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States with highest foreclosure rates shift
Posted 02/17/2012
December, 2011 unemployment: 9.9% (6th highest)
Home price change (2006Q3-2011Q3): -49% (3rd largest decline)
Processing period: 135 days
2. New Jersey—
2011 foreclosure rate: 6.4%
December, 2011 unemployment: 9% (13th highest)
Home price change (2006Q3-2011Q3): -22.6% (14th largest decline)
Processing period: 270 days
3. Illinois—
2011 foreclosure rate: 5.4%
December, 2011 unemployment: 9.8% (7th highest)
Home price change (2006Q3-2011Q3): -29% (7th largest decline)
Processing period: 300 days
4. Nevada—
2011 foreclosure rate: 5.3%
December, 2011 unemployment: 12.6% (the highest)
Home price change (2006Q3-2011Q3): -59.3% (the largest decline)
Processing period: 116 days
5. New York—
2011 foreclosure rate: 4.6%
December, 2011 unemployment: 8% (23rd highest)
Home price change (2006Q3-2011Q3): -13.6% (23rd largest decline)
Processing period: 445 days
Related articles
- Foreclosure activity edges higher in January (usatoday.com)
- Foreclosures and a Small Sign of Housing Recovery (247wallst.com)
- Foreclosures climbed in January (money.cnn.com)
- Chicago Foreclosure Activity in 2011 Indicates Hot Foreclosure Market in 2012 (prweb.com)
The Power of Owner-Entrepreneurship Education to Restore Our Middle-Class
Steve Mariotti
Founder, Network for Teaching Entrepreneurship
Posted: 01/26/2012 12:44 pm
President Obama focused squarely on the middle class during his third State of the Union address. He declared that, “We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by. Or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules.”
Obama’s speech has set off flares from the right about “class warfare” and from the left about “the disappearing middle class.” There’s no denying that the wealth gap is widening. In June 2010, a report from the Center on Budget and Policy Priorities confirmed that the gap between rich and poor in the United States had reached levels not seen since 1929. Currently, the United States ranks fourth in the world in income disparity, after Chile, Mexico and Turkey.
The fact is, the middle-class is in serious trouble. The key question is: What are we going to do about it? As the founder of the Network for Teaching Entrepreneurship (NFTE) and an educator of at-risk youth who has been in the poverty trenches for over thirty years, I can tell you that I’ve seen only one thing consistently create new members of our middle-class: Owner-entrepreneurship education.
At NFTE, we call our programs owner-entrepreneurship education, in order to stress the power of ownership as a means to create wealth. Disadvantaged youth are seldom let in on this secret to wealth creation. I once asked a leading venture capitalist and philanthropist, who has donated millions to helping low-income children attend private schools, “What about teaching kids the ownership skills that made you your fortune, so they can become financially independent?” He responded, only half-jokingly, “But then who would do the work?”
His comment illuminates a core issue in our society: If only the wealthiest people own the increased profits resulting from the better education of our low-income youth, how much has really been accomplished in helping our most impoverished citizens achieve the American dream?
This is why NFTE teaches owner-entrepreneurship education. We teach not only entrepreneurial skills like record keeping, sales, finance, negotiation, opportunity recognition, and marketing, but also the power of ownership. Our students learn how to properly value and sell a business, and how to build wealth utilizing franchising, licensing and other advantages of ownership.
Let me share with you the story of two courageous at-risk youth who traveled from extreme poverty into the middle-class through the power of owner-entrepreneurship education. Jabious and Anthony Williams were living crammed in with their mom and eight other family members into their aunt’s two-bedroom apartment in Anacostia, a violent southeast Washington, D.C., neighborhood. Every day the boys walked miles to the nearest Exxon station to pump gas for tips. “Typically, we would earn about thirty to fifty dollars a day to help support my mom,” says Jabious Williams.
Luckily, the Williams brothers met Mena Lofland, a caring NFTE-certified business teacher at Suitland High School in Maryland. She got the boys into a NFTE entrepreneurship class. NFTE currently reaches over 60,000 students a year in the United States, as well as in ten countries. There are 400,000 NFTE graduates globally.
Like many of our low-income students, Jabious and Anthony experienced tough childhoods that encourage independence, toughness, salesmanship and hard-won street smarts, and as a result, both showed great aptitude for entrepreneurship. I’ve seen this repeatedly: Our at-risk youth are uniquely equipped to handle the risk and uncertainty inherent in entrepreneurship. They also have valuable insights into their local markets.
The Williams brothers started their own hip-hop clothing line, for example, with support from Lofland, and two local mentors — Phil McNeil, managing partner of Farragut Capital Partners, and Patty Alper, a dedicated volunteer, philanthropist and former entrepreneur.
Now 24, Jabious is a scholarship graduate student at Southeastern University and operates Jabious Bam Williams Art & Photography Company. Anthony heads a youth-mentorship program. They recently gave their mom $5,000 as a down payment on a house. “If it weren’t for the NFTE classes and the support of our teachers and mentors, we would have likely dropped out of school,” Jabious notes.
The story of the Williams brothers is just one of countless examples from NFTE’s files that beg the question: If entrepreneurship education can create jobs, prevent students from dropping out, and provide economic rescue for people in our low-income communities, what’s it going to take to open a conversation about making owner-entrepreneurship education standard in every high school in America?
Professor Andrew Hahn of Brandeis University points out the social consequences for an entire generation brought up in poverty that has never set foot in a workplace-and the potential benefits of entrepreneurship education. Hahn notes:
Research shows the scarring effects of early unemployment. The lack of work experience among minority teens contributes to a host of more serious challenges in their early twenties. Studies demonstrate that NFTE’s entrepreneurship programs create jobs and are among the few strategies that work during these periods of massive youth joblessness.
I’ve seen firsthand that entrepreneurship education gets disaffected teens excited about school again, and about their futures. It teaches them that they can participate in our economy and make money. They quickly realize that to do so, they must to learn to read, write and do math. I’ve also seen how owning even the simplest small business fills a teen with pride.
Owner-entrepreneurship education is a great way to teach basic subjects to children who are failing to learn through traditional academic approaches, because it provides concrete incentives. Owner-entrepreneurship education teaches young people that they can create jobs for themselves and do not have to be victims of this economic downturn, but rather view it as an opportunity to start a business. It also makes them more employable in the long-term, because by running their own small businesses, they learn how business works and what makes an employee valuable. This shift in viewpoint can immeasurably benefit the psyche of an unemployed teenager, and also benefits companies that hire them.
Currently, our national strategy to combat poverty among low-income youth is built around improving K-12 education. That’s a good choice, yet we’re not teaching entrepreneurship, even though most Americans would probably agree with President Obama that small business is the driving engine of our economy.
Instead, most of our national education efforts seek to teach low-income youth to become better workers. Given the widening gap between rich and poor in this country, I’d like to raise one critical point: Why aren’t we also teaching them how to own? If entrepreneurship is the engine of the American economy, why aren’t we raising more creative entrepreneurs like the Williams brothers?
