Los Angeles Personal Injury Lawyer - Senate

NYT: Religious Leaders Lobbying to Thwart Sexual Abuse Bill Favoring Victims

Paul Kiesel — Thu, 12 Mar 2009 19:03:16 GMT

This article is in regards to a New York State Senate bill, the Child Victims Act. The bill is growing in popularity by the new Democratic majority in the State Legislature, and there is a good chance that it will pass. However, Roman Catholic and Orthodox Jewish officials in New York are trying their best to prevent this piece of legislation from seeing the light of day; a bill that would help victims of sexual abuse seek the justice they deserve.

From The New York Times:

March 12, 2009

By PAUL VITELLO

Roman Catholic and Orthodox Jewish officials in New York are mounting an intense lobbying effort to block a bill before the State Legislature that would temporarily lift the statute of limitations for lawsuits alleging the sexual abuse of children.

A perennial proposal that has been quashed in past years by Republicans who controlled the State Senate, the bill is now widely supported by the new Democratic majority in that chamber, and for the first time is given a good chance of passing.

If signed by Gov. David A. Paterson, a longtime supporter, the bill would at minimum revive hundreds of claims filed in recent years against Catholic priests and dioceses in New York, but dismissed because they were made after the current time limit, which is five years after the accuser turns 18. Similar legislation has passed in Delaware and in California, where a 2003 law led to claims that have cost the church an estimated $800 million to $1 billion in damages and settlements.

The rekindled prospects of the New York bill, known as the Child Victims Act, come at a delicate juncture for the Archdiocese of New York, the nation’s flagship see, where Cardinal Edward M. Egan is scheduled to hand over the reins in April. His successor, Archbishop Timothy M. Dolan of Milwaukee, was so hard hit by settlements for past abuse by priests in that archdiocese that he was forced to put its headquarters up for sale.

“We believe this bill is designed to bankrupt the Catholic Church,” said Dennis Poust, spokesman for the New York State Catholic Conference, a group representing the bishops of the state’s eight dioceses. He said that Cardinal Egan and Bishop Nicholas A. DiMarzio of Brooklyn visited Albany this week to voice their opposition, and that a statewide network of Catholic parishioners had bombarded lawmakers via e-mail.

But while the Catholic Church is leading the opposition, in recent months a loose coalition of disparate groups has also joined the effort. They include leaders of the Hasidic and Sephardic Jewish institutions in Brooklyn, which could face equally costly abuse claims. The New York Civil Liberties Union and the criminal defense bar oppose lifting statutes of limitation as unfair to the accused, who must defend themselves against claims of transgressions decades old.

Under the Albany measure, which Assemblywoman Margaret M. Markey, a Queens Democrat, has shepherded to Assembly approval in each of the last three sessions, people claiming they were sexually abused as children would be given a one-year exemption from the statute of limitations. Regardless of how long ago the alleged abuse occurred, they could file suit in civil court.

At the year’s end, time limits on such claims would be restored, but with a wider window: Instead of a five-year period after turning 18, victims would have 10 years to file claims.

The bill would not lift the statute of limitations for criminal prosecutions of child abuse, which in most cases are the same as for civil complaints. For violent assaults like rape, there are no time limits on prosecution.

Many children’s advocates say guilt, shame and fear of the emotional toll on family members have often deterred victims from reporting sexual abuse until well into adulthood. The revelations of past abuse by priests that became a national scandal starting in 2002 prompted some to seek redress, only to discover they were barred by the statutes of limitation.

Marci A. Hamilton, a professor at the Benjamin N. Cardozo School of Law at Yeshiva University who has argued that states should remove all statutes of limitation on child sex abuse claims, said the principle is comparable to the way industrial pollution is treated under the law. “The consequences of toxic pollution may not be known or felt for years after the fact,” she said. “The same is often true for children who are sexually abused.”

But opponents of such unlimited time frames of liability contend that decades-old memories of childhood events are not reliable.

THE REST OF THE ARTICLE IS HERE.

Originally posted at InjuryBoard by Paul Kiesel

Rep. Maxine Waters of California: The Banking Industry "Has Owned this Congress Far Too Long"

Paul Kiesel — Sun, 25 Jan 2009 22:58:29 GMT

There is a fight building over judges' roles in altering loan terms on mortgages that are either unaffordable or that were structured improperly from their origination.

Congressional Democrats say the quickest way to save homeowners is to let them declare bankruptcy and allow the judges to dictate new mortgage terms.

This seems to be a practical approach to a terrible problem that is engulfing most of the country. (Most Americans can name at least one person who's going through either foreclosure, in an "underwater" mortgage, live near foreclosed homes or going through their own foreclosure.) However, the banking industry, led by 10 groups representing the lending industry and other businesses are "fighting back fiercely," according to MSNBC.com.

The groups collectively spent $83 million in lobbying throughout 2008 and shows how strong of a hold the banking industry has had on Congress throughout the George W. Bush administration.

Congresswoman Maxine Waters (D-CA), who backs the bankruptcy proposal being touted by her fellow Democrats, has said repeatedly that the banking industry "has owned this Congress far too long."

Additionally, President Barack Obama told Democratic leaders on Friday that he also backs the congressional Democrats' mortgage term modification plan.

Obama Names Economic Dream Team

Paul Kiesel — Mon, 24 Nov 2008 15:28:02 GMT

Earlier today, at a press conference in Chicago, President-elect Barack Obama called for "sound judgment and fresh thinking" in addressing the nation's economic crisis, which he described as a situation of "historic proportions." He then named his top White House economic team, prompting many in the press, based on Obama's selections, to label the group that will push forward Obama's policies and vision, "The Obama Economic Dream Team."

Here is the list of players with some biographical information:

Timothy Geithner: Treasury Secretary (will need to be confirmed by the Senate)

Mr. Geithner is currently the president of the New York Federal Reserve who worked very closely with Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke to facilitate the Wall Street financial bailouts of the past year.

