Despite escalating outrage over rampant foreclosure fraud, the Federal Reserve now appears ready to eviscerate a key mortgage regulation in an effort to spare banks the losses from their own wrongdoing. Even as bank executives preposterously claim to have wronged nobody in the foreclosure process, they're pushing hard to unwind the only serious federal rule that protects borrowers from predatory loans and improper foreclosures. As if the last decade of abuse wasn't bad enough, banks are once again mobilizing to screw borrowers in the pursuit of epic bonuses. And once again, it appears that the Federal Reserve has become an accomplice to this nationwide mortgage scam.
Today, top mortgage officers from the nation's largest banks are telling the Senate Banking Committee that they aren't kicking the wrong people out of their homes. This is simply false. Problems at mortgage servicers have been going on for years, long before banks got into trouble for illegally robo-signing foreclosure documents. People are kicked out of their homes without cause in the United States every day. If the top executives at America's largest banks don't know this fact, they lack the competence needed to run their organizations.
Law firms that work with troubled borrowers are jam-packed with horror stories about foreclosures caused entirely by banks, not borrowers. Families who never miss a payment come home to an eviction notice, or a thug breaking down their door.
But it's even more common for borrowers to find themselves in trouble because their bank engaged in blatantly predatory lending. There is only one serious federal remedy for predatory lending, and the Fed is now knowingly trying to gut that remedy in order to help banks avoid losses from their own fraud. The remedy is called rescission, and it works like this:
If a bank failed to make key consumer protection disclosures about a mortgage, the borrower can demand that all of the interest and closing costs on the loan be refunded. Equally important, the bank must also stop all foreclosure proceedings and give up its right to foreclose. Once the bank gives up its right to foreclose, the full amount of the mortgage, minus interest and closing costs, becomes due. This isn't a free lunch for the borrower, especially when the value of her home has declined dramatically, but it's better than nothing, and it does impose real costs on banks.
For this process to function at all, it is absolutely critical that the bank be barred from foreclosing before the borrower has to pay off the remainder of the loan. A borrower can easily owe hundreds of thousands of dollars after winning a rescission. Few victims of predatory lending actually have that kind of money on hand.
This is the whole point of rescission, and it's been on the books since the Truth in Lending Act was passed in 1968. Without it, the consumer protections detailed by that law have no teeth. A bank is barred from engaging in predatory lending, but if it does it anyway, it faces no serious punishment.
Rescission, in other words, is the only federal legal device keeping banks in check on predatory lending (as the last decade proves, it's nowhere near enough). Predatory lending is really bad. If banks engage in it, they should face dramatic consequences. They don't get to foreclose and they give up all of the profit they expected to score from the predatory loan. If the borrower doesn't have all of the money on hand to pay off what's left, the bank has to deal with this money coming in over time.
The bank lobby and the Fed are now trying to completely gut the substance of this regulation. The Fed has just proposed a new rule that would reverse the order of payments and the right to foreclose under rescission. Under the new rule, a bank that has engaged in predatory lending does not have to give up its right to foreclose until after the borrower has paid off the full remaining balance of the loan.
Under the Fed's proposal, if you're the victim of illegal predatory lending, the bank will still get to foreclose on you unless you pony up hundreds of thousands of dollars all at once. And you'll have to pony up what the bank says you owe, which may be very different from what you actually owe. That eliminates the usefulness of rescission, making the new rule a bailout for predators.
The Fed knows full well that it's gutting the law here. The Board of Governors and their staff have met with key consumer lawyers no less than three times about this exact rule proposal, and the Fed is going ahead with it anyway.
Here's what's really going on. The largest banks don't have enough capital to weather a bad housing market. And any process that sheds light on the documentation procedures at mortgage servicers will expose the big banks to investor lawsuits. But investors can't sue without those documents. Rescission judgments create a paper trail for illegal loans. In addition to creating immediate losses for banks, rescission documents that banks sold illegal loans, giving investors who bought mortgage-backed securities ammunition for well-founded lawsuits. Those lawsuits, in turn, could sink some of the biggest names on Wall Street, something the Fed has been trying to prevent at all costs since 2008.
How close to the edge are the banks? Many mortgages that they account for as profitable assets are actually huge losses. The most obvious example of this insanity involves second lien mortgages. There are lots of kinds of second liens loans, but the important thing to remember is that they're the first asset to be wiped out when housing prices decline. Right now, they're in big trouble.
