Bank Lawyer's Blog

Beating Up Barney A Bad Idea?

Barney-baiting newspaper The Boston Herald has been running stories since last week's Republican takeover of the House that Republicans are eager to put Barney Frank's head on a platter, using his alleged interference with attempts to "reform" Fannie Mae and Freddie Mac as the starting point for "investigations" into Frank's role in the entire mortgage meltdown mess. Predictably, the pugnacious Frank has fired back with both barrels, in effect echoing a former foe, George W. Bush, by exclaiming "Bring It On!"

A lot of this post-election vitriol reminds me of threats issued by left-wingnuts in the aftermath of the 2008 Democratic general election victories to launch investigations into the Bush administration's conduct in the run-up to the Iraq War. The "Bush Bashers" quickly lost their zeal when Democratic party leaders told them that they had bigger fish to fry, like cramming health care and financial reform legislation down the nation's throat. At this point, I suspect many Republicans might have traded investigations for both sweeping pieces of "reform," but for the country's sake, it's probably just as well that we didn't go there. The partisan moon battery that we've seen too much of from both ends of the political spectrum lately would have been driven off the deep end had such investigations been pursued.

While regular readers know that my feelings for Barney are not tender, I don't see the benefit to such a probe. For one thing, Republicans don't have clean hands in the run-up to the economic collapse of 2008 and certainly aren't going to like it when Democrats rake up as much dirt on them as they hope to on the Democrats. For another thing, in case guys like Ed Royce didn't get last Tuesday's main message, it's this: a majority of Americans loathe all of you clowns in D.C. precisely because you spend more time screwing with one another than you do addressing the nation's problems in any kind of constructive manner. Waging a jihad against Barney Frank isn't in your "mandate," my brothers.

Moreover, does anyone they think that an experienced street fighter like Frank is going to roll over and play dead? He may be slimy, but he's an intelligent and ruthless slimeball, and frankly (no pun intended...ok, maybe a small one), I think that this last election proved that no matter what Frank's found to have done, unless it involves something that would shock the conscience of Brie-eaters (like attending a John Rich/Cowboy Troy/Trace Adkins concert), he's going to be re-elected by his district's voters until he drops dead at his desk.

Here's an idea: when it comes to assigning blame for the mortgage debacle, why don't we all do what we should have done before we passed a 2300+ page financial reform bill: wait until the Financial Crisis Inquiry Commission that was set up by Congress in 2009 to determine the causes of the crisis finishes it work and issues its report, which is supposed to happen by December 15, 2010. I know, that's radical thinking, but there you have it. They'll be plenty of time after that report is issued to engage in a flurry of finger-pointing, blame-gaming, and Monday-morning-quarterbacking that should satisfy everyone in D.C. with an axe to grind.

Stop Me If You've Heard Any Of This

Scattershooting on hump night:

---Ten days or so prior to Chuck Schumer sounding the alarm about Federal Home Loan Bank of Atlanta advances to Countrywide's thrift subsidiary, Raymond Natter, former deputy chief counsel of the OCC and former counsel to the Senate Banking Committee, observed in an opinion piece about the Federal Home Loan Bank system in the American Banker (paid subscription required) that the system "has an enviable record of safe lending. Since it was authorized in 1932, there has not been a single credit-related loss on a Home Loan bank advance." Of course, who would know better about the risk involved in FHLB advances, an expert who's been part of the federal bank regulatory system for years or a tin horn Foghorn Leghorn? You be the judge. We don't intend to let this bone go ungnawed. We'll be checking in periodically to determine whether the FHLB Atlanta knows its business better than Chuckles. Want to lay odds on the answer to that question?

---Who's Barney Frank's favorite federal banking regulator? Too easy, huh? In the November 19, 2007 edition of the American Banker (paid subscription required), Barney almost squealed with ecstasy as he gushed about consumer advocate FDIC Chairman Sheila Bair.

The Massachusetts Democrat noted the difference among banking regulators in their appetite for regulation. He ranked Ms. Bair, Comptroller of the Currency John Dugan, and Office of Thrift Supervision Director John Reich in descending order.

