The Uninvited Witness
Congress held hearings today on the two-year anniversary of the Bankruptcy Code. Last night a woman who wasn't invited to the hearing talked about how lucky she was. She's a 72-year-old widow who filed for bankruptcy last month to try to save her home (more on the story below).
But here's why she felt lucky: The mandatory credit counseling session that will cost her $75 and for which she will have to drive 60 miles to attend has been scheduled for the day after her social security check will be deposited. That way, she explained, she can use her "food money to pay for gas and the counseling."
Gosh, what a lucky woman.
How did this woman (let's call her Mrs. Norman--not her real name) end up in bankruptcy? She had lost her husband 18 years ago, and she had moved to another state care for her older sisters who had now passed on. She had a small house and was managing the mortgage and her other expenses just fine when she got a call from the nicest lady at the bank about three years ago. The bank lady explained that Mrs. Norman was "in the wrong mortgage" because it was fixed rate and "interest was low." She said she could "switch" Mrs. Norman to a lower cost mortgage. The bank lady promised to call her when interest rates went back up and switch her back to the fixed rate mortgage. But, said Mrs. Norman, "she never called." Now Mrs. Norman's mortgage payments have shot up, and she is about to lose her home. So she filed for bankruptcy.
Of course, bankruptcy won't be able to do much for her. She can't make her mortgage payments and she can't refinance, so she will lose her home. She thinks that soon she will be living in her car. But she was will be required to get approved credit counseling before she can get a discharge.
At today's hearings, the credit industry representative trumpeted that the new credit counseling provisions were a sign of how well the bankruptcy bill is working. It will undoubtedly be a big help when Mrs. Norman's credit counselor explains how she can improve her financial management from the front seat of her 19 year old automobile.
No one asked Mrs. Norman to testify. But if someone had asked her to go to Washington, perhaps she could have told Congress how lucky she was to get credit counseling instead of eating.
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May 1, 2007 4:21 PM | Reply | Permalink
This -- the individual has to be responsible and the poorer the more responsible, but corporations and the rich are exempt -- seems to be a trend not only in the bankruptcy laws. Same "philosophy" is evident in tax collecting. I think it's because the small fish are easier to catch and fillet. If you're hurting for the gas money to even get you to the court, you're certainly not in a position to hire yourself a fancy lawyer to defend you.
May 1, 2007 5:15 PM | Reply | Permalink
OK, Management. I know you'll do it, but the sooner you get rid of this gypsy the better.
Jan
May 1, 2007 5:21 PM | Reply | Permalink
The time for mandatory credit counseling was when the nice lady at the bank called. There may have been good reasons for "Mrs. Norman" to refinance into an ARM, but it would make sense to require that informed consent be obtained first. In medicine, informed consent requires that the patient understand the risks as well as the potential benefits. A session like that might have avoided this ugly situation.
May 1, 2007 6:32 PM | Reply | Permalink
Let's all hope that "nice bank lady" becomes another Mrs. Norman when she is 72.
May 1, 2007 6:58 PM | Reply | Permalink
Elizabeth Warren
When I had a job and the government proper was taking out over $600.00 US a week, I was told it was to take care of such people. At least this woman has an advocate. Some people don’t even have that.
May 2, 2007 3:52 AM | Reply | Permalink
I've worked in the heavily regulated insurance industry. These kinds of things happen all the time when an agent may get someone to roll out a good annuity or life policy into a bad one that pays less interest etc...
The industry response was to require the signing of all kinds of disclosure forms and offer a 30-day grace period to switch back.
These help, but people still get shafted, because they never read the forms they sign, and there are some people that will buy anything from anyone. They simply can't say no. All the regulations in the world will not stop the greedy from preying on the naive or gullible.
May 2, 2007 12:40 PM | Reply | Permalink
It is indeed irksome to pay out hundreds per week to such a foul organization. But I am too cowardly(, and in too much debt,) to follow Thoreau's recommendations.
But I can imagine what a fine feeling it would be to pay taxes and otherwise participate in a government that one was proud of. I pray I live to see the day.
May 2, 2007 6:58 PM | Reply | Permalink
First, thank you for telling this story.
It's true that there will always be greedy people preying on trusting, vulernable people.
But more regulation could help.
First, "nice ladies" (i.e. salespeople) from banks should not be calling customers advising them to switch mortgages.
Such calls should be made by professional mortgage reps at banks who should be required to have some fiduciary responsibilty to the client. In other words, if their advice turns out badly, they should be required to show that, under the circumstances a sensible businessperson would have given this advice to his mother. (That, of course, is not a legal standard, just a layman's version of what should be required.)
