Bank Lawyer's Blog

Tom Brown Jumps Sheila, And Sheila Jumps The Shark

Several readers sent me Tom Brown's "fisking" of Sheila Bair's recent sppech to the Mortgage Bankers Association. Like a number of us unreconstructed mouth-breathers, Tom's apparently had all he can stand of what's issuing forth from someone with a bully pulpit and a head full of bull. Among my personal favorites was Tom's exasperated reaction to Ms. Bair's assertion that loan servicers "must commit to adequate staffing and training for effective loss mitigation."

The woman has got to get out of the weeds. What is the head of the FDIC doing trying to get involved to this level of management detail?  If the servicer doesn’t have staffing or trained employees needed to ensure that the loans are adequately serviced, the owner of the mortgage can change servicers. That’s how the market works.

Community bankers have been wondering what the heck Ms. Bair's been doing at the FDIC since she took control. In an article in the American Banker following the first anniversary of her appointment as FDIC Chairman, bankers were perplexed at the disconnect between her job description and her job performance.

Others, while reluctant to share their views of Ms. Bair publicly, are less complimentary. They see the recent consumer-minded emphasis at the agency as an odd path for an agency traditionally focused on deposit insurance and oversight of state-chartered banks. Some industry observers had viewed the ILC issue as an opportunity for the agency to bulk up its regulatory influence by adding such mega-companies as Wal-Mart to its portfolio.

Ms. Bair has "behaved unusually for the head of that agency," an industry lawyer said. The FDIC's role traditionally is "trying to protect depositors," but the agency's "being aggressive in dealing with practices on the lending side of the bank" is "not an obvious tie.

Ms. Bair defended her pro-consumer advocacy positions. She claimed to be a "populist."

"If we like consumer issues, then the Democrats like us and the Republicans don't? I don't think that's how it works at all," she said. "I am a populist in my political philosophy. … This suggestion that somehow if you're interested in consumer issues you're somehow not interested in banks — I think that's a fallacious assumption. Most banks would agree that if you treat your consumers right, you serve the long-term interest of your business."

As I said at that time, that's correct only up to a point.

[W]hen it comes to the bottom line, sometimes the interests of banks and their customers are not perfectly aligned. No one advocates that consumer abuse is good for anyone, least of all banks. However, where there is legitimate room to debate what regulatory action is necessary and what is not, and what regulatory actions are unduly burdensome on banks in light of the minimal benefits that might accrue to consumers, if you repeatedly come down on the side of consumers you're going to perceived as less than beneficial to banks.

Thus, exasperation like that expressed by Tom Brown should come as no surprise. It's been in existence since shortly following the beginning of Ms. Bair's tenure.

Tom published his rant on January 27th, and the very next night Ms. Bair delivered another speech, this one in Topeka, Kansas, in which she complained about the personal abuse she and other federal financial institution regulators have been taking and alleged that the "vilification" of people like her led to the shooting of Gabby Giffords. She must have been still smarting from Tom's love-pats.

The reality is that most of us who serve in high profile positions in government have received hostile communications, if not direct or implied threats of physical harm. At the FDIC we have received our share of threats from people who have lost money in failed banks. Just recently, a disgruntled trader whose registration was revoked put out a $100,000 bounty on the lives of the heads of the SEC and CFTC. Public figures are not the only ones who have been demonized in the current political climate.

[...]

But accountability is one thing; vilification is quite another. Vilification can lead to the kind of tragedy we saw in Arizona.

Using the canard that those poor people, including Rep. Giffords, who were gunned down in Tuscon were shot by a man motivated by the "vilification" of anyone, much less Sheila Bair, is, as one attorney for a banking trade association told me today, "irresponsible, and, to borrow a phrase from her, pot stirring." It's also intellectually dishonest. There's ample evidence that the shooter was nuttier than a fruitcake, thought the government was trying to control our grammar, and, as the New York Times put it in an extensive look behind the fun-house mirror of Mr. Loughner's facade, "is struggling with a profound mental illness (most likely paranoid schizophrenia, many psychiatrists say)." Only the unhinged are still alleging that there's any proof that the "vilification" of Gabriel Giffords or of anyone else in the media, public or private, caused Loughner to do what he did.

I think we can state that last Friday, Sheila Bair officially jumped the shark.

