First, reverse each and every foreclosure where bankers filed false documents. Arrest those bankers, right now. Filing false documents in court is illegal. Treat the banks like any other racketeering organisation that schemes to make millions by breaking the law. Bring the paddywagon, and give all these homes back to the families.

Second, nationalise the banks. If they say they are “too big to fail”, and hate the free market when it applies to them, then make them a government organisation. Cut the average top banker salary from $20m a year to $45,000 a year. Bankers do not deserve big money. The free market has spoken: their businesses collapsed.

Third, use eminent domain to seize all of the other thousands of foreclosed properties that blight the urban landscape, and transfer them to families needing homes. The supreme court of the United States says that eminent domain can be used to transfer land from one private owner to another in order to further economic development (Kelo v. City of New London).

Finally, if we believe the free market theory, that putting cash into people’s hands is the best way to boost the economy, then how about a rent freeze? High rent is the cancer and low rent the cure to this economic crisis. The rolling back of rent would give people money they can spend.

Sure, he’s eccentric and has a crazy bear, but I swear to god, if i could vote for this guy, I totally would. in a heartbeat.

Bob Casey, “friend” of working- and middle-class Pennsylvanians, is not much of a friend after all.

As you all know, we’re in the middle of a crisis: not only did the housing market collapse because of worthless fradulent mortgages, the foreclosure process is also rife with fraud and crime. As i wrote yesterday, Bank of America and other criminal enterprises have been foreclosing on houses they do not own and terrorizing homeowners with attempted break-ins.

So when I read this headline, Foreclosure Cover for Banks Seen in Bill at Obama’s Desk, i got REALLY angry. You will too, especially if you live in Pennsylvania. Ladies and Gentleman, I present to you the sordid story of H.R. 3808, the Legalized Foreclosure Fraud Act Interstate Recognition of Notarizations Act:

A bill that homeowners advocates warn will make it more difficult to challenge improper foreclosure attempts by big mortgage processors is awaiting President Barack Obama’s signature after it quietly zoomed through the Senate last week.

The bill, passed without public debate in a way that even surprised its main sponsor, Republican Representative Robert Aderholt, requires courts to accept as valid document notarizations made out of state, making it harder to challenge the authenticity of foreclosure and other legal documents.

The timing raised eyebrows, coming during a rising furor over improper affidavits and other filings in foreclosure actions by large mortgage processors such as GMAC, JPMorgan and Bank of America.

Questions about improper notarizations have figured prominently in challenges to the validity of these court documents, and led to widespread halts of foreclosure proceedings.

The timing indeed “raised eyebrows”, especially in states that have called for a moratorium on foreclosures: it looks an awful lot like, again, the Congress is going to try to protect the banks that are preying on homeowners. This bill passed the House on a voice vote (which means no one has to say how they voted) and passed the Senate by unanimous consent (which means no one has to say how they voted). We are instead to simply trust that our representatives did the right thing, and as the health insurance reform debacle, the riddled-with-loopholes financial reforms, and FISA reforms of 2005 show, that’s not a realistic approach. Especially when the big lenders are facing major losses as a result.

but Brendan, you’re asking, what about Bob Casey’s role in this?

because Ohio has aggressively pursued a moratorium on foreclosureI will let their Secretary of State, Jennifer Brunner, explain:

On Monday, September 27, 2010, U.S. Senator Bob Casey (D-PA), on the Senate floor, asked that the Judiciary Committee be discharged from further consideration of a bill that would hurt consumers. H.R. 3808 requires federal and state courts to recognize notarized documents from other states, including ones that contain electronic notarizations that are not subject to the same consumer safeguards of documents notarized in person. Some financial institutions are using electronic notarizations to process home foreclosure documents.

Sen. Casey asked that the Senate move forward with immediate consideration of the bill with unanimous consent that the bill pass with no other action or debate. The Senate passed the bill without amendment by unanimous consent. It now sits on the President’s desk. The President shouldn’t sign it.

Why does Brunner object?

H.R. 3808 is known as the “Interstate Recognition of Notarizations Act.” It passed the House under a suspension of the rules in April 2010. It requires federal and state courts to recognize any notarization that is lawful in the state where the notary is licensed. Now, in one day, it passed in the Senate.

When I learned of it last Thursday, it sounded innocuous to me, but then I started looking at the timing of the bill. GMAC, owned by Ally, had just suspended its foreclosure actions in 23 states, including Ohio.

she adds:

Last Wednesday, the day before I announced the DOJ referral, JPMorgan Chase announced it was having third party counsel review its document procedures for foreclosures. Just two days before, the U.S. Senate had rushed through H.R. 3808. Something didn’t seem right. Since then others agree with me.
[...]
Mortgages are now being used as backing for securities traded all over the world by financial institutions. When a mortgage goes into default, a “chain of title” (list of its owners) must be created. It’s being discovered that many financial institutions have taken shortcuts in creating a lawful chains of title that allow them to foreclose and take homes when they would not otherwise have the right under the law.

It’s worth noting that the bill had been stuck in the Senate Judiciary committee “because of concerns that they would interfere with individual state’s rights to regulate notarizations.”

So to recap: Senator Bob Casey of PA, who “helped secure funding for programs to keep people in their homes and to protect against further declines in property value,” is the same guy making it easier for criminals like Bank of America and JP Morgan to throw you out of your house, while making it harder for YOU to fight back.

His number is Washington is 202-224-6324. Give him a call. While you’re at it call the White House at 202-456-1111 to express your displeasure with the bill.