On an income statement, workers are located on the “wages” line. Professional business owners, venture capitalists, and private equity firms have a distinct advantage in the creation of wealth because they can sell the profits generated by workers for a multiple of a business’s earnings. One dollar of profit can become $3, $10, or even $50.
This is how fortunes (and jobs) are created — an entrepreneur starts a business, sells some or all of its ownership, and uses the resulting capital to start and build other businesses that he or she can sell in the future, creating more capital. Workers, on the other hand, spend their lives selling only their time for hourly wages, or perhaps a salary.
Teaching business skills without also teaching the power of ownership potentially creates wealth for an owner down the line, not necessarily for the entrepreneur who created a business. Even well-educated entrepreneurs can find themselves at a disadvantage when dealing with professional owners who are experts in valuation and procuring a high rate of return in exchange for investing in a business.
We seek to demystify wealth creation for our low-income students, so they will have the same knowledge that a child of wealthy parents might pick up at the dinner table. Owner-entrepreneurship education empowers young people to make well-informed decisions about their future, whether they choose to become entrepreneurs or not. They become aware of five assets that every individual has: time, talent, attitude, energy and unique knowledge of their communities. They learn to use these assets strategically as they move along in their careers — which may include creating businesses and jobs, and building wealth in their communities.
Owner-entrepreneurship education reveals that anyone can start a business and use it to create wealth. This awareness can be a matter of life or death for at-risk young people like the Williams brothers. Through owner-entrepreneurship education, they discovered the value of their assets and created a business out of a comparative advantage — in this case, their unique knowledge of hip hop culture and what kind of clothes would appeal to other kids in their community. As a result, they became motivated to stay in high school, went on to college and helped their mother become a homeowner.
As the Williams brothers learned, owner-entrepreneurship education can help solve the youth unemployment crisis, rescue our low-income communities by increasing home ownership and employment, and even bring about a fairer distribution of wealth. We need a national debate on owner-entrepreneurship education, particularly for low-income youth. We must raise the consciousness of those who have been left out of our economic system, so that they comprehend the joys and responsibilities of ownership.
As Jabious Williams says, “Because I own my business, I know I have a future.”
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- Want To Change Tomorrow’s Workforce? Here’s How (inc.com)
U.S. AG Eric Holder, DoJ Head Lanny Breuer Linked To Banks Accused Of Foreclosure Fraud
Image via Wikipedia
(For related Special Report, see )
By Scot J. Paltrow
Jan 19 (Reuters) – U.S. Attorney General Eric Holder and Lanny Breuer, head of the Justice Department’s criminal division, were partners for years at a Washington law firm that represented a Who’s Who of big banks and other companies at the center of alleged foreclosure fraud, a Reuters inquiry shows.
The firm, Covington & Burling, is one of Washington’s biggest white shoe law firms. Law professors and other federal ethics experts said that federal conflict of interest rules required Holder and Breuer to recuse themselves from any Justice Department decisions relating to law firm clients they personally had done work for.
Both the Justice Department and Covington declined to say if either official had personally worked on matters for the big mortgage industry clients. Justice Department spokeswoman Tracy Schmaler said Holder and Breuer had complied fully with conflict of interest regulations, but she declined to say if they had recused themselves from any matters related to the former clients.
Reuters reported in December that under Holder and Breuer, the Justice Department hasn’t brought any criminal cases against big banks or other companies involved in mortgage servicing, even though copious evidence has surfaced of apparent criminal violations in foreclosure cases.
The evidence, including records from federal and state courts and local clerks’ offices around the country, shows widespread forgery, perjury, obstruction of justice, and illegal foreclosures on the homes of thousands of active-duty military personnel.
In recent weeks the Justice Department has come under renewed pressure from members of Congress, state and local officials and homeowners’ lawyers to open a wide-ranging criminal investigation of mortgage servicers, the biggest of which have been Covington clients. So far Justice officials haven’t responded publicly to any of the requests.
While Holder and Breuer were partners at Covington, the firm’s clients included the four largest U.S. banks – Bank of America, Citigroup, JP Morgan Chase and Wells Fargo & Co – as well as at least one other bank that is among the 10 largest mortgage servicers.
DEFENDER OF FREDDIE
Servicers perform routine mortgage maintenance tasks, including filing foreclosures, on behalf of mortgage owners, usually groups of investors who bought mortgage-backed securities.
Covington represented Freddie Mac, one of the nation’s biggest issuers of mortgage backed securities, in enforcement investigations by federal financial regulators.
A particular concern by those pressing for an investigation is Covington’s involvement with Virginia-based MERS Corp, which runs a vast computerized registry of mortgages. Little known before the mortgage crisis hit, MERS, which stands for Mortgage Electronic Registration Systems, has been at the center of complaints about false or erroneous mortgage documents.
Court records show that Covington, in the late 1990s, provided legal opinion letters needed to create MERS on behalf of Fannie Mae, Freddie Mac, Bank of America, JP Morgan Chase and several other large banks. It was meant to speed up registration and transfers of mortgages. By 2010, MERS claimed to own about half of all mortgages in the U.S. — roughly 60 million loans.
But evidence in numerous state and federal court cases around the country has shown that MERS authorized thousands of bank employees to sign their names as MERS officials. The banks allegedly drew up fake mortgage assignments, making it appear falsely that they had standing to file foreclosures, and then had their own employees sign the documents as MERS “vice presidents” or “assistant secretaries.”
Covington in 2004 also wrote a crucial opinion letter commissioned by MERS, providing legal justification for its electronic registry. MERS spokeswoman Karmela Lejarde declined to comment on Covington legal work done for MERS.
It isn’t known to what extent if any Covington has continued to represent the banks and other mortgage firms since Holder and Breuer left. Covington declined to respond to questions from Reuters. A Covington spokeswoman said the firm had no comment.
Several lawyers for homeowners have said that even if Holder and Breuer haven’t violated any ethics rules, their ties to Covington create an impression of bias toward the firms’ clients, especially in the absence of any prosecutions by the Justice Department.
O. Max Gardner III, a lawyer who trains other attorneys to represent homeowners in bankruptcy court foreclosure actions, said he attributes the Justice Department’s reluctance to prosecute the banks or their executives to the Obama White House‘s view that it might harm the economy.
But he said that the background of Holder and Breuer at Covington — and their failure to act on foreclosure fraud or publicly recuse themselves — “doesn’t pass the smell test.”
Federal ethics regulations generally require new government officials to recuse themselves for one year from involvement in matters involving clients they personally had represented at their former law firms.
President Obama imposed additional restrictions on appointees that essentially extended the ban to two years. For Holder, that ban would have expired in February 2011, and in April for Breuer. Rules also require officials to avoid creating the appearance of a conflict.
Schmaler, the Justice Department spokeswoman, said in an e-mail that “The Attorney General and Assistant Attorney General Breuer have conformed with all financial, legal and ethical obligations under law as well as additional ethical standards set by the Obama Administration.”
She said they “routinely consult” the department’s ethics officials for guidance. Without offering specifics, Schmaler said they “have recused themselves from matters as required by the law.”
