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 subscriptionrequired). 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?
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.
Law professors Elizabeth Warren and Adam Levitin over at Credit Slips have got themselves worked up about "a new idea," an "astonishing" one (according to Professor Levitin), concocted by those dastardly national banks and federal thrifts: "They shouldn't have to obey state law when they foreclose on someone's home." That would exercise me, too, if it were true. I'd even agree with Professor Levitin that it demonstrates plenty of chutzpah and with Professor Warren that "the scope of this argument is stunning," except I don't see that national banks and federal thrifts are making that argument, at least not based upon the source cited by the professors.
The article, written by the American Banker's Cheyenne Hopkins, states that national banks are considering a challenge to changes to state foreclosure laws that would, in fact, severely impair the lenders' contractual rights under the loan documents. Foreclosure moratorium laws, for example, would likely not generate a challenge unless the moratorium period was excessive (an eye-of-the-beholder judgment, I acknowledge). However, some states are going well beyond traditional foreclosure matters.
Some of these measures would go further than delaying foreclosures and
include changes to a loan's terms or underwriting standards —
provisions that are more easily preempted by federal regulators.
The state measure causing the industry the most angst is a Minnesota
one that, in addition to allowing a year delay in foreclosure
proceedings, would allow a struggling borrower to make monthly payments
equal to the minimum monthly payment when the loan was originated or
65% of the monthly payment at the time of the default, whichever is
smaller.
Many industry representatives say that would be going too far, since it
would affect how a bank can do business — a criteria that more clearly
falls under preemption power.
"There comes a point where states and localities are using foreclosure
laws as a pretext or to impair the enforceability of lawful loans, and
that's the point where preemption may come back into the picture," said
Laurence Platt, a lawyer at Kirkpatrick & Lockhart Preston Gates
Ellis LLP. "A little bit of breathing room for the borrower is not
going to trigger preemption, but if they in fact choke the lender to
death by effectively declaring the loan unenforceable with its terms,
that will trigger constitutional and preemption issues."
That hardly seems like an "astonishing" position to take, nor does it demonstrate much chutzpah, unless refusing to stand by, drooling, while your contractual rights are abrogated by a change of state law, when settled federal preemption principles would prevent that from occurring, now constitutes chutzpah. It seems more like sechel to me, but then my Yiddish is a bit rusty.
My friend and former partner Joe Lynyak also correctly notes in the article the practical risks of national banks taking an aggressive position vis-a-vis state foreclosure laws.
"If someone is going to take an aggressive stance regarding preemption, the concerns are reputational risk in front of the public for taking the legal position, and the the legal risk that ultimately the claimed preemption is either not found to be valid or the validity of the foreclosures are then called into question," said Joe Lynyak, a partner at Buckley Kolar LLP. "This is really right at the edge of the battle on preemption and is a very, very complicated analysis."
Joe's now with Venable LLP, by the way, but I doubt that change would change his position on the issues. By "very, very complicated analysis" I think he means "very, very expensive." At least, that's what I meant when I used the term back when I was an equity partner in "Big Law."
Perhaps the professors have access to other articles or court cases where these "astonishing" threats of federal preemption of local foreclosure laws have been made by national banks or federal thrifts. If so, they should cite them, because based upon the lone article they do cite as the basis for their concern, I'd say they're exercised about a non-existent threat.
To be fair, however, I have to admit that the OCC's quest for power is insatiable. I've previously warned that the OCC's need for lebensraum will eventually compel it to make a bid for universal domination. Therefore, I can appreciate why the professors, both apparent consumer champions, might assume the worst. Eventually, they'll be correct. On the other hand, I plan on joining the OCC stormtroopers right before the final blitzkrieg that will be launched to wipe out the National Association of Realtors and bring all consumers everywhere (even on that frozen rock, the former "planet" Pluto) under the jackbooted heel of the OCC. I'm superficial enough to always back the winner, but cautious enough not to jump on board while the outcome's still in doubt. I'll know the time is right to start sucking up to the OCC when we finally repeal that pesky Tenth Amendment.