UPDATE: Obama will pocket veto the bill. In the same article, Casey denies having anything to do with the bill, but only “made the request on party leadership’s behalf”, which is either a lie or gives you a look into just how corrupt the Democratic leadership is.

Jane hamsher is RIGHT:

On Saturday I wrote a post about the efforts of former Wall Street investment banker Ellen Tauscher to gut legislation that would allow bankruptcy judges to write down mortgages, something that would stop 20% of foreclosures at no cost to the taxpayers. But banks and banking lobbyists are holding out hope that they can unload their bad loans on taxpayers, and are working through people like Tauscher to oppose the legislation so they never have to take responsibility for their mistakes.

I promptly got a call from Jonathan Kaplan, Tauscher’s press secretary, who said that the Executive Director of the New Democrat Coalition, a former lobbyist for predatory lenders who worked to undermine regulation of subprime loans named Adam Pase, was not working on this issue, nor was Tauscher taking the lead. He claimed Tauscher was only trying to help homeowners before they got to bankruptcy court, and wasn’t trying to weaken anything.

Lo and behold, this morning we find not one but two articles where Tauscher brags about her leadership of an effort to “limit the scope of the bankruptcy bill as much as possible,” saying that “it shows we have bench strength, and it shows we can flex.” It says that Adam Pace was circulating memos on the bill, and an article in Roll Call this morning (subscription) states that he is “widely credited with bringing a sharp organizational focus that has reinvigorated the group.”

And who is Adam Pace? Janre has more:

Tauscher’s office also said she hasn’t met with any bankers or lobbyists on the matter, and that may well be true. She doesn’t have to. Adam Pase, the executive director of the New Democrat Coalition which Tauscher chairs, works directly out of her office.

Pase is is a former lobbyist for the Twenty First Century Group, whose client, the Coalition for Fair & Affordable Lending, is an astroturf group, financed by the banking industry, that lobbied on behalf of. . . you guessed it. . . sub-prime lenders.

Now, you’d figure with California on the brink of complete and total economic collapse, with homeonwers losing their homes left and right, Tausher would be doing ANYTHING to help keep these people in their homes. But NOOOOOO: Ellen’s a former investment banker herself, and she doesn’t want to see her many good friends and buddies in the industry pay any consequence for their mistakes. Thick as theives, you might say, and accurately so.

This isn’t the first time the left has tangled with Tausher, who’s up to her eyeballs in the beltway protection racket, just like now-retired-by-force Al Wynn and soon-to-be-retired-by-force Jim Cooper. And really what else do we expect from a woman who loves George Bush and thought the Iraq War was a great idea, who thinks Joe “Rape Gurney” Lieberman is the cat’s meow, and who refused to support impeaching the corrupt Alberto Gonzalez?

Thick as thieves, birds of a feather, in a nest lined with corruption. That’s Ellen Tauscher in a nutshell. Sign the petition, and make sure to give to accountability NOW. If Ellen Tauscher won’t represent her suffering constituents, maybe she needs to return to the banking industry.

Is it just coincidence that the surge in subprime foreclosures that has rocked financial
markets came right after the bankruptcy reform in 2005 (Chart 1)? Is that surge just about falling
home prices, bad mortgage decisions, and weak economic conditions? No and no. Indeed, we
would be surprised if the answers were otherwise. Bankruptcy is about protection, after all, and
foreclosure is what mortgagors most want to protect against. The Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005, the first overhaul of U.S. personal bankruptcy law in over
a quarter century, made filing bankruptcy much less protective and much more expensive. How
could that not matter?

Our specific argument is that the bankruptcy abuse reform (BAR) contributed to the
surge in subprime foreclosures by shifting risk from credit card lenders to mortgage lenders.
Before BAR, any household could file Ch. 7 bankruptcy and have credit cards and other
unsecured debts discharged. Sidestepping unsecured debts left more income to pay the
mortgage. BAR blocked that maneuver by way of a means test that forces better-off households
who demand bankruptcy to file Ch. 13, where they must continue paying unsecured lenders.
When the means test binds, cash constrained mortgagors who might have saved their home by
filing Ch. 7 are more likely to face foreclosure.

WHO COULD HAVE PREDICTED???

The estimated impact of BAR on subprime foreclosures is substantial. For a state with
average home equity exemption, the average subprime foreclosure rate over the seven quarters
after BAR was 12.6 percent higher than the average subprime foreclosure rate over all states over the period before BAR. This translates to just over 32,000 more subprime foreclosures
nationwide per quarter due to BAR.

Thank you Senators:

Alexander (R-TN)
Allard (R-CO)
Allen (R-VA)
Baucus (D-MT)
Bayh (D-IN)
Bennett (R-UT)
Biden (D-DE)(thank you mr. Vice-President)
Bingaman (D-NM)
Bond (R-MO)
Brownback (R-KS)
Bunning (R-KY)
Burns (R-MT)
Burr (R-NC)
Byrd (D-WV)
Carper (D-DE)
Chafee (R-RI)
Chambliss (R-GA)
Coburn (R-OK)
Cochran (R-MS)
Coleman (R-MN)
Collins (R-ME)
Conrad (D-ND)
Cornyn (R-TX)
Craig (R-ID)
Crapo (R-ID)
DeMint (R-SC)
DeWine (R-OH)
Dole (R-NC)
Domenici (R-NM)
Ensign (R-NV)
Enzi (R-WY)
Frist (R-TN)
Graham (R-SC)
Grassley (R-IA)
Gregg (R-NH)
Hagel (R-NE)
Hatch (R-UT)
Hutchison (R-TX)
Inhofe (R-OK)
Inouye (D-HI)
Isakson (R-GA)
Jeffords (I-VT)
Johnson (D-SD)
Kohl (D-WI)
Kyl (R-AZ)
Landrieu (D-LA)
Lincoln (D-AR)
Lott (R-MS)
Lugar (R-IN)
Martinez (R-FL)
McCain (R-AZ)
McConnell (R-KY)
Murkowski (R-AK)
Nelson (D-FL)
Nelson (D-NE)
Pryor (D-AR)
Reid (D-NV)
Roberts (R-KS)
Salazar (D-CO)
Santorum (R-PA)
Sessions (R-AL)
Shelby (R-AL)
Smith (R-OR)
Snowe (R-ME)
Specter (R-PA) (thank you for looking out for Pennsylvanians, senator)
Stabenow (D-MI)
Stevens (R-AK)
Sununu (R-NH)
Talent (R-MO)
Thomas (R-WY)
Thune (R-SD)
Vitter (R-LA)
Voinovich (R-OH)
Warner (R-VA)

meanwhile, the NY Fed has more. A LOT more. As you read, ask yourself how a dope like me with a diploma from a public high school and a BA in English from UMass, and with no background at all in finance or economics could tell that this bill was going to be a catastrophe, and our leaders could not:

Legal scholars and practitioners have clearly recognized how filing Ch. 7 and discharging
unsecured debt can help avert foreclosure:

“…many debtors file bankruptcy precisely so that they can pay their mortgage… by
discharging other debts.” Berkowitz and Hynes (1998), p. 3, original emphasis.

“some mortgage lenders are eager to see a troubled borrower file for Chapter 7
bankruptcy, since the other debts can be discharged.” Sullivan, Warren, and Westbrook.9

“If … the value of your home is covered by your state’s homestead exemption, Chapter 7
may be the way to go…” Bankruptcy for Dummies, Caher and Caher (2006), p. 190.

The answer of course is that any idiot with a drop of common sense who hasn’t been utterly corrupted by suitcases full of campaign donations could see that this would be a disaster. ANY COMMON IDIOT.

Conclusion:

We conclude that the bankruptcy abuse reform of 2005 (BAR) contributed to the rise in subprime foreclosures because it shifted risk from credit card and auto lenders to mortgage
lenders. The means test under BAR gives credit card and other unsecured creditors a stronger
claim on borrowers’ cash flow, and that weakens secured lenders’ (implicit) claim on that cash
flow. Limiting cram-down on auto loans eliminates another maneuver over-indebted borrowers
could use to free up income for their mortgage. By making it harder for borrowers to avoid paying credit card debt and auto loans, BAR made it harder to pay the mortgage, hence higher
foreclosure rates.

And because average mortgage debt is typical hundreds of times more than the average credit card debt, the predictable result is an impact on the economy on an order of hundreds of times what the unpaid credit card debt could have. And that’s not getting paid either, by the way.

Oh if only someone had predicted…

Earlier this year, Christina and I discovered our oil tank was about to die, and after surveying our options decided to convert to natural gas. This is a $5,000 expense, and in order to make the purchase affordable, we decided to apply for a PHIL Loan, which is administered by the city. Essentially, this loan is available to everyone, but with special provisions and programs for low and moderate income families, many of who do not have the best credit in the world. We decided to apply for the Mini-PHIL, which has explicit provisions for existing debt:

Philadelphia homeowners with less-than-perfect credit may be eligible for the Mini-PHIL Loan. Your property must be an owner-occupied residence located in Philadelphia. Buildings may contain between one and four residential units (single-family, duplex, triplex, quadraplex). Condominiums are not eligible.

Residents with less-than-perfect credit may qualify for one of the three loan products introduced on this site.

Participating banks offer flexible home improvement loans that are underwritten and priced to allow low- and moderate- income homeowners to improve their homes, make energy-related improvements and even consolidate some high cost debt – without having to resort to expensive predatory lenders.

My income is moderate (almost low), my credit isn’t perfect due to an outstanding balance with the rapacious scumbags at capital One, and I had a necessary home improvement, so I filled out the paperwork in mid-September. I also spoke to Philly’s Redevelopment Authority, which administers this program, and they confirmed that the loan is also for emergency situations, like mine when a four-year-old child is moving in and there’s no heat.

In early October, the loan was denied because I had forgotten about some back taxes I owed to the state of New York due to a Folgers commercial I’d acted in in 2002.

As we all know, the economy is cratering and taking down out retirement accounts with it, so I decided to cash in an old 401K that was leftover from my time at Penn, and steadily losing value. I paid off the taxes due to New York and set aside the rest for Capital One. I’d been speaking personally with the underwriter, Hamp Colzie, throughout the process, and he assured me that when this was taken care of, I could re-apply. When I applied a second time in early October, I included the following letter:

October 30, 2008

Dear Mr. Colzie:

Earlier this year, I applied for a mini-PHIL loan and was unfortunately rejected due to credit issues, notably a debt owed to the New York State Department of Revenue in the amount of [redacted], and an amount owed to the Capital One credit card company. In order to pay these two entities, I cashed in an old 401K

Attached you’ll find a second application for a mini-PHIL: as you’ll see via the confirmation sheet, I paid the New York State Department of Revenue the full amount on October 30, 2008: however, the payment will take up to ten days to post, and the state can’t issue an official letter confirming my zero balance for 60-90 days. I hope the confirmation page will suffice.