02.01.11: Updated to correct error in next-to-last sentence.

Reading The Tea Leaves

Last week, the Treasury Department issued a press release that announced the appointment of the General Counsel for the Consumer Financial Protection Bureau and the GC's Deputies. All members of the group graduated from top law schools (where, I'm sure, they excelled academically) and all seem to have experience somewhere in the federal regulatory bureaucracy at some point in their careers. Finally, all of the Deputies have the word "litigation" sprinkled throughout their job histories.

Interestingly, nowhere in the descriptions of the work histories of the General Counsel or any of his deputies do the words "consumer" or "financial" appear. None have any banking or financial institution experience, or consumer credit experience. The GC does have an excellent work history in the telecommunications industry and the FCC, and his deputies have a great deal of experience serving as lawyers to legislative committees of the US Congress, and as civil and criminal litigators and enforcement specialists in private practice. Ms Warren proclaimed that this "team...understands the economic pressures facing consumers across the country and is dedicated to leveling the playing field between lenders and families and bringing commonsense solutions to complex problems." Parsing their resumes, I don't see the words "economic," "lenders," or "families," either.

Although it is too soon to tell how well these obviously bright people will function in a bureau whose primary mission is to regulate consumer financial products and services (and while they're at it, to "level playing fields"), a logical preliminary prognostication might be that the choice of these people out of gate, which we assume was made "de facto" if not "de jure" by "Special Advisor" Elizabeth Warren, indicates that Ms. Warren wants to set the agenda on what consumer laws mean as far as the CFPB is concerned, and she doesn't want dissenting voices from the bureau's legal department who might have the actual experience and knowledge of consumer regulatory law to challenge her. She wants investigators, enforcers, and litigators to carry out the mission as she (and her fellow true believers) defines it, and to carry it out with the skill that people with such experience possess, but not to tell her to wait a minute because she might be on shaky legal ground.

Ms. Warren has spent a great deal of time since Dodd-Frank was passed and the president decided to circumvent a confirmation hearing for Ms. Warren, by publicly and privately "reaching out" to bankers and other financial industry representatives. She wants them to believe that she will take into account their "legitimate concerns" in formulating, interpreting, and enforcing consumer laws and regulations. She could have made a definitive statement in this regard by picking as the CFPB's first general counsel a partner from a national law firm with extensive experience in consumer financial law and regulation, or someone from one of the federal or state regulatory agencies with extensive experience and industry credibility for fairness. In other words, someone with actual consumer financial regulatory experience who is known to be credible when stating that he or she understands the consumer financial industry's concerns. I could have given her a few names. That she did not is not going to give the opponents of the CFPB, who are legion, any reason to consider calling off their jihad to destroy the agency with one sword stroke or a thousand cuts administered over time.

I think these appointments also support what I concluded when Richard Cordray was made head of the CFPB's Enforcement Division: "There will be blood."

On the other hand, you can take any of my predictions (or fears) as a mere flip of a coin. Last April, I got all doe-eyed over the fact that the new Banking Commissioner in Colorado, Steve Strunk, came out of the banking business. I said at that time that "he's probably going to do well at the state level." In December, it was announced by the Colorado Department of Regulatory Agencies, which oversees the Colorado Banking Department, that Mr. Strunk was leaving "to return to the private banking industry." In private conversations, Colorado bankers told me that they were very glad to see the return of acting commissioner Fred Joseph. Based upon that excellent prediction of mine, I assume most blog readers will assume that the CFPB will completely understand the concerns of the financial industry, be moderate and judicious in its regulatory and enforcement decisions, and usher in a new era of peace and prosperity not merely for consumers and consumer lenders, but for the world at large.

Too Late To The Gate, Too Little On The Griddle

If you ever get really, really bored, yet perhaps are having trouble falling asleep, you can always start reading the 662 pages of the FCIC majority report on the causes of the financial crisis and the two dissents. Say what you want about Peter Wallison (and the liberal blogs have already launched into a typical round of ad hominem attacks), he starts out his dissent asking the question that many of us have asked since the Democrats in Congress steamrolled Dodd-Frank through the sausage mill last year: why did Congress bother to authorize the report at all?

Congress and the President acted without seeking to understand the true causes of the wrenching events of 2008, perhaps following the precepts of the President's chief of staff--"Never let a good crisis go to waste."

