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Researchers at the World Bank have posted Can You Help Someone Become Financially Capable? A Meta-Analysis of the Literature.The abstract reads,

This paper presents a systematic and comprehensive meta-analysis of the literature on financial education interventions.  The analysis focuses on financial education studies designed to strengthen the financial knowledge and behaviors of consumers. The analysis identifies188 papers and articles that present impact results of interventions designed to increase consumers’ financial knowledge (financial literacy) or skills, attitudes, and behaviors (financial capability). These papers are diverse across a number of dimensions, including objectives of the  program intervention, expected outcomes, intensity and duration of the intervention, delivery channel used, and type of population targeted. However, there are a few key outcome indicators where a subset of papers are comparable, including those that address savings behavior, defaults on loans, and financial skills, such as record keeping. The results from the meta analysis indicate that financial literacy and capability interventions can have a positive impact in some areas (increasing savings and promoting financial skills such a record keeping) but not in others (credit default).

I hope that policy makers at the CFPB have reviewed this paper carefully. The Bureau has a financial education mission that must be built on solid research if it hopes to improve outcomes for consumers. A lot of the scholarly work in this area has questioned the efficacy of financial education, but the Bureau seems to be going full speed ahead with it. The Bureau should bore down into the literature to determine which types of interventions are effective before allocating funds indiscriminately to new initiatives.

I am particularly concerned about the last sentence of the abstract which indicates that interventions have failed to improve consumer behavior when it comes to credit default. That seems to be a big problem for any financial skills initiative. Further research should focus on alternative interventions that might be effective in reducing credit default by consumers. And funds should not be wasted in the interim on unproven initiatives in this area.

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The court in deciding Gonzalez v. Bank of Am., N.A., 2014 U.S. Dist, 67 (N.D. Ill. 2014) granted defendant’s motion to dismiss.

Plaintiff (Gonzalez) filed a four-count complaint against Bank of America and MERS seeking damages arising from alleged violations of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692 et seq. (Count I); void assignment of mortgage in violation of the Fourteenth Amendment (Count II); lack of authority to assign mortgage (Count III); and, against Bank of America only, violation of the Illinois Mortgage Foreclosure Law (Count IV).

Defendants moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Ultimately the court granted defendant’s motion.

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The court in deciding Bolden v. McCabe, Weisberg & Conway, LLC, 2013 U.S. Dist., 182057 (D. Md. 2013) granted defendant’s motion to dismiss and denied plaintiff’s motion for summary judgment.

Plaintiff in bringing this action alleged violations of the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. § 1681 et seq., the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq., the Maryland Consumer Debt Collection Act (“MCDCA”), Md. Code Ann., Com. Law, § 14-201 et seq., and the Maryland Consumer Protection Act (“MCPA”), Md. Code Ann., Com. Law § 13-101 et seq.

After considering the plaintiff’s arguments, the court found that the sparse factual allegations in the complaint could not sustain the claims, as such the court granted defendant’s motion to dismiss and plaintiff’s motion for summary judgment was denied.

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The court in deciding Mutua v. Deutsche Bank Nat’l Trust Co., 2013 Minn. Dist. 65 (Minn. Dist. Ct. 2013) found that since the defendant had a valid legal title to plaintiffs’ mortgage. Plaintiffs had failed to state a claim against either defendant and their respective motions to dismiss are granted.

This Court reasoned that there was a valid assignment of plaintiffs’ mortgages to defendant which gave defendant legal title to the mortgages and allowed Defendant to foreclose on plaintiffs’ properties.

The court noted that both the Minnesota Supreme Court and the United States Court of Appeals for the Eighth Circuit had rejected the legal theory, which has become known as “show-me-the-note,” advanced by plaintiffs.

In the present action, the court noted that plaintiffs merely tweaked this legal theory and argued that based on the language of the plaintiffs’ mortgage and note, an entity different from defendant Deutsche Bank National Trust Company had the legal right to foreclose on plaintiffs’ homes. This argument was rejected.

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A case coming out of California, Peng v. Chase Home Finance LLC et al., California Courts of Appeal Second App. Dist., Div. 8, April 8th, 2014, has attracted a lot of attention in the blogosphere. This is particularly notable because this case is not to be published in the official reports and thus has no precedential value. Judge Rubin’s dissent has attracted much of the attention. It opens,

The promissory note signed by appellants Jeffry and Grace Peng obligated them to repay their home loan. In August 2007, Freddie Mac acquired the promissory note from Chase. Based on Freddie Mac owning the note, appellants seek to amend their complaint to allege Chase did not have authority to enforce the promissory note or to foreclose on their home, but the majority rejects appellants’ proposed amendment. Relying on case law rebuffing a homeowner’s challenge to a creditor-beneficiary’s authority to foreclose, the majority notes that courts have traditionally reasoned that the homeowner’s challenge is futile because, even if successful, the homeowner “merely substitute[s] one creditor for another, without changing [the homeowner’s] obligations under the note.” (Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 271.) The only party prejudiced by an illegitimate creditor-beneficiary’s enforcement of the homeowner’s debt, courts have reasoned, is the bona fide creditor-beneficiary, not the homeowner.

Such reasoning troubles me. I wonder whether the law would apply the same reasoning if we were dealing with debtors other than homeowners. I wonder how most of us would react if, for example, a third-party purporting to act for one’s credit card company knocked on one’s door, demanding we pay our credit card’s monthly statement to the third party. Could we insist that the third party prove it owned our credit card debt? By the reasoning of Fontenot and similar cases, we could not because, after all, we owe the debt to someone, and the only truly aggrieved party if we paid the wrong party would, according to those cases, be our credit card company. I doubt anyone would stand for such a thing. (Dissent, 1)

The dissent’s concern is justified. As Professor Whitman has recently noted on the Dirt Listserv and elsewhere, it is a “bizarre notion that anyone can foreclose a mortgage without showing that they have the right to enforce the note.” He also notes that the majority (and even the dissent) in Peng confuse ownership of the note with the right to enforce it. Until courts fully understand how the UCC governs the enforcement of notes, one should worry that some state court judges might declare an open season on homeowners as the majority does here in Peng.

