Like the TILA rescission trend we wrote of some months ago, there is another strategy gaining traction in this foreclosure tsunami, the produce-the-note defense.
It can work sometimes. It's VERY dependent on the judge and how he or she feels about the rules for standing of parties to bring an action to their court. But it's almost always a temporary delay because any case dismissal under these circumstances is done "without prejudice," which means the plaintiff can sue again as soon as they produce the required evidence of standing or sue on behalf of the correct party.
From what we've seen, the creditor's bar is working to educate their side of the legal profession as fast and as furiously as the consumer defense community is educating counsel on how to use it to defend against a foreclosure.
We don't believe this is territory for a borrower to head into on their own. It isn't a matter of the loan terms and conditions or TILA or RESPA violations. It's a matter of court rules, and those areas of the law vary from state to state and district to district.
One size does not fit all!
Craig and Dave
April 15, 2009
October 31, 2008
The Crowd is Getting Larger
Unless you live in a cave somewhere or just never watch any television or listen to the radio, you may not be aware of how many people are getting into the "debt ______________" business - pick a word: elimination, relief, reduction, consolidation, rescue, etc., etc.It's like the opening day of fishing - the crowd knows there are going to be lots of fish and what we call "at-risk" borrowers are nothing more than fish to them.
The problem is, a lot of them want you to pay them up front before they actually do anything. Some of them aren't licensed. Others are actually nothing more than web sites used to collect your information to sell as leads to the debt or credit repair market. And as the news stories keep demonstrating, a lot of them are complete frauds and some can get you into illegal activities.
How can you determine whether or not they're legitimate?
The sad answer is you really can't be certain. But our recommendation is to NOT pay someone else to do something you can do for yourself. This isn't a plug but you can pretty quickly determine if you can do this with a simple tool like Charles Phelan's free downloadable guidebook (see links at right).
We've had a link to it for as long as we've been on the 'net, and no, we have no business relationship with him. It's just the most practical thing we've seen in helping people decide if they can do it themselves - and we strongly believe most people can.
So, some simple rules if you really feel you can't handle the task of negotiating down your debt on your own:
1 - Don't pay in advance and understand exactly how much you're paying in fees.
2 - Don't fill out any details about you and your financial situation on a web site form.
3 - Don't deal with any company that does not have a physical address and phone number.
4 - Make sure the company you're dealing with is licensed to provide their services in your state.
5 - Don't do anything verbally. Any and all agreements must be in writing and signed, including by someone at the company.
6 - Remember that "Consumer Credit Counseling" is a non-profit industry funded and controlled by the credit card companies. They may or may not have your best financial interests in mind.
7 - NEVER give a company authorization to take money out of your checking account automatically.
8 - Remember, if you do reduce your debt by more than $600, it will be reported to the IRS and you will owe taxes on the forgiven amount (at whatever your income tax rate is).
You're going to see more and more stories about these companies in the future, mainly because it costs almost nothing to actually get into the business and there are millions of desperate borrowers to try and lure into the program.
There are some chilling examples of just how fraudulent some of them are. Take a look at this story about Ameridebt and Debtworks.
And finally, there really is no such thing as "debt elimination" that doesn't involve paying all or some of the debt back to the creditor. Buying into one of the fraudulent schemes that claim you don't actually owe real money or that you can use secret legal means to do away with debt can even leave you in serious legal trouble. Some of the newer scams claim you can assign your debt to another company without the approval of the creditor. Another one that has been around for years offers something along the lines of a "private international administrative remedy" which is legally meaningless (and can cost you upwards of $2,500 to find out).
Be careful out there!
Craig and Dave
October 10, 2008
Don’t plan on loan modifications - here's why.
If you’re out there facing trouble with your mortgage, something that has to be rattling around in your mind is “Could my mortgage get lifted off my shoulders?”
In two words, probably not. In a lot of words we’ll attempt to explain why.
Very recent news items have probably given a lot of desperate people a false sense of hope – primarily those about Indymac and Bank of America/Countrywide. Indymac is being operated by the FDIC and BofA is basically polishing its consumer image by modifying loans Countrywide still has control of.
A little dose of reality is in order – and trying to explain it in market and accounting terms would put most readers to sleep, so we’ll use an analogy.
Imagine you want to be a farmer (investor).