Senior government officials often move to big Washington law firms, and lawyers from those firms often move into government posts. But records show that in recent years the traffic between the Justice Department and Covington & Burling has been particularly heavy. In 2010, Holder’s deputy chief of staff, John Garland, returned to Covington, as did Steven Fagell, who was Breuer’s deputy chief of staff in the criminal division.
The firm has on its web site a page listing its attorneys who are former federal government officials. Covington lists 22 from the Justice Department, and 12 from U.S. Attorneys offices, the Justice Department’s local federal prosecutors’ offices around the country.
As Reuters reported in 2011, public records show large numbers of mortgage promissory notes with apparently forged endorsements that were submitted as evidence to courts.
There also is evidence of almost routine manufacturing of false mortgage assignments, documents that transfer ownership of mortgages between banks or to groups of investors. In foreclosure actions in courts mortgage assignments are required to show that a bank has the legal right to foreclose.
In an interview in late 2011, Raymond Brescia, a visiting professor at Yale Law School who has written about foreclosure practices said, “I think it’s difficult to find a fraud of this size on the U.S. court system in U.S. history.”
Holder has resisted calls for a criminal investigation since October 2010, when evidence of widespread “robo-signing” first surfaced. That involved mortgage servicer employees falsely signing and swearing to massive numbers of affidavits and other foreclosure documents that they had never read or checked for accuracy.
Recent calls for a wide-ranging criminal investigation of the mortgage servicing industry have come from members of Congress, including Senator Maria Cantwell, D-Wash., state officials, and county clerks. In recent months clerks from around the country have examined mortgage and foreclosure records filed with them and reported finding high percentages of apparently fraudulent documents.
On Wednesday, John O’Brien Jr., register of deeds in Salem, Mass., announced that he had sent 31,897 allegedly fraudulent foreclosure-related documents to Holder. O’Brien said he asked for a criminal investigation of servicers and their law firms that had filed the documents because they “show a pattern of fraud,” forgery and false notarizations.
(Reporting By Scot J. Paltrow, editing by Blake Morrison)
Related on HuffPost:
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80 Percent Of Homeowners Behind On Mortgage Ineligible For Loan Modification Program
Less than 20 percent of homeowners who theoretically qualify for a government mortgage modification are actually eligible, according to data released Monday by the Treasury Department.
Although roughly 4.6 million U.S. homeowners have missed at least two mortgage payments — making them technically eligible for Making Home Affordable, the federal government’s flagship homeowner assistance program — a whopping 80 percent of those borrowers cannot be helped by the program. According to the Treasury report, just 900,000 homeowners actually qualify for a loan modification under Making Home Affordable.
Dean Baker, an economist and co-director of the Center for Economic and Policy Research, said that fact reflects the program’s low goals. “If 900,000 are eligible, and this is your main program for helping underwater borrowers, and we know that not all 900,000 can be helped, this doesn’t look very ambitious,” he said.
The numbers reinforce just how far short the program, initiated by President Barack Obama with much fanfare in early 2009, has fallen short of its goals and fuel critics’ assertions that the program is largely ineffective. “This program, in its design, is set up to help a very small portion of people,” said Baker.
(Under Making Home Affordable, homeowners who aren’t yet delinquent in mortgage payments but are at risk of imminent default might also qualify for loan modifications. The Treasury data did not include that population.)
Borrowers are locked out of the federal program for a myriad of reasons, including the kind of loan they have and the property at issue. Not covered by the program: rental properties, “manufactured” homes, homes with Federal Housing Administration loans, and homes with Department of Veteran Affairs loans.
Many borrowers can’t get help because their monthly mortgage payment is deemed affordable, irrespective of whether it actually is for the borrower. The idea behind the loan modification program is to make the monthly mortgage payment more affordable, defined as a payment that is less than 31 percent of the borrower’s total monthly debt payments (think car payments, student loans, credit cards, etc.). One-third of homeowners who would otherwise qualify are ineligible because they already have a mortgage payment that meets this criteria, according to the Treasury report.
Borrowers who have abandoned their property are also ineligible, the assumption being that they are not committed to their home.
“If you look at the large number of vacant properties, I think that speaks to the fact that, in many cases, the borrowers were reached too late in the game,” said Baker. “The borrower assumed they’d lose their home so they walked away. You could say those people aren’t eligible, but they might have been if we’d reached them earlier.”
Source: Treasury Department report.
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Justice Department Advocates Boosting Research, Funding For Foreclosure Mediation Programs
Image via Wikipedia
The Huffington Post
Jillian Berman
First Posted: 1/10/12 05:47 PM ET
Updated: 1/10/12 05:47 PM ET
Suddenly all the government agencies are giving their two cents on foreclosure.
Foreclosure mediation, the process whereby homeowners negotiate with lenders so they need not lose their homes, is worthy of a boost in research and possibly federal funding, according to a new report from a Justice Department panel.
As millions of homes in the foreclosure pipeline weigh on home prices and the housing recovery, government officials have considered a variety of avenues to aid struggling homeowners, mostly to limited success. Federal Reserve Chairman Ben Bernanke advocated that lenders “aggressively” pursue loan modifications and other alternatives to foreclosure in a paper released last week.
The Home Affordable Modification Program, which Obama announced in February 2009, had helped roughly 750,000 homeowners as of November, though it was touted as a plan to aid 3 to 4 million.
Though foreclosure mediation is available in a number of states, the Justice Department report comes as some are ending their versions of the program due to concerns over its efficacy. A Florida Supreme Court Justice ended the state’s mandatory foreclosure mediation program last year, after a task force of judges recommend that it be terminated due to its low success rate, The Miami Herald reports. In Maryland, just 56 borrowers got a modification through the program in the space of a year and only 1,000 borrowers had applied, according to Mother Jones.
A 2009 study from the National Consumer Law Center found that foreclosure mediation programs can often be ineffective because they produce agreements that lack any mechanism for enforcement. Though the Justice Department report doesn’t include recommendations for giving the agreements teeth, it does offer recommendations that could give foreclosure mediation programs a bit more clout.
The panel suggested creating federal guidelines for the programs, which currently vary from state-to-state, also recommending the federal government match funding for state programs that meet those guidelines. In addition, the report urges that federally-backed loans go through mediation before foreclosure can take place.
In some states the programs have already been a success even without a federal boost. More than 10 percent of Nevada homeowners in danger of default had taken advantage of the state’s mediation program within the first six months of its inception. And Michigan Governor Rick Snyder extended the state’s foreclosure mediation program through this year, according to Housingwire.
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CoreScore: A New Credit Report Opens Door For More Profiting Off The Poor
Thanks to a new kind of credit score, more borrowed money may end up in the hands of the increasing number of Americans who are sliding down the economic ladder.
The new CoreScore looks at financial records such as credit card borrowing, bank transactions and mortgage information, much like a traditional FICO credit score. The new rating also examines the kinds of transactions likely to occur at the lower end of the income scale. These include car and rental payments and payday loans. The CoreScore even examines the record for missed child support payments. If something can be financed, it seems, it can be linked to this new credit score.
CoreLogic, a financial data collector, made theCoreScore credit report available to lenders last week. The company said the new score creates an opportunity for borrowers and lenders alike, making credit available to those who have traditionally been shut out. However, consumer advocates are concerned that using a wider range of nontraditional information opens the door to justify even higher rates for down-and-out borrowers.