If, indeed, the mortgage rep who called the customer gave advice that violated his/her fiduciary responsibility, the penalties should be very stiff. And the customer should be able to sue the bank--particuarly if she had not sought out advice, but was just the victim of a "cold call" (random solicitation.)
May 3, 2007 2:47 PM | Reply | Permalink
The root of the problem needs to be investigated otherwise we are chasing our tail.
1. Why was Mrs. Norman poor to begin with? Husband died. Did husband have 10xsalary life insurance as recommended?
2. Why did Mrs Norman have a ARM mortgage? If she is not knowledgable on financial issues she should be getting help from family and friends.
I feel sorry for Mrs. Norman's current situation but we need to learn from her and ensure that no one else is ever in the same situation. The credit counsoling is late but it is better then nothing.
May 3, 2007 5:23 PM | Reply | Permalink
One thing I can guarantee doesn't come up in these 'follow up hearings' and other so-called consumer protection attempts is, as Brook Dataski aptly describes, the protection of the gullible from themselves. As someone who has at least tried on 'sucker's shoes',(I bought my last two cars at the first dealership I went to, without even looking up any info from the intertubes, first!)I can grok how easy many of us are to a good sales pitch. Maybe the best we can hope for is that the gullible are the exception rather than the rule.
May 3, 2007 7:15 PM | Reply | Permalink
These words spoken in a country which elected George W. Bush to a second term, after 9/11, Enron, Iraq.
These words spoken in a country which went to war on weapons of mass destruction...
May 5, 2007 10:09 AM | Reply | Permalink
These words spoken in a country which elected George W. Bush to a second term, after 9/11, Enron, Iraq.
I guess it all depends on if you believe in the integrity of the last election, especially Ohio.
May 5, 2007 8:11 PM | Reply | Permalink
I don't believe there's any credible evidence that the election was litterally stolen in the sense that the people who voted did not in fact Bush back into office. The scandal of 2004 and also of 2000 is not vote stealing, it is vote suppression such that large numbers of people who would not have voted for Bush were prevented from voting.
And to be fair, how is Bush to blame for Enron? I think the buck rests with the Enron head honchos on that one.
May 7, 2007 3:38 AM | Reply | Permalink
In light of the 2006 midterm elections the next question is: Will the 2005 Bankruptcy Abuse Prevention Consumer Protection Act be revisited? The Democrat controlled House and Senate obtained their majority due to the deisre of the American people to take government back from lobbyists. BAPCPA places a heartless and onerous burden on the most vulnerable of our citizens. Elderly, disabled, and destitute people are treated like sophisticated theives who play the system. Many of the provisions of BAPCPA are under constitutional challenge. Perhaps Congress should leap to the forefront and begin to address this egregious assault on the middle class.
May 9, 2007 6:17 AM | Reply | Permalink
As long as the "nicest" ladies, and gentlemen, are being paid on commission, quotas, hefty bonuses, or are just under enormous pressure just to keep their own jobs, these sales practices will continue to violate reasonable fiduciary responsibilities.
Another factor that has contributed to the present state is that the origination function is severed from the ownership of the loan by investors. As such, the originator is only concerned about up-front fees and has no interest in whether or not the loan is repaid. The accountability gap needs to be fulfilled.
As much as the capital markets have done a great job of ensuring lots of liquidity for mortgage money, the blowback has been that the less-sophisticated consumers have been put in very, very unfortunate positions without recourse. It does not help anyone when the capital markets buyers review loan portfolios that have been fudged, or originated by pressuring borrowers. Investors want to be repaid, and repayment failures due to poor origination severely impact the integrity of this market and drive costs back up for everyone.
I like the previous poster's idea of informed consent. Such informed consent ideally would be taken by an impartial third party whose responsibility is compliance, and such compliance would be audited frequently by similarly impartial authorities.
As much as I despise unnecessary regulation, some parts of the mortgage industry have brought upon themselves a very serious need for adult supervision.
May 9, 2007 9:26 AM | Reply | Permalink
As long as the Republicans have the White House, any attempt to repeal or revise the 2005 BAPCPA law will be fruitless. George Bush is already on record as saying he will veto any attempt to revise or repeal it. The Democrats do not have the votes to override a veto.
The only recourse is to vote the Republicans out of power (and enough to prevent a filibuster).
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May 9, 2007 2:07 PM | Reply | Permalink
The budget is the vehicle. The operation of his own office is the key. Don't give him money for toilet paper without tying it to a reversal of the entire set of rollbacks the publicans have passed.
May 9, 2007 10:11 PM | Reply | Permalink
Re: As such, the originator is only concerned about up-front fees and has no interest in whether or not the loan is repaid.
Origination banks are often forced by contract to buy back loans that go bad. This is why New Century went bankrupt.
May 10, 2007 6:39 PM | Reply | Permalink