Bank Lawyer's Blog

The Perfect Fit

An excellent example of the proof of The Peter Principle:

Former Ohio Attorney General Marc Dann spent his first day after resigning helping his wife with her business selling dishes online.

Dann's attorney Mike Harshman says Dann helped his wife, Alyssa Lenhoff Dann, with her side job selling Fiestaware on the Internet.

Dann walked two miles from his suburban Youngstown home Thursday to the office where he took orders and packed dishes.

He "took orders" from his wife, too, I imagine. Since he's admitted to boffing his scheduler, I'll bet the better half will have him packing a lot of Fiestaware to work off his karmic debt. Walking four miles a day also might help Dann work off that baby fat.

It appears that the world is full of employment opportunities for the former AG.

Harshman says Dann is weighing career options that could include the law, teaching or another run for political office.

Teaching what? How to lie badly?

I think he ought to seriously consider becoming a Passion Parties "consultant." That sounds like a line of work that would be right up his alley, so to speak, although in Texas, it presents an occasional bump in the night.

Then again, Obama and McCain are both looking for quality vice-presidential candidates, so he shouldn't be counted out of an imminent return to the political arena.

The Latest, If Not Greatest

Updating a couple of stories we've been following:

Marc Dann resigned today, proving that even someone devoid of shame can read the handwriting on the wall when it's spray painted on the wall with HUGE CAPITOL LETTERS. Ohio Democrats wanted him out, filed articles of impeachment on Tuesday and on the same day the Governor authorized an investigation by Ohio's Inspector General, which got rolling this morning.  Good bye Crusader Dann, The Mortgage Cop (paid subscription required). You can always join your role model, Eliot Mess, as an associate in his law firm, Spitzer & Dupre Associates. Maybe you'll even make your own Top Ten List.

TJX, the subject of a massive security breach that resulted in the theft of 90 million stolen credit card account numbers and hundreds of millions of dollars in claims, has recently "suffered" from increased sales (paid subscription required). Ben Worthen of The Wall Street Journal's Business Technology Blog isn't happy about it.

For those of us who care about tech security – admittedly a smaller group than those who care about cheap clothes – the results are disheartening. And they raise two questions: 1) Why don’t customers avoid businesses that mishandle their personal data? 2) Why should businesses care about protecting customer information if the public doesn’t care?

We think we know the answer to the first question: It’s not customers who suffer when someone uses their credit cards — it’s the bank that issued the card. Sure, a customer has to go through the hassle of getting a new card, but this doesn’t cost any money. We recently spoke to one man who’s had his credit-card number stolen seven times. He now views getting a new card as routine.

We don’t know what to do about the second question, though. Breaches are bad PR, and the business leaders we’ve spoken to whose organizations have lived through one make it sound like an ordeal that they wouldn’t ever want to repeat. But it’s hard to see how businesses that haven’t gone through a breach would look at TJX’s numbers and conclude that they need to spend more on security technology and train employees to behave differently.

Yep, it's the banks that suffer and it's the banks that have been suing (well, along with every other aggrievede party that class action lawyers can dig up). Bank Litigation: a growth industry. This is a great country, is it not?

As to Worthen's second worry, that TJX's example will make businesses less concerned about security technology, that's not an option for banks. First, their business depends on being secure. A leaky bank bleeds customer goodwill, and reputational risk is a safety and soundness consideration, too. Which leads us to the more important consideration, that bank regulations and guidelines require banks to be concerned about technology security, whether or not they'd otherwise be interested. Finally, since banks, especially credit card banks, are often on the hook for costs associated with replacing compromised credit cards, they have an incentive for making sure that the merchants they do business with give a hoot about technology security.

Still, consumers can be "sheeple" on occasion, can't they?

The Biggest Losers?

Today's editorial page of The Wall Street Journal, in an editorial entitled "The Biggest Housing Losers," answers the question "Who let the dogs out?" The WSJ points its finger at the Elton John of the House of Representatives, Barney Frank. According to the WSJ, it's the American tax payer whose collective posterior is firmly within the dogs' jaws.

You may not know it, dear reader, but Congress is playing you for a sap. During the housing mania, you didn't lend money at teaser rates to borrowers who couldn't pay, or buy a bigger house than you could afford. You paid your bills on time. As a reward for that good judgment and restraint, Barney Frank is now going to let you bail out the least responsible bankers and borrowers.