By including additional information like payday lending, which is notorious for high fees and interest rates, the financial picture of a potential borrower or job applicant is worsened, not improved, say consumer advocates. That could potentially lead to higher rates on everything from car insurance to borrowing.
“The companies don’t care if it’s accurate, or up to date, or what the consequences are,” said Marc Rotenberg, executive director at the Electronic Privacy Information Center, a public interest research center.
CoreLogic collects data from nearly 700 million residential property transactions and 50 million courthouse records. “We have resources in courthouses everyday,” said Debra Rothrock, vice president and product line management for CoreLogic. “Once a doc has been recorded at courthouse, it’s 23 days on average before data is updated in our system.”
From all this information, the company plans to boil down a consumer’s financial life into one number that can be used to supplement a traditional credit score. Rothrock said that the new score will also include the existing FICO score so lenders can see which direction a credit score is trending.
CoreScore supplements traditional credit reports from the three major credit reporting companies, the company said. Lenders of all stripes, including for mortgages, cars and credit cards can buy the new reports, which are scheduled to debut publicly in March. Currently one mortgage lender, which CoreLogic would not name, is using the CoreScore for its credit evaluations and several top lenders, including major banks, are planning to test the score soon, Rothrock said.
At least 100 million Americans will have a new CoreScore report, says CoreLogic, and that includes both people who have traditional credit scores, as well as those who have no prior credit history with TransUnion, Equifax or Experian. At least 200 million people have traditional reports, used to create a FICO score that lenders consult when deciding to approve a loan application or new financial account. Employers even use credit scores to evaluate job applicants.
For Americans who essentially live off the credit grid, either using cash or borrowing through informal channels, the new CoreScore could be a rude awakening. Rothrock did not identify how many of the 100 million people would be newly reported, but for those who have never had a report, the CoreScore may not be any help.
“Putting you in the system is not necessarily a benefit if you’re not going to get affordable credit,” said Chi Chi Wu, an attorney at the National Consumer Law Center, a public interest law group.
These new developments in credit reporting show lenders’ hunger to tap a deeper well of customers, who are outside of the traditional FICO box. “[The Core-Score] increases a lender’s understanding of a borrower’s financial obligations, assets, and history to identify previously hidden lending opportunities,” the company said in an email.
Falling wages, a dismal housing market and high unemployment have sent more Americans to the margins of borrowing in recent years. The problems is especially acute in American suburbs, where poverty is spreading. Meanwhile, alternative consumer financial tools have seen tremendous growth. For example, online payday lenders — high-interest short-term loans accessible only through the Internet — experienced 35 percent growth in revenue in 2010, according to a market report from Core Innovation Capital and Center for Financial Services Innovation, a think tank focused on financial service innovation for consumers who use banks minimally or not at all.
Rothrock said customers can request one free report each year through the company’s toll free number (877-532-8778); they also can dispute inaccuracies. But that raised additional concern from consumer attorney Wu, who said credit report disputes are hard to remedy.
“Your credit report has become your permanent financial record. A bad one is like a scarlet A for your economic life.”
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Pittsburgh’s October Employment: Best October Ever?
Jim Futrell;
Imagine Pittsburgh Online
December 5, 2011
While there are certainly several resources for job growth, according to the U.S. Bureau of Labor Statistics Current Employment Statistics, the Pittsburgh metropolitan statistical area recorded its best October employment on record at 1,161,300. Employment grew 1.2 percent from September 2011 and 1.9 percent from October 2010. (You can read more about it on the website of Pittsburgh TODAY which compares the Pittsburgh region to similar, benchmark cities that include Philadelphia, Cleveland, Denver and Charlotte.)
So what was driving this job growth? One would suspect this to be part of seasonal trends, and while it is true that employment almost always gets a September to October bump around 5,000, this year’s jump was well over 13,000. Trade, transportation, and utilities, and government are two industries that are more significantly impacted by seasonal gains and losses.
Traditional strong-growing industries such as financial activities and professional and business services experienced minimal ups and downs over the past few quarters. Education and health services is a key industry, which has been gradually increasing over the past several months to its current peak of 251,000 employees, a record high.
Often the most interesting data can be found deeper within certain industries. Management of companies and enterprises (a sub-sector of professional and business services) saw its employment rise to 35,900 in October. This is not just the best October for this sub-sector, but the highest employment ever recorded in this industry. This again reinforces several previous analyses by the Pittsburgh Regional Alliance on the importance of Pittsburgh as headquarters hub.
Colleges, universities, and professional schools, a sub-sector of the education and health care industry, saw its employment rise to 45,400, a record high. While some of this can be attributed to increased hiring for the school year, it’s still 10 percent higher than October 2010, and 21 percent higher than this time just five years ago. Pittsburgh’s college and universities are key contributors to this record-breaking October.
Before readers get too excited, remember, the labor force also increased in October, so this will not necessarily translate directly to a major reduction in the regional unemployment rate. According to the Pennsylvania Center for Workforce Information and Analysis, October’s unemployment rate did drop to 7.0 percent, well below the state rate (8.1 percent) and national rate (9.0 percent). The region is moving in the right direction, fueled by a wide range of industries.
Another Small Business Success Story
CIN ALERT
October 27, 2011
For many of us, the idea of starting a small business is a lifetime goal. In fact, the chance to be your own boss by providing a product or service ranks right up there with homeownership as one of the true American dreams. Despite tough economic times, the environment for starting a small business in many parts of the country is better than you might think, particularly in view of the various assistance programs made available for small business owners.
An enterprising business owner can be very successful, but it takes a lot of work. (And usually a lot more time and money than the business plan calls for.) Christy is an individual who knows the score. A Registered Yoga Teacher, she has been helping people achieve healthier lifestyles through massage therapy, group exercise, yoga, and Pilates for over 17 years. However, success had rendered a problem for her: the small storefront she used for years in a downtown Midwest city is just too small for her growing clientele. She faced a daunting task: Find a new location that would be a lot larger — yet also fit into her operating and personal budgets.
Driving to work one day through town, she noticed that ‘for sale’ signs had just been posted in front of a small one-story home nearby. All along Christy had been thinking about finding a larger storefront or office. Suddenly, the idea of conducting her instruction classes in a small home made sense. The next several weeks were consumed with meetings and communications with the local town officials, realtors and the chamber of commerce, to be sure that the zoning was correct and that she could have access to some small business assistance programs.
That was three months ago, and the bottom line today is: Christy has much more room in brand new surroundings, her customer base is growing by the week and it all fits into her budget very nicely. Things are looking up now for her.
All told, there are an estimated 15 to 17 million small businesses operating in America today. Small businesses are still the backbone of our communities – our Main Streets! — and are seen by many as the embodiment of the spirit of entrepreneurship.
Entrepreneurs are credited with creating the vast majority of new jobs and employing the majority of the nation’s workers. Granted, big businesses have emerged in fields where new technologies permitted economies of scale in the production and/or distribution of goods. Still, small businesses have remained vital to the nation’s economic development, and even more important as a component of American culture.