Not that anyone will ever agree on the "true causes." That's evident from the parallel universes which the six Democrats and three of the Republicans on the FCIC inhabit, and the solitary asteroid where Mr. Wallison dwells. Chris Whelan sums it up best, in an earthy tone I admire.

"Unfortunately, the politics now are such that this has turned into a pissing match between the New Dealers and the conservatives," says Chris Whelan, a risk management expert and former Wall Street investment banker.

Don't look down now, but your leg's wet, Hoss.

The Heritage Foundation's David John provides some fitting last words.

"I don't want to denigrate the very hard work and obvious dedication of the commissioners," says David John, a financial markets expert at the Heritage Foundation. "But this is too late, really, to impact this discussion."

[...]

"It's not a study by financial professionals. It's not a study by academics. It's a study by people who went into it with either an experienced background or a preconceived notion," John says.

Mostly the latter, I'm afraid. As I predicted in July 2009, the task of the "truth commission" was all about "assigning blame for the current mess in strict accordance with political ideology." Our political class is nothing but a pack of pure Pontius Pilates. "What is truth?"

 

Both Sides Of Barney's Mouth

The "Durbin Amendment" to the Dodd-Frank Act has been causing heartburn to big bankers since the law was enacted. Frankly, even though community banks are exempted from the limit on interchange fees, most community bankers I talk to don't kid themselves that the limits that apply to big banks won't will "trickle down" to their level. I've heard scuttlebutt that Senator Durbin would love to give the law a super charger by extending it to credit cards, as well. I think he has as much chance of getting that done with the House controlled by the Republicans as I do of scoring a night of passion with Jennifer Lopez. Still, it's nice for every man to have a dream.

On the other hand, in the other chamber of horrors, known as the "House of Representatives," our old buddy Barney Frank is sounding positively pacific when it comes to interchange fees.

In an interview with Bloomberg, the ranking member of the House Financial Services Committee said he would work with the GOP on the issue, putting him at odds with the new lead voice on Wall Street reform in the Senate, Sen. Dick Durbin (D-Ill.).

"If they want to do something on it, I'll work with them," he said Wednesday.

I'm merely guessing, but perhaps Barney believes that it doesn't hurt him to appear to be cooperative with House Republicans on an interchange fee rollback because (A) the Republicans in the House can ram through just about anything they please, and (B) Durbin will never let it pass in the Senate, where Democrats still constitute a bare majority.

When it comes to Fannie Mae and Freddie Mac, however, Barney chides the Republicans for not moving more quickly to overhaul those rotting corpses.

Rep. Barney Frank, (D., Mass.), the top Democrat on the House Financial Services Committee, told reporters that he was “puzzled” by what he characterized as a lack of action by Republicans, who criticized the Dodd-Frank financial-overhaul law enacted last summer as incomplete without dealing with the mortgage giants.

“Last year the Republicans were very insistent that this was an emergency,” Frank told reporters. “I’m waiting for their plan. I am surprised that they’re not moving as quickly…They knew exactly what they wanted to do when they were in the minority, so I don’t know why they aren’t moving forward.”

[...]

“I think many of their financial supporters don’t like what they are talking about doing,” said Frank. “This issue is a little harder when you have the responsibility for dealing with it.”

While the hatred displayed toward Frank in the comments section of the Wall Street Journal's blog post is unfocused, over two years ago, the Boston Globe's Jeff Jacoby summed up the reasons why Frank comes off today as an especially hypocritical clown in a town chock full of them.

[Frank's] fingerprints are all over this fiasco. Time and time again, Frank insisted that Fannie Mae and Freddie Mac were in good shape. Five years ago, for example, when the Bush administration proposed much tighter regulation of the two companies, Frank was adamant that "these two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis." When the White House warned of "systemic risk for our financial system" unless the mortgage giants were curbed, Frank complained that the administration was more concerned about financial safety than about housing.

I was worried that with the changing of the guard in the House, the low-hanging fruit of mockery might become a bit more scarce than they've been in the last few years. Fortunately, Barney just can't keep his mouth closed.