The Massachusetts Democrat's housing bill passed the House Thursday, and it makes us wish we had splurged like so many others. In the name of helping strapped home buyers, Mr. Frank is giving lenders a chance to pass their worst paper onto Uncle Sugar. If both borrower and lender agree to participate, lenders can accept 85% of the current appraised mortgage value and in return get to dump up to $300 billion of those loans on the Federal Housing Administration (FHA). Guess which loans they are likely to dump?

Yeah, guess. I dare you.

The WSJ makes much of the fact that the Congressional Budget Office has come down from its initial estimate of the cost to taxpayers of Barney's Big Bailout from $27 billion all the way to $2.7 billion, "in part because it assumed that most people eligible for this assistance will not apply for it." However, the WSJ then warns us to "watch out" if lenders and borrowers do jump on board, which it thinks is more likely since Barney has been threatening lenders with more dire legislation if they don't "get with the program.

I think the lack of enthusiasm of lenders is palpable. As reported by the WSJ itself last Friday, representatives of lenders' trade groups have almost uniformly suggested that this arrow, only one in a quiver of options available to mortgage servicers, will likely never make it to a bow string. Paul Leonard of the Financial Services Roundtable indicated that the Frank Option was not that attractive.

"I don't think our members would say it shouldn't be considered, but the first option would be to continue to do loan modifications."

Mortgage-servicing companies, which collect a small monthly fee for each loan they handle, have little incentive to put borrowers in this program unless they are "95% certain this borrower is going to default," said Thomas Zimmerman, head of asset-backed and mortgage credit research for UBS AG. Many borrowers who took out loans with little or no documentation are likely to be ineligible because their income was overstated, he adds. Others may fall through the cracks because of difficulties in refinancing loans that have both first and second mortgages.

Other mortgage lending representatives were equally cool.

"I don't believe this would be a tool that would be used significantly," said Tom Deutsch, deputy executive director of the American Securitization Forum, which represents mortgage-servicing companies and investors who buy mortgages that have been packaged into securities.

David Kittle, chairman-elect of the Mortgage Bankers Association, said at a conference earlier this week that he sees no rush by mortgage bankers to write down loans.

True, Barney has threatened lenders, but he's been doing that for decades. In light of the fact that the Decider-in-Chief has promised to veto the bill if the Senate also passes a version of it, I'm not sure that I'd lie awake worrying about it as much as the WSJ seems to be. Regardless of what Barney threatens, I think that lenders will do what they decide they ought to do, based upon what's in their own best interest. They buy and sell politicians every day, and I think that Barney's bluff is not going to change that. They'll have to rely on Republicans to stick a fork in this one in the Senate, or rely on the Republican in the White House as a last resort.

Of course, I could be wrong.

The WSJ mentions other provisions of the bill it finds objectionable, but its major beef is the bailout of imprudent lenders and borrowers by the overwhelming number of taxpayers who did not engage in such risky behavior.

We can only imagine what else is buried in this tome, which deserves a Presidential veto. But the worst problem remains its invitation for bankers to dump their biggest losers on taxpayers. The Frank plan appears to take care of everyone in the housing market, except the renters and homeowners who lived within their means.

What else is new? Sure, we're disgusted with the prospect of having to spend that massive "rebate" check that will show up any day now paying for such a bailout. On the other hand, there's so much waste and pork pumped out of Washington, D.C. that this is hardly the worst of it. We often feel like Al Pacino's character in the movie "Scent of a Woman."

"If I were the man I was 5 years ago, I'd take a flamethrower to this place!"

I'll be as worked up about Barney's Big Bailout if it looks more likely that it will ever see the light of day. Right now, I'd say that's not a sure bet.