I am applying for the mini-PHIL because I am in an emergency situation. My 4-year-old son is moving in on November 20 and our home’s oil heat system is no longer operational. We need to install a gas furnace and reline the chimney as soon as possible in order to make the house a safe environment for a young child.

I also hope to take care of the remainder of my high interest debt, as permitted by the mini-PHIL guideline. Thus, included in the application is the amount for the new gas furnace, the amount for the chimney relining, and the remainder owed to Capital One. I understand that the mini-PHIL contains a recommendation for credit counseling, which I am happy to undertake, but given the emergency nature of the home improvement I would prefer to schedule such counseling until after the furnace has been installed. Also, please note I have a co-signer for this loan, namely my father.

If you have any questions for me, or if I’m missing any information, you can reach me at [redacted]. I look forward to working with Commerce Bank and the City of Philadelphia to repair and maintain my dwelling.

Sincerely,

Brendan Skwire

My father and I set some time aside to re-apply in person at my local branch (the underwriter is offsite, and works from home), where I explained to the woman the urgency of the repair. My dad, who has excellent credit and no debt at all, co-signed. The woman said that she saw the need for the loan, that it was clearly an emergency and she would expedite the loan directly to the underwriter. “Call back in a week,” she told me. Seven days later I called, only to learn I’d been declined again. As you might imagine, I was surprised and distressed: after all, the underwriter had promised me that if I straightened this stuff out, he’d work with me to obtain the loan. When I asked why I’d been declined a second time, my bank told me to call the underwriter directly.

I dialed Hamp’s number and when he picked up, I lit into him. “Why did you decline me a second time?” I asked. “I met all your requirements, and I included not only receipts but my payment plan! You know there’s a little kid moving in, so what’s the deal?”

“Wait a minute, wait a minute,” Colzie begins. “Mr. Skwire, I haven’t even seen your loan.”

“That’s not true,” I replied flatly. “I just spoke to the bank and they said that YOU had declined me and that YOU could tell me why. So tell me sir, WHY?”

Colzie sighed, and then told me something I had never heard in this entire two-month process: it seems the bank has an automated system that pre-approves and pre-declines all loans before they reach the underwriter’s desk. Think about that for a minute: you have a loan program specifically set up for low- and moderate-income families with imperfect credit. But the bank treats those applications just like any other loan application, and subjects the very people who are supposed to benefit from a special program geared to their specific circumstances to the exact same credit scoring process as someone with pristine credit.

I began to get really angry, not just for myself but for all the other families that may have been denied unfairly by this system. I began to think about the single mom who works two jobs and doesn’t have the time to call the bank over and over and plead her case. I began to think about the immigrant family that doesn’t speak English well, and didn’t know to ask. I thought about families in which the parents don’t even have a high school diploma and may not be as aggressive, tenacious, or as informed as I am.

In any event, Mr. Colzie promised to get a copy of the loan application itself and take a look at why I was declined. Meanwhile, I called the Redevelopment Authority. They were as surprised as me to hear about TD Bank’s automated system, and when I began to ask if they knew how many other families like mine were declined the woman’s voice grew serious. “There are 250,000 Philadelphians without a high school diploma,” I reminded her. “We have an exploding immigrant population. How many of those families got caught up in this, who didn’t even get a chance to discuss their specific situation with someone, and got declined due to a machine? How many just gave up?

“I have resources in my family I can go to if I can’t get this loan,” I continued. “I sure would hate to think that some little kid is going without heat or hot water because TD Bank’s computer decided they weren’t qualified, and subjected them to an unfair standard. Do you think this is fair?”

“No,” she replied. “It’s not fair at all. And as it happens, we have a conference call with TD Bank tomorrow, and I will make sure this is on the agenda.” I thanked her for her time and called Mr. Colzie the underwriter back. By this time he had obtained the loan application. The reason for the rejection had changed: whereas the first rejection was because of a bad debt to the state of New York, NOW the problem was the fact that I already have a home equity loan. This was a ridiculous reason, because I had never ever been late on the loan, and had never missed a payment: in short, my bank was holding a good loan against me. “This is what I want you to do,” Mr. Colzie said. “I want you to go through credit counseling. then we’ll see what we can do about this loan.”

“We’ll see” is never promising, but I agreed to go through the counseling, and signed up. Counseling means a one-hour session that examines my bills, two years worth of W2s, pay stubs, and then plugs everything into a budget worksheet. All of the paperwork is then submitted to the Greater Philadelphia Urban Affairs Commission, which takes about a week or two to process the information and decide if I’m qualified, then sends the application with their blessing (or not) to the bank to make the final decision. At this rate, the furnace wasn’t getting installed until well after Sam’s visit was over, but there was a chance my father could advance me the money and then I’d pay him back in a lump sum from the loan.

The next day I got a call from Mr. Colzie that can only be described as “panicked”. “Mr. Skwire, what’s going on? What exactly is going on here?”

“Hamp,” I said, “I’ve been applying for this loan now for almost two months. I’ve jumped through every hoop you and the bank have set up, and frankly I think you’re stalling. My kid’s moving in less than two weeks. I have all my contractors lined up. Now I have to do credit counseling, which I’ve signed up for, but that’s going to take a couple of weeks to process. To be honest, whether I get this loan or not, I don’t think I’m going to do further business with TD Bank anymore. I don’t think the bank is fair to customers. I think your business practices are unfair and I don’t want to reward that kind of behavior. In fact, as soon as my latest bills clear, I’m withdrawing everything except for the equity loan account and moving to the credit union…”

“What? OK, I want you to explain what’s unfair about TD Bank…”

So I explained, again, the automated system that had declined me. And how no one had ever told me anything about it. “You guys wasted my time when I could have been applying elsewhere.” And about how many other applicants may have been declined unfairly from a program meant to benefit low income families.