The Biggest Loser

When Ally Bank and Bank of America settled with Fannie Mae and Freddie Mac several weeks ago on repurchase request claims made by the GSEs, there was speculation in the trade press that these settlements might pave the way for other big banks subject to similar repurchase requests from Uncle Freddie and Auntie Fannie to pay up. There was also talk (including by this blog's bloviator) that the settlement terms looked a wee bit generous to the banks.

Well, Bank of America and Ally may have decided to "fold 'em," but Wells Fargo has decided to tell the GSEs that they can continue to "hold 'em." What's more, the creator of Stagecoach Island told the press that it doesn't think those settlements by its competitors were as generous as some of us might have thought.

Wells Fargo said Wednesday that it won’t follow Bank of America in reaching settlements with Fannie Mae or Freddie Mac on disputed mortgages sold to the mortgage financing giants.

Wells Chief Financial Officer Howard Atkins said the settlements reached by its competitors may not be as generous as some perceived them to be.

You can see the logic in Wells Fargo's "hang tough" attitude when you realize that the GSEs' demands for loan repurchases fell for the second consecutive quarter, and that all repurchase claims against Wells Fargo, including those from private investors and private mortgage insurers, are now down from an original face value of $3 billion to half that amount. Heck, if stiff-arming worked so well all the time for everyone, nobody would repurchase a dollar's worth of loans from the GSEs. If I were standing in Wells Fargo's shoes, I, too, might not think that the generous terms offered BofA were generous enough.

I guess the next step is up to the GSEs. Do they want to press forward aggressively with lawsuits against Wells Fargo, on the basis that if it continues to thumb its nose at its beloved Uncle and Aunt, no member of the family will ever again give them an ounce of respect when they make a repurchase demand? Or, perhaps, do they want to "rethink" their outstanding repurchase requests and make Wells an even better offer than they made Ally or BofA, an offer even a hard case like Wells wouldn't refuse? 20% of remaining  face? 10%? Throw in a snuggy with a picture of Franklin Raines on it?

After all, when your only business is buying and securitizing loans, you don't want to terminally alienate the nation's top mortgage loan originator any more than you can afford to terminally alienate any of the other top six originators (including Bank of America and Ally) who, combined, originate over two-thirds of the mortgage loans in this country (such has been the consolidation in the mortgage loan business since the subprime meltdown). There's no doubt that by making all these repurchase demands against the big banks, the GSEs have fundamentally changed the quality of loan originations by the major loan originators. I mean, look at Citigroup.

Three years after bad home loans helped trigger the recession and six weeks after the government cashed in the last of its $45 billion Citigroup investment, the New York-based bank is still selling mortgages that violate quality standards, according to an internal Freddie Mac review obtained by Bloomberg.

Fifteen percent of the performing loans Citigroup sold to the government-owned mortgage-finance company in the second half of 2009 and the first half of 2010 had such flaws as missing appraisals or insurance documents or income miscalculations, according to the review of 375 mortgages. The target for defects should be about 5 percent, said Tim Rood, a former executive with Freddie’s sister agency, Fannie Mae, and now managing director at Washington-based advisory firm Collingwood Group LLC.

So, the GSEs have proved their point, and maybe it's time to put all this nastiness behind us, link arms, and mosey on down the highway, to a land where the taxpayer picks up Fannie's and Freddie's ultimate tab, which will include not only unrecovered losses on bum loans that weren't repurchased by big banks, but $160 million in legal fees for former officers of Fannie and Freddie who are accused by the government of making massive mistakes, if not engaging in outright wrongdoing. Unlike big banks, however, the taxpayer doesn't get a steep discount on his or her tax bill when it comes due each April merely by "hanging tough."

It's an interesting staring game going on, and, thus far, it appears to some of us that the GSEs are blinking. The ultimate loser of the game won't be Fannie or Freddie, however. To find that loser, all you have to do is to look in the mirror.

You Are The Downdraft Above My Wings

I may represent banks, but I learn from whatever source I can, even [shudder] from those dreaded nemeses of community banks known as "credit unions." Rob Rutkowski's That Credit Union Blog is a case in point. Without Rob (and a h/t to NAFCU Compliance Blog), I never would have learned of the most pleasing strategy employed by one financial institution for thwarting a common enemy of all right-minded financial institutions, regardless of charter: class action attorneys.

