March 16, 2015
Arbitration and The Common Mortgage
The Consumer Financial Protection Bureau posted its Arbitration Study. This is a report to Congress that was required by Dodd-Frank. By way of background, the study states that
Companies provide almost all consumer financial products and services subject to the terms of a written contract. Whenever a consumer obtains a consumer financial product such as a credit card, a checking account, or a payday loan, he or she typically receives the company’s standard form, written legal contract.
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As a general rule, the parties to a dispute can agree, after the dispute arises, to submit the dispute for resolution to a forum other than a court — for example, to submit a particular dispute that has arisen to resolution by an arbitrator. (3)
Arbitration provisions typically do not directly apply to residential mortgages because Dodd-Frank “prohibited the use of ‘arbitration or any other nonjudicial procedure’ for resolving disputes arising from residential mortgage loans or extensions of credit under an open-end consumer credit plan secured by the principal dwelling of the consumer. 15 U.S.C. § 1639c.” (Arbitration Study § 5.4, n.34) But they can apply in mortgage-related contracts, such as those for title insurance, mortgage insurance and forced-place flood insurance. (§ 8.3, n.24 & Appendix S, § 8)
The Study thus holds some interest for those of us interested housing finance. The Executive Summary (§ 1.4) provides an overview of the CFPB’s research findings about arbitrations and other proceedings.
My overall impression after having reviewed the report is that consumers do not often raise claims against consumer finance companies in any forum, whether with an arbitrator or with a judge. The Study does not provide any information that would allow one to conclude what the socially optimal level of formalized disputes would be. It would be helpful for the CFPB to try to model that.
March 16, 2015 | Permalink | No Comments
March 13, 2015
Reiss on Toxic Debt Claims
Bloomberg quoted me in Nomura First to Fight U.S. Toxic Debt Claims at Trial. The article reads in part,
Nomura Holdings Inc. will defend claims by a U.S. regulator that it sold defective mortgage-backed securities to Fannie Mae and Freddie Mac before the 2008 financial crisis, becoming the first bank to take such a case to trial.
The Federal Housing Finance Agency, suing on behalf of the two government-owned companies, claims Nomura sold them $2 billion of bonds backed by faulty mortgages. The agency seeks more than $1 billion in damages in the trial, which is set to start Monday in Manhattan federal court.
Nomura, the Tokyo-based investment bank, is choosing to fight claims that 16 other banks settled after the blow-up of toxic mortgage bonds led to the global credit crunch. FHFA has reached $17.9 billion in settlements from banks including Bank of America Corp., JPMorgan Chase & Co. and Goldman Sachs & Co. If Nomura prevails at trial, it may embolden other firms facing mortgage-related suits to defend themselves rather than settle.
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For Nomura and RBS to succeed, they will have to overcome Cote’s rulings as well as the widely held perception that banks packaged toxic debt and pushed it off on unsuspecting investors, said David Reiss, a professor at Brooklyn Law School.
Reiss said Nomura may believe it can show it was more careful than other banks in structuring mortgage-backed bonds and stands a good chance of winning.
As the trial approaches, a settlement becomes less likely, Bloomberg Intelligence analysts Elliott Stein and Alison Williams said yesterday. Stein said a resolution this late in the proceedings may exceed his earlier estimate of $100 million to $300 million, particularly if Cote’s rulings continue to favor FHFA.
March 13, 2015 | Permalink | No Comments
Friday Government Report Roundup
- US Treasury Department’s Community Development Financial Institutions Fund (CDFI Fund) released two reports discussing the difference in risk between conventional lenders and CDFIs.
- CFPB releases Arbitration Study required by the Dodd-Frank Act, which states that CFPB may prohibit or impose conditions or limitations on the use of” pre-dispute arbitration agreements concerning consumer financial products or services if it finds doing so “is in the public interest and for the protection of consumers.”
March 13, 2015 | Permalink | No Comments
March 12, 2015
Reiss on Being Financially Overextended
US News & World Report quoted me in 5 Signs You’re Financially Overextended. It reads in part,
Are you managing your debt? Or is it managing you? If you’re stuck in a money quicksand trap, you may not even realize at first that you’re in a financial predicament, especially if you’re sinking slowly and have been poorly managing your cash for a long time.
But if you suspect your debt is a disaster in the making, there’s no need to wait and see if your financial life will someday implode. If you’re pushing your finances to the limit, the signs are already there that you’re overextended. Just look for them. And if you spot one, don’t ignore it. Here are five of the biggest clues that trouble is coming.
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5. You’ve created opportunities that could make you overextended. If you have a lot credit cards or lines of credit you rarely use, you could, in theory, end up spending a lot of money and getting yourself into trouble that way, but having those lines open isn’t itself a bad sign. It’s a sign that you have good credit, and your creditors trust you. Still, it’s good to remember that if you aren’t monitoring yourself, you could ultimately max out and find yourself buried in credit card debt.
At least in that scenario, you have control over what may or may not happen. Some homeowners, however, put themselves at risk for becoming overextended when they get an adjustable rate mortgage or a home equity line of credit in which the interest rate “may float with some kind of index like the prime rate or [London Interbank Offered Rate],” says David Reiss, professor of law and research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School in Brooklyn, New York.
“So if interest rates rise dramatically, the home equity line of credit can become unaffordable,” he says. “Interest rates have been very low for some time, so homeowners are not focusing on this risk, but if they were to rise – and they can rise suddenly – homeowners may face a rude awakening.”
In which case, you may want to refinance and position yourself to avoid becoming financially overextended if the interest rates someday jump. Because what happens to anything when it’s stretched beyond its limits? It – or you – will snap.
March 12, 2015 | Permalink | No Comments
Thursday’s Advocacy & Think Tank Round-Up
- National Affordable Housing Coalition Releases it’s 2015 Advocates Guide an Educational Primer on Federal Resources Related to Affordable Housing and Community Development; and its March Housing Spotlight Issue entitled: Affordable Housing is Nowhere to be Found for Millions
- National Association Of Realtors released: The Home Buyer and Seller Generational Trends Report finding that Millennials represent the largest share of new home buyers
March 12, 2015 | Permalink | No Comments
March 11, 2015
Housing Affordability Across The Globe
The 11th Annual Demographia International Housing Affordability Survey: 2015 has been released. The survey provides ratings for metropolitan markets in Australia, Canada, China, Ireland, Japan, New Zealand, Singapore, the U.K. and the U.S. There are some interesting global trends:
March 11, 2015 | Permalink | No Comments