The past week's Stevie Wonder Award, presented to the financial institution or affiliated party that was so blind it could not see that it was stepping in a public relations cowpie of epic breadth and depth, goes to...[drum roll]...:
It's A Tie!
Ladies and germs, we have a dead heat this week between payday lender Rent-A-Center ("perennially persecuting the penniless from its world headquarters in scenic Plano, Texas") and bank director William Farr of Denver-based Centennial Bank Holdings Inc. ("in racial sensitivity training classes since 1992").
First, Rent-A-Center.
According to last Friday's The Wall Street Journal, Rent-A-Center executives repeatedly called an Ohio food-bank association and demanded that they withdraw from a coalition that supports legislation that would make it tougher for payday lenders to do business in Ohio.
In a series of telephone calls in recent weeks,
Rent-A-Center executives warned America's Second Harvest and its Ohio
affiliates that Rent-A-Center would yank charitable contributions from
hunger programs in the state unless the local food banks withdrew from
the Ohio Coalition for Responsible Lending. The coalition has been
pressing the state legislature to cap high interest rates charged on
payday loans.
Wednesday, the Ohio House passed a bill that would cap
the annualized interest rate on payday loans at 28% and limit borrowers
to four loans of $500 each a year. Ohio's governor said last week that
he supports a cap.
Rent-A-Center currently charges interest rates on
one-week payday loans that are equivalent to an annual rate of as much
as 782%, according to a company Web site. In Ohio, the average borrower
pays $15 for each $100 borrowed, and the typical loan is repaid in 19
days, a 288.16% annual rate, the company says.
Well, if the legislation will effectively put Rent-A-Center out of the payday lending business in Ohio, you can understand why it would be irked that a non-profit association it funds might be supporting such legislation. Nevertheless, you have to weigh the disproportionately negative effect that appearing to strong-arm a food bank that feeds the poor will have on your fight against that legislation against the benefit gained from "repeatedly" calling officials of the food bank to express your displeasure. As it turned out, the incident was featured prominently in a major pro-business newspaper in a way that didn't help Rent-A-Center's cause. It gave proponents of the legislation a chance to paint the payday lender as a brow-beater.
William Farr, up for re-election to Centennial's board of directors, is
likely to come under fire for a poorly received joke he made about U.S.
presidential candidate Barack Obama at a National Western Stock Show
banquet in January, [activist shareholder Gerald] Armstrong said.
According to news reports, Farr pretended to read a telegram from
the White House, then quipped "they're going to have to change the name
of that building if Obama's elected."
Yeah, it took me a minute to parse that out, too. My conscious mind refused to accept what my subconscious mind immediately grasped. I mean, I realize that we're talking about a stock show, but that doesn't mean that reporters wouldn't be in attendance, even if Mr. Farr assumed that every attendee was a bigot.
"People in Northern Colorado are concerned about it," Armstrong said. "They don't think he should be on any board, anywhere."
Well, there might be some payday lenders who could use such a sensitive soul on their boards.
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.
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.
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?
What difference a decade (or two) makes. This time around, while other parts of the country are being hit by declining prices and increasing foreclosures, Texas looks comparatively peachy.
Texas is bucking the national trend of rising property foreclosure rates, according to a California-based research company.
A total of 10,700 Texas properties entered the foreclosure process during March, down more than 16 percent from the volume of filings recorded in March 2007, a recent report by Calif.-based RealtyTrac shows. The March foreclosure figure also represents a decrease of almost 13 percent from filings reported this past February.
Nationally, foreclosures are up 57% annually and 5% from the previous month. Texans ought to be absolutely giddy. Well, somewhat relieved, anyway. It could be worse. We could live in California, Florida or Ohio. Then again, a friend of mine in Colorado (fifth in foreclosures, by the way) observes that "you still have to live in Texas." He thinks that is the ultimate downside, while "we'all" think it's the cherry on top of the sundae.