Even as our new 21st Century embraced what many Americans could view as superior efficiency and productivity (for both small and big businesses), Americans continued to revere small business owners like Christy for their self-reliance and independence and can-do spirit.
Small businesses have also been the primary way immigrant families coming to America have climbed the economic ladder and achieved the American dream. Many minority populations today — in urban, rural and suburban communities — have seized the small business pathway as a road to economic independence and building personal wealth.
CIN editors have always recognized the vital role played by small businesses, and we devote a large section of the CIN to them. This resource tool provides basic information – including the pros and the cons of small business ownership – basic start up information – government assistance programs on the Federal and State levels – grassroots programs provided by NCRC members – private sector assistance programs – franchising basics – banking connections assistance – available small business resources and the latest small business news and information. Here are some recent excerpts:
Keeping Your Small Business Ahead of the Curve
(Source: Small Business Trends) Ten key ways to keep a small business profitable and ahead of the competition are provided by Small Business Trends.
Small Business Owners Think Controlling Employee Expenses Will Lead To Cost Savings
(Source: Gaebler) A recent Citizens Financial Group/Mastercard study found 55 percent of small business owners believe better management of employee expenses would reduce costs and benefit their business, while 40 percent said more control over employee spending would give them a better peace of mind.
Wells Fargo Lends More Dollars to America’s Small Businesses Than Any Other Lender
(Source: Market Watch) 2011 US Small Business Administration data shows Wells Fargo & Company is the top lender in dollar volume, approving $1.2 billion in SBA loans to America’s small businesses for the 2011 federal fiscal year.
How Small Business Owners Were Hurt by the Fall in Home Prices
(Source: Forbes) Personal borrowing plays a key role in how many small business people finance their companies. When the housing crisis hit, small business owners that relied on home equity to finance their companies’ operations faced a credit squeeze. Thus, small businesses have access to about $25 billion less in credit than they would have had if the trend in home equity loans had continued in the direction it had been going in the first half of the 2000s.
Coffee Fix: Starbucks Pushes Small Business Loans
(Source: Business Week) New York Times columnist Joe Nocera lauds Starbucks for supporting community development financial institutions, the nonprofit lenders serving small businesses and affordable housing in low-income communities. The coffee chain is donating $5 million and encouraging customers to pitch in at the checkout line as well.
Geithner Defends Performance of Small Business Lending Fund
(Source: Business Week) Treasury Secretary Timothy F. Geithner says that the Small Business Lending Fund had been successful even if it was smaller than envisioned. The program closed Sept. 27, having distributed $4 billion of its $30 billion to 332 community banks nationwide.
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Foreclosure Crisis Lessons Not Yet Learned
Neil Barofsky
Former Special Inspector General for the Troubled Asset Relief Program (TARP)
Posted: 10/5/11 10:13 AM ET
The Home Affordable Modification Program (“HAMP”) emerged from Treasury‘s initial promise that Troubled Asset Relief Program would be used to bail out homeowners on Main Street as well as the megabanks on Wall Street. As originally sold to Congress, TARP funds would be used to purchase “troubled assets” — the mortgages and mortgage-backed securities whose plummeting value helped trigger the financial crisis. Treasury promised that once it purchased those mortgages, it would then modify them where appropriate, potentially helping millions of struggling homeowners keep their homes. It was this promise, of course, that helped deliver many of the votes from Congress that ultimately authorized TARP.
After Treasury shifted the focus of TARP from the direct purchase of mortgage-related assets to capital injections into the struggling Wall Street behemoths, President Obama announced the mortgage modification program in February 2009 to address the government’s still-unfulfilled promise to assist struggling homeowners. As announced, HAMP was intended to help 3 to 4 million homeowners stay in their homes through permanent government-subsidized mortgage modifications. By any meaningful definition, that effort has been a failure.
When I stepped down as the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”) at the end of March, I warned that HAMP was falling far short of its stated goals and even further short of meeting the urgent needs of American homeowners. Unfortunately, there has been little improvement since then. The foreclosure crisis continues to wreak havoc on millions of American homeowners. While the number of foreclosure filings has “dropped” in the first half of 2011 to a still-devastating 1.2 million properties (compared to 1.6 million properties in the first half of 2010, and a record-setting 2.9 million for all of 2010), this improvement is illusory.
RealtyTrac notes that the drop-off in foreclosure filings is not due to improvements in the housing market, but rather to processing and procedural delays arising out of the robo-signing scandal. In yet another example of the foreclosure can being kicked down the road, the firm estimates that these delays will merely push as many as 1 million foreclosure actions from 2011 to 2012 or later, adding to the uncertainty in the market. Indeed, there are already gathering signs that the foreclosure machine is once again being restarted, with first-time default notices being sent to 78,000 homes in August, a 33% increase over the previous month. Meanwhile, RealtyTrac’s data reveal that bank repossessions continue even in the aftermath of the scandal: more than 400,000 homes were taken back in the first half of the year. And compounding the ill effects, as the Wall Street Journal recently reported, banks are increasingly seeking deficiency judgments against foreclosed-upon borrowers, potentially driving them into bankruptcy.
In contrast, the number of permanent mortgage modifications under HAMP remains feeble. There were just 675,000 ongoing permanent modifications as of July 2011. As of the last time that the data was made public, less than 46% of HAMP modifications were actually funded by TARP, with the remainder executed by the Government Sponsored Entities (“GSEs”). In contrast, a combined total of just less than 880,000 trial and permanent modifications had been cancelled, with more than 106,000 trial modifications still in limbo. Obviously, HAMP’s permanent modification numbers pale in comparison not only to foreclosure filings and failed HAMP modifications, but also to the initial prediction that the program would “help up to 3 to 4 million at-risk homeowners avoid foreclosure” “by reducing monthly payments to sustainable levels.”
Rather than 3 to 4 million promised mortgage modifications, HAMP’s output looks on pace to meet the Congressional Oversight Panel (“COP”)’s December 2010 projection of just 700,000 to 800,000 effective permanent modifications through the lifetime of the program, a small fraction of the original goal. Nor is there any reason to suspect that HAMP will see any significant improvement, with only a net increase of about 23,000 permanent modifications per month over the most recent quarter. This is a far cry from the 20 to 25,000 trial modifications per week that Treasury officials once predicted. Worse, these figures mirror a slowdown in modification in the broader market: after surveying financial institutions representing 63% of all first-lien residential mortgages nationwide, the Office of the Comptroller of the Currency (“OCC”) recently found that the number of new permanent modifications (HAMP and private) has declined every quarter since June 2010.
HAMP’s administrative failures have also been breathtaking. In May 2011, the Government Accountability Office (“GAO”) released a survey of housing counselors who work with borrowers seeking HAMP modifications. The results confirmed the widespread anecdotal evidence of the servicers’ failures. A staggering 76% reported their views of borrowers’ overall experiences with HAMP as “negative” or “very negative.” Asked to list borrowers’ three most common complaints, 59% of counselors answered “lost documentation”; 54% answered “long trial periods”; 42% answered “wrongful denials”; and 37% answered “difficulty contacting servicer.” Counselors also reported excessive servicer delays in reviewing HAMP applications. Other studies and investigations, including the important work of ProPublica and anecdotal evidence from SIGTARP’s hotline, confirm the widespread abuse suffered by homeowners at the hands of the mortgage servicers charged with implementing HAMP. Sadly, accountability for these deficiencies has gone largely unaddressed, with Treasury offering only the feeblest gestures at penalizing servicers for their misconduct even though, as ProPublica’s recent report indicates, it has been aware of servicer misconduct since 2009.