“OK, I let you vent,” Colzie began, using an interesting choice of words chosen to dismiss my completely valid concerns. “But you’re mistaken: the PHIL loans are meant for everyone.”

“Yes, I know,” I replied. “But I applied for a MINI-PHIL, wrote it in big letters right on the application, and that loan IS for low-income families with dented credit specifically, and I was declined like everyone else by the automated system.”

Colzie’s story then changed. “You were put into that system by accident.” Two days before, “every loan” went through the system: now it was an accident.

“You know,” he added, “I was going to give you the loan after the credit counseling.” This was also quite different from “we’ll see”, the previous response. I wasn’t a fly on the wall, but by his tone of voice it seemed fairly clear that the RDA had called and that the conversation hadn’t gone too well.

Later that day, the credit counselor called and asked to push the session forward a day or two. I told her I didn’t think i was going to get the loan and that my father had agreed to help out. “You’re probably better off this way,” she said. “I have some applicants with credit scores in the high 700s, and they’re getting the runaround too. The fact is the banks aren’t lending.”

“If I change my mind, I’ll give you a call,” I said. Over the weekend, my father suggested I sign up anyway, figuring it was better to obtain a loan from the bank than from a family member. I did so, and on Monday called the credit counselors to re-schedule. As requested, I called Mr. Colzie to tell him that I was scheduling the credit counseling, and that I was proceeding with the loan. I asked that he call me back asap so we could discuss any other issues.

I called on Monday: it’s Thursday, and I haven’t received any response whatsoever. I think that tells you all you need to know about whether my bank is actually serious about lending me money or whether they just want to play more games. My father has advanced me the money, which I’m paying back at a 5% interest rate, exactly the same rate offered by the PHIL loan program. My furnace was installed yesterday, the chimney got relined today, and tomorrow the gas goes on.

None of this was made possible by TD Bank, which took a look at an emergency situation that involved an individual who fit into an income group the bank has partnered with the city to help. TD Bank did not live up to its responsibilities, and as soon as the checks to the electric company, the water company, and the various contractors have cleared, I’m taking my money to my local credit union, which is a lot closer to my house, that pays a better interest rate, and actually looks out for the customers rather than treating them like some kind of trained poodle.

This post has been cc-ed to the upper management at TD Bank. Later this week, I’ll be bringing Sam into my branch to introduce him to the people who wanted him to be cold.

From Seattle to Athens, Ga., advocacy groups and city agencies are reporting the most visible rise in homeless encampments in a generation.

Nearly 61 percent of local and state homeless coalitions say they have experienced a rise in homelessness since the foreclosure crisis began in 2007, according to a report by the National Coalition for the Homeless. The group says the problem has worsened since the report’s release in April, with foreclosures mounting, gas and food prices rising, and the job market tightening.

“It’s clear that poverty and homelessness have increased,” said Michael Stoops, acting executive director of the coalition. “The economy is in chaos, we’re in an unofficial recession, and Americans are worried, from the homeless to the middle class, about their future.”

In Philadelphia, homeless individuals on the streets have built scattered encampments in alleys, under train trestles, or in park areas, but nothing that meets the level of a tent city.

If that’s your vision for America, vote for John McKKKain.

* Mandatory credit counseling and debtor education. All potential bankruptcy filers must now undergo credit counseling and budget analysis counseling via an “approved nonprofit budget and credit counseling agency” prior to filing for bankruptcy. Chapter 13, Chapter 7, and Chapter 11 filers must also complete a course in “personal financial management” after filing the bankruptcy but before the bankruptcy is discharged.

* Additional filing requirements and fees. The new law increases the amount of paperwork involved in filing and raises the filing fees. The law also allows filing fees to be waived for debtors earning below 150 percent of the federal poverty level.

* Increased attorney liability and costs. Attorneys representing bankruptcy filers are now required to conduct an investigation of their clients’ filings and can be held personally liable for inaccuracies. Most bankruptcy attorneys predicted that this will result in increased attorneys fees and will make attorneys less likely to take on some cases. In addition, bankruptcy filings are now subject to audit in a manner similar to tax returns.

* Fewer automatic protections for filers. The new law eliminates some of the protections bankruptcy filers previously had, such as stopping or delaying evictions, avoiding driver’s license suspensions, and delaying child support proceedings.

* Increased compliance requirements for small businesses. The new law increases the bureaucratic compliance obligations and shortens the deadline for Chapter 11 reorganizations involving small businesses, a series of new requirements not applicable to larger businesses.

* Increased amount of debt repayment under Chapter 13. The new law made several changes that effectively increased the amount of debt that Chapter 13 filers will have to repay. In addition, the “super discharge” provision, which allows filers to discharge many of their debts under Chapter 13 in return for agreeing to a payment plan, is significantly curtailed under the new law.

* Increased length of time between discharges. The new law increases the length of time from six to eight years between which a filer can receive a Chapter 7 discharge after a prior Chapter 7 case.

All of this new legislation applies only to individuals and families. Corporations are exempt (because after all, what’s a few billion here and there, some schmuck owes MBNA a couple thousand dollars and we can’t let him off the hook!). There are no exceptions for medical costs or any other unexpected expenses, not even to the victims of Hurricane Katrina.

