If the feds are really in search of types of jobholders with a high risk of scandal and defalcation, we could probably come up with some other nominees for them. (John Berlau, CEI “Open Market”, May 23). New York apparently has such a system already (North Country Gazette); see also Reason comments (employees of SEC-regulated financial institutions).
City governments, sometimes in league with private counsel working on contingency fee, “have started suing banks and mortgage companies to recoup their costs” on such services as “fire departments, police, code enforcement or even demolition” in blighted neighborhoods. “The lawsuits were filed in recent months under different theories, in state and federal court. Cleveland and Buffalo filed suits under public nuisance laws. Minneapolis’ suit was brought on consumer fraud grounds, while Baltimore took the unusual approach of filing suit in federal court under alleged Fair Housing Act violations.” Bank of New York says it was included in Buffalo’s suit against 39 lenders even though it neither originated nor purchased loans, but merely acted as trustee. (Julie Kay, “Empty Homes Spur Cities’ Suits”, National Law Journal, May 9).
- Remember those class actions against tech manufacturers for allegedly misstating the capacity of hard drives? Another one just settled, with buyers in for coupons and discounts, lawyers for $1.78 million [The Register, Cho v. Seagate Technologies settlement website]
- Watch what you say about lawyers, cont’d: Erie, Pa. paper thus far has fended off libel suit by Pittsburgh attorney over coverage of his run-ins with authorities over client treatment [Post-Gazette via Ambrogi]
- New at Point of Law: suicide risk of anticonvulsants?; Ohio AG Dann rebuked on foreclosure activism; simultaneous asbestosis and silicosis happens all the time at some law firms; Bush nominates an ATLA/AAJ member to a federal judgeship; and much more.
- Has a prominent investor with close ties to President Bush set up shop as an East Texas patent troll? [Troll Tracker, The Recorder]
- Embattled Tom Lakin and Lakin Law Firm, once high on the Madison County heap, fight to overturn $3.7 million legal-malpractice judgment [MC Record]
- Brent Coon suing former colleagues at Beaumont’s Provost Umphrey over division of billions in tobacco-fee booty [Texas Lawyer]
- UK judge criticizes “barking mad” human rights rules after prisoner refuses to leave his “comfy” jail cell to attend hearing [Times Online, Telegraph]
- “Six years after Enron, executives face greater risks—but investors are no safer.” [Gelinas/City Journal]
- United Farm Workers union threatens to sue over unflattering coverage [two years ago on Overlawyered]
Perhaps the greatest scandal of the mortgage crisis is that it is a direct result of an intentional loosening of underwriting standards – done in the name of ending discrimination, despite warnings that it could lead to wide-scale defaults. …
In an earlier newspaper story extolling the virtues of relaxed underwriting standards, Countrywide’s chief executive bragged that, to approve minority applications that would otherwise be rejected “lenders have had to stretch the rules a bit.” He’s not bragging now.
I’m not sure I entirely agree, but it’s an element we should be considering as we look at the new complaints of “racial discrimination” through excessive sub-prime loans.
Cross-posted from Point of Law.
Says the NAACP complaint: “In 2004, African-American homeowners who received subprime mortgage loans from Defendants were over 30% more likely to be issued a higher-rate loan than Caucasian borrowers with the same qualifications.” (¶ 1.) Thus, it concludes, the disparity “result[s] from a systematic and predatory targeting of African-Americans.” (¶ 6.)
Similarly, Baltimore’s suit argues that Wells Fargo is more likely to foreclose in African-American neighborhoods—and that suit does not even attempt to adjust for similar qualifications or finances, just alleging racial disparity.
Of course, there is a difference between being targeted for a subprime mortgage loan and accepting a subprime mortgage loan. And I don’t believe that African-American homeowners were targeted for subprime mortgage loans because they were African-American. They were targeted because they were homeowners.
Between 2001 and 2005, I was a law-firm associate, high-income, making multiples of what I make today at a thinktank. And, like I am today, I was also white. And the minute my adjustable-rate mortgage was registered in the title books in 2001, I got several solicitations a week in the mail from fly-by-night mortgage brokers offering to refinance my mortgage with ludicrous financial products. (And when I made the mistake of investigating on-line options for switching to a fixed-rate mortgage in 2004, I also got several e-mails a day and phone-calls a month on the same basis to the point that I switched e-mail providers.)
Somehow, I resisted refinancing with a mortgage that was not favorable to me in the long run—I took a 5.25% fixed-rate instead. But I sure was targeted with subprime opportunities, especially as the real-estate prices in my neighborhood skyrocketed about 10% a year. And if, with my skin-color, income, education-level, and impeccable credit-score, I was targeted, so was every homeowner and their grandmother.
To the extent a statistical study says minorities were, ceteris paribus, more likely to receive unfavorable mortgages than whites, the study reflects a specification error, perhaps in failing to account for different levels of consumer education. Another possibility: there is a lot of state-by-state regulation of the mortgage industry. Are subprime mortgages more likely in states with high minority populations, for example? Are subprime mortgage brokers more likely to be aggressive in urban areas in states on the coasts where real estate prices were increasing faster than average, and those states correspond to states with high minority populations?
