May 2008

Who’s to Blame for the Mortgage Mess?

Christina Latta Henry |  | Credit, Foreclosure

As the mortgage meltdown continues to melt, it’s not terribly surprising that we’ve started to see the credit industry point the finger of blame at borrowers who took on loans they haven’t been able to pay back. As a recent trio of stories on public radio makes clear, however, the lion’s share of the blame should go to the lenders, investment banks, and brokers who devised and sold the financial instruments that turned the U.S. real estate market into something akin to a pyramid scheme.

On the April 3 edition of Fresh Air, University of Maryland law professor Michael Greenberger gave a clear and concise explanation of the causes and impacts of the mortgage and credit crisis that should be required listening for anyone who wants to understand how we got here and where we’re going. Listen here.

On May 9, Chicago Public Radio’s This American Life aired “The Giant Pool of Money,” a joint production with NPR News that explored the boardrooms and boiler rooms where these new, risky financial instruments were dreamed up and implemented. Listen here, or listen to the companion story on the May 9 All Things Considered here.

For a revealing look at who’s really to blame, read or listen to this story from the May 27 Morning Edition, about the lengths to which lenders and brokers have been willing to go to put people into loans they couldn’t afford:

A bankruptcy examiner in the case of the collapsed subprime lender New Century recently released a 500-page report, and buried inside it is a pretty interesting detail. According to the report, some investment banks agreed to reject only 2.5 percent of the loans that New Century sent them to package up and sell to investors.

If that’s true, it would be like saying no matter how many bad apples are in the barrel, only a tiny fraction of them will be rejected.

It seems all but certain that the stories that have already come out are just the tip of the iceberg. Stay tuned.

Federal Legislation: Housing Aid May Be Coming

Christina Latta Henry |  | Bankruptcy, Current Events, Foreclosure

At Seattle Debt Law we consider bankruptcy a last resort option for homeowners who are behind on payments and/or facing imminent foreclosure. However, clients struggling with payment resets that can often increase their monthly mortgage payment by a third or more have few options. Luckily Congress is pledging to finally bring relief to homeowners through a government housing fund backed by Fannie Mae and Freddie Mac. Although the final bill has yet to come up for a vote, a deal has between reached by Senate Democratic and Republican leaders to bring a bill to the Senate floor and it should help homeowners with expensive adjustable-rate loans apply to refinance to stable 30-year fixed rate FHA mortgages.

It is too early to assess the impact of this bill on homeowners facing imminent foreclosure, but if there is a way to save your house, we will work with housing counselors to make it happen and keep your legal options for bankruptcy or predatory lending litigation open if the refinance or loan modification does not come through.

“Drawing Back The Curtain on the Mortgage Servicing Business”

Christina Latta Henry |  | Bankruptcy, Current Events, Foreclosure

The New York Times’ Gretchen Morgenson wrote a great article last month rounding up a number of recent cases of bankruptcy court judges doing what the government seems unable to do: reviewing how and why homeowners are losing their homes, and holding lenders and servers responsible for their bad acts. The article covers the Louisiana case I wrote about yesterday, plus two others in Delaware and New York. The New York case is especially interesting to me because I have a current client dealing with exactly the same issue: the lender refused to accept a payment made by a borrower in bankruptcy, then tried to take action against the borrower for not making the payment!

Lenders have gotten away with these abuses for a long time, but I think these recent decisions show that the pendulum is beginning to swing back in favor of the consumer.

Louisiana Decision Takes On Lending Fees

Christina Latta Henry |  | Bankruptcy, Current Events

Among the many unsavory, unethical, and downright illegal practices employed by mortgage services in recent years is the way they drench borrowers with excessive and punitive fees for just about anything they can think of, often without even notifying the borrower. Fortunately, judges are beginning to take notice. An important decision last month (PDF) from the U.S. Bankruptcy Court for the Eastern District of Louisiana found Wells Fargo negligent in the case of Dorothy Chase Stewart, a New Orleans-area widow whose mortgage the bank serviced. The court found that Wells Fargo levied numerous fees and charges against Mrs. Stewart’s account without ever notifying her, for such things as late payments and “inspections” that never took place. In one particularly egregious instance, Wells Fargo charged Mrs. Stewart $250 for two inspections that supposedly took place on September 12, 2005—a day when her parish was under an evacuation order due to Hurricane Katrina! Judge Elizabeth W. Magner assessed more than $27,000 in damages against Wells Fargo, and ordered additional sanctions to force the bank to clean up its act.

If you have encountered any bogus fees on your statement, take a few minutes to read the attached decision—it’s kind of long, but well worth it.

Washington State Homestead Exemption Raised

Christina Latta Henry |  | Bankruptcy, Current Events

I was interviewed by KOMO TV’s Connie Thompson for a March story on the recent change in Washington’s homestead exemption law. When a debtor files for bankruptcy, the homestead exemption protects the equity in the debtor’s home from creditors up to a maximum amount.

Washington has some of the most expensive residential real estate in the country, yet for many years the homestead exemption law didn’t really reflect that fact. Before the law changed in 2007, the Washington state homestead exemption law only protected up to$40,000 in equity, which wasn’t enough for many homeowners. For example, if you entered bankruptcy with $75,000 equity in your home, creditors could pursue the $35,000 equity in excess of the exemption, which forced many people to sell their homes or refinance under unfavorable conditions. Under the new law, the exemption has been raised to $125,000, making bankruptcy a much more attractive option for many homeowners.

Watch the KOMO story for more information about the homestead exemption law and how it can work for you.

Welcome to the Blog!

Christina Latta Henry |  | Uncategorized

Welcome to the Seattle Debt Law Blog! With the mortgage and credit crisis coming to dominate news headlines, I’ve decided to start this blog to help educate consumers in the Seattle area and around the nation about the fundamentals of bankruptcy and debt law and how it affects us all.

My name is Christina Latta. I am an attorney specializing in bankruptcy and consumer law practicing in Seattle, Washington. I have a BA from Dartmouth College and a JD from Boston College Law School, and I spent 2 years as a law clerk for a bankruptcy judge in Fresno, California before going into private practice. I spent another 2 years representing mortgage lenders in bankruptcy court before “switching sides” and working for debtors exclusively, which I’ve done since 2004. My experience on both sides of the aisle has given me a useful understanding of the bankruptcy system and the way creditors and debtors resolve their differences under the law.

In the coming weeks and months I hope to use this platform to discuss current topics, legal trends and issues of interest, new legislation affecting mortgages and other debt, cases of interest coming before the court, and other important developments. The legal system can be a bit intimidating and scary to people who’ve never had to deal with it before, so I’d also like to help demystify it a bit by explaining how it works, and about the options that are open to debtors facing foreclosure, harassment by creditors, mortgage troubles, and so on. Stick around and see how it develops.