My regular readers know I’ve been complaining about this bill for years and pointing the finger at those who foisted it upon consumers.

From Bloomberg, here’s a blockquote I think we all know well:

Washington Mutual Inc. got what it wanted in 2005: A revised bankruptcy code that no longer lets people walk away from credit card bills.

The largest U.S. savings and loan didn’t count on a housing recession. The new bankruptcy laws are helping drive foreclosures to a record as homeowners default on mortgages and struggle to pay credit card debts that might have been wiped out under the old code, said Jay Westbrook, a professor of business law at the University of Texas Law School in Austin and a former adviser to the International Monetary Fund and the World Bank.

“Be careful what you wish for,” Westbrook said. “They wanted to make sure that people kept paying their credit cards, and what they’re getting is more foreclosures.”

Washington Mutual, Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. spent $25 million in 2004 and 2005 lobbying for a legislative agenda that included changes in bankruptcy laws to protect credit card profits, according to the Center for Responsive Politics, a non-partisan Washington group that tracks political donations.

The banks are still paying for that decision. The surge in foreclosures has cut the value of securities backed by mortgages and led to more than $40 billion of writedowns for U.S. financial institutions. It also reached to the top echelons of the financial services industry.

It’s not just banks that are paying for that decision. Carlene Balderrama’s family is paying as well:

TAUNTON – The housing crunch has caused anguish and anxiety for millions of Americans. For Carlene Balderrama, a 53-year-old wife and mother, the pressure was apparently too much.

Police say that Balderrama fatally shot herself Tuesday afternoon, 90 minutes before her foreclosed home was scheduled to be sold at auction. Chief Raymond O’Berg said that Balderrama faxed a letter to her mortgage company at 2:30 p.m., saying that “by the time they foreclosed on the house today she’d be dead.”

The mortgage company notified police, who found her body at 3:30 p.m. The auction had been scheduled to start at 5 p.m., when bidders showed up at the house and found it surrounded by police cruisers.

But, unbeknownst to buyers and to Balderrama, the auction had been postponed by the time she grabbed her husband’s high-powered rifle, O’Berg said.

Balderrama left a note for her family, saying they should “take the [life] insurance money and pay for the house,” O’Berg said. The chief said he did not know, however, if the family would be able to collect on the policy in the event of a suicide.

Neighbors on Duffy Drive, a forested side street on the city’s east side, said Balderrama had lived in the two-story, brown-shingled, raised ranch for about four years with her husband, John, who is a plumber, and their 24-year-old son, who works in a restaurant.

Now before you say “how is a foreclosure the fault of Allyson Schwartz, Joe Biden, Tom Carper, Evan Bayh, John Murtha, Bob Menendez, and all those other corporate-felating weenbags”, let me point you to the Sunday Times front page story from July 20, 2008:

behind the big increase in consumer debt is a major shift in the way lenders approach their business. In earlier years, actually being repaid by borrowers was crucial to lenders. Now, because so much consumer debt is packaged into securities and sold to investors, repayment of the loans takes on less importance to those lenders than the fees and charges generated when loans are made.

Lenders have found new ways to squeeze more profit from borrowers. Though prevailing interest rates have fallen to the low single digits in recent years, for example, the rates that credit card issuers routinely charge even borrowers with good credit records have risen, to 19.1 percent last year from 17.7 percent in 2005 — a difference that adds billions of dollars in interest charges annually to credit card bills.

I emphasized those two sentences because I think everyone has seen their rates go up to catastrophically high levels. And then there’s this:

Average late fees rose to $35 in 2007 from less than $13 in 1994, and fees charged when customers exceed their credit limits more than doubled to $26 a month from $11, according to CardWeb, an online publisher of information on payment and credit cards.
[snip]
“Today the focus for lenders is not so much on consumer loans being repaid, but on the loan as a perpetual earning asset,” said Julie L. Williams, chief counsel of the Comptroller of the Currency, in a March 2005 speech that received little notice at the time.

The Times adds,

Such fees and interest rates are a growing burden on Americans, especially those who rely on credit cards to make ends meet.

And recent changes in the bankruptcy laws, supported by financial services firms, make it all the harder for consumers, especially those with modest incomes, to get out from under their debt by filing for bankruptcy.
[snip]
Not surprisingly, such practices generated dazzling profits for the nation’s financial companies. And since 2005, when the bankruptcy law was changed, the credit card industry has increased its earnings 25 percent, according to a new study by Michael Simkovic, a former James M. Olin fellow in Law and Economics at Harvard Law School.

The “2005 bankruptcy reform benefited credit card companies and hurt their customers,” Mr. Simkovic concluded in his study. He said that even though sponsors of the bankruptcy bill promised that consumers would benefit from lower borrowing costs as delinquent borrowers were held more accountable, the cost of borrowing from credit card companies has actually increased anywhere from 5 percent to 17 percent.
[snip]
Patricia A. Hasson, president of the Credit Counseling Service of Delaware Valley, said Ms. McLeod would probably wind up having to repay 40 percent to 60 percent of her credit card debt. The owner of her mortgages could come after her for the difference between what she owes on her loan and what her house ultimately sells for. The first mortgage was sold to investors; Citigroup declined to say whether it held onto the second mortgage or sold it to investors.

A sheriff’s auction of her home on June 12 received no bidders, Ms. McLeod said. The bank will soon evict her.

When I called Joe Biden’s office yesterday, I spoke to an arrogant, rude, and extremely snide young man who cut me off and lectured me about the definition of a recession. I called back to today, and read them the story about Ms. Balderrama. Not so snotty this time.