NAR President-Elect Brays About Banks

The National Association of Realtors has long been a favorite target of this blog, primarily because we love to bag game that's easy to hunt, and NAR is so easy that it really ought to be considered roadkill. Last year, NAR President Pat Vredevoogd Combs boldly predicted that Congress would enact a permanent ban on national banks entering real estate brokerage by the end of 2007.  Didn't happen. Then there was the long -standing battle to prevent Wal-Mart from getting a bank charter, which NAR looped into the national bank/real estate debate. NAR also made a helpful suggestion last year that FHA step into the breach to solve the subprime lending crisis by refinancing subprime loans of delinquent borrowers after the subprime mortgage holder agreed to write-offs of principal balances (which is the same idea Barney Frank has been pushing with his legislation, which was recently passed by the House and which the White House has promised that the President will veto). Again, bankers said "Thanks but no thanks."

Last week, the president-elect of NAR, Charles McMillan, carried on NAR's fine tradition of bank bashing by blaming the entire state of the depressed real market nationally on conservative lenders who impose prudent underwriting guidelines on residential loans.

A rebound in the housing market is being held back by stingy lending standards, the president-elect of the National Association of Realtors said Thursday.

Irving real estate agent Charles McMillan – who takes over as head of the 1.3 million-member Realtors association later this year – faults mortgage companies for keeping some potential homebuyers out of the market.

"All of the relief that's been given to the banks in the marketplace has not trickled down to the consumer," Mr. McMillan said at the annual meeting of the National Association of Real Estate Editors in Dallas.      

"What they have done is raise fees and make qualifications almost impossible for people to get loans," he said.

In particular, Mr. McMillan criticized the high costs of so-called jumbo loans – mortgages of $417,000 and more – that are chilling buyer demand in many markets. Interest rates on such mortgages now are much higher than those on smaller loans.

And Mr. McMillan said that in some depressed housing markets lenders are raising costs even higher to homebuyers and making it tougher for them to qualify for loans. "That stigmatizes properties unfairly," he said.

You knew this was coming, didn't you bankers? Politicians are lambasting you and your regulators for lax lending standards, for making "liar loans," for tricking unsuspecting borrowers into loans that they couldn't afford to repay. The regulators are looking up your nether regions with electron proctoscopes, yammering at you to tighten up lending standards, increase loan loss reserves, and beef up capital. Right on cue, here comes this idiot from Irving (Texas, unfortunately) complaining that not only are you too darn conservative, you're taking "all the relief that's been given to you" and keeping it for yourself. You're not letting it "trickle down" to the little guy: the realtor.

What's "all that relief" you ask? Don't bother confusing Mr. McMillan with his lack of facts, bankers. He's got to blame somebody that the residential real estate market sucks, and he certainly wouldn't want to acknowledge the fact that realtors have been putting people into homes they can't afford for years, finding them mortgage brokers who will make a loan to a corpse as long as there's a yield spread premium and an origination fee in it, and that's fine by them as long as they get their real estate commissions paid.

Put simply, lenders haven't been given relief except with respect to access to liquidity, which they need to survive in the face of sustained losses from operations. Many lenders don't have the capital to fund growth, and if they did, they wouldn't pump it into assets like residential mortgage loans, for which the market's shrunk dramatically. As to underwriting standards being "too tight," tougher underwriting standards are long overdue, are required by all mortgage market participants and their regulators, and for the foreseeable future will be a fact of life. Get used to it, Chuck. Whining makes it appear, perhaps accurately, that you don't understand the new paradigm.

NAR also is concerned about homeowner anger management.

"We have consumers angry that they can't sell their homes," Mr. McMillan said. "America is hurting now."

Here's a helpful suggestion for alleviating the anger and the pain. NAR should fund a financing vehicle to buy all these great loans they want banks to originate with looser underwriting standards. In fact, NAR ought to set up a program in which realtors invest half of their commission in such loans, since they're obviously a great investment and, in doing so, they would help everyone concerned, including, especially, those hurt and angry home sellers. In addition, realtors should personally guarantee these loans, which (assuming the realtors have sufficient net worth and/or income streams) would make these loans a lot more attractive to lenders who might be a bit gun shy. Or, perhaps, NAR and/or its members could fund private mortgage insurance for such loans. That way, realtors will be performing a public service and simultaneously making themselves rich by taking advantage of the fact that banks and other mortgage lenders have overestimated the risk inherent in residential mortgage loans. They'll also provide the grease that will get this residential real estate wheel rolling again, just like in the good old days before the crash.

On the other hand, NAR might start treating its members like the adults they are, realize that real estate's a cyclical business, and that we're going through a down cycle, which will take time to work itself out, and stop making such a public ass out of itself.