You look to buy farmland along a stream or canal coming from a reservoir that is fed by a large number of water sources - basically wells up in the mountains because you need to irrigate whatever you plant every month. The reservoir/dam operator tells you how much water they are committed to release every month. It’s supposed to be a fixed, total amount that will decline slightly over some long number of years in a fairly predictable schedule.
Now, there are four of you (farmers) looking at that total monthly amount of water – you (AAA) are conservative and think you know your production rate and what you’re planting and the return you’ll get from the comparatively small amount of water you need from the stream. You buy the more expensive property furthest upstream to make sure you’ll have the same amount of water every month and you get a contract that says you’ll get it. No more, no less.
The next farm operation down the line (BBB) is paying less for that tract of land because although they may get more water to use, that amount isn’t guaranteed every month. They’re a little more willing to gamble because they think the rainfall and snowpack in the mountains is probably going to be normal. They’re pretty sure they’ll get more than enough to get a decent crop, despite knowing that their water contract isn’t a sure thing. But the relatively lower cost of the land seems to make the difference for them.
(CCC) is even more of a gambler. They’ve had enough good years behind them to take a shot at some low-cost land. They’re going to get more water than AAA and BBB but just in case, (if they aren’t completely clueless) they’ll plant thousands of acres with drought-resistant crops and hedge their bets in other investments.
The real risk takers (DDD) come in and basically say they’re so confident the weather forecasters are wrong that they’ll plant anything and everything on really cheap land downstream. They’re blinded by the money everyone else at that level has been making down here on this end because the people who say how much water is coming have told them it’s never going to stop. For years now the whole darn valley has had all the water they needed. And better yet, if the reservoir actually dries up, with the contracts they’ve got, they could even own the upstream water wells that feed the reservoir and we all know it’s eventually going to snow and rain again, right?
These farmers, not really knowing much about canals, water gates, etc., hire an expert manager (the trustee) to get the water from the stream to their farms. Everything seems fine for a few seasons. The weather forecasters (raters) aren’t predicting low rainfall levels. The reservoir/dam operator manages to keep the right amount of water going into the stream to make the water manager and his farmers happy.
Now – here’s where things come apart.
The reservoir/dam operator (the mortgage servicer) is starting to have trouble with some of the water sources (the borrowers). Some of the wells that feed the reservoir are drying up or are being blocked. In fact, the snow and rainfall feeding some of the tributaries to the wells just didn’t happen (the list of possible reasons is too long to put here) or what they’re now finding out is that thing that was supposed to be a well was nothing more than a mud puddle. And there are even quicksand areas.
So what does the reservoir/dam operator (servicer) do? Call the water manager (trustee) and let him know there isn’t as much water coming from the dam. He has to reduce the flow to the DDD farmer downstream. If things get worse, DDD doesn’t get any water at all and CCC gets cut back, and so on.
So when some of the wells run dry, these holders of the lower tier water rights suffer.
But they went in knowing the risks based on the weather forecaster’s (raters) track record. What they didn’t know is the reservoir/dam operator was paying the forecasters.
It all worked well for so long that everyone in the game was happy with it. Food was produced, consumers were getting what they wanted and everyone in on the game was putting away a fortune to retire on.
But the weather finally changed. Snow stopped falling on the mountains and runoff dwindled, wells dried up and eventually the downstream farmers couldn’t even plant, let alone harvest a crop. Their low-priced land became worthless while farmer AAA was still doing OK.
Trouble is the BBB, CCC and DDD farms had placed side-bets that they’d be able to get water and produce a crop. And their backers (other investors) had taken those bets. See, if I’m a farmer and I convince you I’m going to have $XXX after I harvest the crops, you might give me $X to let me buy seed and diesel to do it. But when there’s no water and I can’t produce anything, you’re stuck. I don’t have a penny; if I’m farmer DDD all I’ve got is equity in some dry wells up above the reservoir that I’m trying to get the water company to sell or fix.
Keep in mind it’s the financial backers of the lower-tier gambling farmers that are getting bailed out in this recent $700B legislation.
Now, back to the subject of getting a loan modified.
That water manager – the trustee works for the farmers. The reservoir/dam operator (the servicer) has a contract with the trustee. It’s the Pooling and Servicing Agreement (PSA).
Those lower-tier farmers aren’t exactly happy when things get dry. They have problems of their own. Water is everything. They want it for the crops they have in the ground – getting it next month or next year or some years down the road is out of the question. It’s this season that counts partly because of those people they gambled with (and borrowed money from).