Note that the CRL study that has been driving the debate and highlighted in the NAACP suit finds that for many types of loans, whites were “disadvantaged” relative to Hispanics, which would seem to count against a racial explanation (unless one believes that bankers hold a racial animus against whites and towards Hispanics) and more towards a geographic explanation.
Note also the irony that these same defendants were accused of failing to offer loans to African-Americans just a few years ago. (See also Apr. 1.)
Finally, note that the NAACP complaint is legally frivolous in at least one respect because of the lack of standing in a federal court. Domino’s Pizza, Inc. v. McDonald, 546 U.S. 470 (2006) (no § 1981 standing for third parties). (Baltimore brings no § 1981 claim.) Fair Housing Act standing is questionable, too, given the lack of allegation of injury to NAACP in particular, though that could be fairly easily rectified by an amended complaint, especially in the Ninth Circuit. Cf. Spann v. Colonial Vill., Inc., 899 F.2d 24 (D.C. Cir. 1990) (“[a]n organization cannot, of course, manufacture the injury necessary to maintain a suit from its expenditure of resources on that very suit”) (R. Bader Ginsburg, J.); Fair Housing of Marin v. Combs, 285 F.3d 899, 902 (9th Cir. 2002). N.B. that there is an amended version of the NAACP complaint that may already fix these issues. NAACP v. Ameriquest Mortgage Co., No. 8:07-cv-00794-AG-AN (C.D. Cal.). For some reason, this is not available on PACER, so I haven’t seen it.
(Disclosure: I own less than $15,000 in stock in Citigroup, one of the defendants in the case.)
The Consumerist blog is supposed to be a pro-consumer blog, but it’s amazing how often their political agenda is really a trial-lawyer agenda that hurts consumers. Many of the 2007 bills Carey Greenberg highlights as consumer-friendly are quite the opposite:
- H.R. 3010: Arbitration Fairness Act of 2007
What It Does: Raises costs to and reduces choices for consumers and lowers employee wages by forcing consumers and employees to pass up the benefits of mandatory arbitration, whether they wish to or not. More at Overlawyered, and on SSRN.
Status: Hearings held in both the House and Senate. Likely to be vetoed if passed.
This spectacle has brought forth recriminations from politicians who picture the lenders as James Bond villains, cackling at the chance to toss hard-working families out on the street. In fact, this course is almost as bad a deal for lenders as it is for borrowers. They typically lose up to half the value of the mortgage on foreclosures.
From listening to the critics, you’d never guess that. Barack Obama denounces “predatory lenders” for “driving low-income families into financial ruin.” Barney Frank (D-Mass.), who chairs the House Financial Services Committee, blames everything on an epidemic of “abusive lending.”
But lenders who made bad decisions are already paying the price. Many mortgage companies have gone bankrupt. And if these loans are so unconscionable, the question is not why the foreclosure rate is so high but why it’s so low. …
The remedies urged by Hillary Clinton, John Edwards and the like include placing a moratorium on foreclosures, freezing teaser rates for five years or more, and forcing lenders to reduce loan amounts to reflect deflated home values. These options are conspicuous for a couple major defects.
The first is that they punish lenders for the failings of borrowers. Why should someone who has kept the terms of a contract be penalized for the benefit of the party that didn’t? A lot of people took a calculated gamble on interest rates and home prices. Had they bet right, they’d be reaping the rewards. Since they bet wrong, they are entitled to bear the consequences.
Speaking ill of lenders began when homo sapiens acquired language, hence it is unsurprising that many people who until recently were criticizing lenders for not making money available to marginally qualified borrowers are now caustic about lenders who complied.
Earlier: me in the WSJ.
- Big news: California judge: contingency-fee lawyers hired by state present inherent conflict of interest. [POL roundup; Santa Clara v. ARCO]
- Must-read post about Westrup Klick’s fishing for clients in class actions. [Cal Biz Lit; Lattman; Bodner v. Oreck Direct]
- Why not let the market decide the optimum level of securities litigation? [Jim Copland @ NY Sun; AEI event; 10b5 blog; W$J]
- More on subprime mortgages. [Frank @ POL; Michael Lewis @ Bloomberg via Kirkendall]
- Watch what you say about lawyers dept.: Filmmaker complains about lawsuit in memoir, gets sued by former opposing attorney for libel [Ferlauto v. Hamsher @ Don Murphy]
- Update on clinic sperm mixup case [On Point]
- Tunc pro nunc: Justice Roberts is a funny guy [Kerr @ Volokh]
- So is this Arkansas attorney. [Snopes]
- Seven years ago on Overlawyered, Pets.com sues Conan O’Brien show over sock-puppet dogs; ATLA tries to threaten senator. Three years ago: $3M verdict (including punitive damages) for failing to fire truck driver who had speeding tickets; also three years ago, motorcyclist runs from police at 130 mph, crashes, dies, family sues. Two years ago, blogger takes big paycut and gets new job.