I have a feeling that NAR represents the views of its rank and file members as well as the American Bar Association represents its members. In other words, not well. I know too many savvy realtors who understand reality as well as realty to believe that hysterics like those put out by Mr. MacMillan represent their considered views.

How About A Moratorium On Moratoriums?

Word came today from Teresa Rice, General Counsel of the Minnesota Bankers Association, that a major amendment was made on the Minnesota Senate floor on Monday of this week that exempts loans originated by state or federal banks, savings banks, or credit unions from the one-year foreclosure "deferment" provided by the Minnesota "Subprime Borrower Relief Act of 2008." The law has been making banks in the land of a thousand lakes sweat a bit (a lot, actually). In an e-mail to me today, Tess stated that the proposed legislation "is the first major bill in a long time that the Minnesota Bankers Association has had to completely oppose." At the rate the cynics in state legislatures across the country are churning out this chum, it may not be the last.

At least we didn't have to face the astonishing prospect of federally-chartered banks and thrifts pulling out the big stick of federal preemption and then having state banks, thrifts and credit unions cry about a competitive disadvantage (or simply switch charters). Then again, "eligible foreclosed loans" that were originated by non-financial institution lenders and purchased by banks and thrifts (and securities that are backed by such loans) are still in for impairment.

Housing Wire's Paul Jackson reported yesterday on a similar one-year moratorium bill passed by the New York Assembly (along with three other consumer protection measures). It does not appear to contain an exemption for banks, thrifts and credit unions. If it makes it through the Senate and is signed by the governor, perhaps we'll get to see how "astonishing" are the actions of federally-chartered banks and thrifts in pushing preemption. The legislation would give the trial court the right and obligation to determine a new mortgage payment for the duration of the moratorium in an amount "which will preserve the relative financial interests of both parties under terms which are equitable and just." Cool. No rewrite of the mortgagee's contract there, is there? No, there isn't, according to one of the bill's sponsors.

Under the terms of the bill, lenders would need to certify their complete cost of carry — traditionally, around 1.5 percent of unpaid principal balance per month — which would be paid by the borrowers in lieu of their full mortgage payment during the stay period.

Specifically, the bill says that the “lender must establish to the satisfaction of the court the minimum monthly amount necessary to preserve their relevant financial position so as to prevent an erosion of the mortgagee`s financial position.”

Amusingly, the bill also says that “the purpose is to postpone the mortgagee’s profit and not to cancel or alter the terms of the mortgage agreement.” For one thing, lenders don’t profit from a foreclosure, so the bill is essentially winding up losses for all parties, not postponing some sort of phantom profit; for another, the bill most certainly alters the terms of the borrower’s mortgage agreement — that’s the very textbook definition of a one-year moratorium on payments.

Don't throw ugly facts into a perfectly positioned political spiel, Paul. The force of logic's irrelevant to a cynic. Speaking of which, Sheila Bair ought to be on board with this bill, regardless of its financial impact on any FDIC-insured institutions. It appears to be pro-consumer, and underlying financial reality is not a consideration.

The long-term foreclosure moratorium appears to be the flavor of the day for pols eager to show the voters that they'll stand up for the little guy and face down evil  mortgage lenders. New York State Assembly Speaker Sheldon Silver spun it so well.

"The federal government was quick to bail out big businesses like Bear Stearns from near-collapse, but seems to have all but forgotten the everyday common household victims of this national crisis," said Silver. "We in the Assembly Majority want to see New York's families stay in their homes and our communities to remain intact. Our package is not a bail out. It's an assistance program to help homeowners in our state keep the American dream from turning into a nightmare."

That's right, the unique "bailout" of Bear Stearns to prevent a general collapse of the financial system (which even economic moralists like Warren Buffet and Charlie Munger thought was a justified exception to the "moral hazard" rule) is the same as artificially delaying the foreclosure of thousands of subprime loans to borrowers who can't pay them now and won't be able to pay them in a year. And the fact that it's an election year means that "the Assembly Majority" doesn't give a rat's tukus that the effect of such legislation won't make a silk purse out of a sow's ear, which will still be attached to the same lipstick-wearing pig when the moratorium expires. Of course, that will be after November 2008, won't it? At that point, while the voter/borrower pigs are butchered, the legislator pigs will be back grunting at the public trough.