The recently released national figures also show an increasing trend of deeds-in-lieu-of-foreclosure being used by borrowers who default on their loans.
James J. Saccacio, CEO of RealtyTRAC, points out that on a year-over-year basis as of the end of March, default notices and bank repossessions nationwide were up nearly 57 percent and 129 percent,
respectively -- an indication "that more defaulting homeowners are simply walking away and deeding their properties back to the foreclosing lender," Saccacio says.
Auction notices, by comparison, jumped by 32 percent during the period.
"This deed-in-lieu-of-foreclosure process allows the lender to take possession of a property without putting it up for public foreclosure auction," Saccacio adds.
At first blush, the number of borrowers who are willing to "walk away" (a highly charged term to use, by the way) from their home-sweet-home seems to call into question all the previous hand-wringing about the need for foreclosure moratoriums and similar measures designed to force lenders to change their evil ways and to prevent them from seizing borrowers' homes through the foreclosure process and then kicking the borrowers, bawling their eyes out, into the streets. Increasingly, it appears, more and more borrowers are willing to cough up the keys without going through the foreclosure process.
In a customary deed-in-lieu situation, the consideration for the deed is the release of the borrower from liability for any deficiency (with some protections to the lender for such things as fraud, waste and bankruptcy within a certain period). Apparently, a rapidly increasing proportion of borrowers who can't afford the loans believe that's a fair trade, and it's hard to argue with them if the lender's willing to forgive the loan balance and either (a) the borrowers can't afford the loan or (b) the collateral is underwater and they simply don't want to pay the loan back even if they could do so. Emotionally, these may not be homes to some of them, but rather merely an investment in real estate that simply didn't work out. It's impossible to generalize, and RealtyTrack doesn't give us much insight into why borrowers are increasingly willing to give lenders a deed-in-lieu.
Lenders apparently have decided that in many cases they'll take the entire risk of a declining home price if it saves them the cost and time of foreclosure. They must also be deciding either that the borrowers don't have the financial resources to satisfy a deficiency (in those states where a deficiency is permitted) or that the cost of the struggle to collect it outweighs the benefit. Perhaps the moratorium bills and other strong-arm tactics are achieving a purpose, after all, albeit not the announced purpose of keeping delinquent homeowners in their homes.
Interesting. I wish we had more data about this phenomenon that gave us the percentage of defaulting borrowers who have given a deed-in-lieu-of foreclosure and that broke that group down further according to the different reasons for that decision. Without that information, we're guessing, and, in some cases, letting our personal prejudices factor into our use of the limited information we do have available.
Ohio's Attorney General, Marc "Grandstand" Dann, has done everything possible to insert himself, publicly of course, between borrowers and lenders and otherwise to do whatever it takes to follow in the footsteps of his role model, the late Eliot Spitzer (may the Great Gaia have mercy on his Earth Spirit). As an editorial in today's Dayton Daily News points out:
In 2006, when he ran for Ohio attorney general, Marc Dann pointed to
New York's Eliot Spitzer as a role model, what with Mr. Spitzer having
created a reputation for aggressively prosecuting evil-doers involved
in street as well as white-collar crime.
That was before the Mayflower and Mr. Spitzer's resignation as New
York's governor, after he was accused of hiring high-priced prostitutes.
It seems that Dapper Dann has his own sex scandal brewing in Ohio. According to press reports, two female employees of the AG's office have filed sexual harassment complaints against one of Dann's top assistants, Anthony Gutierrez, 50. They allege that he made unwanted sexual advances to them while at work, while at bars, and while at a bachelor pad that Mr. Gutierrez shared with Mr. Dann and a third male pal. One of the complainants, Cindy Stankoski, 26, made specific allegations that Dann was hanging around when some of her clothing mysteriously became rearranged and Mr. Gutierrez misplaced much of his.