Larry Summers: Director of the National Economic Council.

Mr. Summers, a former Treasury Secretary (for the last year and a half of the Bill Clinton administration), is currently the Charles W. Eliot University Professor at Harvard University's Kennedy School of Government.

Christina Romer: Chairwoman of Obama's Council of Economic Advisers

Ms. Romer has been an economics professor at the University of California at Berkeley, since 1988. This selection might later on be hailed as one of the more important advisory appointments that Obama made in his days leading up to taking office. Why?

Ms. Romer's e early work focused on a comparison of macroeconomic volatility before and after World War II. Romer showed that much of what had appeared to be a decrease in volatility was due to better economic data collection.

She has also researched the causes of the Great Depression in the United States and how the US recovered from the depression.

This sort of erudite individual can make a substantial impact on Obama's economic policy and her background in and heavy research of the economics surrounding the Great Depression is very applicable to the current financial state in the country.

Melody Barnes: Director of Domestic Policy Council

Ms. Barnes, an attorney and Executive Vice President for Policy at the Center for American Progress, has been serving on the advisory board for President-elect Barack Obama's presidential transition team.

Originally posted at InjuryBoard by Paul Kiesel

NYT: Former SEC Lawyer, "Phil Gramm is the Single Most Important Reason for the Current Financial Crisis"

Paul Kiesel — Mon, 17 Nov 2008 21:06:05 GMT

If there's no such thing as bad publicity, why is it that 2008, for former Republican senator Phil Gramm, has been nothing but bad publicity for the man who John McCain once credited with saving his sagging presidential campaign back in the summer of 2007. However, when has Phil Gramm ever received good publicity? Even when he ran for president in 1996, he was panned by both left and right political pundits:

"When he ran for president in 1996 and finished fifth in Iowa, all the profiles written of him included the line 'Even his friends don’t like him.' Self-righteous and strident, Gramm demonized his opponents and used bitter, polarizing rhetoric. During a Senate debate over Social Security, a member pointed out that the proposal under consideration would hurt 80-year-old retirees. 'Most people don’t have the luxury of living to be 80 years old,' Gramm scoffed, 'so it’s hard for me to feel sorry for them.'" (New York Times, 1/22/08)

Anyway, today's New York Times had an excellent article that expands upon a lot of what I've discussed in my blog for the past eight months. And, yet, Phil Gramm has no remorse per the country's economic health and still feels that everything he did as a senator was great for the economy and had nothing to do with the current financial crisis. Mr. Gramm, in a very ironic posit, at least ironic based on what almost every economist knows (i.e. his deregulation legislation from the late-90s, says that, "They [his critics] are saying there was 15 years of massive deregulation and that’s what caused the problem [. . .] I just don’t see any evidence of it.” This would be true, Mr. Gramm, if your name wasn't on two of the greatest legislative overhauls to the banking industry since the Great Depression, the Gramm-Leach-Bliley Act and Commodity Futures Modernization Act.

From the New York Times, 11/17/08:

WASHINGTON — Back in 1950 in Columbus, Ga., a young nurse working double shifts to support her three children and disabled husband managed to buy a modest bungalow on a street called Dogwood Avenue.

Phil Gramm, the former United States senator, often told that story of how his mother acquired his childhood home. Considered something of a risk, she took out a mortgage with relatively high interest rates that he likened to today’s subprime loans.

A fierce opponent of government intervention in the marketplace, Mr. Gramm, a Republican from Texas, recalled the episode during a 2001 Senate debate over a measure to curb predatory lending. What some view as exploitive, he argued, others see as a gift.

“Some people look at subprime lending and see evil. I look at subprime lending and I see the American dream in action,” he said. “My mother lived it as a result of a finance company making a mortgage loan that a bank would not make.”

On Capitol Hill, Mr. Gramm became the most effective proponent of deregulation in a generation, by dint of his expertise (a Ph.D in economics), free-market ideology, perch on the Senate banking committee and force of personality (a writer in Texas once called him “a snapping turtle”). And in one remarkable stretch from 1999 to 2001, he pushed laws and promoted policies that he says unshackled businesses from needless restraints but his critics charge significantly contributed to the financial crisis that has rattled the nation.

He led the effort to block measures curtailing deceptive or predatory lending, which was just beginning to result in a jump in home foreclosures that would undermine the financial markets. He advanced legislation that fractured oversight of Wall Street while knocking down Depression-era barriers that restricted the rise and reach of financial conglomerates.

And he pushed through a provision that ensured virtually no regulation of the complex financial instruments known as derivatives, including credit swaps, contracts that would encourage risky investment practices at Wall Street’s most venerable institutions and spread the risks, like a virus, around the world.

Many of his deregulation efforts were backed by the Clinton administration. Other members of Congress — who collectively received hundreds of millions of dollars in campaign contributions from financial industry donors over the last decade — also played roles.

Many lawmakers, for example, insisted that Fannie Mae and Freddie Mac, the nation’s largest mortgage finance companies, take on riskier mortgages in an effort to aid poor families. Several Republicans resisted efforts to address lending abuses. And Congressional committees failed to address early symptoms of the coming illness.

But, until he left Capitol Hill in 2002 to work as an investment banker and lobbyist for UBS, a Swiss bank that has been hard hit by the market downturn, it was Mr. Gramm who most effectively took up the fight against more government intervention in the markets.

“Phil Gramm was the great spokesman and leader of the view that market forces should drive the economy without regulation,” said James D. Cox, a corporate law scholar at Duke University. “The movement he helped to lead contributed mightily to our problems.”

In two recent interviews, Mr. Gramm described the current turmoil as “an incredible trauma,” but said he was proud of his record.

He blamed others for the crisis: Democrats who dropped barriers to borrowing in order to promote homeownership; what he once termed “predatory borrowers” who took out mortgages they could not afford; banks that took on too much risk; and large financial institutions that did not set aside enough capital to cover their bad bets.

But looser regulation played virtually no role, he argued, saying that is simply an emerging myth.