Perhaps Joe Biden and his pals at MBNA will be ponying up for the headstone. I understand funeral expenses can be murder. Just like the Bankruptcy Reform Bill.

To most Americans, large cities are for cultural and sporting events.
Some of them may live in one for a few years after graduation, then
they’re planning to spawn in the burbs.

They’ll go bankrupt before they move into the cities.

He’s probably right: the comment reminded of something Kunstler wrote a few years ago in the Long Emergency excerpted at Rolling Stone:

Most of all, the Long Emergency will require us to make other arrangements for the way we live in the United States. America is in a special predicament due to a set of unfortunate choices we made as a society in the twentieth century. Perhaps the worst was to let our towns and cities rot away and to replace them with suburbia, which had the additional side effect of trashing a lot of the best farmland in America. Suburbia will come to be regarded as the greatest misallocation of resources in the history of the world. It has a tragic destiny. The psychology of previous investment suggests that we will defend our drive-in utopia long after it has become a terrible liability.

Before long, the suburbs will fail us in practical terms. We made the ongoing development of housing subdivisions, highway strips, fried-food shacks and shopping malls the basis of our economy, and when we have to stop making more of those things, the bottom will fall out.

The circumstances of the Long Emergency will require us to downscale and re-scale virtually everything we do and how we do it, from the kind of communities we physically inhabit to the way we grow our food to the way we work and trade the products of our work. Our lives will become profoundly and intensely local. Daily life will be far less about mobility and much more about staying where you are. Anything organized on the large scale, whether it is government or a corporate business enterprise such as Wal-Mart, will wither as the cheap energy props that support bigness fall away. The turbulence of the Long Emergency will produce a lot of economic losers, and many of these will be members of an angry and aggrieved former middle class.

And more:

The successful regions in the twenty-first century will be the ones surrounded by viable farming hinterlands that can reconstitute locally sustainable economies on an armature of civic cohesion. Small towns and smaller cities have better prospects than the big cities, which will probably have to contract substantially. The process will be painful and tumultuous. In many American cities, such as Cleveland, Detroit and St. Louis, that process is already well advanced. Others have further to fall. New York and Chicago face extraordinary difficulties, being oversupplied with gigantic buildings out of scale with the reality of declining energy supplies. Their former agricultural hinterlands have long been paved over. They will be encysted in a surrounding fabric of necrotic suburbia that will only amplify and reinforce the cities’ problems.

Philadelphia’s one of those places that, if Kunstler’s predications are correct, will do OK because we are “surrounded by viable farming hinterlands that can reconstitute locally sustainable economies on an armature of civic cohesion.” We have one of the oldest commercial corridors in the nation, the Lancaster Pike which is a direct route to and from the Amish farmlands in central PA. Boston Massachusetts will probably be OK as well.

However, Alex is almost certainly correct that suburban and exurban dwellers will “go bankrupt before they move into the cities.” As the article I cited last week pointed out, they already are well on their way.

As the residents of inner-city neighborhoods did before them, suburban homeowners will surely try to prevent the division of neighborhood houses into rental units, which would herald the arrival of the poor. And many will likely succeed, for a time. But eventually, the owners of these fringe houses will have to sell to someone, and they’re not likely to find many buyers; offers from would-be landlords will start to look better, and neighborhood restrictions will relax. Stopping a fundamental market shift by legislation or regulation is generally impossible…
[snip]
On the other hand, many inner suburbs that are on the wrong side of town, and poorly served by public transport, are already suffering what looks like inexorable decline. Low-income people, displaced from gentrifying inner cities, have moved in, and longtime residents, seeking more space and nicer neighborhoods, have moved out.

But much of the future decline is likely to occur on the fringes, in towns far away from the central city, not served by rail transit, and lacking any real core.

We live in interesting times…

An examination of regulatory decisions shows that the Federal Reserve and other agencies waited until it was too late before trying to tame the industry’s excesses. Both the Fed and the Bush administration placed a higher priority on promoting “financial innovation” and what President Bush has called the “ownership society.”

On top of that, many Fed officials counted on the housing boom to prop up the economy after the stock market collapsed in 2000.

Mr. Greenspan, in an interview, vigorously defended his actions, saying the Fed was poorly equipped to investigate deceptive lending and that it was not to blame for the housing bubble and bust.

Alan Greenspan thinks you’re stupid.

WASHINGTON — Federal Reserve Chairman Alan Greenspan said Monday that Americans’ preference for long-term, fixed-rate mortgages means many are paying more than necessary for their homes and suggested consumers would benefit if lenders offered more alternatives.

In a standing-room-only speech to the Credit Union National Association meeting here, Greenspan also said U.S. household finances appeared generally sound, despite rising debt levels and bankruptcy filings. Low interest rates and surging home prices have given consumers flexibility to manage debt, he said.
[snip]
He said a Fed study suggested many homeowners could have saved tens of thousands of dollars in the last decade if they had ARMs. Those savings would not have been realized, however, had interest rates shot up.

“American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage,” Greenspan said.

Of course, maybe I’m being to harsh on Alan. Maybe he’s not lying about his advice to prospective homeowners. He’s 81 years old, and probably growing senile.

I don’t agree with everything Kate says below, but her points merit consideration. I think she’ll be bopping around the comments this week, so please engage!

I’ve been hearing a lot about the “impending crisis” resulting from the bursting of the housing bubble. If characterizing the housing market in that way disturbs some readers, then I can back off. But I think we can all agree that house prices are dropping from the highs a few years ago, and in all likelihood will drop more in the future – at least here in Philadelphia.

