February 13, 2017
Monday’s Adjudication Roundup
- A New York appeals court refused to revive a fraud suit by liquidators for two Bear Stearns & Co. Inc. feeder funds alleging the big three credit rating agencies lied about the creditworthiness of debt obligations backed by subprime mortgages
February 13, 2017 | Permalink | No Comments
February 10, 2017
Consumer Protection in Trouble under Trump
photo by www.cafecredit.com
The Dallas News quoted me in Agency That Protects Consumers from Financial Scammers in Trouble under Trump. It reads, in part,
Last week I asked 100 people in an audience, “How many of you have heard of the U.S. Consumer Financial Protection Bureau?”
Only five people raised their hands.
I’m surprised. In the 240-year history of our nation, we never had a truly pro-consumer federal agency until five years ago. It’s working, but now we’re in danger of losing it.
If you use money or credit, take out loans, buy cars or pay on a mortgage, this bureau in Washington, D.C. is changing the way financial companies do business with you.
We might lose the bureau because big and small banks and other financial institutions hate it. They’re fighting it in court with lawsuits and with campaign contributions to members of Congress who will decide.
We might lose it because an area congressman, Rep. Jeb Hensarling, R-Dallas, is closer to achieving his goal of watering down the nation’s financial regulatory system — nicknamed Dodd-Frank.
Hensarling leads the House committee that gives thumbs up or down to financial bills. With that power in hand, he received more campaign donations from banks, insurance companies and the securities and investment industry than any other member of Congress, the nonpartisan Center for Responsive Politics says.
And we might lose the bureau because we have a president who, unlike the previous president, will not veto Hensarling’s pro-Wall Street bill – The Financial Choice Act — that would rip Dodd-Frank apart.
Remember that Dodd-Frank and the bureau came about after the 2008 financial meltdown. The bureau is part of the master plan to make sure it never happens again.
Accomplishments
If you haven’t heard of the U.S. Consumer Financial Protection Bureau, I’ll take part of the blame. Maybe The Watchdog hasn’t placed a big enough spotlight on it.
It was the bureau that revealed how Wells Fargo employees created two million fraudulent customer accounts. The bureau fined Wells Fargo $100 million.
The bureau worked to get $120 million in refunds for military families by policing improper practices with mortgages, credit cards, student loans and other financial products aimed at the military.
The bureau created rules that prevented lenders from approving risky home mortgage loans and charging hidden fees to home buyers.
The bureau forced credit card issuers to pay hundreds of millions of dollars back to consumers because of illegal practices, unfair billing and deceptive marketing.
The bureau went after crooked bill collectors, check cashers and credit repair services.
The bureau forced the three major credit bureaus to make it easier to submit corrections to inaccurate information on your credit report.
In sum, the scoreboard shows the bureau’s big number at $12 billion. That’s how much the bureau claims it has refunded to consumers or zeroed out when their invalid debts were canceled.
No wonder Wall Street, its golden boy Hensarling and the corps of dark-suited lobbyists want this darn thing rubbed out. Quickly.
* * *
Back to Bad Loans?
One who has studied government regulation tells me that financial institutions have adapted to the new order. The rules tamed the craziness that led to financial ruin nine years ago, says David Reiss, a professor at Brooklyn Law School.
Eliminating the bureau would force “a return to the dark old days when lenders could get away” with shadowy marketing practices, Reiss says.
“If the Trump administration were to get rid of the Consumer Financial Protection Bureau, consumers would have to be far more cautious when dealing with lenders,” he says. “There definitely would be a return to some of the predatory and abusive behavior. No one would be looking over the lender’s shoulder.”
February 10, 2017 | Permalink | No Comments
Friday’s Government Reports Roundup
- Ellie Mae is making good on their promise to support lenders in their efforts with governmental compliance and efficiency. This year, Ellie Mae increased its users of Encompass by 21% showing that lenders understand the efficacy of Ellie Mae’s program.