The instance discussed by Rob involves a lawsuit filed against a credit union for a violation of the Electronic Funds Transfer Act because the ATM sign was missing. Rob cites a line I've heard before about how it's natural to suspect that class action lawyers are running around at night prying the signs off of ATMs, then finding a lead plaintiff (which is not hard to do) to use as the propr to file a class action complaint against the financial institution. Now, I'm sure that now upstanding member of the bar would countenance the stealing of a sign merely to provide the pretext for filing the type of case where the lead plaintiff gets some cash, the class action plaintiffs' lawyers get a huge wad of cash, and the rest of the class gets a pack of Juicy-fruit and the promise of a new tomorrow.

Here, in Rob's words, is the method used by the unnamed financial institution to derail the class action freight train:

In essence, a defendant can take the wind out of the sails of a putative class action plaintiff by making an Offer of Judgment 10 days prior to the plaintiff’s Motion for Class Certification.  Clear as mud?  Let’s take a hypothetical.

Anthrax Research Federal Credit Union owns an ATM attached to one of its branches.  One night, the EFTA notice concerning ARFCU’s $1.00 for non-member withdrawals mysteriously vanishes.  Felix Filcher then makes a withdrawal the next day and a week later, Attorney Benny Bumbles sues the credit union for the EFTA violation for not having a sign on the ATM.  The credit union makes an Offer of Judgment for $1000.00 for the statutory violation.  Attorney Bumbles has 10 days to move for class action status and if he fails to do that, it’s game over for Filcher.  Take a look at Stilz v. Global Cash Network, Inc., No. 10 CV 1998 (N.D.Ill., Oct. 7, 2010) (2010 WL 3975588) if you want to see this concept in action.

Chalk one up for the forces of righteousness. If this keeps up, class action attorneys who specialize in suing banks might be reduced to sending their kids to public school and buying their spouses Yugos.

Director? We Don't Need No Stinkin' Director!

It appears that Liz Warren's tenure as De Facto Director of the CFPB might coninue on indefinitely. As reported by Dow Jones Newswire's Maya Jackson Randall last week, in a response by the inspectors general of the Federal Reserve and US Treasury Department to a letter sent by Representatives Bachus and Biggert ("Bachus and Biggert" sounds like the name of either a law firm or a group of drunken gluttons), the IGs alleged that the representatives are wrong to assert that the bureau could not function after July 21 without a director appointed by the president and confirmed by the Senate.

"If the bureau does not have a Senate-confirmed director by the designated transfer date, the bureau may continue to operate under the secretary's section 1066(a) authority," wrote Treasury Department Inspector General Eric Thorson and Federal Reserve Inspector General Elizabeth Coleman in a January 10 letter.

Under that scenario, it's possible that Geithner's authorities would once again be delegated to White House adviser Elizabeth Warren, allowing her to continue making key decisions at the bureau while also gaining certain new authorities from other regulators. On that July 21 date, the bureau would become more powerful even without an official chief. It would acquire existing powers from the Federal Reserve, the Federal Trade Commission and other federal agencies, and it could write and enforce consumer protection rules and examine large banks, things it can't do now.

Well isn't that special? Another end run around the legislative process and that inconvenient old piece of parchment called the US Constitution. Just what we need in this new era of good feeling.

Not that the lack of a director wouldn't impose serious constraints on the powers of the CFPB to do much of anything useful.

[T]he bureau's powers would be limited. Brand new consumer protection authorities that many supporters of the bureau fought for--such as prohibiting unfair, deceptive and abusive financial products, making disclosure form requirements and supervising non-bank financial firms--would be off limits. That means that the bureau, come July 21, could not supervise lenders and check-cashing shops. Those powers would be reserved for a Senate-confirmed bureau director.

The inspectors general noted that there are a number of scenarios that might play out between now and July 21, depending upon when the White House decides to actually nominate a director and when (or if) the Senate confirms the nominee.

The letter from the inspectors general offers up some interesting scenarios that could play out.

They noted for instance that if the Senate were to approve a director for the bureau before July 21, that director would gain some rule-making authority before July 21, and he or she could conduct supervisory examinations of non-bank institutions before that date. But the inspectors general made clear that without a director, the bureau cannot write rules before the July 21 date.