The second-lien holdings of Citigroup, Wells Fargo, Bank of America and JPMorgan Chase are about equal to their total capital. If you wipeout second liens, these banks are done. Right now the banks are accounting for these second liens as if they were worth nearly 100 percent of their original value—even though these loans only trade at only about one-quarter of that value. If banks take the market's value of just one class of assets, they're gone.
This class of assets goes completely under if banks have to own up to the current foreclosure fraud mess. The only real way to fix the documentation fraud problems is a nationwide program reducing the amounts that borrowers owe on their mortgages to current home values. Doing that forces the banks to acknowledge that their second lien mortgages are, in fact, worthless.
So the big banks and their protectors at the Fed are launching a two-pronged strategy. First, they're trying to prevent investors from obtaining the loan documents that will fuel well-justified lawsuits. Second, they're trying to give banks even greater control over the foreclosure process, in order to allow banks to continue to game accounting rules. This is a premeditated strategy to save banks from losses created by their own fraudulent, predatory behavior. It has no place on the books of the Fed, particularly after the central bank's total failure to prevent the mortgage abuses of the past decade.
It's not too late for the Fed to turn back. It can, in fact, abandon this bailout, and leave consumer protection issues to the new Consumer Financial Protection Bureau, which is designed to handle exactly this sort of issue, for exactly this reason.
Ask not for whom the foreclosure bell tolls house flippers. It tolls for thee.
With profuse apologies to Ernest Hemingway, that butchered metaphor sums up the predicament facing many real estate investors caught in a legal Noman’s land caused by the robo-signing scandal which has left them with properties which they are no longer sure they own. If they want to get their money back, they may have to prove that the bank knew it was conning them, something that may be difficult to do. They also may face legal action from people evicted from their homes because of faulty paperwork
A foreclosure freeze that several banks instituted hurt sales of existing homes in several hard-hit markets. Foreclosure auctions have plunged more than 30 percent in California, Nevada and Arizona, according to ForeclosureRadar. Sales of existing homes in Florida tumbled 21 percent in October compared with a year ago.
Though several banks including Bank of America (NYSE: BAC) and housing finance giant Fannie Mae have restarted at least some foreclosures, the process has been irrevocably tainted by the industry’s apparent willingness to put profits above the law. Their legal exposure may be gigantic — billions of dollars — particularly if courts find that they improperly evicted people from their residences. Not only could the foreclosure be reversed, but they could face punitive damages as could the realtors and attorneys involved in the transaction.
But what about the people who bought these homes? That’s where things get a little dicey. Clearly, their rights were violated as well. But in the legal tsunami created by the robo-signed documents, they should be last in the pecking order. Many of them, particularly sophisticated investors looking for a quick flip, probably knew or should have known that something was amiss. How is it that the foreclosure process — which is purposely cumbersome to protect the rights of homeowners — suddenly became streamlined? What about the same people’s names appearing in hundreds of documents? That did raise any red flags either.
“The ones who are really upset are the investors, who buy on the courthouse steps,” said Kevin Berman, a broker with Bankers Realty Services in Fort Lauderdale, Fla, told CNNMoney. “There used to be sometimes 700 sales a day. Now there are like, seven.”
Adds to this the lower prices that new homes are fetching and it becomes even harder for flippers to make a profit on an existing dwelling that has been extensively fixed up. It’s human nature to prefer something new over something old if they are priced about the same.
Still, there are thousands of people in this country who believe they have what it takes to become the next Donald Trump. They get plenty of encouragement from cable television shows such as A&E’s “Flip This House” and Bravo’s “Flipping Out” and TLC’s “The Property Ladder.” Though these programs do illustrate the downside of flipping — potentially losing boatloads of cash — they make it seem like a grand adventure. These shows offer as realistic view of real estate as “Gray’s Anatomy” does for medicine. Untold millions watch the flipping shows, though, and figure that if those bozos on TV can do it, so can I.
This sort of delusional or magical thinking is evidence of what economists call a moral hazard. Essentially, it means that the government shouldn’t reward people for making stupid decisions. Though the idea was turned on its head during the recent bailouts of industry, it is still a worthwhile idea. It shows ` there are consequences to actions. People who acquired homes that they should have known they couldn’t afford crossed the moral hazard threshold. They deserve some help, particularly if they can prove they were victims of fraud. Otherwise, their rights should come secondary to the victims of fraudulent mortgage documents. Flippers are private businesspeople who should have known the risks they were getting into before they entered a deal. Few if any deserve government help.