“There is this idea afloat that if you had more regulation you would have fewer mistakes,” he said. “I don’t see any evidence in our history or anybody else’s to substantiate it.” He added, “The markets have worked better than you might have thought.”

Rejecting Common Wisdom

Mr. Gramm sees himself as a myth buster, and has long argued that economic events are misunderstood.

Before entering politics in the 1970s, he taught at Texas A & M University. He studied the Great Depression, producing research rejecting the conventional wisdom that suicides surged after the market crashed. He examined financial panics of the 19th century, concluding that policy makers and economists had repeatedly misread events to justify burdensome regulation.

“There is always a revisionist history that tries to claim that the system has failed and what we need to do is have government run things,” he said.

From the start of his career in Washington, Mr. Gramm aggressively promoted his conservative ideology and free-market beliefs. (He was so insistent about having his way that one House speaker joked that if Mr. Gramm had been around when Moses brought the Ten Commandments down from Mount Sinai, the Texan would have substituted his own.)

He could be impolitic. Over the years, he has urged that food stamps be cut because “all our poor people are fat,” said it was hard for him “to feel sorry” for Social Security recipients and, as the economy soured last summer, called America “a nation of whiners.”

His economic views — and seat on the Senate banking committee — quickly won him support from the nation’s major financial institutions. From 1989 to 2002, federal records show, he was the top recipient of campaign contributions from commercial banks and in the top five for donations from Wall Street. He and his staff often appeared at industry-sponsored speaking events around the country.

From 1999 to 2001, Congress first considered steps to curb predatory loans — those that typically had high fees, significant prepayment penalties and ballooning monthly payments and were often issued to low-income borrowers. Foreclosures on such loans were on the rise, setting off a wave of personal bankruptcies.

But Mr. Gramm did everything he could to block the measures. In 2000, he refused to have his banking committee consider the proposals, an intervention hailed by the National Association of Mortgage Brokers as a “huge, huge step for us.”

A year later, he objected again when Democrats tried to stop lenders from being able to pursue claims in bankruptcy court against borrowers who had defaulted on predatory loans.

While acknowledging some abuses, Mr. Gramm argued that the measure would drive thousands of reputable lenders out of the housing market. And he told fellow senators the story of his mother and her mortgage.

“What incredible exploitation,” he said sarcastically. “As a result of that loan, at a 50 percent premium, so far as I am aware, she was the first person in her family, from Adam and Eve, ever to own her own home.”

Once again, he succeeded in putting off consideration of lending restrictions. His opposition infuriated consumer advocates. “He wouldn’t listen to reason,” said Margot Saunders of the National Consumer Law Center. “He would not allow himself to be persuaded that the free market would not be working.”

Speaking at a bankers’ conference that month, Mr. Gramm said the problem of predatory loans was not of the banks’ making. Instead, he faulted “predatory borrowers.” The American Banker, a trade publication, later reported that he was greeted “like a conquering hero.”

At the Altar of Wall Street

Mr. Gramm would sometimes speak with reverence about the nation’s financial markets, the trading and deal making that churn out wealth.

“When I am on Wall Street and I realize that that’s the very nerve center of American capitalism and I realize what capitalism has done for the working people of America, to me that’s a holy place,” he said at an April 2000 Senate hearing after a visit to New York.

That viewpoint — and concerns that Wall Street’s dominance was threatened by global competition and outdated regulations — shaped his agenda.

In late 1999, Mr. Gramm played a central role in what would be the most significant financial services legislation since the Depression. The Gramm-Leach-Bliley Act, as the measure was called, removed barriers between commercial and investment banks that had been instituted to reduce the risk of economic catastrophes. Long sought by the industry, the law would let commercial banks, securities firms and insurers become financial supermarkets offering an array of services.

The measure, which Mr. Gramm helped write and move through the Senate, also split up oversight of conglomerates among government agencies. The Securities and Exchange Commission, for example, would oversee the brokerage arm of a company. Bank regulators would supervise its banking operation. State insurance commissioners would examine the insurance business. But no single agency would have authority over the entire company.

“There was no attention given to how these regulators would interact with one another,” said Professor Cox of Duke. “Nobody was looking at the holes of the regulatory structure.”

The arrangement was a compromise required to get the law adopted. When the law was signed in November 1999, he proudly declared it “a deregulatory bill,” and added, “We have learned government is not the answer.”

In the final days of the Clinton administration a year later, Mr. Gramm celebrated another triumph. Determined to close the door on any future regulation of the emerging market of derivatives and swaps, he helped pushed through legislation that accomplished that goal.

Created to help companies and investors limit risk, swaps are contracts that typically work like a form of insurance. A bank concerned about rises in interest rates, for instance, can buy a derivatives instrument that would protect it from rate swings. Credit-default swaps, one type of derivative, could protect the holder of a mortgage security against a possible default.

Earlier laws had left the regulation issue sufficiently ambiguous, worrying Wall Street, the Clinton administration and lawmakers of both parties, who argued that too many restrictions would hurt financial activity and spur traders to take their business overseas. And while the Commodity Futures Trading Commission — under the leadership of Mr. Gramm’s wife, Wendy — had approved rules in 1989 and 1993 exempting some swaps and derivatives from regulation, there was still concern that step was not enough.

After Mrs. Gramm left the commission in 1993, several lawmakers proposed regulating derivatives. By spreading risks, they and other critics believed, such contracts made the system prone to cascading failures. Their proposals, though, went nowhere.

But late in the Clinton administration, Brooksley E. Born, who took over the agency Mrs. Gramm once led, raised the issue anew. Her suggestion for government regulations alarmed the markets and drew fierce opposition.

In November 1999, senior Clinton administration officials, including Treasury Secretary Lawrence H. Summers, joined by the Federal Reserve chairman, Alan Greenspan, and Arthur Levitt Jr., the head of the Securities and Exchange Commission, issued a report that instead recommended legislation exempting many kinds of derivatives from federal oversight.

