares of the company, the No. 2 tax preparer behind H&R Block, dropped $1.34 to $4.50 on Thursday.

The Office of the Comptroller of the Currency told Santa Barbara Bank & Trust on Dec. 18 that the lender would not receive regulatory approval to originate the refund anticipation loans in 2010, according to a statement from the bank’s parent, the Pacific Capital Bancorp.

A bank spokesman, Tony Rossi, said that “the tax refund loan business is a sort of niche business that falls outside of what would be considered core banking operations.”

The bank signed a nonbinding letter of intent with a private equity firm to sell the tax business, the statement said.

Tax preparers are locked in a battle for customers, with Jackson Hewitt vowing this month to regain market share from H&R Block. Firms can attract clients with refund anticipation loans, in which customers who need cash immediately can get a short-term loan, typically lasting a few weeks, that is based on the expected amount of their tax refund.

Jackson Hewitt, with 6,600 outlets and almost three million clients, has been losing customers to H&R Block and Intuit, which makes TurboTax software. It suspended its dividend in March and has hired Goldman Sachs to explore “strategic alternatives,” language that typically means a company may be sold.

            The next target for economic justice reformers and citizen wealth advocates will need to be the unknown “private equity” company that will be tarnishing its reputation and brand – if such a concept is possible in private equity – by buying the Santa Barbara RALs business.  The other target may end up being whomever buys Jackson & Hewitt if Goldman Sachs is able to do the offload.

            You sow what you reap.