Real estate has become a spectator sport in the U.S., which is unfortunate because many people have business playing it.
Jon Berr
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Breaking <b>News</b>: Watch A Gigantic Looping Solar Prominence
The Solar Dynamics Observatory never fails to deliver absolutely stunning images from the Sun: as of 18:49 UT today, the above picture is what the Sun looked like in the ultraviolet spectrum. The prominence that you are seeing looping ...
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From the slow dance Republicans and Democrats have been doing in Washington the last few weeks over tax cuts and jobless benefit extensions approved earlier.
Foxconn to ship iPad 2 by the end of February 2011
Foxconn Electronics' (Hon Hai Precision Industry's) plants in Shenzhen, China have recently been notified they will ship Apple's iPad 2 within the next 100 days with initial shipments to reach 400000-600000 units, according to sources ...
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Breaking <b>News</b>: Watch A Gigantic Looping Solar Prominence
The Solar Dynamics Observatory never fails to deliver absolutely stunning images from the Sun: as of 18:49 UT today, the above picture is what the Sun looked like in the ultraviolet spectrum. The prominence that you are seeing looping ...
Small Business <b>News</b>: The Small Business Samba
From the slow dance Republicans and Democrats have been doing in Washington the last few weeks over tax cuts and jobless benefit extensions approved earlier.
Foxconn to ship iPad 2 by the end of February 2011
Foxconn Electronics' (Hon Hai Precision Industry's) plants in Shenzhen, China have recently been notified they will ship Apple's iPad 2 within the next 100 days with initial shipments to reach 400000-600000 units, according to sources ...
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Breaking <b>News</b>: Watch A Gigantic Looping Solar Prominence
The Solar Dynamics Observatory never fails to deliver absolutely stunning images from the Sun: as of 18:49 UT today, the above picture is what the Sun looked like in the ultraviolet spectrum. The prominence that you are seeing looping ...
Small Business <b>News</b>: The Small Business Samba
From the slow dance Republicans and Democrats have been doing in Washington the last few weeks over tax cuts and jobless benefit extensions approved earlier.
Foxconn to ship iPad 2 by the end of February 2011
Foxconn Electronics' (Hon Hai Precision Industry's) plants in Shenzhen, China have recently been notified they will ship Apple's iPad 2 within the next 100 days with initial shipments to reach 400000-600000 units, according to sources ...
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Breaking <b>News</b>: Watch A Gigantic Looping Solar Prominence
The Solar Dynamics Observatory never fails to deliver absolutely stunning images from the Sun: as of 18:49 UT today, the above picture is what the Sun looked like in the ultraviolet spectrum. The prominence that you are seeing looping ...
Small Business <b>News</b>: The Small Business Samba
From the slow dance Republicans and Democrats have been doing in Washington the last few weeks over tax cuts and jobless benefit extensions approved earlier.
Foxconn to ship iPad 2 by the end of February 2011
Foxconn Electronics' (Hon Hai Precision Industry's) plants in Shenzhen, China have recently been notified they will ship Apple's iPad 2 within the next 100 days with initial shipments to reach 400000-600000 units, according to sources ...
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Breaking <b>News</b>: Watch A Gigantic Looping Solar Prominence
The Solar Dynamics Observatory never fails to deliver absolutely stunning images from the Sun: as of 18:49 UT today, the above picture is what the Sun looked like in the ultraviolet spectrum. The prominence that you are seeing looping ...
Small Business <b>News</b>: The Small Business Samba
From the slow dance Republicans and Democrats have been doing in Washington the last few weeks over tax cuts and jobless benefit extensions approved earlier.
Foxconn to ship iPad 2 by the end of February 2011
Foxconn Electronics' (Hon Hai Precision Industry's) plants in Shenzhen, China have recently been notified they will ship Apple's iPad 2 within the next 100 days with initial shipments to reach 400000-600000 units, according to sources ...
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Despite escalating outrage over rampant foreclosure fraud, the Federal Reserve now appears ready to eviscerate a key mortgage regulation in an effort to spare banks the losses from their own wrongdoing. Even as bank executives preposterously claim to have wronged nobody in the foreclosure process, they're pushing hard to unwind the only serious federal rule that protects borrowers from predatory loans and improper foreclosures. As if the last decade of abuse wasn't bad enough, banks are once again mobilizing to screw borrowers in the pursuit of epic bonuses. And once again, it appears that the Federal Reserve has become an accomplice to this nationwide mortgage scam.