The other “coming crisis” is the problem of the balloon payments coming due on adjustable rate mortgages (ARMs). I don’t know anyone personally who’s done one of these, but my understanding of how these work is that there’s a low rate for the first few years of the loan, at which point the rate – and the payment – increases. I think this is further complicated when buyers get no-money-down loans, because the payment in the first few years is interest-only (therefore the “homeowner” is building zero equity), then the payments switch to principal plus interest, at a higher interest rate to boot.

These types of mortgages might actually make sense for some buyers. I myself am not a homeowner. My husband and I looked into buying in early 2003. We did find a house that we really liked, but it was just out of reach for us at that time. We had no down payment, and though I was earning a reasonable salary, my husband was in his first year of law school. Now, in 2007, I’m making considerably more money, and my husband passed the bar and is making pretty decent money himself. We would have been in great shape with one of those 2/28 ARMs. It would have been a struggle for the first two years even to make the reduced payments, but after those two years, we had every reason to expect that our financial situation would improve dramatically.

So why didn’t we buy?

Because we are adults. We recognized that there were a lot if “ifs” in the plan. Sometimes things don’t turn out the way you expect. What if something had happened and my husband didn’t finish school? Didn’t pass the bar exam? Didn’t get a job right away? Decided to work for Legal Aid for very little money? Sometimes things don’t go according to plan, and it’s a really bad idea to make a $200,000 commitment that’s contingent on everything falling into place as planned. Plans change. I suspect that many people taking these loans didn’t even have a reason to expect their financial situation to change drastically over the two or three year “honeymoon” period. For us, the risk was too great, and the consequences of something going wrong were enormous.

Ahh, there’s a word. Consequences. Why do Americans believe that there should never be consequences? Mistakes engender consequences – even when it’s “not your fault.” Anyone who has ever had a car accident should be able to understand this. Life is unfair. It’s unfortunate, but true.

I’ve been accused of being hard-hearted by my friends (including, at times, my blog-host). But really, it’s not that. A bailout for people who gambled (and lost) on their decision to get into the housing market infantilizes adults. It sends the message that we really can’t be expected to be responsible for ourselves and our decisions.

I have two examples that I hope illustrate my point. The first comes from my husband’s work. As I’ve mentioned, he’s an attorney. He is currently representing a pro bono client – let’s call her Alice. In short, Alice was manipulated by a sleazy car salesman. According to Alice, the salesman quoted her a figure for the monthly payment that was considerably lower than the figure listed in the loan agreement that she signed without reading. Because an oral contract “isn’t worth the paper it’s printed on,” combined with the fact that she took possession of the vehicle, Alice is on the hook for the higher car payment. My husband is doing his best to work something out for her, because a lawsuit simply isn’t an option. Legally, she doesn’t have a leg to stand on. She didn’t read the contract she signed. Indeed, most contracts have an explicit clause that states something to the effect of “I have read this document.” This is basic adult responsibility 101, and the law recognizes it as such. I do feel badly for Alice. She’s in a situation where she can’t make her payments, and from what I understand, she needs a car to get to work. Without a doubt, the car salesman behaved badly and took advantage of her. But, see, you need to read things before you sign them. It’s a hard lesson, and one she should have learned years earlier, but hopefully she’ll read things before she signs them from now on.

A more lighthearted example is from several years ago. Again, it comes from my husband’s experience. He and some friends went out to a strip club for a “boys’ night out” sort of thing. One of these fellows – let’s call him Jake – had never been to a place like that: he’s younger and a bit sheltered. Anyway, Jake accepted an offer of a lap dance. To the chagrin of his companions, he didn’t return for quite some time. After the guys checked to make sure nothing terrible had happened, he finally emerged, holding a credit-card receipt and looking rather ticked off. Apparently, the dancer inquired at the end of the song if he’d like her to keep going. Young Jake enthusiastically agreed – for about five more songs. This decision ended up costing him about $160, which was a good deal more than he’d planned on spending that evening.

Jake’s little mishap was unfortunate, sure, but if you’re old enough to go to a strip club, you’re old enough to be expected to understand how things work. In both of these examples, the protagonists made errors in judgment, and had to face the consequences. With respect to people who bought “too much house” with an ARM that they can’t make the later term payments on – too bad. If you can’t pay for it now, you don’t get to keep that house. I recognize that this is likely to affect lots of people who bought “ordinary” houses. However, the phrase “too much house” doesn’t just apply to people in McMansions. If you can’t afford it, it’s too much house. A bailout tells these people that they’re not really adults – not really responsible for the consequences of their decisions.

To anyone reading who thinks this tirade is “sour grapes” because I didn’t get in on the great real-estate circus, you couldn’t be more wrong. For a variety of reasons, I value the freedom renting gives me and am delighted with my current living arrangements. I might well buy a cheap foreclosed home at some point in the future, but even that doesn’t drive my indignation at the very thought of bailing out people who overextended themselves in the housing market. The reason this infuriates me is simple: I’m disturbed by the premise that underlies a bailout – the premise that adults who voluntarily entered into legally binding contracts should be second-guessed by a government that claims to know what’s best for them. If the intrusion results in a favorable outcome for most, you can expect people to go along. But what about the next time? What’s the next thing about which the government will assert claims of “we know best”?

A bailout infantilizes the adults who bought houses in a volatile market. It’s as simple as that. If you want all the potential benefits that come with a society that values capitalism, free will, and democracy, you’ve got to be prepared to roll with the punches.