In short, HAMP continues to suffer from design and implementation deficiencies. As there has been a lot of discussion recently about creating new government programs or expanding existing ones, there are three important “lessons learned” from the HAMP program that must be considered.
First is the importance of comprehensive planning. Treasury rushed HAMP out the door in a manner best described as “ready, fire, aim,” leading to mistakes that are still ricocheting today. Second is the importance of clearly articulated goals. HAMP began with the goal of 3 to 4 million permanent modifications, but rather than acknowledge the failures and adapt the program, Treasury has simply made up new goals, followed by an instant declaration that these new goals have been met. Third is the necessity of meaningful incentives and sanctions for third parties. HAMP was unable to secure meaningful compliance from mortgage servicers when it mattered most because it has neither effective carrots nor sticks.
1. Comprehensive planning. HAMP launched in March 2009 with inadequate analysis, an insufficient incentive structure, and without fully developed rules–all of which has required frequent tinkering with program guidelines. The modification effort was first announced with no guidance in place, leading to an avalanche of calls and applications to the severely underequipped mortgage servicers. This announcement was followed by a hurried rollout that required change after change after change in the technical apparatus for implementing HAMP, such as the Net Present Value test that servicers must employ to evaluate borrowers. These changes caused mass confusion without the benefit of addressing the program’s deeper design flaws. For example, in response to a GAO questionnaire in June 2009, several servicers reported that they would not participate in the Program in part because of the constantly shifting requirements, benefits, and guidelines. SIGTARP’s review indicated similar frustration with the constantly changing guidelines and modifications, which made the task of the already overburdened servicers even more difficult.
Treasury has been eager to blame servicers for HAMP’s early failings, emphasizing that “when HAMP was launched in early 2009, servicers were totally unequipped to deal with a crisis.” While much of the servicers’ subsequent behavior was inexcusable, Treasury had to have known that they were “totally unequipped” to handle HAMP at the time of the program’s launch. Rather than recognize and address this reality, Treasury rushed out the poorly designed program and pressured the servicers to meet the artificial and politically motivated goal of 500,000 trial modifications by November 1, 2009, even though the servicers simply did not have the capacity to effectively do so. Making matters worse, Treasury then pressured the servicers to accepted undocumented trial modifications in an obvious attempt to artificially increase the trial modification numbers for public relations purposes. In other words, while it is true that servicers were unequipped to handle the volume of modifications at the start of the program, it was Treasury’s design and rollout of HAMP that made the program so completely dependent on servicer competence in the first place. The harm from Treasury’s flawed design and tactics has been significant. Countless homeowners were placed in trial modifications that could never convert into permanent ones, which caused harm to those homeowners who unnecessarily lost their savings, their credit ratings, and their homes. While the paltry number of incoming trial modifications, along with Treasury’s eventual adoption of some recommendations (such as eliminating undocumented trial modifications) has limited the ongoing harm caused by HAMP, any future program must avoid these mistakes by planning for expected demand and contingencies, with the aim of setting clear expectations for all participants.
Finally, from the earliest days of HAMP, SIGTARP warned of the necessity of launching an extensive marketing campaign to educate the public about the program, both to maximize its effectiveness and to help deter those who would seek to profit criminally off of HAMP. Treasury ignored this recommendation until it was far too late. Not surprisingly, there have been countless cases of mortgage modification fraud related to the program as predators took criminal advantage of desperate homeowners who were uneducated about the details of the program. And basic misunderstandings led to abuses by mortgage servicers, such as directing homeowners who were current on their mortgages to default. As part of its comprehensive planning, any new program must include a strong public relations effort, including radio and television advertising.
2. Clearly articulated goals. As noted above, HAMP began with the laudable goal of “help[ing] up to 3 to 4 million at-risk homeowners avoid foreclosure” through sustained permanent HAMP modifications. Though the current 675,000 permanent modifications falls far short of this goal, Treasury has still managed to declare success on multiple occasions–though its justification has changed each time. At various points, HAMP has been “successful” because its goal was only to make 3 to 4 million “offers” for modifications (regardless of whether they were accepted or successful, a goal that SIGTARP correctly labeled as “meaningless”); because it has produced a substantial number of trial modifications (even though trial modifications are by definition temporary, and can result in lasting financial and emotional harm when not converted into permanent modifications); because it has encouraged private modifications (even though private modifications are typically far less advantageous than HAMP modifications and have a much higher rate of redefault); or simply because it helped forestall an even greater outbreak of foreclosures at a time when banks were in dire straits (a kicking-the-can-down-the-road tactic that SIGTARP warned back in March 2010 would “merely spread[] out the foreclosure crisis over the course of several years . . . at the expense of those borrowers who continued to make modified, but still unaffordable, mortgage payments for months more before succumbing to foreclosure anyway”).
These various justifications are no substitute for a measured assessment of progress against clearly stated goals, which provide public accountability as well as guidance for reform. Undoubtedly Treasury encountered difficulty in meeting HAMP’s goal of 3 to 4 million sustainable mortgage modifications. But upon encountering difficulty, it is an axiom of good government that policymakers must change the program to meet the goals, not change the goals to meet the program. Steady goals and metrics allow for meaningful oversight, promote accountability, and provide guidance for useful change. Any future program must have clearly articulated goals that can function as a benchmark for performance, and not repeat the costly error of putting politics over performance.
3. Meaningful incentives and sanctions for third parties. By design, HAMP relies on the cooperation of loan servicers, who operate as the point of contact for distressed homeowners and administer the loans on behalf of investors. In theory, HAMP’s incentive payments are supposed to overcome the expenses associated with executing a permanent modification and encourage active participation in HAMP, while the threat of sanctions is supposed to ensure compliance. In reality, neither the incentives nor the sanctions have been sufficient to drive servicer participation or keep abuses in check.
Earlier this year, Secretary Geithner acknowledged that incentive payments to servicers have “not been powerful enough” to maximize participation. But puzzlingly, there has been no meaningful change since then. Moreover, the current incentive structure does not always incentivize permanent mortgages: in some cases, as we demonstrated in SIGTARP’s October 2010 Quarterly Report, it can be more profitable for a servicer to stretch out a trial modification and then foreclose, rather than to install a permanent modification. Thus, the problem of inadequate incentives dovetails with the two previous lessons learned. It is vital to properly address incentives in the first instance, and be willing to meaningfully change the program if performance is not meeting its goals. In HAMP, Treasury did neither.