Today, top mortgage officers from the nation's largest banks are telling the Senate Banking Committee that they aren't kicking the wrong people out of their homes. This is simply false. Problems at mortgage servicers have been going on for years, long before banks got into trouble for illegally robo-signing foreclosure documents. People are kicked out of their homes without cause in the United States every day. If the top executives at America's largest banks don't know this fact, they lack the competence needed to run their organizations.
Law firms that work with troubled borrowers are jam-packed with horror stories about foreclosures caused entirely by banks, not borrowers. Families who never miss a payment come home to an eviction notice, or a thug breaking down their door.
But it's even more common for borrowers to find themselves in trouble because their bank engaged in blatantly predatory lending. There is only one serious federal remedy for predatory lending, and the Fed is now knowingly trying to gut that remedy in order to help banks avoid losses from their own fraud. The remedy is called rescission, and it works like this:
If a bank failed to make key consumer protection disclosures about a mortgage, the borrower can demand that all of the interest and closing costs on the loan be refunded. Equally important, the bank must also stop all foreclosure proceedings and give up its right to foreclose. Once the bank gives up its right to foreclose, the full amount of the mortgage, minus interest and closing costs, becomes due. This isn't a free lunch for the borrower, especially when the value of her home has declined dramatically, but it's better than nothing, and it does impose real costs on banks.
For this process to function at all, it is absolutely critical that the bank be barred from foreclosing before the borrower has to pay off the remainder of the loan. A borrower can easily owe hundreds of thousands of dollars after winning a rescission. Few victims of predatory lending actually have that kind of money on hand.
This is the whole point of rescission, and it's been on the books since the Truth in Lending Act was passed in 1968. Without it, the consumer protections detailed by that law have no teeth. A bank is barred from engaging in predatory lending, but if it does it anyway, it faces no serious punishment.
Rescission, in other words, is the only federal legal device keeping banks in check on predatory lending (as the last decade proves, it's nowhere near enough). Predatory lending is really bad. If banks engage in it, they should face dramatic consequences. They don't get to foreclose and they give up all of the profit they expected to score from the predatory loan. If the borrower doesn't have all of the money on hand to pay off what's left, the bank has to deal with this money coming in over time.
The bank lobby and the Fed are now trying to completely gut the substance of this regulation. The Fed has just proposed a new rule that would reverse the order of payments and the right to foreclose under rescission. Under the new rule, a bank that has engaged in predatory lending does not have to give up its right to foreclose until after the borrower has paid off the full remaining balance of the loan.
Under the Fed's proposal, if you're the victim of illegal predatory lending, the bank will still get to foreclose on you unless you pony up hundreds of thousands of dollars all at once. And you'll have to pony up what the bank says you owe, which may be very different from what you actually owe. That eliminates the usefulness of rescission, making the new rule a bailout for predators.
The Fed knows full well that it's gutting the law here. The Board of Governors and their staff have met with key consumer lawyers no less than three times about this exact rule proposal, and the Fed is going ahead with it anyway.
Here's what's really going on. The largest banks don't have enough capital to weather a bad housing market. And any process that sheds light on the documentation procedures at mortgage servicers will expose the big banks to investor lawsuits. But investors can't sue without those documents. Rescission judgments create a paper trail for illegal loans. In addition to creating immediate losses for banks, rescission documents that banks sold illegal loans, giving investors who bought mortgage-backed securities ammunition for well-founded lawsuits. Those lawsuits, in turn, could sink some of the biggest names on Wall Street, something the Fed has been trying to prevent at all costs since 2008.
How close to the edge are the banks? Many mortgages that they account for as profitable assets are actually huge losses. The most obvious example of this insanity involves second lien mortgages. There are lots of kinds of second liens loans, but the important thing to remember is that they're the first asset to be wiped out when housing prices decline. Right now, they're in big trouble.
The second-lien holdings of Citigroup, Wells Fargo, Bank of America and JPMorgan Chase are about equal to their total capital. If you wipeout second liens, these banks are done. Right now the banks are accounting for these second liens as if they were worth nearly 100 percent of their original value—even though these loans only trade at only about one-quarter of that value. If banks take the market's value of just one class of assets, they're gone.
This class of assets goes completely under if banks have to own up to the current foreclosure fraud mess. The only real way to fix the documentation fraud problems is a nationwide program reducing the amounts that borrowers owe on their mortgages to current home values. Doing that forces the banks to acknowledge that their second lien mortgages are, in fact, worthless.