Investigation Damns Dann

Ohio Attorney General Marc Dann's attention will likely be diverted by more than trial court judges berating him for pushing his political career by intervening in foreclosure proceedings. Less than a month after a public scandal exploded over allegations by female employees in his office of sexual harassment by some of his lieutenants and of an affair by the AG with his much younger female "scheduler," two of his top aides were fired (one for trying to get a  lawyer on the AG's staff to commit perjury) and another resigned. Oh yeah, the AG finally admitted that he had an affair with a female staff member, but refused to reveal her name. Coincidentally, his "scheduler" also resigned.

Not-so-astoundingly, Dann refused to resign. While many commenters to various Ohio newspaper blogs expressed outrage at Dann's refusal to make like his role model, Eliot Spitzer, and take a powder, and although Ohio newspaper editorial boards, with the lone exception of Dann's hometown newspaper, have called upon him to resign, this appears to be a case where a true scumbag's purely political considerations and personal shamelessness coalesce to encourage him to drag his feet, at least until he sees how long he can hang on until, perhaps, the public sees another bright, shiny object and lets its ADHD lead it, slack-jawed, in other directions. As Jonathon Adler at NRO Online points out, if Dann, a Democrat, resigns before September 24, his replacement (to be appointed by Democratic Governor Strickland) would have to stand for re-election in November. If he resigns after September 24, his replacement could serve out the remainder of Dann's term (ending in 2010). Maybe I'll get a birthday present ad he'll resign on September 25.

Republicans are having a field day with the uproar. They'd like nothing better than to drag this out in a year when the news for Republicans nationally in general, and in Ohio in particular, has been bad. As one headline in Ohio put it, Dann's scandal is a "gift" to the Ohio Republican party. On the other hand, the Democrats have to decide whether the benefit of possibly losing the Attorney General's election in November (Dann barely beat his Republican opponent in 2006) is worth the public humiliation of keeping such a dead weight around for the next four months, especially if the public thinks that Governor Strickland is in cahoots Dann in engineering such a ploy. That might backfire on Ohio Democrats in a year when Ohio ought to go Blue.

Dann's downfall wouldn't be so satisfying if he hadn't swept into office, as did Eliot Spitzer in New York, with such a holier-than-thou attitude and a promise to root out evil. Also, his cynical intervention in foreclosure proceedings on a PR crusade against lenders for no purpose other than to delay the inevitable and to add to his public profile as a defender of the "little guy," revealed him to be as a big a bully and abuser of power as Eliot Mess.

His refusal to resign on the basis that he's suffered sufficient punishment ("public humiliation") for having an affair and for misleading the public and, it could be legitimately argued, the investigator he appointed to sort out the allegations of wrongdoing by his staff (the entire "pajama game" dance he did, and the "she was there at night and there in the morning" bit, was disgusting), renders hollow his contention that he's "taken responsibility" for the wrongdoing within his office. When the person who's ultimately responsible for wrongdoing decides his own punishment and that punishment is substantially lighter than the punishment suffered by the subordinates for whose bad acts he's responsible, then "responsibility" does not mean "accountability," or at least not an accountability in which the person held accountable suffers any substantial adverse consequences. In addition, his attempt to "complete" his misleading statements to the investigator at a later date unmask him as the quintessential trial lawyer, a type loathed by a public that appreciates an explanation that at least appears to be informed more by common sense and veracity than by whatever "spin" will permit you to skirt a perjury charge by the skin of your oh-so-clever teeth. You can read the transcript for yourself and make your own judgment. I think Dann's performance thus far reveals his utter contempt for the voters of Ohio. He must think them fools.

As we've discovered throughout the course of the subprime mortgage crisis, and the response of both state and federal politicians and bureaucrats to address it, the public ought to demand that its public servants be better than they've so far demonstrated themselves to be.  Notwithstanding the cynical pose sometimes struck by this blog for entertainment purposes, we honestly believe that the public isn't getting what it voted for or what it's paying for. It's got nothing to do with political factions (Republican Senator Larry Craig's adrift in the same moral lifeboat). The public deserves better than clowns like Spitzer and Dann.