A similar analysis would apply to HAMP’s sanctions–except that the program lacks any meaningful sanctions at all. In November 2009, Treasury announced that “servicers failing to meet performance obligations” would face “consequences which could include monetary penalties and sanctions.” But when serious and widespread abuses emerged, Treasury hesitated and then backtracked, confessing to the Congressional Oversight Panel in October 2010 that the voluntary nature of HAMP “makes aggressive enforcement difficult” because it may lead to servicers exiting the program, and then claiming in testimony in January 2011 that the $30 billion in contracts that Treasury itself negotiated lacked the provisions necessary to meaningfully discipline servicers. Finally, on February 14, 2011, SIGTARP sent a letter to Treasury seeking its legal justifications. Treasury did not respond to this request while I was at SIGTARP, but instead announced in June 2011 that it had taken the meaningless step of temporarily withholding incentives from just three servicers–Bank of America, JPMorgan Chase, and Wells Fargo–until they stop violating HAMP rules. (A fourth servicer, Ocwen Loan Servicing, was also found in need of “substantial improvement” but continued to receive incentives.) Of course, the three sanctioned servicers had essentially already agreed to stop violating HAMP rules in a previous unrelated settlement with regulators. In September 2011, just three months after its initial wristslap, Treasury deemed Wells Fargo in compliance and paid it in full; it is obviously only a matter of time before both Bank of America and JPMorgan Chase are also made whole. Worse yet, Treasury has not even been able to effectively administer this so called “sanction.” As ProPublica recently reported, Treasury still made nearly $3 million in payments to the allegedly suspended servicers during this “time out,” citing problems with “system limitations.”
This regime, described by one servicer as having an impact that “mean[t] very little,” was clearly designed to try and placate the many critics of Treasury’s enablement of servicer abuse through HAMP. Through its adoption of this approach, Treasury has effectively given the servicers a free pass for the multitude of abuses they have committed in this program. There can be no question that Treasury’s fear of the servicers, as opposed to the servicers’ fear of Treasury, has helped define this program as the failure that it has become. Any future program must have real sticks to go with its carrots, and not rely on political theater and gimmicks to get by.
Going Forward
With these lessons in mind, it is of course up to Congress and the relevant policymakers to chart the path forward, even as another year passes with the foreclosure crisis stalling economic recovery. Meanwhile, the rampant mortgage servicer abuse that has so strongly characterized the crisis, both inside and outside of HAMP, continues to go unpunished. There are no easy answers, but I believe that any government solution must contend with underwater mortgages (that is, mortgages where the amount of the outstanding principal owed exceeds the value of the home) and servicer accountability.
Today, CoreLogic estimates that there are 10.9 million underwater mortgages, or 22.5% of all outstanding loans. Recovery will continue to be frustrated until there is a reasonable solution to this problem. Too many would-be employees are unable to move to find employment because they are chained to a house they cannot sell; too many homeowners understandably choose to walk away from their home rather than make payments without any hope of regaining equity (causing additional foreclosures and additional downward pressure on housing prices); and there are too many unaffordable mortgage payments based on too much outstanding principal. There needs to be a recognition that many borrowers will never make the required payments on their underwater mortgages, and that the owners of these mortgages have already lost any meaningful chance of obtaining a full recovery of the outstanding principal. The sooner that this reality is recognized and addressed, the sooner a recovery can take hold. As such, an aggressive principal reduction program is necessary, and can possibly be accomplished through: (a) government subsidies (such as the SIGTARP recommendation that principal reduction be mandatory in HAMP when it is in the best interests of both the borrower and the investor), including potentially tapping the tens of billions of dollars of obligated but unlikely-to-be-used HAMP funds; and (b) compulsion through a meaningful settlement of the allegations of servicer fraud and abuse.
Unfortunately, the failure of the government’s response to the foreclosure crisis to date gives little reason to hope that either of these potential solutions will soon come to pass. Treasury should have negotiated principal reduction right from the start, utilizing its TARP investments as leverage over the parent companies of the mortgage servicers. Instead, it incompetently administered an ineffective program that seems to have better served the banks than homeowners. At this point, it may prove difficult to even attract homeowners to yet another government program. Too many have suffered the experiences detailed in the GAO survey, and housing counselors describe a condition they call “HAMP fatigue,” where borrowers just don’t trust the government to help them anymore.
Similarly, there seems to be little hope for an effective settlement guaranteeing principal reduction, judging from the almost farcical and all-too-public drama underlying the rapidly unraveling Department of Justice/State Attorneys General settlement discussions with the largest servicers. Based on the comments of the defecting State Attorneys General, it appears that a year of valuable investigative time has been lost in an ill-conceived process that put the cart of settlement discussions before the all-important horse of a comprehensive investigation. This too seems to be another opportunity lost.
As a result, while I have consistently advocated that fixing, and not abandoning the government-sponsored programs is the right solution, and while I still believe that is the right course if the government is finally willing to commit to the necessary steps to forcefully and competently deal with the ongoing crisis, it is becoming increasingly difficult to argue against those who advocate that the government should simply get out of the way and let the market’s cruel efficiencies take over. Such a process will inevitably result in near-term losses that are higher for both homeowners and lenders, but absent an effective alternative, it may be the only way to finally end the painful and ultimately fruitless game of kick-the-can that Treasury has been playing. And perhaps, in its aftermath, that will lead to recovery.
This has been adapted from testimony to be delivered on October 6, 2011, to the House Committee on Financial Services, Subcommittee on Insurance, Housing and Community Opportunity
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Mortgage Relief Scams Proliferate After Recession
Image via Wikipedia
Janell Ross
Janell.Ross@huffingtonpost.com
First Posted: 9/26/11 08:29 AM ET
Updated: 9/26/11 05:11 PM ET
From the looks of the mortgage relief companies Christopher Mallett has marketed in recent years, offering lower payments and new loan terms to troubled homeowners, one might easily get the impression that he has the backing of the federal government or is running non-profit help groups.
Mallett is the driving force behind usbankloanmodiication-gov.info and mortgagehelpgov.us. He also founded The Department of Consumer Services Protection, U.S. Debt Care, the U.S. Mortgage Relief Council and several other operations with similarly authoritative if not auspicious-sounding names. But people who turned to them for help didn’t receive services, according to court documents filed by the Federal Trade Commission in U.S. District Court this month. Their names were instead sold to companies that almost universally scam distressed homeowners, federal regulators say.
Consumer advocates inside and outside the federal government say Mallett appears to be part of a rapidly growing network of customer lead generation, foreclosure rescue and debt settlement companies aggressively marketing their services to a crop of cash-strapped consumers that’s grown out of the housing crisis. Many of these companies break the law by portraying themselves as agents or partners of the federal government and by guaranteeing relief that they fail to deliver, FTC officials said.
In the last three years, The FTC has accused Mallett and nearly 40 other company owners of deceiving consumers about foreclosure prevention services. This year alone, attorneys general in Virginia, Idaho, Ohio, Michigan and North Carolina have brought cases against foreclosure rescue companies. In most cases, the companies collected up front fees for their services. That practice has been banned by the FTC since January. But new mortgage relief services are constantly evolving.
“That’s the thing here, a lot of the people running these scams are incredibly smart,” said Andrew Pizor, a staff attorney with the National Consumer Law Center. “The scams are often sophisticated. It is not like an armed robbery where you know immediately what’s happened. I mean, one of these companies is run by a group of Ivy League graduates.”