And just to bring this to a real-world scenario – “farmer” is not really just one person. A farmer in this story can literally be dozens of bond holding entities, none of which can make decisions for the others let alone come to agreement on something.
So the normal course of events is to foreclose on the dry well and try to sell it to someone who has water from somewhere else.
Let’s say for the purposes of this analogy that when the reservoir/dam operator (servicer) takes over and shuts off a well (forecloses), they also know some people who are trucking in X tons of water to the reservoir from prior auction sales. In fact, those tons of trucked-in water are a regular part of the business. So much a part that even if five wells go dry this month, their former small flows are more than replaced by the truckloads that came in from five foreclosures in prior months.
So the FLOW of water to the farmers is actually sustained if that earlier process of selling off dry wells keeps the future tanker trucks coming – for a while, that is. Eventually, without enough producing wells, even the truckloads can’t keep the reservoir level high enough. The water company is still supplying farmer AAA, farmer BBB is getting less than they thought, farmer CCC has had to cut back their operation and farmer DDD now owns a bunch of dry wells and is beating on the water company to produce water for him again by selling them off.
But before things get to that point, between the still-working wells and trucked-in water, the reservoir/dam operator may figure they can keep the farmers happy for quite a while. And they’re the only player in the game who really knows where the water is coming from and where it’s going. Why go to the effort of modifying a well-water agreement if you can keep your down-stream customers happy?
Now, if things have gotten bad and the farmers are making threatening noises, there might be a motive to negotiate something to get more water over a period of time. But without the agreement of ALL of the farmers the trustee won’t budge. Good luck with that.
Craig and Dave
In two words, probably not. In a lot of words we’ll attempt to explain why.
Very recent news items have probably given a lot of desperate people a false sense of hope – primarily those about Indymac and Bank of America/Countrywide. Indymac is being operated by the FDIC and BofA is basically polishing its consumer image by modifying loans Countrywide still has control of.
A little dose of reality is in order – and trying to explain it in market and accounting terms would put most readers to sleep, so we’ll use an analogy.
Imagine you want to be a farmer (investor).
You look to buy farmland along a stream or canal coming from a reservoir that is fed by a large number of water sources - basically wells up in the mountains because you need to irrigate whatever you plant every month. The reservoir/dam operator tells you how much water they are committed to release every month. It’s supposed to be a fixed, total amount that will decline slightly over some long number of years in a fairly predictable schedule.
Now, there are four of you (farmers) looking at that total monthly amount of water – you (AAA) are conservative and think you know your production rate and what you’re planting and the return you’ll get from the comparatively small amount of water you need from the stream. You buy the more expensive property furthest upstream to make sure you’ll have the same amount of water every month and you get a contract that says you’ll get it. No more, no less.
The next farm operation down the line (BBB) is paying less for that tract of land because although they may get more water to use, that amount isn’t guaranteed every month. They’re a little more willing to gamble because they think the rainfall and snowpack in the mountains is probably going to be normal. They’re pretty sure they’ll get more than enough to get a decent crop, despite knowing that their water contract isn’t a sure thing. But the relatively lower cost of the land seems to make the difference for them.
(CCC) is even more of a gambler. They’ve had enough good years behind them to take a shot at some low-cost land. They’re going to get more water than AAA and BBB but just in case, (if they aren’t completely clueless) they’ll plant thousands of acres with drought-resistant crops and hedge their bets in other investments.
The real risk takers (DDD) come in and basically say they’re so confident the weather forecasters are wrong that they’ll plant anything and everything on really cheap land downstream. They’re blinded by the money everyone else at that level has been making down here on this end because the people who say how much water is coming have told them it’s never going to stop. For years now the whole darn valley has had all the water they needed. And better yet, if the reservoir actually dries up, with the contracts they’ve got, they could even own the upstream water wells that feed the reservoir and we all know it’s eventually going to snow and rain again, right?
These farmers, not really knowing much about canals, water gates, etc., hire an expert manager (the trustee) to get the water from the stream to their farms. Everything seems fine for a few seasons. The weather forecasters (raters) aren’t predicting low rainfall levels. The reservoir/dam operator manages to keep the right amount of water going into the stream to make the water manager and his farmers happy.
Now – here’s where things come apart.