- The United States Department of Housing and Urban Development, created a grant to ensure that children are protected from lead paint. This grant is targeting low-income homes in urban communities. The goal is to ensure safe housing conditions which will one day support the overall economy of the U.S.
February 10, 2017 | Permalink | No Comments
February 9, 2017
The FHA Rollback’s Impact on Homebuyers
MortgageLoan.com quoted me in How Will Killing FHA Insurance Rollback Affect Borrowers? It opens,
Less than an hour after being sworn in as president, Donald Trump signed his first executive order, eliminating a drop in FHA mortgage insurance premiums that was to take effect a week later.
If the rate reduction had stayed in place, the average borrower with a $200,000 mortgage backed by the Federal Housing Administration would have had their mortgage insurance drop by about $500 per year.
The National Association of Realtors estimates that 750,000 to 850,000 homebuyers will face higher costs, and 30,000 to 40,000 new homebuyers will be left on the sidelines in 2017 without the cut.
The FHA doesn’t issue home loans, but insures mortgages and collects fees from borrowers to pay lenders if a homeowner defaults on the loan. The FHA guarantees about 18 percent of all mortgages across the country.
They’re most often used by lower-income, first-time homebuyers, sometimes with low credit scores. The FHA-backed loans require low down payments of 3.5 percent, and allow people with high debt ratios to buy a home.
With mortgage rates rising recently, the Obama administration announced on Jan. 9 a reduction in annual premiums for mortgage insurance for FHA loans from 0.85 percent to 0.60 percent of the loan balance, effective Jan. 27. The premiums are paid monthly.
Some Buyers Lower Expectations
The quarter of a percentage point drop didn’t go into effect because Trump ordered it eliminated. Still, some FHA borrowers were expecting the price drop and budgeting for it in the homes they shopped for, says Joseph Murphy, a Coldwell Banker real estate agent in Bradenton, FL.
Murphy says he’s had a few FHA clients lower their purchasing power with the elimination of the mortgage insurance cut, with one pulling out of buying a $135,000 home and instead dropping down to a $125,000 home because the FHA policy wasn’t changed to give them more money. Another client had to drop from a $200,000 home to a $190,000 one, he says.
“It’s not a big difference,” Murphy says. “But it’s enough of a difference. It’s demoralizing for some customers.”
In some neighborhoods he works with, it’s the difference between a barely hospitable home and a home in a better area.
Impact Disputed
It’s incorrect to say that Trump’s order raised mortgage bills, because it hadn’t taken effect yet anyway when the new president signed it, says Robyn Porter, a Realtor at W.C. & A.N. Miller in Bethesda, Md.
“The FHA insurance rate cut that was recently eliminated should have no impact on buyers,” Porter says. “In fact, the current insurance rates were established under the Obama administration and were the highest rates in more than 10 years.
“So, when Trump eliminated the reduction, they were simply put back to the same rate they had been for years ever since the Obama administration added them in,” she says.
Borrowers with low incomes, middle-of-the-road credit scores or have less than a 20 percent down payment are the main users of FHA loans. “These are typically more at-risk buyers for default,” Murphy says.
“Anything that makes access to money more expensive is going to have an impact, especially for fringe buyers,” he says.
Wealthier buyers either don’t qualify for the program or can bet a better loan rate on a conventional loan if they have good credit.
While it’s a great program for people who need it, not getting a $500 or so cut in FHA mortgage insurance shouldn’t affect buyers, Porter says.
“This is not going to deter somebody from buying a house,” she says.
Not getting a monthly mortgage insurance break of $50 or so per month shouldn’t be the difference in buying a home, she says.
“If that is going to break your bank, you shouldn’t be buying a home,” Porter says.
The overall impact may not be much, but even keeping the FHA rates where they were tends to make borrowing more expensive, increase housing prices and could drive some people away from buying a home, says David Reiss, who teaches about residential real estate at Brooklyn Law School.
“Everything has a marginal impact,” Reiss says.
“The more general point, though, is that FHA premiums have gone up significantly since the beginning of the financial crisis,” he says. “The Trump administration will need to think through the extent to which it wants to support homeownership and how it would do so.”
