Supreme Court debates the meaning of the term 'debt collector' in a foreclosure protections case dating back to the financial crisis

  • The Supreme Court on Monday heard arguments in a case that dates back to the financial crisis a decade ago.

  • The justices, missing Justice Ruth Bader Ginsburg, attempted to resolve a legal question that could have broad ramifications on hundreds of thousands of Americans who are foreclosed on without a judicial process each year.

  • A key issue in the matter is who or what can be considered a "debt collector."

January 7, 2019 | CNBC Markets are racked by turmoil, and there are signs the booming U.S. economy could slow down later this year. Yet the Supreme Court is reckoning with the lingering fallout from the financial crisis that rocked the global economy a decade ago.

The top court on Monday attempted to resolve a legal question that could have broad ramifications on hundreds of thousands of Americans who are foreclosed on without a judicial process each year. A key issue in the matter is who or what can be considered a "debt collector." Read more here.

Foreclosure Prevention Returns to the Unknown

The New York Times | January 25, 2017        After an eight-year run, a troubled government effort to prevent foreclosures and keep struggling borrowers in their homes came to an end last month.

What happens next will be a Trump-era laboratory experiment in how financial services companies conduct themselves when the regulatory fetters are loosened.

The expired Obama-era program — known as HAMP, the Home Affordable Modification Program — was widely criticized for its poor execution. Participation was voluntary for banks, and many that opted in did so unenthusiastically. (At one bank, “the floor of the room in which the bank dumped the voluminous unopened HAMP applications actually buckled under the packages’ sheer weight,” according to a scathing oversight report.)

Consumer advocates were also not thrilled; many felt that the program did not go far enough to help troubled homeowners or hold accountable the banks that contributed to their predicaments.

But Republican-led Washington has no intention of replacing it. So now it will be entirely up to the private sector to address a lingering social ill that was brought on by the financial crisis.

Banks and mortgage lenders say they are ready to step in with their own foreclosure-prevention programs, modeled on what they learned from the Obama administration’s effort. Armed with years of new data, financial companies say they now know how to make loan-modification programs successful, for both borrowers — who want to protect their homes — and lenders, who want to limit their losses on delinquent loans headed for default.

“There’s tremendous public good in having an industrywide approach,” said Justin Wiseman, the director of loan administration policy at the Mortgage Bankers Association, a trade group. “No one wants things to revert to what we had before.”

Still, housing advocates are skeptical, and for good reason: The mortgage industry was largely responsible for HAMP’s shortcomings (as well as for creating the need for the program in the first place). The business has long been littered with errors, confusion and outright abuses.

“We’re going back into uncharted territory,” said Jacob Inwald, the director of foreclosure prevention at Legal Services NYC, which helps low-income residents fight foreclosures and evictions.

Before the government stepped in “it was like the Wild West, with every servicer having their own program,” he said.  Read more here.

2,300 U.S. Foreclosures Show a Racial Divide in House Decay

The New York Times | December 13, 2016         The modest white house on Arlene Avenue in Dayton, Ohio, was an eyesore. The paint was peeling, and parts of the shutters were missing. The yard was thickly overgrown, and the back door, such as it was, had been jury-rigged from plywood.

The home on Jeanette Street in New Orleans didn’t look much better, with its broken steps, exposed wiring and vines sprouting from the gutter.

And the pale-green property on 64th Avenue in Oakland, Calif., ticked off many of the same complaints: broken windows, damaged fence, rotten wood, peeling paint.

houses.jpg

Each of these homes, among more than 2,300 foreclosures around the country visited by fair-housing testers between 2011 and 2015, sits in a census tract that is overwhelmingly nonwhite. Nonprofit housing advocacy groups allege in a federal district court lawsuit filed in California this month that the lender responsible for maintaining them, the quasi-government agency Fannie Mae, allowed them to deteriorate.  Read more here.