So the big banks and their protectors at the Fed are launching a two-pronged strategy. First, they're trying to prevent investors from obtaining the loan documents that will fuel well-justified lawsuits. Second, they're trying to give banks even greater control over the foreclosure process, in order to allow banks to continue to game accounting rules. This is a premeditated strategy to save banks from losses created by their own fraudulent, predatory behavior. It has no place on the books of the Fed, particularly after the central bank's total failure to prevent the mortgage abuses of the past decade.
It's not too late for the Fed to turn back. It can, in fact, abandon this bailout, and leave consumer protection issues to the new Consumer Financial Protection Bureau, which is designed to handle exactly this sort of issue, for exactly this reason.
Ask not for whom the foreclosure bell tolls house flippers. It tolls for thee.
With profuse apologies to Ernest Hemingway, that butchered metaphor sums up the predicament facing many real estate investors caught in a legal Noman’s land caused by the robo-signing scandal which has left them with properties which they are no longer sure they own. If they want to get their money back, they may have to prove that the bank knew it was conning them, something that may be difficult to do. They also may face legal action from people evicted from their homes because of faulty paperwork
A foreclosure freeze that several banks instituted hurt sales of existing homes in several hard-hit markets. Foreclosure auctions have plunged more than 30 percent in California, Nevada and Arizona, according to ForeclosureRadar. Sales of existing homes in Florida tumbled 21 percent in October compared with a year ago.
Though several banks including Bank of America (NYSE: BAC) and housing finance giant Fannie Mae have restarted at least some foreclosures, the process has been irrevocably tainted by the industry’s apparent willingness to put profits above the law. Their legal exposure may be gigantic — billions of dollars — particularly if courts find that they improperly evicted people from their residences. Not only could the foreclosure be reversed, but they could face punitive damages as could the realtors and attorneys involved in the transaction.
But what about the people who bought these homes? That’s where things get a little dicey. Clearly, their rights were violated as well. But in the legal tsunami created by the robo-signed documents, they should be last in the pecking order. Many of them, particularly sophisticated investors looking for a quick flip, probably knew or should have known that something was amiss. How is it that the foreclosure process — which is purposely cumbersome to protect the rights of homeowners — suddenly became streamlined? What about the same people’s names appearing in hundreds of documents? That did raise any red flags either.
“The ones who are really upset are the investors, who buy on the courthouse steps,” said Kevin Berman, a broker with Bankers Realty Services in Fort Lauderdale, Fla, told CNNMoney. “There used to be sometimes 700 sales a day. Now there are like, seven.”
Adds to this the lower prices that new homes are fetching and it becomes even harder for flippers to make a profit on an existing dwelling that has been extensively fixed up. It’s human nature to prefer something new over something old if they are priced about the same.
Still, there are thousands of people in this country who believe they have what it takes to become the next Donald Trump. They get plenty of encouragement from cable television shows such as A&E’s “Flip This House” and Bravo’s “Flipping Out” and TLC’s “The Property Ladder.” Though these programs do illustrate the downside of flipping — potentially losing boatloads of cash — they make it seem like a grand adventure. These shows offer as realistic view of real estate as “Gray’s Anatomy” does for medicine. Untold millions watch the flipping shows, though, and figure that if those bozos on TV can do it, so can I.
This sort of delusional or magical thinking is evidence of what economists call a moral hazard. Essentially, it means that the government shouldn’t reward people for making stupid decisions. Though the idea was turned on its head during the recent bailouts of industry, it is still a worthwhile idea. It shows ` there are consequences to actions. People who acquired homes that they should have known they couldn’t afford crossed the moral hazard threshold. They deserve some help, particularly if they can prove they were victims of fraud. Otherwise, their rights should come secondary to the victims of fraudulent mortgage documents. Flippers are private businesspeople who should have known the risks they were getting into before they entered a deal. Few if any deserve government help.
Real estate has become a spectator sport in the U.S., which is unfortunate because many people have business playing it.
Jon Berr
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Breaking <b>News</b>: Watch A Gigantic Looping Solar Prominence
The Solar Dynamics Observatory never fails to deliver absolutely stunning images from the Sun: as of 18:49 UT today, the above picture is what the Sun looked like in the ultraviolet spectrum. The prominence that you are seeing looping ...