In fact, state and federal regulators say that some of the same people who sold risky, even predatory loans to consumers have moved on to the business of for-profit loan modifications. In California, one company that sold home loans to people with subpar credit during the boom — Pacific First Mortgage — transformed itself into a mortgage relief operation once the mortgage crisis began, The New York Times reported. Pacific First became the Federal Loan Modification Law Center and offered its services to distressed homeowners. The FTC shut it down in 2010. In Maryland, some out of work mortgage brokers have been approached with requests to buy their client lists, regulators say. And, there is evidence that lead generators often sell to multiple companies that purport to help people with various kinds of financial distress — credit card debt, past due mortgages, homeowners who are underwater, student loan defaults, FTC officials said.
Mallett, a San Antonio businessman, could not be reached for comment Thursday, when the FTC announced that the case had been filed. Telephone numbers at his home were disconnected and several of the websites the FTC says Mallett operates could not be accessed. The FTC is seeking a temporary court order to shut down Mallet’s websites and stop his companies from doing business until a court can decide if they should be permanently shuttered.
In the years leading up to the recession when foreclosures were rare but home values were climbing in many markets, some mortgage relief operations were structured to trick homeowners into signing over their property deeds in exchange for loans equal to the amount of past-due payments, Pizor said. Most of these homes were later sold by mortgage relief companies at a profit. The distressed borrowers were simply evicted.
By 2006, homeowners throughout the country were not just behind on their payments but owed lenders more than their homes were worth. So, many of these same operations began to claim they would negotiate with lenders directly to modify the terms of distressed homeowners’ mortgages. Clients were encouraged to stop paying, and in some cases, communicating with their lenders directly. Instead, distressed homeowners were told to make payments through foreclosure rescue companies. In most cases little or no effort was made on behalf of these consumers, Pizor said.
And now, in the wake of the robo-signing scandal that exposed several major mortgage lenders’ shoddy document practices , a group of self-styled “forensic loan auditors” have cropped up. These businesses promise that they can stop a foreclosure or force banks to renegotiate the terms of a loan by finding irregularities or evidence of predatory lending in a distressed homeowners’ purchase agreement. In most cases, these companies don’t have staff with the financial or legal expertise to identify actionable problems in a mortgage, Pizor said. So, customers are simply wasting their money.
“I think it is fair to say that there has been a real proliferation (of scams) within the last couple of years,” said Reilly Dolan, the assistant director for the FTC’s financial practices division.
The FTC has created a pair of consumer advisories for people facing mortgage difficulties or other debt problems. Several sources also suggested that consumers are often better off attempting to directly negotiate a mortgage modification or other debt settlements with lenders. Those who need help should work with a HUD-certified counselor or a nonprofit debt counseling agency, Dolan said.
But trying to negotiate a mortgage modification is often a difficult process. Two years after a legitimate federal program began, only about 500,000 borrowers have seen their mortgages permanently modified, ProPublica and the PBS NewsHour reported in March.
In 2009, the FTC announced plans to work closely with state regulators to “crackdown on fraud and deception by mortgage modification and home foreclosure rescue companies.” As a part of that crackdown, the FTC issued 71 warning letters to companies across the United States and states issued another 60 to companies suspected of illegal mortgage related activities, according to an agency press release.
At least one FTC case highlighted how branding can leave consumers with the false impression that companies are associated with the federal government or set up to assist consumers.
In 2009, the FTC shut down California-based Nation’s Home Modification Center, a company that claimed it could help stop foreclosures. The company’s solicitation letters indicated that “due to the current foreclosure crisis,” Congress had “enacted a law allowing Nation’s Home Modification Center to provide relief” for homeowners delinquent on their mortgages. These letters arrived in envelopes bearing a watermark in the shape of the U.S. Capitol dome and an address in Washington, D.C.’s Capitol Hill neighborhood. The company also did business as The Federal Housing Modification Department, Inc. and The Loan Modification Reform Association. The FTC settled the case, and a federal court order banned the companies and their owners from offering mortgage assistance services again.
“We’ve seen ads with U.S. Flags, ads with President Obama’s picture and ads with language that says things like ‘This is the President’s plan to help you avoid foreclosure’,” said Anne Balcer Norton, the Maryland Department of Labor Licensing and Regulation’s Deputy Commissioner of Financial Regulation.
People who are in serious financial trouble in Maryland and states around the country are being targeted and tracked by lead generation, foreclosure rescue and debt modification companies based inside and outside the United States, Balcer Norton said.
“What these companies do is play on the fact that when people are facing the loss of their home, this is not just a financial problem,” said Balcer Norton, “it is an incredibly emotional, upsetting experience. As a state regulator you sort of know that that things have gone wild and people are really being aggressively targeted when you find yourself issuing subpoenas for records (in the United States offices of companies based) in Australia.”
Since the housing crisis began, nearly half the victims of mortgage loan modification scams are of African American, Hispanic, or Asian descent, according to a May study released by the Homeownership Preservation Foundation, a nonprofit that works with distressed homeowners.
In a few sections of Prince George’s County, Md. — a predominantly black and mostly affluent community outside Washington, D.C., where nearly 25 percent of homes were in foreclosure or default in August — entire street light posts are wallpapered at eye view level with ads claiming that one company or another can secure a mortgage modification or stop a foreclosure. In some of the county’s less affluent areas, the medians that divide major thoroughfares and mark the turn offs into neighborhoods have sprouted a bumper yield of signs. Some are handwritten that encourage people to call a particular number so “they can’t take your home,” others that look professionally printed, include glossy images of Barack Obama and claims that “The President has commissioned” a specific business to help “save your home.”
Ads also run regularly on gospel and hip-hop radio stations and in Spanish language newspapers that outright promise a foreclosure can be stopped or a loan payment amount reduced. This week, one ad in El Tiempo Latino, a Spanish –language paper distributed in Prince George’s County, claimed that a company could “convert” loans to “fixed-interest” agreements, “reduce monthly mortgage payments,” get lenders to “extend payment terms to 30 or 40 years,” or “add” past due amounts to the “existing loan.” The ad appears between pitches for insurance companies, childcare centers and services that power wash decks or maintain lawns.
But foreclosure rescue companies have not limited their work to black or Latino areas, Balcer Norton said.
In it’s 2010 poll of state-level consumer protection agencies, mortgage-related fraud, credit repair and debt relief services were the second most frequent source of public complaints, according to a July 2011 report released by the Consumer Federation of America. Only complaints related to car sales and repair were more frequent. And across the country, the majority — 56 percent — of the people who lost their homes to foreclosure during the height of the crisis were non-Hispanic whites, a 2010 Center for Responsible Lending report found.
“Really, it’s almost impossible to know just how many people have been sucked in and victimized by any one of these schemes,” said Pizor.
It is also not clear how many names that Mallett may have collected and passed along since setting up his operations in 2008, Dolan said. What federal regulators do know is that Mallett may have won some consumer’s trust with bold creativity.
Several of Mallett’s websites prominently displayed the Federal Trade Commission’s seal and offered advice on “avoiding scams.”
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Building Community, One Household at a Time 