How to Get the Government Out of Mortgage Lending

Bloomberg View | December 20, 2016        One of the least discussed challenges of the incoming Trump administration may also be among the most economically consequential: what to do with Fannie Mae and Freddie Mac, the government-controlled entities that own or guarantee about half of all U.S. home mortgages.

Trump's pick for Treasury Secretary, Steven Mnuchin, has said he wants to put housing finance back into private hands. Sensible as the goal may be, the hard part will be getting there.

Fannie and Freddie illustrate how slippery the term "private" can be. The two operated as privately owned corporations for decades, albeit with a congressional mandate to promote access to mortgage credit. They generated ample profits for shareholders and gained a dominant position thanks in large part to the expectation that the government would rescue them in an emergency. That perception proved correct in 2008, and they have been wards of the state ever since.

The failure of Fannie and Freddie has drawn the government far deeper into U.S. housing finance than it ever intended, at a time when even its pre-crisis involvement appears excessive. Subsidized lending may have boosted home ownership, but it also contributed to a consumer-debt burden that has hobbled the recovery and rendered the economy more prone to crisis. Most other advanced-nation governments play a much smaller role, with little apparent effect on home ownership.  Read more here.

 

Foreclosure Tragedy Can’t Compete with Ryan Lochte

The Huffington Post | August 19, 2016    Foreclosures are no longer fodder for major news headlines. The media intensity diminished as Americans became dulled to the stories of millions of families being kicked out of their homes by big banks and Wall Street-backed hedge funds. Instead, the media whips up a frenzy over Ryan Lochte and his pals vandalizing a bathroom in Rio de Janeiro. Yet, out of the media spotlight, our fellow Americans continue to be foreclosed out of their homes.

Kathleen Gross and her family will lose their Paradise Valley, Arizona home of twenty-five years to foreclosure next Tuesday, August 23. This will mark the end of a relentless years-long battle with a series of mortgage companies. “All of our memories are here. We raised our children in this home,” she wept. “We have been in this neighborhood for over two decades and don’t want to leave.”  Read more here.

Homeownership's Perfect Storm: Low Mortgage Rates, High Housing Starts

Housing affordability could become more prominent in the next few months, thanks in part to new home construction.

 

U.S. News & World Report | July 19, 2016       Home construction bounced back in June after an unimpressive May, potentially setting the stage for more moderate home price growth, with mortgage rates already hovering near historic lows.

Housing starts jumped 4.8 percent last month, according to a report published Tuesday by the Census Bureau. That's the best rate of home construction improvement since February and well ahead of analysts' more modest expectations.

The number of building permits issued in June, likewise, ticked up 1.5 percent over the month, while the number of housing completions skyrocketed 12.3 percent. These finished projects showed improvement in all four of the country's major geographic regions, though the Northeast led the charge with an 89.7 percent spike, spurred mostly by multifamily units and apartment buildings.

All told, June was a welcome step in the right direction following what has thus far been a lackluster year in the world of home construction. Despite the monthly improvement, housing starts are still down 2 percent over the year. And building permits are down a whopping 13.6 percent from June 2015. 

"June's data release shows monthly starts are still about 20 percent below historical averages," Ralph McLaughlin, chief economist at real estate hub Trulia, said in a statement Tuesday. "Nationally, new housing supply relative to demand is about 15 percent below the historical average."

All of this means fewer job opportunities for domestic construction workers. Such payrolls were unchanged in the month of June, according to the Bureau of Labor Statistics. But construction employment fell in April and May, which hadn't happened in consecutive months since mid-2012.  Read more here.

 

To Fight Foreclosure, NYC Buying Mortgages

ABC News |  June 30, 2016    New York City is taking a novel approach to addressing enduring pockets of the home foreclosure crisis by buying long-unpaid mortgages, with plans to help owners stay in their homes if possible or use the properties as affordable housing if not, officials say.