Mr. Gramm helped lead the charge in Congress. Demanding even more freedom from regulators than the financial industry had sought, he persuaded colleagues and negotiated with senior administration officials, pushing so hard that he nearly scuttled the deal. “When I get in the red zone, I like to score,” Mr. Gramm told reporters at the time.

Finally, he had extracted enough. In December 2000, the Commodity Futures Modernization Act was passed as part of a larger bill by unanimous consent after Mr. Gramm dominated the Senate debate.

“This legislation is important to every American investor,” he said at the time. “It will keep our markets modern, efficient and innovative, and it guarantees that the United States will maintain its global dominance of financial markets.”

But some critics worried that the lack of oversight would allow abuses that could threaten the economy.

Frank Partnoy, a law professor at the University of San Diego and an expert on derivatives, said, “No one, including regulators, could get an accurate picture of this market. The consequences of that is that it left us in the dark for the last eight years.” And, he added, “Bad things happen when it’s dark.”

In 2002, Mr. Gramm left Congress, joining UBS as a senior investment banker and head of the company’s lobbying operation.

But he would not be abandoning Washington.

Lobbying From the Outside

Soon, he was helping persuade lawmakers to block Congressional Democrats’ efforts to combat predatory lending. He arranged meetings with executives and top Washington officials. He turned over his $1 million political action committee to a former aide to make donations to like-minded lawmakers.

Mr. Gramm, now 66, who declined to discuss his compensation at UBS, picked an opportune moment to move to Wall Street. Major financial institutions, including UBS, were growing, partly as a result of the Gramm-Leach-Bliley Act.

Increasingly, institutions were trading the derivatives instruments that Mr. Gramm had helped escape the scrutiny of regulators. UBS was collecting hundreds of millions of dollars from credit-default swaps. (Mr. Gramm said he was not involved in that activity at the bank.) In 2001, a year after passage of the commodities law, the derivatives market insured about $900 billion worth of credit; by last year, the number hadswelled to $62 trillion.

But as housing prices began to fall last year, foreclosure rates began to rise, particularly in regions where there had been heavy use of subprime loans. That set off a calamitous chain of events. The weak housing markets would create strains that eventually would have financial institutions around the world on the edge of collapse.

UBS was among them. The bank has declared nearly $50 billion in credit losses and write-downs since the start of last year, prompting a bailout of up to $60 billion by the Swiss government.

As Mr. Gramm’s record in Congress has come under attack amid all the turmoil, some former colleagues have come to his defense.

“He is a true dyed-in-the-wool free-market guy. He is very much a purist, an idealist, as he has a set of principles and he has never abandoned them,” said Peter G. Fitzgerald, a Republican and former senator from Illinois. “This notion of blaming the economic collapse on Phil Gramm is absurd to me.”

But Michael D. Donovan, a former S.E.C. lawyer, faulted Mr. Gramm for his insistence on deregulating the derivatives market.

“He was the architect, advocate and the most knowledgeable person in Congress on these topics,” Mr. Donovan said. “To me, Phil Gramm is the single most important reason for the current financial crisis.”

Mr. Gramm, ever the economics professor, disputes his critics’ analysis of the causes of the upheaval. He asserts that swaps, by enabling companies to insure themselves against defaults, have diminished, not increased, the effects of the declining housing markets.

“This is part of this myth of deregulation,” he said in the interview. “By and large, credit-default swaps have distributed the risks. They didn’t create it. The only reason people have focused on them is that some politicians don’t know a credit-default swap from a turnip.”

But many experts disagree, including some of Mr. Gramm’s former allies in Congress. They say the lack of oversight left the system vulnerable.

“The virtually unregulated over-the-counter market in credit-default swaps has played a significant role in the credit crisis, including the now $167 billion taxpayer rescue of A.I.G.,” Christopher Cox, the chairman of the S.E.C. and a former congressman, said Friday.

Mr. Gramm says that, given what has happened, there are modest regulatory changes he would favor, including requiring issuers of credit-default swaps to demonstrate that they have enough capital to back up their pledges. But his belief that government should intervene only minimally in markets is unshaken.

“They are saying there was 15 years of massive deregulation and that’s what caused the problem,” Mr. Gramm said of his critics. “I just don’t see any evidence of it.”

Originally posted at InjuryBoard by Paul Kiesel

It Could Happen to Anybody...

Paul Kiesel — Thu, 30 Oct 2008 21:02:36 GMT

Here's an excellent piece written by Mike Cassidy of the San Jose Mercury News on the realities of the foreclosure crisis, which has yet to be abated by the government or lenders.

Mr. Cassidy's thesis is: It's futile to blame ALL homeowners who are facing foreclosure because it could have happened to anybody, and it very well could still happen for people who are in Pay Option ARM loans that have not had interest rate resets.

On top of all this, many different borrowers, from multifarious economic backgrounds, took out loans that appeared to be "good loans," when in fact the loans had several TILA violations. Some of these violations were surreptitiously placed; sometimes information, like the loan being a negative amortizing loan (which, according to the Truth in Lending Act, needs to be stated in the loan, if it's that type of loan), was left out all together. Therefore, lenders and certain mortgage brokers willingly advertised and sold these loans to customers, when they had no business of being sold from the onset.

Here's a link to a blog I wrote a couple weeks ago that briefly explains part of the nascent stages of the economic crisis that allowed for this mortgage mess to precipitate as it did, and how government regulators, according to Senate Banking Chairman Chris Dodd (D-CT), including the Fed, failed to adequately police the mortgage lending markets, resulting in the "creative mortgage" boom and its fallout.

From MercuryNews.com:

SAN JOSE—We are a nation of blamers.

When something goes terribly wrong — like the current economic collapse — we desperately want to blame someone and if at all possible punish them, too.

For months now, as the economy and our notions of it have unraveled, we've been doing a good job pointing fingers. Democrats blame the Republicans. Republicans blame the Democrats. Greedy Wall Street operators are high on the list of suspects. Bumbling, or worse, Washington regulators have taken their punches, too.

