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Just Thoughts is the blog of the Empire Justice Center, New York’s statewide, multi-issue, multi-strategy public interest law firm focused on changing the “systems” within which poor and low income families live. Here staff and guest authors will share stories, announcements and perspectives on timely issues related to our work.    



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Bravo to AG Schneiderman

Issue Area: Consumer

There has been much discussion about the lawsuit recently filed by New York’s Attorney General, Eric Schneiderman, against JP Morgan for fraudulent activities committed by Bear Stearns before JP Morgan acquired it in March 2008.  For the record, Empire Justice Center is very supportive of these efforts and appreciative of the leadership role Attorney General Schneiderman has taken in pursuing accountability in the face of opposition.  It’s a matter of justice – those that do wrong should be held accountable for the harms they caused to both investors and homeowners.

It is absolutely critical that as a society we ensure that the predatory practices of the last decade are never repeated again.  Today, many of the failed predatory lenders have been acquired by the “Too Big to Fail Banks,” like Bank of America.  The price paid by the acquiring banks factored in the need to provide justice to those harmed by the predatory lenders and the litigation risks involved with the purchase. 

These failed companies were not bought by mom and pop banks.  Acquiring institutions bought them at fire sale prices.  The 52 week high for Bear Stearns’ stock before the crisis occurred was $133 a share.  JP Morgan ultimately purchased Bear Stearns for only $10 a share.  Having paid the fire sale rate, the acquiring banks must live by the rules of the free market.  Armies of well-paid lawyers and investment bankers reviewed the bank mergers.  Therefore, it is completely disingenuous for the banks to complain about being held accountable for the very bad practices that drove down the price they paid for the predatory lenders.  The litigation they now face was entirely predictable and was precisely why the predatory lenders were sold at the dramatically lower prices.  Again, the cost of losing litigation and having to make whole those harmed by the illegal conduct of the predatory lenders was factored into the sale price.

Many of those who now advocate giving the acquiring banks a free pass, have in the past actually opposed the need to provide financial relief to the victims of predatory lending.  They cited the risk of “moral hazard.”  While we don’t see any moral hazard in making the victims of predatory lending whole, we are a bit surprised by the inconsistency of those who fail to see the moral hazard in letting the acquiring backs off the hook.  To the contrary, there is a clear moral hazard in not holding predatory lenders and their acquiring institutions responsible for illegal acts that were wide-spread in the industry.  Litigation such as the NY Attorney General’s against these predatory practices will play an important role in ensuring these practices are not repeated in the future because those in the industry will know that a lender's sins will not be washed away with a sale.

Furthermore, the after effects of the financial crisis these perpetrators caused have directly resulted in hundreds of thousands of New Yorkers facing the loss of their homes.  Millions of families have seen a lifetime of savings wiped out.  Entire neighborhoods have seen price declines of 20- 40%.  Millions of homeowners have had to help bear the cost of the financial meltdown – shouldn't those harmed by illegal conduct be provided with compensation?

Despite the real suffering families are experiencing, our analysis of foreclosure data shows that the worst may still be ahead of us.  Foreclosures are still making their way through the courts.  The full impact of completed foreclosures and the consequences on hundreds of neighborhoods is still to be experienced.  Tens of thousands families who are unable to receive significant loan modifications will start facing eviction and potential homelessness.  Many minority communities will be impacted more than others.

Homeowners and their advocates have long been pushing State and Federal regulators to take legal action against these abusive practices.  We are proud of the New York Attorney General’s long history of protecting the rights of consumers and we applaud our Attorney General Eric Schneiderman for his leadership and for continuing with the tradition.



Tags: foreclosure | predatory lending | Bear Sterns | too big to fail | JP Morgan





Still working on that sunlight


In my last post, I talked about the need for better data to increase transparency and accountability in the mortgage lending market.  This week I have a great opportunity to make my case.  I am one of several consumer advocates from across the country who will be talking with staff at the Consumer Financial Protection Bureau (CFPB) about what information would be most useful to the public, regulators and policy makers, and how this information can be efficiently collected from mortgage lenders and servicers.

We will be talking with the CFPB about data-related issues, all of which are part of Dodd-Frank [1] and are critical to shedding more light on mortgage lending and servicing in this country:

(1) data enhancements to the Home Mortgage Disclosure Act (HMDA) dataset,
(2) the establishment of a default and foreclosure database and
(3) the public availability of the Home Affordable Modification Program (HAMP) loan modification data.