Meanwhile, the Treasury Department is considering issuing notices on rule proposals that could serve as a way to gather information and input before the July 21 so-called transfer date, they said. The inspectors general also noted that Consumer Financial Protection Bureau officials plan to launch by the end of January a webpage where the public can provide input on a number of topics.

Additionally, the inspectors general point out that the consumer bureau has made two requests to the Federal Reserve for funds. The bureau made an initial request on Aug. 11 for $18.4 million and another request on Dec. 21 for $14.37 million, according to the officials.

Representative Biggert declared that at some point, the legitimacy of any actions of the CFPB will be called into question. Therefore, why not just nominate a director and get the confirmation process rolling? Does the White House really think that, like fine wine, Liz Warren's prospects improve with age? Either she's confirmable or not confirmable, and if the White House is serious about the CFPB, it will get off the snide and nominate someone who has a chance of confirmation.

I'm not fan of the CFPB, but at some point the overhang of uncertainty becomes almost paralyzing to banks trying to plan for the future. My vote is to get on with it and let's see who's going to lead this potentially powerful (at the moment) consumer financing regulator during its formative years and what kind of agenda that leader is going to set.

Hey, Let's Create a Commission!

And thus Bureaucracy, the giant power wielded by pygmies, came into the world.
---Honore de Balzac

And we've been paying the price ever since.

Today, in a speech to the Mortgage Bankers Association summit on loan servicing, Sheila Bair, obviously auditioning for her post-July job as the head of a consumer advocacy group (or keeping Liz Warren's seat warm at Harvard), called for the creation of a BP-like "foreclosure claims commission" to award compensation to the billions (no, make that bazillions)of homeowners who've been screwed in some form or fashion during the loan modification and/or foreclosure processby large loan servicers. The claims would be funded by the loan servicers, as British Petroleum funded its claims fund (after some purported arm-twisting by the White House) in the aftermath of the Gulf oil spill.

While we understand the rage generated by the well-publicized bobbles, bungles, fumbles, muck-ups and outright FUBARs of the large loan servicers (especially they're utter disdain for the rights of parrots), we pose a simple question: what's championing a "claims commission" got to do with the job description of the Chairman of the FDIC?

[sound of crickets chirping]

That's what we thought, but we just HAD to ask.

According to CNCB's Diana Olick, Ms. Bair's proposal went over with her audience "like a lead balloon." She's not afraid to go into the lion's den, as she's done many times before, and offend her audience, is she? Some see that as evidence of her courage and integrity. Others see it as a shrewed tactic to generate the most controversy and, therefore, the most publicity. Of course, when bankers pay their FDIC insurance assessments, they always take comfort in knowing that the head of the FDIC that's spending their money may not be the greatest administrator they've ever seen, but she sure as heck is one fantabulous speechifier.

Assuming the claims commission idea catches fire (and doesn't burn the house down), I had a parttner with a national law firm (who shall remain nameless to protect the guilty) suggest to me this afternoon the perfect person to head up the commission: Oprah Winfrey.

Think about it. You get all the disgruntled homeowners in the Rose Bowl. You provide them free beer and give them an inappropriate amount of time to get liquored up. Then, in sky-dives a parachutist who hits the 50-yard line, bounces up, unbuckles her harness, takes off her helmet, reveals herself to be "The Big O" and screams "You're all going to Cabo!!! With Angelina and Brad!!!"

Pitt and Jolie rise on a platform from a hidden trapdoor under the turf, dressed in sombreros and serapes, and waving and smiling as only those who have been chosen by "The One" can muster. The stunned foreclosure-screwees leap to their feet and start jumping and screaming like ten year-old females in the presence of a boy named Beiber.

"Look under your seats and reach into the mysterious black pouch," Oprah yells and the crowd scrambles to pull out and open the drawstrings on the pouches which have hitherto remained undetected. "That's right, they're car keys...to a brand, new Farrari California convertible! You're all driving one home!!!"

The pandemonium inside the Bowl reaches a frenzied pitch that can only be cooled by a circling C-130 Spectre gunship spraying the crowd with tons of cracked ice.

But "The Comish" is not quite finished.

"Now, what would you want with a fine Ferrari if you couldn't park it in the four-car garage of your very own, fully paid-for, debt-free, 6,000 square foot, McMansion!!!!!!"

