Stabenow and Levin bring home the bacon for foreclosure prevention

Good news, although late in the game -- Sen. Debbie Stabenow and Carl Levin announced that Southwest Solutions of Detroit will receive $315,652 to provide mortgage foreclosure mitigation assistance to families in need.

From their press release:

These grants are being awarded as part of the National Foreclosure Mitigation Counseling program, which is administered by the NeighborWorks America. NeighborWorks America is directed under the FY 2008 Consolidated Appropriations Act to allocate grant funding to qualifying organizations that provide mortgage foreclosure mitigation assistance in states and areas with high rates of defaults and foreclosures primarily in the subprime housing market.

Will it help? Getting the money is just the first step. It will have to be administered wisely by
NeighborWorks is a "national nonprofit organization created by Congress to provide financial support, technical assistance, and training for community-based revitalization efforts."

Southwest Solutions received the Best Managed Nonprofit of 2005 greater than $3 million by Crain's Detroit Business.

House Banking Committee to examine mortgage lending

cross-posted at Michigan Messenger

Legislators are taking on predatory lending in Michigan, but can they eliminate questionable practices that pervade the mortgage industry and laid the foundation for the subprime mortgage crisis? A house committee will hear testimony Tuesday from representatives of the agency that oversees mortgage regulation in Michigan.

House Banking and Financial Services Committee Chair, Rep. Andy Coulouris said, "Tuesday's hearing will lay the groundwork for the debate on how we deal with foreclosures and predatory lending practices in Michigan. We're going to get the lay of the land from state regulators. We want to know what is happening--what regulations are working or not working and what do we need to do to step up enforcement."

House Democrats announced late in August that they would be crafting new legislation to address predatory lending in Michigan. As part of that process, the House Banking and Financial Services Committee will hear testimony from Michigan's Office of Financial and Insurance Services (OFIS) Commissioner Linda Watters, Chief Deputy Commissioner Fran Wallace and Kirt Gundry, Director of Mortgage Examinations and Investigations.

OFIS's work is vast and its effectiveness frustrated by an insufficient number of examiners; unclear jurisdiction; and the lack of education standards, practice standards and licensing for loan officers. Industry standards are so lax you could be a janitor one day and a loan officer the next.

According to OFIS, there are over 3200 companies making mortgages in Michigan. OFIS has 13 full time examiners. Prior to last year, it had only 6.

Depending on a lender's corporate structure, OFIS may not have jurisdiction over an institution creating mortgages. This April, in Watters v. Wachovia the U.S. Supreme Court ruled that state-chartered subsidiaries of national banks are exempt from state regulation. OFIS Commissioner Watters had advocated for state regulation of state-chartered subsidiaries. Numerous organizations filed amicus briefs, as well as every state attorney general in the nation (including Washington D.C. and Puerto Rico). Unfortunately, for consumers, the Court ruled against the state.

OFIS licenses entities--companies or sole proprietors, usually LLCs or corporations, due to liability issues. Loan officers work for licensees; there are no standards for loan officers.

Many in the industry blame unscrupulous loan officers for pushing expensive mortgages onto unqualified borrowers. But companies share some of the blame having created incentives like "yield spread premiums" that reward loan officers for getting well qualified borrowers into unnecessarily expensive loans. As far back as 2004, the Center for Responsible Lending estimated that yield spread premiums cost borrowers $2.9 billion per year nationally.

With ample blame to go around, complicated laws and regulation in flux at the federal level, Michigan's lawmakers will need to take extra care crafting effective legislation to curb predatory lending.

Mortgage Defaults in Britain Create Micro-Markets of Decline

Michigan may be one of the top states for residential foreclosures, but now even the Brits are getting in on the miserable action. This morning, the Guardian reports that Brits are facing "micro-markets of decline." That apt phrase may well describe the real estate situation in southeast lower Michigan and Detroit.

And this sounds extremely familiar:

The Royal Institution of Charter Surveyors "believes the trend will continue in 2008 as interest rates bite for homeowners whose fixed-rate deals have come to an end. It predicts repossessions will exceed 45,000 next year, a figure that would translate into 125 repossessions per day."

Britain's population is about five times that of Michigan, but 125 repossessions per day will affect tens of thousands of families and children.

Adjustable rate mortgages do not help people "afford" homes. Here, as in Britain, ARMs are at the heart of a default crisis. ARMs defer the moment of truth when a borrower must face the real limits of income and expenses, cash flow and variable interest rates.

Even a British accent cannot take away the sting of default and repossession.

Consumer Debt, Health Care and You

The International Herald Tribune reports today about a growing trend in the U.S. "Patients in U.S. turn to no-interest loans for health care." Most procedures financed are elective or not covered by insurance (vision procedures and dental). But the article notes possibilities for expanding the practice as consumers face more and higher out of pocket costs within insurance plans.

Capital One and Citigroup and the CareCredit unit of General Electric offer revolving credit accounts and special no-interest plans (the sort you might tap for a dishwasher) with steep penalties for missed payments or default.

As you might expect, lenders and insurers pitch this market in terms of offering a needed service to society:

'"There's a place for credit solutions that are integrated within traditional health insurance programs, when an individual hits that out-of-pocket expense,' said Tom Beauregard, a senior vice president at UnitedHealthcare. 'The key is to make it voluntary, to make it simple and to offer favorable credit terms.'"(from the IHT article)

Here are some problems with this approach:

1. Credit increases the cost of doing business.
2. Credit reduces the profit per transaction. According to the article, dentists might receive only 75% of the bill in the case of clients with poor credit who default.
3. Growth of credit in the health care industry skews the understanding of medical care further toward a business model.
4. With appallingly low levels of financial literacy (as demonstrated by the subprime fiasco) possibilities for fraud or default are obvious. CareCredit reports that 80% of the interest free loans are paid on time. That means 20% incur penalties (remember, a mortgage default rate of .5% shakes the industry from top to bottom).

Do we really want to further financialize our lives?

Detroit--Highest Metro Foreclosure Rate

Realty Trac reports that:

"Detroit posted a 70 percent month-over-month increase in foreclosure activity in July, pushing the city’s foreclosure rate to one foreclosure filing for every 97 households — more than seven times the national average and highest among 229 metro areas tracked in the RealtyTrac report. The city reported a total of 8,683 foreclosure filings during the month."

"Michigan’s foreclosure rate of one foreclosure filing for every 320 households ranked third highest among the states in July, up from seventh highest in June. The state reported 13,979 foreclosure filings during the month, a 39 percent month-over-month increase and a 130 percent year-over-year increase."

Nationally the rate was 93% higher than in July 2006.

Read Barbara Ehrenreich's Smashing Capitalism at Huffington Post. You will laugh a little before you cry.