Small Business <b>News</b>: The Small Business Samba
From the slow dance Republicans and Democrats have been doing in Washington the last few weeks over tax cuts and jobless benefit extensions approved earlier.
Foxconn to ship iPad 2 by the end of February 2011
Foxconn Electronics' (Hon Hai Precision Industry's) plants in Shenzhen, China have recently been notified they will ship Apple's iPad 2 within the next 100 days with initial shipments to reach 400000-600000 units, according to sources ...
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Breaking <b>News</b>: Watch A Gigantic Looping Solar Prominence
The Solar Dynamics Observatory never fails to deliver absolutely stunning images from the Sun: as of 18:49 UT today, the above picture is what the Sun looked like in the ultraviolet spectrum. The prominence that you are seeing looping ...
Small Business <b>News</b>: The Small Business Samba
From the slow dance Republicans and Democrats have been doing in Washington the last few weeks over tax cuts and jobless benefit extensions approved earlier.
Foxconn to ship iPad 2 by the end of February 2011
Foxconn Electronics' (Hon Hai Precision Industry's) plants in Shenzhen, China have recently been notified they will ship Apple's iPad 2 within the next 100 days with initial shipments to reach 400000-600000 units, according to sources ...
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Breaking <b>News</b>: Watch A Gigantic Looping Solar Prominence
The Solar Dynamics Observatory never fails to deliver absolutely stunning images from the Sun: as of 18:49 UT today, the above picture is what the Sun looked like in the ultraviolet spectrum. The prominence that you are seeing looping ...
Small Business <b>News</b>: The Small Business Samba
From the slow dance Republicans and Democrats have been doing in Washington the last few weeks over tax cuts and jobless benefit extensions approved earlier.
Foxconn to ship iPad 2 by the end of February 2011
Foxconn Electronics' (Hon Hai Precision Industry's) plants in Shenzhen, China have recently been notified they will ship Apple's iPad 2 within the next 100 days with initial shipments to reach 400000-600000 units, according to sources ...
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Breaking <b>News</b>: Watch A Gigantic Looping Solar Prominence
The Solar Dynamics Observatory never fails to deliver absolutely stunning images from the Sun: as of 18:49 UT today, the above picture is what the Sun looked like in the ultraviolet spectrum. The prominence that you are seeing looping ...
Small Business <b>News</b>: The Small Business Samba
From the slow dance Republicans and Democrats have been doing in Washington the last few weeks over tax cuts and jobless benefit extensions approved earlier.
Foxconn to ship iPad 2 by the end of February 2011
Foxconn Electronics' (Hon Hai Precision Industry's) plants in Shenzhen, China have recently been notified they will ship Apple's iPad 2 within the next 100 days with initial shipments to reach 400000-600000 units, according to sources ...
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Breaking <b>News</b>: Watch A Gigantic Looping Solar Prominence
The Solar Dynamics Observatory never fails to deliver absolutely stunning images from the Sun: as of 18:49 UT today, the above picture is what the Sun looked like in the ultraviolet spectrum. The prominence that you are seeing looping ...
Small Business <b>News</b>: The Small Business Samba
From the slow dance Republicans and Democrats have been doing in Washington the last few weeks over tax cuts and jobless benefit extensions approved earlier.
Foxconn to ship iPad 2 by the end of February 2011
Foxconn Electronics' (Hon Hai Precision Industry's) plants in Shenzhen, China have recently been notified they will ship Apple's iPad 2 within the next 100 days with initial shipments to reach 400000-600000 units, according to sources ...
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Breaking <b>News</b>: Watch A Gigantic Looping Solar Prominence
The Solar Dynamics Observatory never fails to deliver absolutely stunning images from the Sun: as of 18:49 UT today, the above picture is what the Sun looked like in the ultraviolet spectrum. The prominence that you are seeing looping ...
Small Business <b>News</b>: The Small Business Samba
From the slow dance Republicans and Democrats have been doing in Washington the last few weeks over tax cuts and jobless benefit extensions approved earlier.
Foxconn to ship iPad 2 by the end of February 2011
Foxconn Electronics' (Hon Hai Precision Industry's) plants in Shenzhen, China have recently been notified they will ship Apple's iPad 2 within the next 100 days with initial shipments to reach 400000-600000 units, according to sources ...