The reservoir/dam operator (the mortgage servicer) is starting to have trouble with some of the water sources (the borrowers). Some of the wells that feed the reservoir are drying up or are being blocked. In fact, the snow and rainfall feeding some of the tributaries to the wells just didn’t happen (the list of possible reasons is too long to put here) or what they’re now finding out is that thing that was supposed to be a well was nothing more than a mud puddle. And there are even quicksand areas.
So what does the reservoir/dam operator (servicer) do? Call the water manager (trustee) and let him know there isn’t as much water coming from the dam. He has to reduce the flow to the DDD farmer downstream. If things get worse, DDD doesn’t get any water at all and CCC gets cut back, and so on.
So when some of the wells run dry, these holders of the lower tier water rights suffer.
But they went in knowing the risks based on the weather forecaster’s (raters) track record. What they didn’t know is the reservoir/dam operator was paying the forecasters.
It all worked well for so long that everyone in the game was happy with it. Food was produced, consumers were getting what they wanted and everyone in on the game was putting away a fortune to retire on.
But the weather finally changed. Snow stopped falling on the mountains and runoff dwindled, wells dried up and eventually the downstream farmers couldn’t even plant, let alone harvest a crop. Their low-priced land became worthless while farmer AAA was still doing OK.
Trouble is the BBB, CCC and DDD farms had placed side-bets that they’d be able to get water and produce a crop. And their backers (other investors) had taken those bets. See, if I’m a farmer and I convince you I’m going to have $XXX after I harvest the crops, you might give me $X to let me buy seed and diesel to do it. But when there’s no water and I can’t produce anything, you’re stuck. I don’t have a penny; if I’m farmer DDD all I’ve got is equity in some dry wells up above the reservoir that I’m trying to get the water company to sell or fix.
Keep in mind it’s the financial backers of the lower-tier gambling farmers that are getting bailed out in this recent $700B legislation.
Now, back to the subject of getting a loan modified.
That water manager – the trustee works for the farmers. The reservoir/dam operator (the servicer) has a contract with the trustee. It’s the Pooling and Servicing Agreement (PSA).
Those lower-tier farmers aren’t exactly happy when things get dry. They have problems of their own. Water is everything. They want it for the crops they have in the ground – getting it next month or next year or some years down the road is out of the question. It’s this season that counts partly because of those people they gambled with (and borrowed money from).
And just to bring this to a real-world scenario – “farmer” is not really just one person. A farmer in this story can literally be dozens of bond holding entities, none of which can make decisions for the others let alone come to agreement on something.
So the normal course of events is to foreclose on the dry well and try to sell it to someone who has water from somewhere else.
Let’s say for the purposes of this analogy that when the reservoir/dam operator (servicer) takes over and shuts off a well (forecloses), they also know some people who are trucking in X tons of water to the reservoir from prior auction sales. In fact, those tons of trucked-in water are a regular part of the business. So much a part that even if five wells go dry this month, their former small flows are more than replaced by the truckloads that came in from five foreclosures in prior months.
So the FLOW of water to the farmers is actually sustained if that earlier process of selling off dry wells keeps the future tanker trucks coming – for a while, that is. Eventually, without enough producing wells, even the truckloads can’t keep the reservoir level high enough. The water company is still supplying farmer AAA, farmer BBB is getting less than they thought, farmer CCC has had to cut back their operation and farmer DDD now owns a bunch of dry wells and is beating on the water company to produce water for him again by selling them off.
But before things get to that point, between the still-working wells and trucked-in water, the reservoir/dam operator may figure they can keep the farmers happy for quite a while. And they’re the only player in the game who really knows where the water is coming from and where it’s going. Why go to the effort of modifying a well-water agreement if you can keep your down-stream customers happy?
Now, if things have gotten bad and the farmers are making threatening noises, there might be a motive to negotiate something to get more water over a period of time. But without the agreement of ALL of the farmers the trustee won’t budge. Good luck with that.
Craig and Dave
September 24, 2008
The sky is falling, the sky is falling! Well, not really.
Wow is about all we can say, and not about the bailout or the hearings or the investigations - it's the way it's being portrayed.
The hysteria over what is going on in Washington and New York seems to be mounting, and the “news” media has stepped in to keep us all breathlessly flipping channels and surfing sites, listening to talk shows and of course – being saturated with advertising.
And a lot of people seem to believe something major is going to change in their loan situation; they’re not sure what it is, but maybe, just maybe the really ugly mortgage they’re in is going to get fixed or that the perpetrators of this mess are going to be punished.