On the Jumbotron flash pictures of the dream home of every buyer that bought "a house too far" and never had the scratch to actually pay for it. Now, through the miraculous ministrations of "The Care Bair" and "Deepak Oprah," their oh-so-all-American dreams have come true. There all "being made whole."

Yeah, I think this claims commission thing has legs.

I wonder if there's any way we can get Maxine Waters to play a role in it?

2011: The Year of the Fish?

According to The Fraud Blog's Tracy Kitten, bank security personnel are gearing up for a year in which they expect a lot more bad guys will "go phising" (and "vishing").

Like most fraud, phishing attacks are increasing in number and sophistication. Banks know these are a problem, but fighting back is becoming increasingly difficult.

[...]

About half of the respondents to our Faces of Fraud Survey say phishing and vishing are major concerns. Interestingly, only 20 percent say they feel prepped to fight and prevent those attacks against their customers and brands.

We've discussed "phishing" on this blog many times, as well as "vishing." Vishing is phishing using a telephone rather than e-mail. Like many phishing attacks (particularly "spear-phishing"), the fraudster callers use various guises to appear to be legitimate representatives of some business (even the intended victim's bank) who have a "need to know" your personal information. Apparently, they're successful often enough to keep them coming back for more.

Among the causes of concern, according to an ISACA survey cited by Ms. Kitten, is the increased use of mobile channels to access online banking. Another heightened risk is the increased use of social networks, where "phishers" love to troll. Using a mobile device to access a social network, then clicking all the links that catch your eye, is the equivalent of Lady Gaga wearing her meat dress on a stroll through the Lion enclosure of the Bronx Zoo. Yet, you can bet your bottom dollar that plenty of pinheads are doing just that, even as we speak.

The riskiest online behaviors: Clicking on an e-mail loop to access a shopping site, which 52 percent of ISACA survey respondents admit to doing; and mixing personal networking with business.

Fifty-two percent admit to using a work computer or smart phone to access social networking sites for personal use. "It is kind of the flip of using personal stuff for business and then using business stuff for personal -- clicking on links."

Here's more: Results from another recent survey, this one from the Anti-Phishing Working Group, reveal that 54 percent of household and business PCs are infected with some kind of malware, most likely from users clicking on links and accessing sites that make them vulnerable.

Tracy says that banks shouldn't blame it all on the consumer. For one thing, the ploys are becoming increasingly sophisticated, so much so that she almost fell for one herself. Moreover, the number of attacks has been increasing by leaps and bounds.

According to another study, this one released in October by Symantec, the number of phishing attacks launched on consumers has jumped from one or two a week in 2005 to more than 70 per day.

Educating consumers goes only so far, contends Ms. Kitten.She thinks financial institutions ought to be investing heavily in technology that doesn't "allow those phishy e-mails through in the first place."

From what security experts in the field tell me, technology exists that could virtually eliminate this kind of fraud. But banks and credit unions are not investing in the right solutions. They depend too much on anti-virus software, which is insufficient.

I'm interested in hearing what sort of technology solutions a bank would implement that would prevent a customer from receiving a phishing e-mail. I'm also interested in hearing what such technology might cost the average community bank. With all the Dodd-Frank costs and expenses that are being heaped on banks in the name of "reform," spending more money to protect customers from being victimized by they're own gullibility and risky behavior is a proposal that might not make it out of the starting gate at many institutions.

God Keep Our Land Glorious And Free (Of Community Banks)

Last month, we discussed a column by Reuters' Rob Cox about how the United States ought to look northward for a banking system that works. He thought consumers would be a lot better off in the US if we had a banking system more like Canada's, with a mere five gargantuan banks heavily regulated by the Canadian government.

Yesterday, the Miami Herald's Kevin G, Hall expanded on that theme.

Maybe Canada has something to teach the U.S. about housing finance.

One in four U.S. homes is thought to be worth less that the mortgage being paid on it. One in every 492 U.S. homes received a foreclosure notice in November. For the fourth year running, analysts are speculating on where the bottom is for U.S. real estate.

No such worries up here in Canada - yet its system of mortgage finance gets little attention in the U.S.

Not a single Canadian bank failed during the Great Depression, and not a single one failed during the recent U.S. crisis now dubbed the Great Recession. Less than 1 percent of all Canadian mortgages are in arrears.