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Despite escalating outrage over rampant foreclosure fraud, the Federal Reserve now appears ready to eviscerate a key mortgage regulation in an effort to spare banks the losses from their own wrongdoing. Even as bank executives preposterously claim to have wronged nobody in the foreclosure process, they're pushing hard to unwind the only serious federal rule that protects borrowers from predatory loans and improper foreclosures. As if the last decade of abuse wasn't bad enough, banks are once again mobilizing to screw borrowers in the pursuit of epic bonuses. And once again, it appears that the Federal Reserve has become an accomplice to this nationwide mortgage scam.
Today, top mortgage officers from the nation's largest banks are telling the Senate Banking Committee that they aren't kicking the wrong people out of their homes. This is simply false. Problems at mortgage servicers have been going on for years, long before banks got into trouble for illegally robo-signing foreclosure documents. People are kicked out of their homes without cause in the United States every day. If the top executives at America's largest banks don't know this fact, they lack the competence needed to run their organizations.
Law firms that work with troubled borrowers are jam-packed with horror stories about foreclosures caused entirely by banks, not borrowers. Families who never miss a payment come home to an eviction notice, or a thug breaking down their door.
But it's even more common for borrowers to find themselves in trouble because their bank engaged in blatantly predatory lending. There is only one serious federal remedy for predatory lending, and the Fed is now knowingly trying to gut that remedy in order to help banks avoid losses from their own fraud. The remedy is called rescission, and it works like this:
If a bank failed to make key consumer protection disclosures about a mortgage, the borrower can demand that all of the interest and closing costs on the loan be refunded. Equally important, the bank must also stop all foreclosure proceedings and give up its right to foreclose. Once the bank gives up its right to foreclose, the full amount of the mortgage, minus interest and closing costs, becomes due. This isn't a free lunch for the borrower, especially when the value of her home has declined dramatically, but it's better than nothing, and it does impose real costs on banks.
For this process to function at all, it is absolutely critical that the bank be barred from foreclosing before the borrower has to pay off the remainder of the loan. A borrower can easily owe hundreds of thousands of dollars after winning a rescission. Few victims of predatory lending actually have that kind of money on hand.
This is the whole point of rescission, and it's been on the books since the Truth in Lending Act was passed in 1968. Without it, the consumer protections detailed by that law have no teeth. A bank is barred from engaging in predatory lending, but if it does it anyway, it faces no serious punishment.
Rescission, in other words, is the only federal legal device keeping banks in check on predatory lending (as the last decade proves, it's nowhere near enough). Predatory lending is really bad. If banks engage in it, they should face dramatic consequences. They don't get to foreclose and they give up all of the profit they expected to score from the predatory loan. If the borrower doesn't have all of the money on hand to pay off what's left, the bank has to deal with this money coming in over time.
The bank lobby and the Fed are now trying to completely gut the substance of this regulation. The Fed has just proposed a new rule that would reverse the order of payments and the right to foreclose under rescission. Under the new rule, a bank that has engaged in predatory lending does not have to give up its right to foreclose until after the borrower has paid off the full remaining balance of the loan.
Under the Fed's proposal, if you're the victim of illegal predatory lending, the bank will still get to foreclose on you unless you pony up hundreds of thousands of dollars all at once. And you'll have to pony up what the bank says you owe, which may be very different from what you actually owe. That eliminates the usefulness of rescission, making the new rule a bailout for predators.
The Fed knows full well that it's gutting the law here. The Board of Governors and their staff have met with key consumer lawyers no less than three times about this exact rule proposal, and the Fed is going ahead with it anyway.
Here's what's really going on. The largest banks don't have enough capital to weather a bad housing market. And any process that sheds light on the documentation procedures at mortgage servicers will expose the big banks to investor lawsuits. But investors can't sue without those documents. Rescission judgments create a paper trail for illegal loans. In addition to creating immediate losses for banks, rescission documents that banks sold illegal loans, giving investors who bought mortgage-backed securities ammunition for well-founded lawsuits. Those lawsuits, in turn, could sink some of the biggest names on Wall Street, something the Fed has been trying to prevent at all costs since 2008.
How close to the edge are the banks? Many mortgages that they account for as profitable assets are actually huge losses. The most obvious example of this insanity involves second lien mortgages. There are lots of kinds of second liens loans, but the important thing to remember is that they're the first asset to be wiped out when housing prices decline. Right now, they're in big trouble.
The second-lien holdings of Citigroup, Wells Fargo, Bank of America and JPMorgan Chase are about equal to their total capital. If you wipeout second liens, these banks are done. Right now the banks are accounting for these second liens as if they were worth nearly 100 percent of their original value—even though these loans only trade at only about one-quarter of that value. If banks take the market's value of just one class of assets, they're gone.