February 9, 2017 | Permalink | No Comments
Thursday’s Advocacy & Think Tank Roundup
- President Trump is working hard to ensure that big businesses in America receive financial breaks; however, he is not considering the impact of his decisions on all other industries. Currently, corporations pay a 35% tax rate. President Trump would like to reduce this rate to as low as 15%. If successful in the reduction, this could lead to Fannie Mae and Freddie Mac needing support similar to their needs in the financial crisis of the early 2000s.
- New residential development is not exciting to homeowners and renters in metro areas. Homeowners and renters alike are displeased because the price of housing has doubled in some of the country’s most populated areas. Michael Hankinson Meyer explains the effects and outcomes of residential development since the 1970s in a report.
February 9, 2017 | Permalink | No Comments
February 8, 2017
Who’s a Predatory Lender?
US News & World Report quoted me in 5 Clues That You’re Dealing with a Predatory Lender. It opens,
Consumers are often told to stay away from predatory lenders, but the problem with that advice is a predatory lender doesn’t advertise itself as such.
Fortunately, if you’re on guard, you should be able to spot the signs that will let you know a loan is bad news. If you’re afraid you’re about to sign your life away on a dotted line, watch for these clues first.
You’re being offered credit, even though your credit score and history are terrible. This is probably the biggest red flag there is, according to John Breyault, the vice president for public policy, telecommunications and fraud at the National Consumers League, a private nonprofit advocacy group in the District of Columbia.
“A lender is in business because they think they’re going to get paid back,” Breyault says. “So if they aren’t checking to see if you have the ability to pay them back, by doing a credit check, then they’re planning on getting their bank through a different way, like offering a high fee for the loan and setting it up in a way that locks you into a cycle of debt that is very difficult to get out of.”
But, of course, as big of a clue as this is to stay away, it can be hard to listen to your inner voice of reason. After all, if nowhere else will give you a loan, you may decide to work with the predatory lender anyway. That’s why many industry experts feel that even if a bad loan is transparent about how bad it is, it probably shouldn’t exist. After all, only consumers who are desperate for cash are likely to take a gamble that they can pay back a loan with 200 percent interest – and get through it unscathed.
Your loan has an insanely high interest rate. Most states have usury laws preventing interest rates from going into that 200 APR territory, but the laws are generally weak, industry experts say, and lenders get around them all the time. So you can’t assume an interest rate that seems really high is considered normal or even within the parameters of the law. After all, attorney generals successfully sue payday loan services and other lending companies fairly frequently. For instance, in January of this year, it was announced that after the District of Columbia attorney general sued the lending company CashCall, they settled for millions of dollars. According to media reports, CashCall was accused of offering loans with interest rates around 300 percent annually.
The lender is making promises that seem too good to be true. If you’re asking questions and getting answers that are making you sigh with relief, that could be a problem.
Nobody’s suggesting you be a cynic and assume everybody’s out to get you, but you should scrutinize your paperwork, says David Reiss, a professor of law at Brooklyn Law School in New York.
“Often predators will make all sorts of oral promises, but when it comes time to sign on the dotted line, their documents don’t match the promises,” Reiss says.
And if they aren’t in sync, assume the documentation is correct. Do not go with what the lender told you.
“Courts will, in all likelihood, hold you to the promises you made in the signed documents, and your testimony about oral promises probably won’t hold that much water,” Reiss says. ” Read what you are signing and make sure it matches up with your understanding of the transaction.”
February 8, 2017 | Permalink | No Comments
Wednesday’s Academic Roundup
- What Account for the Differences in Rent-Price Ratio and Turnover Rate? A Search-and-Matching Approach, Huang, Leung, and Tse
- Bank-Specific Shocks and House Price Growth in the U.S., Bremus, Krause, and Noth
- Relative Rank and Life Satisfaction: Evidence from US Households, Brown, Gathergood, and Weber
- Foreword: Perspectives on Mortgage Lending Regulation, Forrester
February 8, 2017 | Permalink | No Comments