Why? A smartass with officer of the Canadian Bacon Bankers Association boils it down to its simplest level.

"This sounds very simple, but one of our CEOs has said we are in the business of making loans to people who will pay them back," said Terry Campbell, vice president of policy for the Canadian Bankers Association in Ottawa.

I'd take that as a contention that Canadian bankers are smarter than US bankers, which may be true, except for the fact that, as Hall points out, "The Hosers" have no option to be "flexible" in their underwriting standards. Very conservative underwriting standards and loss reserves are mandated by law.

Other differences between the US and Canadian mortgage lending businesses that, in Hall's view, make the Canadian system preferable, are the following:

• No secondary market for mortgage loans (i.e., no Freddie, Fannie, or "private label" mortgage backed securities). Loans generally stay on the books of the bank that made them. Therefore, the banks tend to be much more conservative in underwriting, since they can't pass-off the risk to a chump buyer.
• No mortgage interest deduction (and, although Hall doesn't directly discuss it, no "tax free" gains on the sale of a primary residence, although homeowners get capital gains treatment on the sale of a home). Hall isn't clear about why this is better than having a mortgage deduction, although I think it's because of lost tax revenue, which our free-spending federal government needs and will need until hell freezes over and time (as we know it) ceases "to be."
• No 15- or 30-year fixed rate loans. Canadian loans are fixed interest for the first five years, then adjusted at five-year intervals. That puts more interest rate risk on borrowers.  It also incentivizes Canadian borrowers to pay their loans off more quickly, which is likely to be an accelerating trend once the bond markets finally make us pay for all the deficit spending we've been doing and world-wide interest rates take off for para-sectors of the universe where no man (or woman) has gone before.
• 20% down payments are the norm, and mortgage insurance is required for loan-to-value ratios that exceed 80% (which is still the case in the US for conventional loans, although Hall doesn't mention that).
• Canadian lenders remain blissfully ignorant of the concepts of "subprime," "low doc," "no doc," "option ARM," "Alt-A," and other US-concocted residential mortgage loan exotica.
• "Jingle Mail" is a tune not played in Canada. All loans are full recourse, and if you mail in the keys to the lender, you still have to "pay up" (or, I assume, file the Canadian equivalent of a bankruptcy proceeding). Thus, Canadian borrowers are motivated to pay their loans, while US borrowers are supposedly more apt to simply walk away when times get tough. What Hall fails to mention is that "jingle mail" doesn't work everywhere in the US, either, only in those states that have anti-deficiency statues. In Texas, for example, mailing in the keys might be a good way to get a cowboy boot up the nether regions, along with the epithet "Son, we don't cotton to ya'll here, so you might best be fixin' to move to Californ-ya."

Hall does mention a few distinguishing characteristics between Canada and the United States, which he admits make comparing Canada and the US an "apples to oranges" exercise, to a certain degree.

Canada's population last year was estimated at 34.3 million, while the U.S. population now exceeds 307 million. The U.S. economy is the world's biggest; Canada ranks ninth.

Canadian banks were recently named the best in the world by the World Economic Forum, but they're a much smaller universe of lenders - 71 that are federally regulated, compared with more than 8,000 U.S. lenders insured by the Federal Deposit Insurance Corp.

One bank for every 483,098 persons, compared to one for every 38,375 in the US. Only a relatively few federal (and no state or "provincial" banks) banks. A federal government that intrudes into everyday life to an extent that would be "uncomfortable" in the US. Tax rates so high that most US taxpayers would choke (46% highest marginal tax rate in Canada versus 35% in the US). Yeah, there are a few differences that make the comparison tricky.

The irony here is that before the federal government and Wall Street formed an unholy alliance to "encourage a greater participation in home ownership" in the US, US banks generally chose to be as conservative as Canadian banks are required to be. Also, please remember that most the garbage originated in the latest "wilding" by mortgage lenders was originated by non-FDIC-insured institutions (with notable exceptions). In the aftermath of the subprime mortgage meltdown and the economic wreckage it left in its wake, both market and "de facto" regulatory pressures are likely to exert a return to the conservatism of the past without the necessity of drastically reducing the number of banks in the US or expanding the US government's bureaucracy into every fiber of the "business" of banking (although Dodd-Frank's made a great leap forward is doing just that).