Maybe I’m just really curious, but when homeowners default on their mortgage loans, I want to understand what led these homeowners to default while other homeowners continue to pay and stay current on their loans.  Specifically, were borrowers with certain loan terms more likely to default than other borrowers?  And were the borrowers who defaulted able to get affordable loan modifications?  Using data from these databases, we should be able to point to the answers.

However, these datasets are three separate entities, collected at different points in time and often from two or more different reporting entities.  So we need a way to easily connect the data from one database to the other. This is why during our meeting with the CFPB this week I am going to be the champion of the “universal loan identifier,” or universal loan ID.  Are you still with me?  I hope so, because this is important.

The universal loan ID would first be used by the lender when it reports the loan under HMDA.  The ID would then follow the loan to the servicer and, if needed, be used when reporting any defaults, foreclosures or modifications related to that loan.  This relieves the servicer from collecting and reporting a variety of borrower and loan-related data pieces, including borrower income, race/ethnicity, gender, age and credit score, loan amount, term, APR and mortgage channel.  Regulators, policy makers and the public would already have access to this information in the HMDA data via the universal loan ID.

I believe the universal loan ID is the key to increased transparency and accountability, without sacrificing efficiency.

End Note:
 [1] See Sections 1094, 1447 and 1483 of the Dodd-Frank Wall Street Reform and Consumer Protection Act for the language pertaining to these datasets.



Tags: HMDA | Consumer Financial Protection Bureau | CFPB | mortgage lending | defaults | foreclosures | loan modifications





Free Legal Help for Monroe County Homeowners in Foreclosure


Did you know that if homeowners are struggling with their mortgage and facing foreclosure, there are professional and FREE services available from local attorneys to help them understand the foreclosure process? 

 

The possibility of losing a home can be incredibly frightening, and at times overwhelming.  The legal foreclosure process is a game with its own set of rules and regulations.  If a homeowner doesn’t know the rules of the game, it is much less likely she will keep her home in the end.  But there is help. Empire Justice Center offers two free legal clinics every month for anyone who wants to better understand the foreclosure process.  The clinics are developed to teach homeowners the rules and to enable them to take some control over a very stressful and confusing process. 

 

Under New York State law, most homeowners in foreclosure are entitled to a “Settlement Conference.”  This will occur early in the foreclosure process (once a homeowner has been served with a Summons and Complaint), and will involve the homeowner and an attorney for the bank appearing before a judge or judge’s law clerk.  The goal of the Settlement Conference is simple: to attempt to come to some alternative to foreclosure. 

 

The Settlement Conference is a relatively new process, having been created by the New York State Assembly three years ago.  It was created at the urging of housing counselors and legal advocates around the State, including Empire Justice, who saw that homeowners were not being treated fairly by their banks when they fell behind on their mortgages.  Paperwork was getting “lost,” questions were not being answered, and homeowners were growing increasingly frustrated.  The Settlement Conference is there to protect the homeowner and ensure that someone is watching out to make sure the banks are doing what they are required to do under New York and federal law.

 

There are several alternatives to foreclosure that may be possible for homeowners: entering some form of a loan modification (which would allow the owner to keep her home and have a revised mortgage payment), agreeing to a repayment plan (which would allow the owner to keep her home by paying back all missed payments to the Bank over a short period of time), or entering a “short sale” or “deed in lieu of foreclosure” (which would NOT allow the owner to keep her home, but would limit the negative consequences to her credit). 

 

We understand that it can be incredibly frightening for homeowners to receive the letter telling them have to attend the Settlement Conference.  And that makes sense – most of us try to avoid the courthouse if we can!  In this case, however, attending a Settlement Conference represents the best chance a homeowner has to save her home.  So if a homeowner wants to save her home (or even to just limit the impact of losing her home), it is vital that every homeowner attend their Settlement Conference.  

 

To learn more about the details of the foreclosure process, and what homeowners should be doing at any given stage of that process, we encourage struggling homeowners to attend the FREE clinics put on by Empire Justice Center.  Dates and times for upcoming clinics are listed below (for additional dates, see our calendar).

 

 Place

Time

Dates

545 Hall of Justice, Room 25

99 Exchange Blvd.

Rochester, NY  14604

 

 12:30 - 1:30 pm Oct, 31, Nov, 28, Dec, 19

United Way Building

1st Floor Confrence Room

75 College Ave.

Rochester, NY  14607

 6:00 to 7:00 pm Oct, 11, Nov, 8, Dec, 13


Tags: foreclosure | mortgage | homeowner | legal clinic | settlement conference | loan modification