It’s too early to know what the legislation is or isn’t going to let the Department of the Treasury do, but we believe it’s a safe bet that hiring several thousand people to redo troubled loans and provide great customer service isn’t going to be part of it (this is, after all, the home of the IRS). And we really doubt there is going to be a servicing bureau in the Treasury. They’ll probably see no need to change servicers.
Short view – NOTHING CHANGES on your loan. Long view – if you have a really bad loan in a really bad pool of similar loans and it gets bought by the Treasury, it all depends on what powers the Treasury secretary is given to deal with it and who they sell it to when they’re ready.
But still, you better not count on them negotiating a modification with you. Some sources indicate the way the law is currently proposed would allow the Treasury to cancel existing PSAs and auction the servicing rights to the highest bidder. At least one believes they’ll do what is known as a “cram down” where the principal balance will be forced down to the value of the property and the interest rate will be set to some viable fixed rate. We don’t think they’ll be equipped to do that on an individual loan basis.
The lending industry is fighting hard to keep that power out of the hands of bankruptcy courts, but if the Treasury department owns the loan, there apparently isn’t anything stopping them from doing the loan modifications across the board on a pool.
There may be some good news in the future for a certain number of borrowers, but given the fact that it’s a bureaucracy we don’t hold out a lot of hope.
In the mean time, the Fairy Godmother isn’t coming to help most borrowers.
Craig and Dave
The hysteria over what is going on in Washington and New York seems to be mounting, and the “news” media has stepped in to keep us all breathlessly flipping channels and surfing sites, listening to talk shows and of course – being saturated with advertising.
And a lot of people seem to believe something major is going to change in their loan situation; they’re not sure what it is, but maybe, just maybe the really ugly mortgage they’re in is going to get fixed or that the perpetrators of this mess are going to be punished.
It’s too early to know what the legislation is or isn’t going to let the Department of the Treasury do, but we believe it’s a safe bet that hiring several thousand people to redo troubled loans and provide great customer service isn’t going to be part of it (this is, after all, the home of the IRS). And we really doubt there is going to be a servicing bureau in the Treasury. They’ll probably see no need to change servicers.
Short view – NOTHING CHANGES on your loan. Long view – if you have a really bad loan in a really bad pool of similar loans and it gets bought by the Treasury, it all depends on what powers the Treasury secretary is given to deal with it and who they sell it to when they’re ready.
But still, you better not count on them negotiating a modification with you. Some sources indicate the way the law is currently proposed would allow the Treasury to cancel existing PSAs and auction the servicing rights to the highest bidder. At least one believes they’ll do what is known as a “cram down” where the principal balance will be forced down to the value of the property and the interest rate will be set to some viable fixed rate. We don’t think they’ll be equipped to do that on an individual loan basis.
The lending industry is fighting hard to keep that power out of the hands of bankruptcy courts, but if the Treasury department owns the loan, there apparently isn’t anything stopping them from doing the loan modifications across the board on a pool.
There may be some good news in the future for a certain number of borrowers, but given the fact that it’s a bureaucracy we don’t hold out a lot of hope.
In the mean time, the Fairy Godmother isn’t coming to help most borrowers.
Craig and Dave
September 9, 2008
EMC Mortgage settles with FTC
Bear Stearns and EMC Mortgage to Pay $28 Million to Settle FTC Charges of Unlawful Mortgage Servicing and Debt Collection Practices.
The Bear Stearns Companies, LLC and its subsidiary, EMC Mortgage Corporation, have agreed to pay $28 million to settle Federal Trade Commission charges that they engaged in unlawful practices in servicing consumers’ home mortgage loans. The companies allegedly misrepresented the amounts borrowers owed, charged unauthorized fees, such as late fees, property inspection fees, and loan modification fees, and engaged in unlawful and abusive collection practices. Under the proposed settlement they will stop the alleged illegal practices and institute a data integrity program to ensure the accuracy and completeness of consumers’ loan information.
“Like other companies that send a bill, mortgage servicers must make sure that the amount they say is due really is the amount due,” said Lydia B. Parnes, Director of the FTC’s Bureau of Consumer Protection. “Consumers have the right to expect accuracy from the company that collects their mortgage payments.”
