End Predatory Lending

There will be 2.4 million foreclosures in 2009 along with 9 million foreclosures between 2009-2012, according to the Center for Responsible Lending (CRL).  CRL also estimates that 69 million homes will lose property value because of nearby foreclosures for a total property value loss of $502 billion.  As part of our Multi-State Shared Agenda, the Progressive States Network is working with its partners and leading experts to promote reforms to stem the foreclosure crisis and put in place reforms to discourage predatory lending practices in the future. 

Yesterday, the U.S. House Banking Committee defeated amendments that would have gutted provisions in law to restore state powers to protect consumers of national banks.  Instead, the Committee approved compromise language that, while not as expansive in the protection of state legislation as the Obama administration had urged, is still a significant victory overall against large financial interests.  By a vote of 29-38, the committee defeated a proposed amendment by Rep. Jeb Hensarling (R-Texas) that would have preempted all state regulation of national financial institutions.

The context of this call is that, in the wake of the financial meltdown that engulfed the country last year largely caused by fraud and predatory lending, Congress is now debating the Consumer Financial Protection Agency Act (CFPA Act, H 3126). The act would create a consumer product protection agency for financial products analogous to the Consumer Product Safety Board.

Whether out of circumstance or an emerging trend, where state authority was at issue, this term the U.S. Supreme Court overwhelmingly deferred to state decision makers-- a significant reveral from last year. 

According to The Wall Street Journal, "Fed and Treasury officials have identified the disease. It's called de-leveraging, or the unwinding of debt. During the credit boom, financial institutions and American households took on too much debt."  But let's not buy into a false equivalence of "financial institutions" and those "American households" borrowing beyond their means.

The headline above is a quote from former West Virginia Supreme Court Justice Richard Neely, describing what his role was as an arbitrator at the National Arbitration Forum (NAF), a for-profit company hired to enforce mandatory arbitration clauses for credit card consumer loans.  "NAF is nothing more than an arm of the collection industry hiding behind a veneer of impartiality," says Richard Neely.

In a devastating expose by BusinessWeek, Neely and other former arbitrators describe an arbitration system stacked completely against consumers-- a system where creditors win 99.8% of all disputes involving companies ranging from Bank of America to Sears to Citgroup. Arbitration clauses buried in the fine print of credit card offers means consumers lose the right to have disputes decided in an independent court and instead are forced into corporation-selected arbitration firms.

Giving into corporate efforts to protect banking interests, Minnesota Governor Tim Pawlenty vetoed SF 3396, which would have put a temporary hold on foreclosures while still requiring borrowers to make payments on their loans.  The bill would have required homeowners with a sub-prime or negative amortization loan to pay either 65 percent of the payment owed when the loan defaulted, or the minimum monthly payment when the mortgage was first created, whichever is less, for a one-year foreclosure deferment period.  The bill passed both chambers of the Minnesota Legislature with a wide margin, only to be vetoed (part of Pawlenty's record number of vetoes for a single session).  In the meantime, home foreclosures are projected to increase 39 percent this year in Minnesota, with one out of every 31 Minnesota households experiencing a foreclosure between 2005 and the end of this year.

Faced with total and continued inaction on the federal level, Maryland enacted a series of emergency measures earlier this month to combat the foreclosure crisis in the state.  

The statistics are shocking. The current mortgage crisis is expected to result in the foreclosure of 3 million homes. In Stockton, CA, one in every 27 homes has been hit by the foreclosure crisis. And, Countryside, the largest U.S. mortgage lender, just released figures showing that foreclosures and late payments rose in December to the highest on record. Calls to helplines by homeowners facing foreclosure have skyrocketed.  As a corollary, local animal shelters are seeing a sharp increase in intake due to owners having to surrender family pets when they lose their homes.

 

We highlighted the problems of predatory lending industry a few weeks ago and now, problems are coming to light with the student loan industry.  In one of the more egregious examples, Student Loan Express, a student loan company that is a unit of CIT Group, Inc, is alleged to have paid more than $21,000 for Johns Hopkins University's director of student financial services to attend graduate school.  Coincidentally (or not), Student Loan Express happens to be on the preferred lender list at Johns Hopkins.