It's among the first cities to pursue buying such loans directly from the federal Department of Housing and Urban Development, officials say. Housing advocates and some lawmakers have pressed HUD to make it easier for cities and nonprofit groups, as opposed to investors, to buy troubled mortgages.

New York is announcing the $13 million program Thursday. Details of the program were provided to The Associated Press ahead of a planned afternoon announcement.  Read more here.

HSBC to Pay $1.575 Billion, Ending Household International Class action

Reuters | June 16, 2016      A unit of HSBC Holdings Plc said on Thursday it will pay $1.575 billion to end a 14-year-old shareholder class action lawsuit stemming from the Household International consumer finance business that the British bank bought in 2003.

HSBC Finance Corp expects to take a roughly $585 million pre-tax charge in the second quarter for the settlement, which requires court approval. It said it could have faced liability as high as $3.6 billion.

The accord averts a second trial in the litigation, which had been expected to begin last week in the U.S. District Court in Chicago before being put on hold.

"We are pleased to resolve this 14-year case that's based on events that took place before HSBC acquired Household," HSBC spokesman Rob Sherman said in a statement.  Read more here.

Who Can Go After Banks for the Foreclosure Crisis?

Cities are arguing that they, too, were damaged by risky loans, and that they should be able to take the lenders to court to regain their losses.

The Atlantic | May 3, 2016     In the wake of the housing crisis, surprisingly few people or institutions have been held accountable for the risky lending practices that nearly wrecked the U.S. economy.  That’s partly because the people who were most damaged by the foreclosure crisis—the people who lost their homes—don’t have the resources to bring lawsuits.

But the families who lost their homes weren’t the only ones hurt by the foreclosure crisis. So there’s an argument to be made that they shouldn’t be the only ones who can go after the lenders. Cities, for example, lost tax revenue when homes sat vacant, and saw property values within their boundaries decrease when vacant and boarded-up homes sat empty. Cities had to pay for police and fire protection to keep those homes from being vandalized and to respond to reported break-ins and criminal activity at the houses.

So should cities be able to sue the banks, too?

That’s the question making its way through courts across the country after municipalities including Los Angeles, Miami, Oakland, and Providence all filed lawsuits against lenders under the Fair Housing Act. The lawsuits, which the banks are fighting to have dismissed, argue that the lending practices of these banks harmed the cities too. When lenders targeted minorities for risky loans, knowing that the borrowers would likely lose their homes, they knowingly deprived cities of tax revenue while making them shoulder the expenses of blocks of foreclosures, the lawsuits allege. Oakland, for instance, argues in its complaint against Wells Fargo that the city “has suffered economic injury based upon reduced property tax revenues resulting from (a) the decreased value of the vacant properties themselves, and (b) the decreased value of properties surrounding the vacant properties.” Last month a judge declined to dismiss the suit.

In these cases, the municipalities have accused lenders, including Wells Fargo, JP Morgan, and Bank of America, of “redlining,” or the practice of denying credit to people in particular neighborhoods because of their race, and “reverse redlining,” or the practice of flooding a minority neighborhood with exploitative loan products. These practices, they say, violate parts of the Fair Housing Act.  Read more here.

JPMorgan Getting Back in the RMBS Game

New securities would be bank's first “house transaction” since the financial crisis

The Real Deal |  March 16, 2016     JPMorgan Chase is dipping back into the mortgage-backed securities market in the banking giant’s first “house transaction” since the financial crisis.

JPMorgan is expected to price a new residential mortgage-backed securities deal, which would pass along most of the credit risk on $1.9 billion in mortgages owned by the bank, over the next two weeks. JPMorgan would hold 90 percent of the deal, keeping the most senior tranches, while selling off riskier pieces to investors.

The deal would be JPMorgan’s first “house transaction,” entirely backed by mortgages it owns, since the financial crisis, according to the Wall Street Journal. The pool backing the securities includes a mix of more than 6,000 mortgages, around 75 percent of which conform with Fannie Mae and Freddie Mac underwriting standards.  Read more here.