This class of assets goes completely under if banks have to own up to the current foreclosure fraud mess. The only real way to fix the documentation fraud problems is a nationwide program reducing the amounts that borrowers owe on their mortgages to current home values. Doing that forces the banks to acknowledge that their second lien mortgages are, in fact, worthless.
So the big banks and their protectors at the Fed are launching a two-pronged strategy. First, they're trying to prevent investors from obtaining the loan documents that will fuel well-justified lawsuits. Second, they're trying to give banks even greater control over the foreclosure process, in order to allow banks to continue to game accounting rules. This is a premeditated strategy to save banks from losses created by their own fraudulent, predatory behavior. It has no place on the books of the Fed, particularly after the central bank's total failure to prevent the mortgage abuses of the past decade.
It's not too late for the Fed to turn back. It can, in fact, abandon this bailout, and leave consumer protection issues to the new Consumer Financial Protection Bureau, which is designed to handle exactly this sort of issue, for exactly this reason.
Ask not for whom the foreclosure bell tolls house flippers. It tolls for thee.
With profuse apologies to Ernest Hemingway, that butchered metaphor sums up the predicament facing many real estate investors caught in a legal Noman’s land caused by the robo-signing scandal which has left them with properties which they are no longer sure they own. If they want to get their money back, they may have to prove that the bank knew it was conning them, something that may be difficult to do. They also may face legal action from people evicted from their homes because of faulty paperwork
A foreclosure freeze that several banks instituted hurt sales of existing homes in several hard-hit markets. Foreclosure auctions have plunged more than 30 percent in California, Nevada and Arizona, according to ForeclosureRadar. Sales of existing homes in Florida tumbled 21 percent in October compared with a year ago.
Though several banks including Bank of America (NYSE: BAC) and housing finance giant Fannie Mae have restarted at least some foreclosures, the process has been irrevocably tainted by the industry’s apparent willingness to put profits above the law. Their legal exposure may be gigantic — billions of dollars — particularly if courts find that they improperly evicted people from their residences. Not only could the foreclosure be reversed, but they could face punitive damages as could the realtors and attorneys involved in the transaction.
But what about the people who bought these homes? That’s where things get a little dicey. Clearly, their rights were violated as well. But in the legal tsunami created by the robo-signed documents, they should be last in the pecking order. Many of them, particularly sophisticated investors looking for a quick flip, probably knew or should have known that something was amiss. How is it that the foreclosure process — which is purposely cumbersome to protect the rights of homeowners — suddenly became streamlined? What about the same people’s names appearing in hundreds of documents? That did raise any red flags either.
“The ones who are really upset are the investors, who buy on the courthouse steps,” said Kevin Berman, a broker with Bankers Realty Services in Fort Lauderdale, Fla, told CNNMoney. “There used to be sometimes 700 sales a day. Now there are like, seven.”
Adds to this the lower prices that new homes are fetching and it becomes even harder for flippers to make a profit on an existing dwelling that has been extensively fixed up. It’s human nature to prefer something new over something old if they are priced about the same.
Still, there are thousands of people in this country who believe they have what it takes to become the next Donald Trump. They get plenty of encouragement from cable television shows such as A&E’s “Flip This House” and Bravo’s “Flipping Out” and TLC’s “The Property Ladder.” Though these programs do illustrate the downside of flipping — potentially losing boatloads of cash — they make it seem like a grand adventure. These shows offer as realistic view of real estate as “Gray’s Anatomy” does for medicine. Untold millions watch the flipping shows, though, and figure that if those bozos on TV can do it, so can I.
This sort of delusional or magical thinking is evidence of what economists call a moral hazard. Essentially, it means that the government shouldn’t reward people for making stupid decisions. Though the idea was turned on its head during the recent bailouts of industry, it is still a worthwhile idea. It shows ` there are consequences to actions. People who acquired homes that they should have known they couldn’t afford crossed the moral hazard threshold. They deserve some help, particularly if they can prove they were victims of fraud. Otherwise, their rights should come secondary to the victims of fraudulent mortgage documents. Flippers are private businesspeople who should have known the risks they were getting into before they entered a deal. Few if any deserve government help.
Real estate has become a spectator sport in the U.S., which is unfortunate because many people have business playing it.
Jon Berr
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