The truth is, they all share in contributing to the stunning chain of events that has taken down world financial markets and national economies.

But the finger-pointing that has surprised me the most is the chorus of complaint directed at those who have recently lost their homes or who are in imminent danger of doing so.

You hear it on talk radio and see it in newspaper commenting sections now that the Treasury Department is exploring ways to use some of the $700 billion Wall Street bailout to help struggling homeowners hang onto their homes.

Readers and radio listeners describe those who are losing their homes as shiftless and lazy. Those foreclosed upon are chiselers who tried to get away with something, or they're irresponsible buyers who wanted a nice house whether they could afford it or not. In short, this thinking goes, they got what they deserved.

Along with the condemnation comes a smug superiority: I worked hard and found a home within my means. I pay my bills. Why can't those who are losing their homes do what I did? Using my tax money to help those in trouble is simply not fair.

But you know what? Life isn't fair. Ask those about to lose their homes.

No doubt there have been some bad operators taking loans as well as making them. But what the rants lack is any acknowledgment that sometimes events are beyond our control. I wonder whether those of you who are scolding struggling homeowners believe you are immune from the unforeseen and unfortunate events that can derail a comfortable life.

Maybe you bought your home years ago and have enough equity to cover the balance if you have to sell. Maybe you have a fixed-rate loan that has insulated you from climbing monthly payments. Maybe you dealt with an upstanding broker instead of a mortgage shark who sold you a loan that not only balloons, but blows up in your face.

Could be you didn't get sick or divorced, or lose your job. Maybe your spouse didn't lose his or hers.

Maybe you're not like the school teacher and mother from Union City who wrote to me recently. She'd just lost the house she owned for eight years. She said she refinanced after a divorce, so she could buy out her husband and lower her monthly payment. Then she lost the second job she worked to hold it all together.

Or maybe you're not like the retired couple in San Jose whose kids wrote to me. The couple's biggest crime apparently was trusting the wrong people — first an accountant who swindled them, and then a series of predatory loan brokers who relatives say falsified the couple's income and stuck them with a $6,000-a-month mortgage that they have no way to pay.

The angriest ranters out there will point out that the school teacher and the retired couple made their choices. Now they must live with the consequences.

When bad things happen, it's so simple to invoke the canon of personal responsibility. It's cut and dried. Tough people take responsibility. Wimps ask for help. The problem is that by relying solely on the rule of personal responsibility we risk absolving ourselves of our social responsibility.

It's something to think about as we head into economic hard times likely to be unlike any most of us have seen. Because the truth is, if we hope to survive what's coming we're going to have to do a lot better by each other.

Originally posted at InjuryBoard by Paul Kiesel

Washington Post: Government and Wall Street Grapple with Finding a Foreclosure Fix

Paul Kiesel — Mon, 27 Oct 2008 16:39:02 GMT

Below is an Associated Press article from Sunday's (10/26) Washington Post. It's a very well written analysis as to why the government and Wall Street have been having such a hard time coming to terms on how to mitigate or fix the foreclosure crisis. Many of the areas of concern for both parties, like the continued declivity of home prices and securitized loan investments contributing to part of the impasse to a foreclosure fix, have been brought up in this blog several times throughout the last six months.

From the Washington Post: Each day from July through September, more than 2,700 Americans lost their homes in foreclosure.

That number, up from 1,200 a day a year ago, is a sign that the mortgage industry and government programs have done little to help troubled homeowners.

The mortgage market's troubles have proved to be far more serious and intractable than most in government or the private sector had predicted a year ago.

"We are behind the curve. We are falling behind," Sheila Bair, head of the Federal Deposit Insurance Corp. told a Senate hearing Thursday. "There has been some progress, but it's not been enough, and we need to act. And we need to act quickly, and we need to act dramatically to have more wide-scale, systematic (loan) modifications...."

More than 4 million homeowners with a mortgage were at least one month behind on their payments at the end of June, according to the latest data from the Mortgage Bankers Association, and a record 500,000 had entered the foreclosure process.

So why is the foreclosure crisis so hard to fix?

There are five main reasons:

Crashing home prices:

A massive speculative bubble in housing prices caused millions of Americans to think of their homes as an investment, rather than a place to live.

Now prices are plummeting, especially in once-sizzling markets like California, Florida and Nevada. And the bleeding might not stop until the end of next year.

The median home price in the U.S. dropped 9 percent in September from a year ago to $191,600, and is down 17 percent from the peak in July 2006, the National Association of Realtors said Friday.

Already, 23 percent of homeowners with a mortgage owe more on their loans than their homes are worth, and that figure is expected to rise to 28 percent by this time next year, according to Moody's Economy.com.

While the majority of homeowners will continue to make their payments and wait for values to recover, some will mail their keys to their lender and walk away, leaving the lender with no choice but to foreclose.

Sophie Lapointe, a mortgage broker and owner of Five Star Mortgage in Las Vegas, has found there's little that can be done to help people who owe more than their homes are worth. "The biggest problem is negative equity," she said.

When homeowners in that position ask her about refinancing, Lapointe tells them to contact their current lender and ask about a loan modification because she already knows no new lender will give them a loan.

Loan modifications vary depending on many conditions, but can include deferring payments, allowing partial payments, lowering the interest rate and lowering the principal balance.

Investor speculation:

Plunging prices have had even more impact on investors than on homeowners because investors have less emotional attachment to a house. They're even more likely to walk away, especially if they've put little money into a property.

Investors purchased one of every five homes last year, and almost one of every three when the market peaked in 2005, according to the Realtors trade group.

They flocked to hot markets like California, Florida, Nevada and Arizona, as television shows such as A&E's popular reality series "Flip This House" touted the easy money that could be made buying and selling homes.

They took advantage of risky loan products that didn't require down payments or proof of income. Other loans allowed the borrower to pay only the interest on the loan, or even less, and none of the principal for a certain time.

Now, more than 30 percent of properties in the foreclosure process are owned by someone with a different address, indicating the home is likely owned by an investor, according to foreclosure listing service RealtyTrac Inc.

Government programs to help homeowners are specifically designed not to help such investors, though in reality it may be hard to weed them out.

Complex investments:

Traditionally, lenders evaluated borrowers carefully because they held onto the mortgages for the life of the loan. That process started to change in the late 1980s, as Wall Street found new ways to package the loans into securities to sell to investors.

Investors were attracted to these new mortgage-backed securities because they paid better returns than government bonds.

At the beginning of this decade, the Federal Reserve started cutting interest rates to historic lows. So investors poured money into the U.S. mortgage market, particularly into securities made up of high-interest mortgages made to borrowers with poor credit records.

The high-interest, risky mortgages, called "subprime," boomed, from $160 billion in new loans in 2001 to more than $600 billion in both 2005 and 2006, according to Inside Mortgage Finance, a trade publication.

Lenders stopped worrying about the creditworthiness of borrowers and offered them ever-riskier mortgages. Most of those loans were made by commission-driven mortgage brokers, who had nothing to lose if the mortgage went bad because it had been resold.

"By the time it defaults, it's somebody else's headache," said Barry Ritholtz, CEO of research firm FusionIQ.

When mortgages are packaged into securities, borrowers' monthly payments are divided up and sent to thousands of investors around the world. With so many owners, helping troubled borrowers is tougher. Many of these investors have been reluctant to agree to drastic loan modifications, such as reducing the principal balance, because they don't want to take a big loss.

"We and others have gone to these investors, and they're just not having it," said Evan Wagner, spokesman for Pasadena, Calif.-based IndyMac Federal Bank, which has been run by the FDIC since July. "They don't want to take more losses than they have to." Without such modifications, many homeowners can't avoid foreclosure.

Democrats on Capitol Hill are frustrated.

On Friday, six House Democrats, including Rep. Barney Frank, D-Mass., accused hedge fund investors in a letter of blocking loan modifications and called them to a hearing on the issue next month.

"For the hedge fund industry, which has flourished for much of the past decade, to take steps so actively in opposition to what is currently in the national economic interest is deeply troubling," they wrote.

Job losses:

The No. 1 reason people fall behind on their mortgage is loss of a job, or some source of income, perhaps from a divorce or death of a spouse. If a borrower is unemployed, lenders don't have many options but foreclosure.

Two years ago, about 36 percent of mortgage delinquencies were caused by loss of income or unemployment, according to research by mortgage finance company Freddie Mac. But that number has risen to 45 percent this year as the unemployment rate has ticked up to a five-year high of 6.1 percent.

Jon Falen, 33, put his four-bedroom house in Olathe, Kan., with high-end appliances, granite kitchen countertops and a landscaped lot, on the market more than two years ago after health problems forced him to leave his job as an air traffic controller.

Falen and his wife, now delinquent on their two home loans, are finally scheduled to sell their house next month.

But there's a big catch: The buyer has agreed to pay only $490,000, which is $70,000 less than what the couple paid for it in 2002.

Making matters worse, Falen and his wife owe $675,000 to two lenders because they used their home equity _ which soared during the housing boom _ to pay off student loans and remodeling expenses.

Though Falen and his family seem to have avoided becoming another foreclosure statistic by cashing out on retirement plans and dipping deeply into savings, he is chastened by the drawn-out experience.

"Any debt right now scares me to death," he said.

Falling behind again:

It's hard to fix something that keeps breaking. Roughly one-third of all subprime loans modified in the third quarter of last year were delinquent again within 10 months, according to a Credit Suisse report released this month.

Maria Martinez, 57, an administrative worker at the county jail in Stockton, Calif., is typical of homeowners who have gotten help, but not enough. She is three months behind on her mortgage, even after receiving a loan modification earlier this year.

Though Martinez bought the house more than a decade ago for only $76,000, she now owes about $230,000 because she refinanced her home loan several times.

"I was trying to borrow some money to pay some bills," said Martinez, who is on leave from her job this month after being diagnosed with cancer. "I didn't really think...that I would get into a bind like this."

Until the summer, she was paying an interest rate of about 8.5 percent on her mortgage. The modification lowered that amount to 7.75 percent.

If she had been given a more generous loan modification, she might be in a better situation. But most efforts to help homeowners have been slow and weak.

So what has and should be done?

The scale of the mortgage crisis became clear in July 2007 when Countrywide Financial, then the nation's largest mortgage lender, reported an unexpected surge in defaults in high-quality mortgages.

Three months later, the Bush administration announced a new mortgage industry coalition _ dubbed the Hope Now alliance. The coalition had an "aggressive plan to reach more homeowners and help them find a way to stay in their homes," Treasury Secretary Henry Paulson said at the time.

The Hope Now group says the industry has modified 765,000 loans since last July, and put 1.5 million borrowers on temporary repayment plans. There are no data on how many of those homeowners have fallen behind again.

Faith Schwartz, the coalition's executive director, said the effort was never meant to be the only solution to the foreclosure crisis. She says there "has been a tremendous effort" on the industry's part, noting that 1.9 million households have received letters urging them to call a housing counselor.

Industry and government responses have also drawn fire from consumer advocates for being too slow and too narrow.

The Federal Housing Administration, a government agency that backs loans to borrowers with weak credit, says it has helped about 400,000 borrowers refinance over the past year, though only about 1 percent were behind on their loans.

This month, the FHA started the "Hope for Homeowners" program, included in legislation passed over the summer by Congress. It is designed to let another 400,000 troubled homeowners swap their mortgages for traditional 30-year fixed rate mortgages , but only if lenders agree to reduce the value of a loan and take a loss.

But there are still questions about how eager lenders will be to participate.

Faced with public outrage that they passed a $700 billion plan to rescue the financial industry, politicians in Washington are going to keep trying to find ways to fix the foreclosure crisis. One promising approach came this month when 11 states entered into a more than $8 billion settlement with Countrywide Financial and its new parent Bank of America Corp.

The settlement, which goes into effect Dec. 1. is projected to help an estimated 400,000 Countrywide borrowers by allowing them to replace risky loans with ones at substantially lower interest rates.

And in Washington, the FDIC's Bair has proposed a plan in which the government would provide guarantees for mortgages that have been reworked by banks, lowering payments to more affordable levels.

All eyes now are on Bair, Paulson and other top officials to see if the government can craft a plan that gets at the heart of the global financial meltdown _ the U.S. foreclosure crisis.

Originally posted at InjuryBoard by Paul Kiesel

California Law Puts the Brakes on Foreclosures... At Least for Now

Paul Kiesel — Fri, 24 Oct 2008 19:05:12 GMT

When a new state law went into effect over the latter part of the summer, California immediately saw a drop in loan default notices, which has also proven to show a drop in foreclosure numbers.

In the second quarter of this year, a record 121,673 default notices were sent out in the State of California. After Senate Bill 1137 went into effect, a law that requires a lender or servicer to contact a delinquent borrower 30 days before filing a notice of default and explore options to avoid foreclosure, the number of default notices fell to 94,240 for the following quarter.

According to today's Los Angeles Times, "Default notices sank to 14,995 in September, after averaging more than 40,000 for each of the five preceding months."

This is good news. And SB 1137, which was introduced by State Senate President Pro Tem Don Perata (D-Oakland) in hopes of averting foreclosures for many homeowners who had been previously unsuccessful in contacting their lenders while trying to achieve some sort of loan modification, is a good law to give homeowners adequate time to negotiate with their lenders and come to terms with a situation that's a win-win for both sides.

However, the declining foreclosure statistics do not necessarily prove that the end is near per the foreclosure crisis or credit crisis. It just means that all of the adjustable rate loans that were taken out in 2005 and 2006 have had interest rate resets, and caused this "first wave" of foreclosures. There are still hundreds of thousands if not millions of adjustable rate loans from 2007 that will reset in the coming 12-18 months.

Further action needs to be taken in order to mitigate the next wave of default notices and foreclosures. The FDIC's plan has not worked to the extent it could, contrary to media reports, as they have only successfully modified 4,000 loans and all of those loan modifications were made to people who had not been served with a default notice or were not in the foreclosure process.

Shareholders and regulators need to understand where the value is at in this predicament, and squeeze what they can out of a situation that is not favorable. It'd be better to let a homeowner modify his or her loan at 89% of the original principal balance (not the current negative amortized balance) and wait till the market rebounds in three to five years (remember, these cycles of economic prosperity and recessions are "cycles"), subsequently, the home could then be sold at a price that's equitable or more than the modified loan. The homeowner would not get to walk away with any profits unless the remaining original balance (the 11% that was pared off to help the borrower stay in the home) was recovered by the lender, thus, the investor/shareholder would be able to recoup most if not all of their original investment.

This is one idea that would cut through the complications that have been created by the fact that most mortgages from 2004, 2005, 2006 and 2007 were packaged and sold as securities, and the investors in those securities may not want loan workouts to happen. However, it's likely better for everyone involved to work together on stabilizing the housing and credit markets, while making compromises, than to continue to be split on who gets what, leaving many parties involved with nothing.

Originally posted at InjuryBoard by Paul Kiesel

Senate Banking Committee: The Genesis of the Economic Crisis

Paul Kiesel — Thu, 16 Oct 2008 18:24:31 GMT

Former SEC Chairman Arthur Levitt, Senate Banking Committee Chairman Chris Dodd and Senator Robert Casey (D-PA), this morning, gave their opinions on what they believe led to the economic and foreclosure crisis: a major failure of regulation by the SEC & Federal Reserve and a lack of transparency throughout credit markets.

Arthur Leavitt, who was chairman of the SEC from 1993 to 2001, harshly criticized his former agency saying, "As the markets needed more transparency, the SEC allowed opacity to reign [. . .] As an overheated market needed a strong referee to rein in dangerously risky behavior, the commission too often remained on the sidelines."

The Senate Banking Committee Chairman, Chris Dodd (D-CT), said regulators, including the Fed, failed to adequately police the mortgage lending markets, resulting in the "creative mortgage" boom and its fallout. Dodd said, "Our nation's financial regulators willfully ignored abuses taking place on their beat, choosing to embrace the same faulty assumptions that fueled excessive risk-taking in the marketplace."

As the $700 billion bailout plan slowly releases funds to struggling financial institutions, the Senate Banking Committee will hold a series of hearings in order to analyze what pushed the U.S. (Wall Street and Main Street) into its current economic state. So far the rescue plan that was passed two weeks ago has done little to mollify Wall Street's concerns and has resulted in negligible positives for homeowners.

Pennsylvania Senator Robert Casey said that the Treasury's shift to more quickly inject capital into banks instead of buying up banks' troubled mortgage assets and loans is having ill effects. Casey said the, "Treasury needs to work more quickly to fully explain their plans to the American people and to the players in the marketplace." Casey believes that the current Treasury plan to curb foreclosures is not working because banks are waiting to modify loans in order to see if they can sell them to the Treasury first and wash their hand of the situation.

Ultimately, after much discussion on how the government should reform its banking regulatory practices, Leavitt emphasized this: "[L]et me be clear: a restoration of the SEC to its position from before this current slide is not enough [. . .] At this moment, we need dramatic rethinking of our financial regulatory architecture -- the biggest since the New Deal."

And Leavitt's last statement most likely doesn't take the looming Pay Option ARM loan fallout (2009-10) into account. By most economists' figures, the option ARM loan interest rate resets starting next year could result in another $200 billion in bad mortgages, thus, prompting another declivity in home prices and reignite rising foreclosure rates. Regulatory reform is needed, but so are short term plans to stave off further economic damage due to lenders who flooded the markets with bad loans (TILA violations). Until that's been done, any regulation reform will not make a difference until this current crisis has ended.

Originally posted at InjuryBoard by Paul Kiesel

When it Comes to the Bailout, Some Refuse to See the Facts

Paul Kiesel — Tue, 30 Sep 2008 21:58:03 GMT

There are a lot of different news outlets and political blogs pointing fingers at who's to blame for the financial crisis and why Americans should or should not support the failed bailout (or rescue) package.

The most recent argument being made by conservative journalists, on websites like Human Events, is that Democrats and the Community Reinvestment Act of 1977 are responsible for Wall Street's problems and, accordingly, the $700 billion package. Republicans and Independents were innocent throughout all this, right? Even if Republicans had no hand in this problem (which is false, they did), wouldn't they at least be guilty of negligence for allowing this to occur under their watch? They did control the House, Senate and the White House at one time for four years (2002-2006, and most of the period between 2001 and 2003). But that's a hypothetical almost blameless situation for the GOP, as there are a lot of fingerprints on this mess that belong to key Republican members of Congress.

The Community Reinvestment Act (CRA) of 1977, contrary to the opinion of pundits on FoxNews.com and HumanEvents.com, is not at the foundation of current financial crisis. The CRA was a program designed to force banks to make loans in lower-income neighborhoods, but did not require the banks to make loans to lower-income individuals. There were parts of the Act that provided equal lending to credit worthy borrowers who were also low-income, and provided interest rate restrictions that would not later on in the life of the loan cause or come even close to equaling the economic hardship due to the sloppy subprime lending over the past six years. In fact, over half of the subprime lenders were independent, therefore, not subject to the regulation under the Community Reinvestment Act (which has been revised by Presidents Bush, Clinton and Bush II).

Observers need to understand that there are many parties that could be blamed and a laundry list of variables that have played a role in the mortgage meltdown. Truth in Lending violations were rampant. Mortgage fraud was at an all time high. Defrauding shareholders helped fuel the fire of new bad loans, too.

However, three key important legislative bills did play a direct role in the current meltdown: 1. Phil "We're a Bunch of Whiners" Gramm's Commodity Futures Modernization Act of 2000, which allowed for deregulation of the energy and lending industries, along with Gramm's wife being able to collect almost $1 million as an Enron board member (before its collapse) 2. Gramm-Leach-Bliley Act of 1999 stripping a large part of the Glass-Steagall Act of 1933 (see link) 3. Newt Gingrich's Home Ownership and Equity Protection Act of 1994, which was written to protect consumers against predatory loans, but it instead helped spark the subprime boom and, subsequently, even more predatory lending.

Overall, Congress needs to do what's right and protect the rights of homeowners, those who are in good loans and those in bad loans (a countless number of these troubled loans are due to TILA violations, etc.), because if the latter is jilted on this bailout package and not represented like the executives on Wall Street, the number of foreclosures that WILL occur will adversely effect home values for everyone (which is less profitable for the government who will own these loans anyway; the loans should be reasonably modified so the government can recoup taxpayer money). There are many loans out there that are "avoidable foreclosures" and it would be irresponsible of the Treasury and members of Congress not to approve the rescue package that will be voted on Wednesday evening.

Originally posted at InjuryBoard by Paul Kiesel

Loan Modification and Foreclosure Mitigation Efforts in the Bailout Bill

Paul Kiesel — Mon, 29 Sep 2008 20:04:00 GMT

A key provision added to the bailout bill by Democrats last week, and a provision that likely dissuaded about two-thirds of House Republicans from voting "Aye" on the failed bill today, deals with foreclosure mitigation efforts and the need for the Treasury Department to modify loans that are considered to be "avoidable foreclosures."

According to section 109 of the Emergency Economic Stabilization Act of 2008, "[. . .] the Secretary shall implement a plan that seeks to maximize assistance for homeowners and use the authority of the Secretary to encourage the servicers of the underlying mortgages, considering the net present value to the taxpayer, to take advantage of the HOPE for Homeowners Program under section 257 of the National Housing Act or other available programs to minimize foreclosures."

The reason for this provision? Because Democrats saw a White House administration trying to get a bill passed without review and one that only provided relief to Wall Street banks (the dumping of "illiquid assets" or securities packed with bad mortgages), and wanted to protect taxpayers from the original version of Bush's Bailout, where the government would have assumed the responsibility of all these bad loans without any taxpayer protection or relief to troubled homeowners, many of who were manipulated into loans with fraudulent/misleading language that broke Truth in Lending laws.

Sec. 109, continued: "Federal Government entities that hold troubled assets [shall coordinate] to attempt to identify opportunities for the acquisition of classes of troubled assets that will improve the ability of the Secretary to improve the loan modification and restructuring process and, where permissible, to permit bona fide tenants who are current on their rent to remain in their homes under the terms of the lease."

I wonder if House Republicans and even some House Democrats who voted against this bill today, representatives who are up for re-election this November, will feel comfortable going back to their districts, and telling voters that not only are they not concerned about homeowners, but they are also apathetic to renters who appear to be political collateral damage, as they didn't even participate in Wall Street's avarice.

The loan modification section of the emergency bailout package is not only needed, but it is a less expensive route for the government and taxpayers. Since the government is assuming the responsibility of these bad loans, it would be irresponsible for our government not to prevent avoidable foreclosures and just assume the weight of the net loss. It makes more sense for the government to modify a loan, and hope the housing market bounces back in a couple years, than to let a home foreclose and then force our government to enter the real estate business, thereby nationalizing that industry, too.

Some foreclosures will not be preventable, however, our government needs to be pragmatic in its short and long term decisions and understand that when a loan is considered to be an "avoidable foreclosure," it's in everyone's best interest to prevent it from foreclosing (via loan modification by the Treasury) or else the Treasury is taking a reprehensible route and gambling with taxpayer money.

Originally posted at InjuryBoard by Paul Kiesel