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Enterprise Community Partners, Inc. has posted Inside Johnson-Crapo: What the Senate Housing Finance Reform Bill Could Mean for Low- and Moderate-income Communities. Parsing the various Congressional proposals for housing finance reform is hard enough for an expert, let alone for an interested observer. This policy brief provides a helpful overview of the proposal that is setting the terms for the debate today, with a focus on low- and moderate-income homeownership. Its key findings include:

  • The bill, called the Housing Finance Reform and Taxpayer Protection Act of 2014 or S. 1217, lays a clear and thoughtful path forward for the nation’s housing finance system, including the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
  • A new federal agency, modeled after the Federal Deposit Insurance Corporation, would oversee the entire secondary mortgage market and establish a new system of government-insured mortgage-backed securities (MBS). In exchange for a fee, the agency would provide limited insurance against catastrophic losses on qualifying securities issued by private companies. Investors in the private companies would need to incur significant losses before the insurance pays out to holders of the MBS. The bill also winds down Fannie Mae and Freddie Mac, the mortgage companies that were placed under government conservatorship in 2008.
  • The bill includes several provisions to ensure that the new system adequately serves low- and moderate-income communities. First, it requires any issuer of government-insured securities to serve all eligible single-family and multifamily mortgages. Second, it preserves the GSEs’ current businesses for financing rental housing, while ensuring that those businesses continue to support apartments that are affordable to low-income families. Third, it requires issuers to contribute funding to programs that support the creation and preservation of affordable housing. Finally, it creates new market-based incentives to serve traditionally underserved segments of the housing market.
  • Enterprise strongly supports the direction laid out in this bill and appreciates the inclusion of important multifamily provisions. At the same time, we suggest several proposals to further strengthen the bill. Among other things, we recommend that lawmakers promote a level playing field among eligible risk-sharing models; authorize the federal regulator to enforce the bill’s “equitable access” rule; expand the scope of the affordable housing fee; simplify the incentives for supporting underserved market segments; and establish separate insurance funds for single-family and multifamily securities. (1)

The left has criticized Johnson-Crapo for not doing enough for low- and moderate-income homeownership. The right has criticized it for leaving too much risk with the taxpayer. But it seems that a broad center finds that the outline provided by the bill provides a way forward from the zombie-state housing finance finds itself in, with a Fannie and Freddie neither fully alive nor fully dead. Nobody seems to think that a bill will pass this year. But hopefully Congress will keep attending to this issue and we can soon see a resurrected housing finance system, one that can take us through much of the 21st Century just as Fannie and Freddie got us through the 20th.

 

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Inside The GSEs quoted me in BofA MBS Lawsuit Settlement Shrinks List of FHFA Defendants (behind a paywall). It reads,

It’s only a matter of time before the remaining big bank defendants settle lawsuits filed by the Federal Housing Finance Agency over billions in non-agency mortgage-backed securities sold to Fannie Mae and Freddie Mac in the years leading up to the housing crisis, predicts a legal expert.

Last week, Bank of America agreed to a $9.3 billion settlement that covers its own dealings as well as those of Countrywide Financial and Merrill Lynch, which it acquired in 2008. The agreement covers some $57 billion of MBS issued or underwritten by these firms.

BofA did not admit liability or wrongdoing but it will pay $5.8 billion in cash to Fannie and Freddie and repurchase about $3.5 billion in residential MBS at market value. In return, FHFA’s lawsuits against the bank will be dismissed with prejudice.

The FHFA said it is working to resolve the remaining lawsuits regarding non-agency MBS purchased by the GSEs between 2005 and 2007. The suits involve alleged violations of federal and state securities laws and allegations of common law fraud. One week earlier, the Finance Agency announced that Credit Suisse Group had agreed to pay $885 million to settle a similar lawsuit.

Under the terms of that agreement, Credit Suisse will pay approximately $234 million to Fannie and approximately $651 million to Freddie. In exchange, certain claims against Credit Suisse related to the securities involved will be released.

So far, the FHFA’s lawsuits have recovered $19.5 billion in total payments. Expect more where that came from, said David Reiss, a professor at Brooklyn Law School.

“Every case is different and each institution has a different risk profile in terms of litigation strategy,” said Reiss. “The BofA settlement is so high profile because it’s Countrywide. It gives a lodestar when trying to figure out how low [defendants] can go in a settlement offer.”

Prior to the BofA deal, the FHFA had collected $8.9 billion in prior settlements. The Morgan Stanley settlement is the fourth largest of those settlements, behind Deutsche Bank, which agreed to pay $1.93 billion in December, and JPMorgan Chase, which reached a $4 billion settlement in October.

The bank defendants have repeatedly tried and failed to dismiss the FHFA suits on procedural grounds, including a claim that the cases were no longer timely.

In October, the U.S. Supreme Court declined to hear an appeal from the banks, prompting the expectation in legal circles that few, if any, of the remaining cases will ever go to trial.

“I don’t think that if you are a [big bank] defendant, that you see a particularly favorable judiciary,” said Reiss. “You see that the government is able to reach deals with companies in front of you and I think you’re thinking about settling.”

Entities that have yet to settle non-agency MBS claims with the FHFA include Barclays Bank, First Horizon National Corp., Goldman Sachs, HSBC, Nomora Holding America and the Royal Bank of Scotland.