Sheila's Singing The Same Old One-Note Samba

Sheila Bair won't quit. Like the Everyready Bunny, she just keeps going, and going, and going, on and on, singing the same old tired, sad, off-key tune. The fact that her intended audience continues to passively-aggressively ignore her when she talks to them and, when her back's turned, to give her a derisive middle finger, not only doesn't discourage her, it apparently energizes her. Obviously, she's deep into the D/S scene, and not on the "dominant" side of role playing.

In today's The Wall Street Journal, reporter Michael Crittenden faithfully reports yet another public yap-fest by Sheila in which she berates "[p]olicymakers, banks and other players in the housing market" for continuing to review loan portfolios "loan-by-loan" instead of just grabbing huge fistfuls of subprime loans and implementing "a more systematic approach to moving homeowners into more affordable loans." In other words, damn the facts and rational analysis, damn concepts of equity, damn what people in the mortgage business might consider to be in their own best financial interest, full speed ahead!

A normal, rational person who heads a powerful government regulatory agency might actually start to rethink a position if those who are supposedly subject to her influence pay her lip service, then continue doing things the old fashioned way.  Obviously, the "players in the housing market" have decided something: Sheila's not a player, or, if she is one, she can go play with herself.

Since we're talking about a career pol and academic, however, here's an idea for Sheila to chew on. Since she obviously knows better than other market participants what's in their own best interests, her position on wholesale loan modifications MUST BE the path to safety and soundness for the financial institutions the FDIC insures. As to those market participants who are subject to the FDIC's regulatory control, which, frankly, since she's so obviously right, would include all FDIC-insured institutions, even those whose primary federal regulator might not be pushing the same agenda as Sheila, she should be forcing them to adopt wholesale loan modification programs. Since the OCC, the OTS and the Federal Reserve don't know slime-from-shinola about this issue, and state bank and thrift regulators are equally ignorant and/or ineffectual, the FDIC should use its primary and backup enforcement authority to force the issue, to make these cretins fall in line. Any rational person would have to agree that a loan-by-loan analysis is not acceptable, right, so force those participants that you can reach to do what you want them to do.

In other words, Sheila, put up or shut up. The jawboning isn't working and is making you look not only foolish, but weak, which in D.C., is the bureaucratic kiss of death.

It might be that Ms. Bair realizes that she's on the sidelines and is not attempting to do anything other than conducting a PR campaign to build up her gravitas for her next job as the head of ACORN, a professor of finance at Bryn Mawr, or the Consumer Credit Commissioner of a state of her choice. Colorado's in the process of turning from red to purple, which ought to make it an attractive (or at least tolerable) destination for someone like Sheila (plus, she'd be only an hour away from radical snowboarding venues). So no one misunderstands where Ms. Bair's coming from in this "hurry-up-and-modify" world she lives in, she "demolished" the entire idea that there are any borrowers who might not be entitled to a loan modification.

She stressed the need for consumers to contact counseling groups and their lenders to try and prevent foreclosures. But describing a recent foreclosure prevention event she attended in California, Bair said policymakers need to better address the plight of consumers.

"I think we miss the human side of how this is impacting borrowers," Bair said, criticizing efforts by some policymakers to cast troubled borrowers as investors or speculators.

  "I didn't see a lot of house flippers," Bair said of the California event.

Ms. Bair attended an event in California and did not see "a lot of house flippers" there. Which is evidence of nothing, except that Ms. Bair views the world through a glass darkly.

Is it 2009 yet? Is there a new administration in the White House yet?

A Bi-Partisan Roll Back? Don't Bet On It

Since the US Congress spends a great deal of its time making life miserable for financial institutions in this country, your ears perk up when legislators on both sides of the aisle make noises about easing the regulatory compliance burden on banks, especially when the bi-partisan effort concerns legislation that was passed relatively recently.

Members of the U.S. House Committee on Financial Services are trying to pass legislation that would stop the federal government from implementing regulations requiring financial institutions to police Internet gambling.

Committee Chairman Barney Frank, D-Mass.; ranking member Ron Paul, R-Texas; and committee members Luis V. Gutierrez, D-Ill., and Peter King, R-N.Y., sent a letter to all members of Congress seeking support. They said that representatives from the regulatory agencies have admitted there are "substantial problems" with creating regulations under the Unlawful Internet Gambling Enforcement Act of 2006 without hindering payment systems.