Stankoski reported one incident from September in which Gutierrez persuaded her to visit several bars with him after work. Then, after she had had too much to drink, he talked her into coming back
to the condo in Dublin he was sharing with Dann and Jennings, she said. After several hours of lying unconscious on Gutierrez's bed, she awoke to find her pants partially unbuttoned and her boss beside her wearing only his underwear, she said.
Stankoski said Dann was in the condo at the time.
I expect that Dann may pull the famed "Sergeant Schultz Defense" as to that claim, and shout that he knew "nothing, nothing at all." Perhaps he'll opt for the Teddy Kennedy corollary, and claim that everyone "drops trou" when company comes calling, especially when company is young, female, nubile, and plastered. As long as you're not behind the wheel, and a bridge is nowhere in sight, what's the problem?
Although he's not been charged with sexual harassment himself, Dann has been accused of being in the apartment with a young female aid who was, at the time, wearing her pajamas. Dann's response was curious.
Attorney General Marc Dann denied reports that his 28-year-old former scheduler was ever wearing pajamas at his apartment — an allegation made in a sexual harassment complaint filed by two other female employees against Dann's friend and neighbor, Anthony Gutierrez.
"She's never been in my house wearing pajamas, so she certainly wasn't there that night in pajamas," Dann told reporters Wednesday, April 9. "That's just the strangest thing that I could ever imagine anyone saying. And it's hurtful because I have children who are embarrassed by the fact that that's been repeated over and over again in the newspaper."
An online commenter to that story named Dave stole my lines with this response to Dann's duck, bob and weave job:
"She’s never been in my house wearing pajamas, so she certainly wasn’t
there that night in pajamas," That’s a very lawyer-like answer. Dann
doesn’t say that she’s never been in my condo "at night." Dann doesn’t
say that she’s never been in my condo "at night in her nightie." Dann
doesn’t say that she’s never been in my condo "at night wearing nothing
at all." He simply declares that she hasn’t been there at night wearing
pajamas. That’s reassuring. For a minute I thought he had a problem!
Dave gets the Bank Lawyer's Blog's High Five of Snark for that bitchslap across the brow.
Of course, every busy lawyer has to have a pied a terre in town when late nights keep him from his suburban hearth, home, wife and kids. Moreover, discussions with young unmarried female staffers concerning one's schedule can't be conducted at the office or over the telephone. Not secure. No, they simply must be conducted at night, in person, and away from the prying eyes of spouses, reporters, and any other person not willing to give the appearance of impropriety a wink-wink, nudge-nudge, any person other than, oh, Tony ("Where'd I Put My Pants?") Gutierrez. As to clothing: Hey, it's night! What's more appropriate at night than PJs? I know the last time I simply had to speak to my executive assistant, she and I held the meeting in the hot tub, and clothing was optional.
Being a stickler for probity, Dann's recused himself from looking into the allegations against Gutierrez and has appointed two members of the AG's staff to investigate. People whose paychecks he signs. He's refused to appoint an independent prosecutor or investigator, thereby sticking his finger in the eyes of the editorial boards of the Ohio newspapers who are calling for independent investigators to look this over.
The Dayton Daily News notes that this ethical lapse is not Dirty Dann's first.
Mr. Dann has a tin ear and a lazy eye when assessing his behavior
and others'. Since taking office, he has had to fire a deputy security
director who had been convicted of involuntary manslaughter in another
state. He let another aide go after it was found that the man was
drawing a salary from the Youngstown Police Department, while on Mr.
Dann's payroll.
He has jetted off on government airplanes at a time when state
officials are supposed to be pinching pennies, and he once yelled
profanities at a reporter, which was caught on a television camera.
In short, Mr. Dann has been attorney general for fewer than 18
months, and he's brought more embarrassment upon himself than even his
enemies could have manufactured.