"The regulators, they vary," he said. "Sheila Bair has been more supportive, but none of them have been resistant. They have all been cooperative. Look, Ben Bernanke"  — the Federal Reserve Board chairman — "is the one who said it is important to do some secondary-market restriction. Sheila Bair has been on top of it. … Sheila Bair is the most pro-regulation, Dugan in the middle, and Reich on the end," he said.

Yep, Sheila's Barney's kind of girl, that's for sure. We didn't know that such an animal existed, but she's it. Kudos to John Reich, who's obviously not Barney's kind of guy. That's one more reason to suspect that the federal thrift charter may linger on.

---Remember those clowns enterprising businesses that have been helping people with low credit scores "piggyback" the higher scores of other consumers by becoming "authorized users" of the better borrower's accounts? Two of them in Florida are under investigation (paid subscription required).

The Florida Attorney General's Office is investigating two companies that arrange for consumers to boost their credit scores by becoming authorized users on the card accounts of people with better credit.

Sandi Copes, a spokeswoman for the office, said that in June it began investigating Credit Builders LLC of Tampa, which runs the Web site instantcreditbuilders.com and uses the ICB brand. Since last year, she said, the office has been investigating RCA Credit Services LLC of Largo, which operates legalcredit.com, for several issues, including the promotion of account authorization.

One of the state's concerns is the impact of credit score inflation on lenders, Ms. Copes said. "We want to make sure they're not facilitating any lending fraud."

Oh, perish the thought!

John Coates, the consultant who handles media relations for Credit Builders, said that the state is using the company as a "scapegoat" for the subprime mortgage meltdown and the credit crunch.

Right, John, the State of Florida, which isn't responsible for the subprime mortgage meltdown in the first place, is trying to distract the public from its nonexistent responsibility by attacking your small outfit, which isn't a subprime lender or a mortgage broker. Uh-huh. Although you do "assist" subprimers in artificially boosting their credit scores by piggybacking some stranger's credit account...for a fee, of course. Which, I suppose, then would enable them eventually to qualify for a nice subprime 3/7 ARM with a funky teaser rate. No, John, you're not a "scapegoat," just a "donkey."

"Their approach is to make little companies like ICB, which has been in business for a year, look bad, and not banks that created the fiasco," Mr. Coates said. "ICB is helping to get people out of subprime."

Oh, I'm sorry, John, I sold you short (not that there's anything wrong with being a little person). You want to convince creditors that these borrowers with lousy FICO scores are now "prime" borrowers because they sucked off the superior FICO score of a prime borrower as an "authorized user." As the nimrods in that Chevy truck ad would say: "Sweet!"

However, what's with the "banks created the subprime fiasco" allegation, John? Uh, no, it was unregulated originators and Wall Streeters that created the fiasco. Even Barney Frank admits that. I sure hope you know more about your little market niche than you do about subprime mortgage lending in general. My "props" to you, though, for assuming the mantle of "victim," which goes down so well these days. Too bad you're not a disabled, Native American, Muslim, female basketball player from Rutgers (or are you?), because then you'd have the "full monty" of victimization flour to sprinkle on the floor and roll around in 'til you're covered from head to toe. Put you in the oven, bake you at 350 degrees for an hour, and you'd be good enough to eat, I swear.

He likened the company's service, which is designed to raise credit scores and help customers get better loan terms, to the recent efforts to prevent defaults by restructuring mortgages.

Well, that's such a stretch that we'll have to start calling you "Gumby" Coates, John. Here's an idea: try a logical thought process. You'll find it curiously refreshing. Or, maybe you won't.

Ms. Copes said the state also is looking at whether the companies violated Florida's Deceptive and Unfair Trade Practices Act. She would not say how they might have broken the law, but she noted that it requires companies to comply with the federal Credit Repair Organizations Act. That law prohibits collecting fees before services are rendered.

Mr. Coates said that until recently Credit Builders collected its fees up front, because it did not consider itself a credit-repair organization.

However, he said, it now has clients put their fees in an escrow account and collects the money once the service is rendered.

Yes, always best to take the "tried and true" route. Nothing but playing the rules according to Hoyle will suffice for the piggyback FICO score biz.