The UIGEA requires civil and/or criminal penalties for banks, credit card companies, and others who process Americans' payments to gambling Web sites. Supporters say it would prevent underage and compulsive gambling. Opponents argue that it violates U.S. citizens' constitutional rights and sets a dangerous precedent for Web commerce by criminalizing the transfer of funds if the end result is illegal.

Frank and Paul introduced H.R. 5767 earlier this month. The bill would stop the Department of the Treasury and the Federal Reserve System from proposing, prescribing, or implementing regulations required by UIGEA. Frank, Paul, Gutierrez, and King also asked the Treasury and Federal Reserve System to stop creating and enforcing regulations related to UIGEA.

"Given the many other priorities that are pending at your agencies ... we believe it would be imprudent for you to devote additional agency resources to this Sisyphean task," they explained in letters to the leaders of the Treasury and Federal Reserve.

Bankers and their trade groups have been moaning about this expected burden for some time. It's bad enough that the government expects banks to be cops where terrorists and organized (and disorganized) criminals are using the financial system to commit serious crimes, but expecting them to crack down on college kids playing No Limit Texas Hold 'Em over the Internet with the likes of Phil Laak and Jennifer Tilly is too much. At least, Ron Paul and Barney Frank agree that it's too much. We'll see where this goes. 

It's obvious that the US Government would like to sing its fangs into the neck of online gambling in some fashion, and it's obvious why.

PricewaterhouseCoopers predicted that regulated Internet gambling could generate between $8.7 billion and $42.8 billion in federal tax revenue during the first 10 years.

You could fund a lot of pork with such a tidy sum.

Just think how much they could raise if they decided to legalize and regulate Internet sales of weed?

Even if Congress fails to launch the "final solution" to the subprime mortgage "crisis" before the election, let's hope that they can at least continue a bi-partisan effort to gut this bad  piece of legislation before banks actually have to comply with it.

Cynicism or Stupidity? You Be The Judge

At the end of a long day, I tried to catch up with my "professional reading" (The Economist, The Wall Street Journal, a trade paper that doesn't list this blog in its roundup and, therefore, is dead to me, Sports Illustrated's Swimsuit Issue, etc.), and what did I read right out of the gate but this cynical nonsense.  I was about ready to start fisking the report when I decided to check with a few of my favorite bloggers first and, sure enough, Tanta and PJ had already taken care of business.

Paul Jackson at Housing Wire pummeled this sorry report today like Jake LaMotta pounded Sugar Ray when he was really, really cranky. As I read his piece, I couldn't get Robert De Niro in "Raging Bull" out of my mind ("I'm the boss-boss-boss-boss-boss-boss-boss-boss-boss!"). Just a sampling, then read the rest.

There isn’t an effective loss mitigation strategy I know of that can solve for fraud. Extending foreclosure timelines, or introducing more uniform standards for loss mitigation — both “solutions” proferred by the state AGs in their report — will actually serve to make fraud even more costly for everyone involved. And that’s the last thing anyone who wants to see housing recover should be rooting for.

[...]

In no small part, fixing the current mess is tied to fixing fraud; and that means fraud at all levels, from borrower to broker to lender. It’s both as simple and as complex as that.

Which means that it’s time borrowers, consumer groups and erstwhile working groups stop floating a revisionist history of the “hapless borrower” — you know, the one where greedy, mean lenders duped those innocent and pure borrowers? — as a substitute for what’s really going on in the real world.

Yeah, it's time, Paul, but what are the odds?

Although Tanta claims that she's merely "piling on," she actually dissects the report like a scalpel-wielding Hannibal Lechter looking for a liver to go with her fava beans ("When I opened the cranium, I found little grey matter but much fecal matter."). Her always spot-on dissection is, of course, greatly aided by the fact that she (as does Paul) has an unfair advantage over the report's authors: she actually understands the mortgage business. Her carefully considered conclusion coincides with my initial gut reaction.