As stated in the FTC’s complaint, Bear Stearns and EMC have played a prominent role in the secondary market for residential mortgage loans. During the explosive growth of the mortgage industry in recent years, they acquired and securitized loans at a rapid pace, but they allegedly paid inadequate attention to the integrity of consumers’ loan information and to sound servicing practices. As a result, in servicing consumers’ loans, they neglected to obtain timely and accurate information on consumers’ loans, made inaccurate claims to consumers, and engaged in unlawful collection and servicing practices. These practices occurred prior to JP Morgan Chase & Co.’s acquisition of Bear Stearns, which became effective on May 30, 2008.
According to the complaint, EMC is the mortgage servicer for many of the loans Bear Stearns and EMC acquired. Many of these loans are subprime or “Alt-A” (less than prime) loans, including nontraditional mortgages such as pay option adjustable rate mortgages (“pick-a-payment” loans), interest-only mortgages, negative amortization loans, and loans made with little or no income or asset documentation. EMC’s loan servicing portfolio has grown significantly in recent years; as of September 2007, it serviced more than 475,000 mortgage loans with a total unpaid balance of about $80 billion.
THE FTC COMPLAINT
The complaint charges Bear Stearns and EMC with violating the FTC Act, the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), and the Truth in Lending Act’s (TILA) Regulation Z.
FTC Act Violations: The defendants are charged with unfair and deceptive loan servicing practices in violation of the FTC Act. They allegedly misrepresented the amounts consumers owed; assessed and collected unauthorized fees, such as late fees, property inspection fees, and loan modification fees; and misrepresented that they possessed and relied upon a reasonable basis for their representations about consumers’ loans.
Fair Debt Collection Practices Act Violations: The defendants allegedly violated several provisions of the FDCPA in collecting loans that were in default when they obtained them. They also allegedly made harassing collection calls; falsely represented the character, amount, or legal status of consumers’ debts; and failed to communicate that debts were disputed. In addition, they allegedly used false representations or deceptive means to collect, and failed to send consumers a validation notice containing the amount of the debt and the consumer’s right to dispute the debt and obtain verification of the debt.
Fair Credit Reporting Act Violations: The FTC alleges that the defendants furnished information about consumers’ payment status to credit reporting agencies (CRAs). When consumers informed the defendants that they disputed the completeness or accuracy of the reported information, the defendants failed to report the dispute to the CRAs as required by the FCRA.
Truth in Lending Act’s Regulation Z Violations: The complaint also states that the defendants charged borrowers a loan modification fee, typically $500, and automatically added the fee to the modified loan’s principal balance. In doing so, the defendants failed to provide the borrowers with required TILA disclosures.
THE SETTLEMENT
The proposed settlement requires Bear Stearns and EMC to pay $28 million to redress consumers who have been injured by the illegal practices alleged in the complaint. In addition, the settlement bars the defendants from future law violations and imposes new restrictions and requirements on their business practices. Specifically, the settlement:
bars the defendants from misrepresenting amounts due and any other loan terms;
requires them to possess and rely upon competent and reliable evidence to support claims made to consumers about their loans;
bars them from charging unauthorized fees, and places specific limits on property inspection fees even if they are authorized by the contract;
prohibits them from initiating a foreclosure action, or charging any foreclosure fees, unless they have reviewed all available records to verify that the consumer is in material default, confirmed that the defendants have not subjected the consumer to any illegal practices, and investigated and resolved any consumer disputes; and
prohibits the defendants from violating the FDCPA, FCRA, and TILA.
The proposed settlement further requires Bear Stearns and EMC to establish and maintain a comprehensive data integrity program to ensure the accuracy and completeness of data and other information that they obtain about consumers’ loan accounts, before servicing those accounts. The defendants must obtain an assessment from a qualified, independent, third-party professional within six months and then every two years, for the next eight years, to assure that their data integrity program meets the standards of the order.
The proposed settlement also contains record-keeping and reporting provisions to allow the FTC to monitor compliance with the order.
The Commission vote to authorize staff to file the complaint and proposed stipulated final order was 4-0. The documents were filed in the U.S. District Court for the Eastern District of Texas.
Including the case announced today, the Commission has brought 23 actions in the past decade alleging deceptive or unfair practices by mortgage brokers, lenders, and servicers. Several of these landmark cases have resulted in large monetary judgments that have returned more than $320 million to consumers.
CONSUMER HOTLINE: If the court approves the settlement, consumers who are eligible for redress will be contacted by mail. The Commission’s consumer hotline regarding the settlement is 1-877-787-3941. Consumers who have changed their address recently may provide updated contact information by calling the hotline. Consumers also can find information about the settlement on the FTC’s Web site at http://www.ftc.gov.
NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants have actually violated the law. The stipulated final order is for settlement purposes only and does not constitute an admission by the defendants of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.
The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC's online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the
Frank Dorman,
Office of Public Affairs
202-326-2674
STAFF CONTACT:
Lucy Morris,
Bureau of Consumer Protection
202-326-3224
September 3, 2008
Watching train wrecks, part 2.
Five signs of an impending train wreck
Most of the people we hear from or read about have a tendency to either not include enough information about their situation or they do a life history dump and include things that we’d frankly rather not know.
But from some of those, we can tell readers there’s a pattern, and there are several common train-wreck predictors that really shouldn’t be a major surprise to most of us:
Number one is the lack of a reserve. Instead of having 60, 90 or 120 days to respond to whatever situation comes up, in many states at-risk borrowers are usually only a paycheck or two away from not living in their home.
Number two are precipitating events, the most common being a loss of income for any number of reasons, often involving medical factors and combined with job loss. And without the reserve, by the time the income is restored number three has kicked in.
Number three which is often as a result of number two, the at-risk borrowers’ credit is so damaged that they may even have trouble finding a lease or rental property that would allow them to more gracefully exit the property on their own schedule.
Number four includes a propensity to have other consumer debt. We can tell you attorneys in foreclosure mills love to find high-interest auto loans, rent-to-own accounts, high credit-card balances and other default accounts in a borrower’s credit report. No matter what the issue is, the picture is easy to paint that it’s the borrower’s fault, not that of the servicer.
Number five may have been overlooked. Professor Elizabeth Warren pointed this out in her book “The Two Income Trap,” some years ago – you could conclude that children cause bankruptcy. Well, not exactly, but the chances of someone filing bankruptcy increase radically if they have school-aged children. The reason, according to her study is parents have a tendency to take on more home debt than they should to get their children into “better schools.”
So here’s the pattern (it should sound familiar):
- Parents want to live in a good school district so they go for the house that is really a bit of a stretch beyond even their two-income cushion. Until recently, lenders were more than happy to oblige, even go beyond just encouraging into outright fraud.
- The too-high house payment puts pressure on other expenses and lifestyle choices don’t adapt to the new conditions quickly enough, hence debt tends to accumulate and there is no chance to accumulate a reserve.
- Something happens and income is cut or some extraordinary expense comes along. Then the decisions about what will be or won’t be paid get harder.
- Defaults on one or more things occur, credit scores suffer and they’re trapped. If there is any equity at all they’re the perfect at-risk target for opportunistic collectors and servicers.
We’re surely not alone in seeing this pattern, but we think we’re among the few who see the opportunism at work when the train is nearing the wreck site.
(To be continued)
Craig and Dave
August 26, 2008
Watching train wrecks
We first have to point out to our readers that we’re biased in favor of consumers and borrowers. Our company philosophy revolves around people not having to resort to the “legal system” to get a company to do something it should have done to correct a problem before the train goes off the track and the court filings start.
But there’s a hidden parallel problem a lot of otherwise responsible and even well-meaning business executives don’t seem to be aware of.
Consider these four important facts:
- A large portion of the consumer population is employed by major corporations (according to the Census Bureau there are over 57 million people working for companies that have more than 500 employees).
- Some (we believe a fairly large) portion of that employed population is in or approaching a debt crisis.
- Most employees will talk about almost anything, except serious financial problems.
- People experiencing financial problems will all-too-often delay taking effective action.
Which means some of those responsible and even well-meaning executives aren’t seeing the train wrecks and don’t understand the impact they have on their companies.
Granted, with a few exceptions for some positions, for privacy and confidentiality reasons an employer really shouldn’t delve into the financial problems of its employees. They shouldn’t have to. But there needs to be an awareness that people facing serious financial problems aren’t exactly functioning at their best and are spending inordinate amounts of on-the-job time and mental energy dealing with non-work issues.
And we’re not talking about providing “consumer credit counseling.” That’s nothing more than cleaning up after the train wrecks.
Everyone needs to finally admit that the only viable, long-term answer for many people (and our economy) is debt prevention, and how to get that message to those who need it most before the train accelerates is going to take more than some quick-fix web sites and alarming news articles.
(To be continued)
Craig and Dave
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