His past judgment has not been inspiring. The future is not looking good, either.
The least he can do is respond to serious charges by calling in an independent investigator.
This story is worth following, if only to see if another ardent foe of bankers, and one who loves to publicly bully others for political gain by using the powers of the state, becomes a victim of his own imperial hubris and is publicly immolated by the flames of his arrogance. A spokesman for Dann recently said about Dann's decision not to prosecute Rush Limbaugh for "Operation Chaos," "We have no intention of prosecuting Rush Limbaugh because lying through your teeth and being
stupid isn't a crime." Those are words that Dann and his buddies have taken to heart.
I don't know if it will have any influence in the court of public opinion, but I hope that voters in Ohio recall this campaign video made by Dann and realize that Dann's always been a bit of a horndog.
State regulators have taken steps to sanction a Houston firm describing itself as a bank.
Houston Petroleum Bank LLC had been advertising services on a Web
site and was soliciting customer "deposits" from clients with a minimum
$250,000 to invest in a wealth management account administered by
Wachovia Securities LLC.
On March 11, the Texas Department of Banking issued a cease and
desist order against the bank and its principals, John Gallagher,
chairman and CEO, and William Smith, president.
The banking department order states: "Gallagher and Smith have used
and are using the term 'bank' in their name and Web site in a manner
that implies to the public that HPB, Gallagher and Smith are engaged in
the business of banking in Texas, in violation of Texas law."
[...]
Serena Kuvet, assistant general counsel for the state's banking department, says a consumer inquiry led to the investigation.
[...]
Kuvet claims that the Web site wording was clearly misleading. The name
Houston Petroleum Bank LLC was displayed in bold letters along with the
phrase, "Customer deposits are never at risk because we don't make
loans."
[...]
The state's filing says Houston Petroleum Bank made an application
with the Texas Secretary of State to register the firm as an
out-of-state financial institution that would "issue loans ... take
demand deposits and expand money."
The application states that Houston Petroleum Bank was incorporated
in Nauru, a Pacific island off the coast of Australia in 1999, but
maintains a Houston office.
Let's hope this isn't merely the tip of the spear of a Naru-led invasion of bad banking behavior in Tejas. Those dreaded Naruvians have a bad attitude, although, certainly, plenty of "street cred." On the other hand, if we Texans handle this correctly, we might be able to enlist them in our ongoing battles with Mexican drug cartels and any current or future Miley Cyrus tour. I break out in a cold sweat contemplating either of those evils.
Whatever the Petroleum Not-A-Bank was doing didn't thrill Wachovia Securities, either.
At the same time, attorneys representing Wachovia also contacted the Houston firm in response to the Web site allegation that Houston Petroleum Bank had "formed a strategic partnership with Wachovia Securities LLC ..."
Joe Stroop, vice president of corporate communications for Wachovia Central Banking Group, says the firm did not receive permission to make such a statement on the site.
"While Wachovia cannot confirm or discuss client relationships, when we discovered that Houston Petroleum Bank was using Wachovia's name on its Web site without authorization we demanded that they cease doing so, and they did," Stroop says.
Well, that prompt compliance must have pleased the Department of Banking. The last time we ran into this situation, the offending party put up a bit of a scrap, and got a tad defensive about it, although it eventually settled with the Department of Banking and stopped using the awful "B Word." After this blog posted about it, the author received a tense voice mail message from someone who alleged that he was connected with the defendant and who used the words "ass" and "kick" in the same sentence, or maybe it was in more than one sentence. Time dulls the memory.
Let's hope that history doesn't repeat itself. If it does, I must thank all that is right and holy with this country that (A) the US Constitution has the Second Amendment, and (B) the Lone Star State has a concealed carry law. This might be the only state where blogging about bank law and keeping a 9mm Glock at the ready go hand-in-hand.
Updating a couple of stories we've been following:
