The on-going sub-prime lending issue has put in danger the ability of millions of Americans to stay in their homes, disquieted investors and roiled markets worldwide. Working with other state officials, including banking commissioners, and in close discussion with some federal regulators, the banking industry, the investment community and non-profit consumer advocates, state attorneys general are committed to being part of the solution to the complex problems that are arising from the burgeoning home foreclosure crisis.
In doing so, attorneys general are building on a solid record of achievement. Attorney general initiatives in the area of predatory lending yielded the largest recoveries for consumers in the nation’s history: the Household settlement of 2003 returned $484 million to consumers and the Ameriquest settlement of 2006 returned $325 million. These cases were not only multistate in conception and implementation but were also multi-agency – linking not only Consumer Protection Divisions but Civil Rights Divisions from AGs offices as well as State Banking Regulators and County Attorneys. Together, state officials settled the claims and implemented distribution of funds. The National State Attorneys General Program at Columbia Law School hopes that in this section you will find articles and resources that may be helpful in understanding the role state attorneys general are playing on this important issue.
Jane Azia, Director of Consumer Protection, New York State Banking Department
Margaret Becker, Predatory Lending and Foreclosure Prevention Project, Staten Island, New York Legal Services
Ronald Mann, Professor, Columbia Law School & expert in real estate transaction law
Tam Ormiston, Chief Deputy Attorney General of Iowa
Moderated by James Tierney, Director, State Attorney General Program & former Attorney General of Maine
The ongoing sub-prime lending issue has put millions of Americans in danger of losing their homes, has disquieted investors, and roiled markets worldwide. In response, state and local officials including attorneys general, banking commissioners, and city legal services are working in close discussion with federal regulators, the banking industry, the investment community and non-profit consumer advocates to find solutions.
As part of its educational efforts surrounding the issue, the National State Attorneys General Program at Columbia Law School assembled a panel of experts who have worked to find local and national solutions. The panel discussed why the foreclosure crisis has occurred, current efforts to mitigate the issue, and thoughts on the future.
Article in The New York Times discussing the risks and benefits of modifying mortgage agreements to reduce monthly payment burdens. Features Iowa AG Tom Miller.
By Patrick Madigan - Iowa Assistant Attorney General
In this policy paper, AAG Patrick Madigan of Iowa answers why we are currently facing a subprime foreclosure crisis and outlines how AG’s can respond to this national crisis. Madigan’s analysis and conclusions represent the thinking of those who have joined the 10-state task force led by Iowa AG Tom Miller.
A recent Wall Street Journal article outlines the work that AG's are doing to help families stay in their homes amidst the rising tide of home foreclosures. Led by Iowa AG Thomas Miller, attorneys general and banking regulators from 10 states have formed a task force aimed at pursuading mortgage-servicing companies and investors to restructure troubled subprime loans. The task force, has invited a dozen of the nation's largest subprime-mortgage-servicing companies to meet later this month in Chicago.
In Comments to the Fed board on August 14th, Miller said improved disclosures are not the answer to abusive mortgage practices, and that all subprime loans should be required to be underwritten according to an ``ability to repay’’ standard. He said prepayment penalties should be banned for subprime loans, the Fed board should require escrow accounts for taxes and insurance, and stated income or low doc loans should be restricted for the vast majority of subprime loans.
AG Miller urges Iowans facing a mortgage foreclosure to call 877-622-4866 (toll-free) to reach the Iowa Mediation Service, which will take information from borrowers and then explore if a loan modification might work for both the borrower and lender.
Miller works on foreclosure mediation plan (August 22, 2007)
Des Moines Register, by S.P. Dinnen
AG Miller is crafting a plan to bring home buyers and lenders together to discuss ways they can make loan repayments more affordable. If successful, Iowa's program could be used by other states as a model to fight foreclosures.
Illinois AG Lisa Madigan recently hosted a summit to address the issue of rising home foreclosure. The Summit is the second component of a two-part initiative that Madigan launched to address the foreclosure crisis. As the first component, Madigan crafted a bill this legislative session to address the problem at the point of loan origination. Here are links to important resources related to the meeting.
Predatory Lending was one of the primary topics covered during our March 2007 meeting. Many of the resources on this site are drawn from this conference.
CEO , Center for Responsible Lending and Center for Community Self-Help
Before the U.S. Senate Committee on Banking, Housing and Urban Affairs : “Preserving the American Dream: Predatory Lending Practices and Home Foreclosures”
This Massachusetts AG page provides information about recently enacted Attorney General regulations, state law, and federal law relevant to predatory lending and housing.
Iowa Attorney General Tom Miller suggested several legislative proposals directed at predatory mortgage lending last February. The Iowa Division of Banking and Superintendent Tom Gronstal joined AG Miller in backing the proposed legislation. AG Miller led the nationwide, multi-state settlements with Household Finance and Ameriquest Mortgage Company which resulted in over $800 million in payments for consumers.
In December 2006, Minnesota AG Lori Swanson appointed a Study Group to propose legislation to address the state’s predatory lending crisis. The Study Group was comprised of state legislators, bankers involved in mortgage lending, and non-profit organizations that assist victimized Minnesota homeowners. The report’s first half describes Minnesota’s burgeoning home foreclosure crisis and the state’s existing law regulating home mortgage lending. The second half details the legislation proposed by the Study Group to address these problems.
Human Rights Magazine (courtesy of The Center for Responsible Lending) -- The American Bar Association
This article argues that if consumers are to receive meaningful protections, the optimal solution is a partnership between the federal government and the states, wherein the federal government sets reasonable minimum standards and the states maintain their authority to address local issues.
Joint Center for Housing Studies of Harvard University
Funded by a Ford Foundation grant to the Joint Center for Housing Studies of Harvard University, this new research examines the behavior of mortgage market participants and the emergence of new mortgage delivery channels linked to the rapid growth of higher-risk subprime mortgages.
Following up on an earlier article proposing federal legislation to require subprime lenders and brokers to make suitable loans, Engel and McCoy argue that assignee liability should apply to suitability violations and certain other legal violations by mortgage brokers and lenders. Doing so would force securitizers to take into account the negative externalities of securitization on borrowers and communities.
Dan Immergluck, City and Regional Planning Program
Georgia Institute of Technology, and Geoff Smith, Woodstock Institute
This report provides data on the negative effects of foreclosure not just on homeowners, but surrounding neighborhoods. Using Chicago as a case study, the report looks at the loss of property value on homes neighboring a foreclosure, and notes the increased risk of foreclosure in minority and low-income communities.
John M. Olin Center for Law, Economics, and Business. 2007
This article addresses the California Assembly's recently considered legislation designed to implement consumer educational efforts financed by a new state tax on income from problematic loans, including those made by national banks and other federally chartered institutions. The article concludes that a state tax of the sort considered in California should qualify as a legitimate exercise of state taxing powers under 12 U.S.C. § 548 and also should withstand scrutiny under the Due Process and Commerce Clauses to the extent the tax is imposed on out-of-state banks.
University of Cincinnati Law Review vol. 74, 2006.
Over the protests of consumer advocates, federal agencies have recently issued regulations preempting state predatory lending statutes as applied to national banks and thrifts. In addition, Congress is considering legislation that would preempt state predatory lending laws for all lenders. The Article considers the preemption debate, particularly in the context of federally supported lenders—banks, thrifts, and the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
In its report, the GAO recommends that Congress provide the Federal Reserve Board with the authority to habitually monitor and examine nonbank mortgage lending subsidiaries of financial and bank holding companies to guarantee compliance with federal consumer protection laws, as well as initiate enforcement actions.
Abbreviated from: "Just Until Payday." 54 UCLA Law Review 855 (2007)
This essay first discusses the three distinct approaches States have taken to date: directly permitting payday lending, permitting it indirectly through lax enforcement, and banning it altogether. It then discusses the policy perspectives and practicality of three approaches that are likely to be attractive in different States in an era in which individual States now have the authority to regulate payday lending: a complete ban on payday lending, a ban on repetitive borrowing, or regulated toleration.
Housing Policy Debate, 2004 – The Fannie Mae Foundation
This overview of the predatory lending process provides an introduction to the structure of the larger mortgage lending industry and the way predatory lending fits into it. The article begins with a description of the mortgage marketplace and its players. Next, it examines distinctions among the prime, subprime, and predatory segments of this market, particularly as they relate to risk, pricing, and borrower characteristics. The article also describes the characteristics of predatory loans and their life cycle, as well as a description of the revenue sources for each of the actors and the effects of that revenue stream on the actor’s incentives.
The calculations offered in this paper are rough, but conservative, estimates. They provide an order of magnitude of the amount of equity stripped, each year, from those least able to afford it. They also attest to the notion that the most important lending issue today is no longer denial of credit but the terms of credit. Includes estimated cost of predatory lending by state.
Attorney General Andrew M. Cuomo today announced his office has stopped Upstate Capital, Inc., a Syracuse-area reverse mortgage lender, from preying on seniors statewide through false advertising and portraying itself to be a local non-profit organization. The company must reform its marketing practices and indicate that it is a registered mortgage/reverse mortgage broker, as well as pay $20,000 in costs and penalties to the state.
Ohio Attorney General Marc Dann delivered a free lecture about the predatory lending crisis sweeping the nation at the Cleveland-Marshall College of Law on Apr. 14. Dann, a Democrat and former Ohio Senator, combined sharp criticisms of the federal government with an overview of what the state is doing to fill the resulting vacuum of responsibility, such as Ohio's foreclosure prevention effort called 'Save the Dream' in which more than 1100 attorneys are working for free to help homeowners at risk of foreclosure.
Illinois Attorney General Lisa Madigan filed a lawsuit late yesterday against Victory Consulting and Investments Inc., a Chicago-based mortgage rescue fraud firm, for allegedly violating the Consumer Fraud and Deceptive Business Practices Act for activities that have caused at least five homeowners to lose their homes to foreclosure.
Attorney General Dustin McDaniel says most of the payday lending companies operating in Arkansas have said they will close in response to his threat last month to sue them if they continued to do business in the state. McDaniel targeted 156 payday lending locations in a March 18th letter, informing their operators that they were violating the state constitution by charging more than 17 percent interest.
State governments are acting more aggressively to help homeowners avoid foreclosure, frustrated by what they view as the federal government's inadequate response to the mortgage crisis. But some of the programs are putting states at odds with mortgage lenders. This article cites examples in Illinois, Minnesota, Massachusetts, Ohio and Maryland.
"There are some people who are clearly victims of fraud, and judges are reacting differently," said James Tierney, Maine's former attorney general and the director of the National State Attorneys General Program at Columbia Law School, who was not familiar with the Shearons' case. "In the meantime, people are losing their homes. A number of judges are saying, fraud is fraud, and we're not going to let this proceed."
Illinois Attorney General Lisa Madigan has filed a lawsuit in Cook County Circuit Court against Chicago-based Advantage Mortgage Counseling for engaging in deceptive lending practices that have resulted in the loss of at least one consumer's home.
Connecticut Attorney General Richard Blumenthal has subpoenaed bond insurers, including MBIA Inc (MBI.N: Quote, Profile, Research) and Ambac Financial Group Inc (ABK.N: Quote, Profile, Research), as part of a widening probe into who is to blame for the U.S. subprime mortgage crisis.
Ohio Attorney General Marc Dann last Friday filed a securities fraud class action lawsuit against Federal Home Loan Mortgage Corporation in federal court in Youngstown, Ohio, on behalf of Ohio Public Employees Retirement System and all other purchasers of Freddie Mac common stock from August 1, 2006 through November 23, 2007. The complaint alleges that Freddie Mac and its top executives artificially inflated the company’s publicly traded common stock.
At least eight states— Colorado, Connecticut, Louisiana, Maine, Minnesota, New Mexico, North Carolina and Rhode Island — passed laws in 2007 to curtail predatory lending. Iowa Attorney General Tom Miller suggests that more states and cities would take on questionable lending practices more aggressively if federal law didn't limit them.
Attorneys General of N.Y. and Connecticut cooperate in investigation of whether banks such as Citigroup Inc. and Bank of America Corp., left out material details in their disclosures about the risks posed by extremely high-risk loans, deceiving credit-rating agencies and investors.
Following the recent work by state attorneys general to increase the legal pressure on the mortgage industry, this article notes that a glut of lawsuits may not be the result. James Tierney, Director of the National State Attorneys General Program suggests that the critical work will be done through public outreach, stating, “AGs have to prosecute fraud, but …. that's not going to keep people in their homes.”
Massachusetts AG Martha Coakley has finalized new regulations for mortgage lenders and brokers in response to the home foreclosure crisis. The regulations require lenders and brokers to treat all borrowers fairly, with the aim of eliminating excessive fees and sales of loans that borrowers cannot afford. In addition to Coakley’s new regulations, the state legislature is working on their own set of rules to prevent further foreclosures.
Having sued more than a dozen lenders and brokers for allegedly inflating home appraisals and otherwise misleading homeowners, Ohio AG Marc Dann is now pursuing Wall Street. Attributing much of the blame for the recent home-foreclosure crisis throughout Ohio and the rest of the U.S. to Wall Street, Dann is focusing on how investment banks packaged mortgages into securities and how credit-rating companies evaluated those securities. Dann is not alone in his probing into the mortgage industry- the attorney general of New York, the Securities and Exchange Commission, and the Committee of European Securities Regulators, among others, are looking into these issues as well.
Massachusetts AG Martha Coakley has filed suit against Fremont Investment and Loan, accusing the subprime lenders of unfair practices that have led to the increased number of home foreclosures in recent months. Previously an agreement had been reached that would restrict Fremont’s ability to foreclose on its mortgage loans in Massachusetts. The new suit is seeking to keep the foreclosure restrictions in place, along with penalties for violating the state’s 2004 antipredatory lending law and compensation for borrowers.
In response to what has become a nation-wide problem, Kansas AG Paul Morrison has announced the creation of a new task force to further investigate the reasons behind home foreclosures in his state, including mortgage fraud and subprime lending. The taskforce, to be chaired by Bank Commissioner Tom Thull, will both investigate why an increased number of home foreclosures have taken place and offer suggestions on how to curb the problem.
Arizona AG Terry Goddard and Lenox Financial Mortgage have reached a settlement over what the AG considers false advertising. Accused of omitting necessary information from its advertisements, Lenox has agreed not to claim the company can provide loans with "no closing costs" unless it also discloses that not everyone will qualify.
Led by Iowa AG Thomas Miller, attorneys general and banking regulators from 10 states have formed a task force aimed at pursuading mortgage-servicing companies and investors to restructure troubled subprime loans. The task force has invited a dozen of the nation's largest subprime-mortgage-servicing companies to meet later this month in Chicago.
To read Iowa AAG Patrick Madigan’s Policy Paper, click here
AG Richard Blumenthal of Connecticut speaks out on ABC News about the blatant fraud committed by many lenders that has led to so many home foreclosures.
AG Martha Coakley of Massachusettes has filed a regulation that permanently bans for-profit foreclosure rescue transactions. The ban is an attempt to protect homeowners from rescue schemes where the homeowner transfers the property to an outside agent, but maintains an option to reacquire the home by maintaining a legal interest. The ban does not apply to rescue plans offered by members of the homeowner's family or by nonprofit or housing organizations that are attempting to help the troubled borrower.
As attorneys general turn their focus to the home foreclosure crisis, one area of attention is advertising that promises tantalizingly low payments without clearly disclosing the myriad strings that accompany the debts. Although, some states require lenders to disclose the annual percentage rate on any loans they advertise, it can be hard to enforce these and other consumer protection statutes. Companies simply withdraw ads when they receive cease-and-desist letters, but the ads often immediately pop up elsewhere. “You do get an immediate positive feedback,” said James E. Tierney, director of the national state attorneys general program at Columbia Law School in New York and a former attorney general. “But it’s hard to make it a sustainable success since there are so many lenders and ads.”
This article outlines the various measures that states are taking to protect people who resort to subprime financing. Some states have passed measures to tighten restrictions on subprime lending. Others have formed task forces involving both lenders and consumer representatives to rework problem loans, or are tightening the underwriting standards on adjustable-rate mortgages.
The Maryland Attorney General's Securities Division issued a cease-and-desist order alleging that POS Dream Home LLC operated an unregistered investment program disguised as a mortgage payment plan. The order also applies to Metropolitan Grapevine LLC, CEO Andrew H. Williams and agent Laveda Whitfield. The order requires the companies and their agents to stop operating the investment program.
As the housing market weakens and interest rates on adjustable mortgages rise, more and more borrowers are falling behind. In this article, Gretchen Morgenson of the New York Times outlines the threat of subprime mortgages to both consumers and lenders.