The lesson of the "stated" disaster--stated income, stated assets, stated appraised values, oral "promises" of loan originators rather than clear written disclosures, the whole cluster of practices that removed the "barrier" of "paperwork"--is apparently still lost on the Working Group. We started this by being "efficient" about the documentation and casual about the borrower's own statements; we aren't going to get out of it that way. This report just reeks of political grandstanding. I'm sure I know at least one journalist who will love it.

"Political grandstanding"? You betcha.

I was talking today with an attorney who represents a financial institutions trade association, and is intimately involved in legislative efforts at the state level to "solve the subrime mortgage mess." I was commiserating with him over the apparently limitless supply of clueless legislators (my phrase, not his) who insist on doing precisely the wrong thing at exactly the wrong time. I know it's an election year, which means political cynicism is elevated above its normally high levels, but I told him that it's got to be especially tiring this legislative session trying to beat back wave after wave of ill-advised legislative interventions in the mortgage markets that even quarter-wits like yours truly can see will not only not address the intended problems, but will likely make the problems worse and, simultaneously, create a whole batch of new ones. He agreed wholeheartedly, and ruefully observed that we've still got a long way to go until November.

I asked him whether the legislators who were so eager to "do something" were amenable to listening to reasoned explanations as to how their legislation might be useless or much, much worse. His reply is that they don't want to listen because they simply don't care. They don't care about the facts and they don't care about the actual effect of the legislation. All they care about is being able to go back to their constituents, who understand  the mortgage market even less than they do, and tell them that they "did something." Adverse results likely will surface down the line, and a reasonably competent politician can always spin the story so that someone else is to blame.

This may be a long, hot, tiresome summer.

 

Payday Legislation Larded Up, Then Buried

A cadre of Colorado legislators set out on a jihad earlier this year to eradicate the stink of payday lending from the pristine air of the Mile High State. They vowed to drive the bottom-feeding, blood-sucking, tobacco-spitting varmints back into their burrows and make the world safe again for those lenders to folks on the margins who have a historical right to that kind of business.

People like this guy:

 

Or this guy:

Or even worse, THIS GUY:

The solid solons introduced legislation to accomplish that crackdown and had some early success. Opponents rightly noted that the law would likely put regulated payday lenders out of business.

"Where are these people going to go if these financial providers are no longer in the community?" asked Rep. David Balmer, R-Centennial.

Where they went wasn't the point. The point was that people who patronized payday lenders were too irresponsible to fend for themselves, so the legislature had to fend for them.

Rep. Terrance Carroll, D-Denver, said whether or not the payday lending industry survives is beside the point.

"This is about our moral obligation to protect the most vulnerable members of our society from predatory lending," Carroll said.

Take that, Balmer, you amoral SOB!

The bill narrowly passed the House and made it out of a key Senate committee intact and passed a first reading. The missteps of Internet payday lender Sonic Cash even gave the impetus for the legislation a little PR boost.

Then all hell broke loose.

Opponents started sticking amendments to the bill like bankers stick "Kick Me" signs to the back of Sheila Bair. Soon, the bill looked like any other piece of legislation: the inside of a sausage casing.

Crying "Foul!" (or simply crying), the bill's sponsors are rolling up their campaign and taking their hurt feelings back to their offices, where young interns are expected to suffer the severe punishment meted out to the innocent when the guilty are frustrated.

Sponsors said Tuesday that they plan to kill a bill that would have restricted the payday lending industry in Colorado, saying the bill no longer does what was originally intended.

House Bill 1310 would have capped the interest rate on a payday loan at 45 percent, cut lender fees and imposed a 30-day minimum repayment period, sponsors said.

But amendments added onto the bill would have allowed "endless loan fees" and set a seven-day repayment period, "making it even harder for borrowers to get out of the cycle of debt," sponsors said in a statement.

"We are killing this bill because as amended it no longer protects hardworking Coloradans," Senate President Peter Groff, D-Denver, one of the bill's sponsors, said in a statement. "The bill as it sits now protects industry profits that are garnered with interest rates that average more than 350 percent. That just isn't right."

"We began this effort to rein in excessive fees earned on the backs of hardworking Coloradans," said Rep. Mark Ferrandino, D-Denver, the bill's other primary sponsor, in a statement. "The amendments to the bill actually make the situation worse for Coloradans."

Imagine a bill intending to help actually making things worse for its intended beneficiaries! What is this world coming to?

Well, there's always next year.