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THURSDAY Mortgage Madness vs. Predatory Lending by J. F. Kelly, Jr. [writer] 5/3/07

“Politics is the art of looking for problems, defining them incorrectly and applying the wrong remedy.”
                                                                                --attributed to Groucho Marx

Congress is taking aim at the mortgage industry and, as usual, will probably hit the wrong target. Real estate loan foreclosures are at record levels, lowering home values and posing a threat, many say, to our consumer driven economy. Homes constituting the largest asset by far for most Americans, a drastic decrease in their market value has a dampening effect on spending because homeowners feel less wealthy.

Some anguished homeowners with adjustable rate mortgages are burdened with increased mortgage payments they cannot afford. Faced with losing their homes they are demanding relief. Since lenders aren’t much into the business of granting relief to their overextended borrowers, who else to turn to but good old, magnanimous Uncle Sammy. The Democrat-controlled Congress appears only too willing to ride to the rescue with bail-out money. Why not? It’s not their money.

First of all, I don’t want to trivialize the tragedy involved in losing one’s home, whatever the reason. Anyone facing that deserves sympathy. But should the taxpayers be asked to provide monetary assistance to those whose bad judgment caused them to incur obligations they should have known they couldn’t meet under foreseeable circumstances?

It is argued that government bailouts have rescued failing corporations in the past so why not provide some help to beleaguered homeowners? In the case of corporations like, for example, Chrysler, it was concluded that the loss of a major employer and key player in a vital industry could be damaging to the national economy. It is a stretch, however, to apply such an argument to the mortgage foreclosure crisis. Home prices are still so inflated that a huge percentage of households remain priced out of the market. And how can the government really hope to protect people entirely from their own poor financial decisions? And if the government stepped in here, where would it end? The average American household is also saddled with heavy credit card and installment debt, driving many into bankruptcy. Should the government step in with financial aid here?

A better approach is through public education, vigorous regulation of the credit industry and strict enforcement of existing laws on predatory lending and debt collection. I submit that excess consumer debt, not mortgage debt, poses the greater threat to Americans. The first bill most Americans pay each month is their mortgage payment. Their most important asset is their home and they will typically forgo anything to avoid putting it at risk. Nor are lenders eager to foreclose. Performing loans are their principal assets. They do not wish to be in the property management business and will usually dispose of repossessed homes at far below their market value.

Credit card and installment debt are quite another story. Given the profusion of these accounts and the disgraceful ease with which credit cards are given out, many Americans quickly get in over their heads. Incredibly, even for many of those who are already behind in payments, each day’s mail will continue to bring new credit card offers. Interest rates sometimes exceed 20% and are often increased after a single late payment. Easy credit has caused Americans to become addicted to debt. Once delinquent, the consequences can be severe. Credit card issuers are quick to turn accounts over to collection agencies which, because they get to keep half or more of what they collect, can be ruthless. In attempting to track down deadbeats, they sometimes harass innocent parties, some the victims of identity theft. These collection vultures, some of which are law firms specializing in debt collection, can be relentless in hounding even innocent parties at all hours, seven days a week, sometimes even after it has been verified that they are calling the wrong party, in violation of the Fair Debt Collection Practices Act.  

A front page feature story in the April 28 edition of The Wall Street Journal by Ellen E. Schultz reports on some of the egregious acts of harassment by debt collectors, targeting, in particular, elderly social security recipients whose bank accounts containing direct deposit social security payments were garnished in violation of the law. A companion article reveals that many banks believe they have no duty to help protect their customers against this outrage, notwithstanding the fact that California law prohibits banks from freezing the first $2425 of any individual’s account that receives social security checks, according to Schultz. The problem is that the law is not aggressively enforced and unwitting citizens are mostly unaware of it. And, reflecting an attitude that has become all too familiar in our society, some banks say it’s not their problem.

Does government have a role here? You bet it does. Laws against predatory lending practices, the theft or careless handling of personal data and abuses of the Fair Debt Collection Practices Act must be vigorously prosecuted by the government. Since the average citizen hasn’t a clue how to proceed when victimized, it is incumbent upon the government to be proactive, to educate the public on how to obtain assistance and to provide a hotline manned by real people living in the United States. The government should also act to disabuse banks and other financial institutions of the notion that they can ignore the law and that their obligation to customers ends with receipt of a garnishment notice. And by vigorous prosecution, I mean something more than a fine that gets charged to the cost of doing business.

What can you do? I’m not a lawyer and I don’t give legal advice, but you might begin by reading the articles cited above. Reprints can be obtained from The Wall Street Journal. Second, if you receive social security or veterans’ benefit checks by direct deposit, ask your financial institution what their policy is on garnishing accounts containing such funds. You could be wrongly targeted by a collector or a victim of identity theft. Third, write a letter and send signed reproductions of it to your U.S. and State Representatives and Senators, and to your U.S. and State Attorneys General demanding they take action to protect American consumers against these problems which daily grow more serious. CRO

copyright 2007 J. F. Kelly, Jr.

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