17 January 2010

ARM Resets - Predatory Lending/Fraud: Criminal Prosecution vs. Negotiation
by Stephen Michael Apatow, Founder, Humanitarian Resource Institute and United Nations Arts Initiative

Two years into an economic emergency, one of the first focus areas of the Financial Crisis Inquiry Commission [1] was the 2005 FBI Financial Crimes Report to the Public on Mortgage Fraud [2,3].  Despite the presentation of evidence outlining widespread criminal predatory lending, mortgage and appraisal fraud [4], the U.S. Federal Reserve and regulatory agencies ignored the call for legal action to protect U.S. citizens.  Instead, securitization [5] of unregulated financial instruments, facilitated by the repeal of Glass-Steagall and and deregulation of the OTC derivatives market, pushed the entire global financial system to a point of collapse. [6]

On the grassroots level, families, nonprofit organizations, small businesses and corporations continue to spiral in crisis, despite all federal efforts to contain the damage, all because special interest groups and lobbyists have all but shut down efforts of the White House to contain the damage. In 2009, 2.8 million foreclosures shattered records despite aid [7] and in 2010-2011 the next wave of the crisis encompasses the resets of the Adjustable Rate Mortgages (ARMs). [8]   It is projected that the second wave of ARM resets will be much more severe due to current state of the economy with real unemployment/underemployment at 17.3 percent. [9] 

Meanwhile, the HopeNow [10] program projects 7-9 million loans are eligible for modification and have provided access to HUD consumer counseling, that protects against foreclosure following enrollment in the program. Though banks have refused to modify these loans, they are trying to help. This last week CNBC Investigative Journalist Diana Olick outlined how approximately 12 percent of all home sales by the end of 2009 were a result of short sale fraud,  being perpetrated by banks under the umbrella of taxpayer protection. [11]

Instead of throwing more gasoline on the inferno, perhaps it is time that all loans (including ARMs), negotiated after the call to action by the FBI, be addressed (modified by the courts) under a criminal jurisdiction.

References:

1. Financial Crisis Inquiry Commission: Wickpedia. Url: http://en.wikipedia.org/wiki/Financial_Crisis_Inquiry_Commission
2. Financial Crimes Report to the Public: Federal Bureau of Investigation. Url: www.fbi.gov/publications/financial/fcs_report052005/fcs_report052005.htm#d1
3. Communities in Crisis: Pushed Beyond the Economic Limit: Humanitarian Resource Institute. Url: www.humanitarian.net/law/assistance/senior_crisis.html
4. Protecting  America's Families:  Predatory Lending: Intensive federal, state and local initiatives begin in 2002. Humanitarian Resource Institute.    Url: www.humanitarian.net/law/assistance/predatory_lending.html
5. Bair: Securitization Rating Alchemy Fueled Toxic Mortgages: HousingWire. 15 January 2010.  Url: www.housingwire.com/2010/01/15/bair-securitization-rating-alchemy-fueled-toxic-mortgages/
6. Financial Market Legitimacy Critical for Sustainable Global Recovery: Humanitarian Resource Institute, January 2010. Url: www.unarts.org/news/gsteagall_152010.html
7. U.S. 2009 foreclosures shatter record despite aid: Reuters, 14 January 2009.  Url: www.reuters.com/article/idUSTRE60D0LZ20100114
8. The Next Wave of Foreclosures: Adjustable Rate Mortgage Reset Schedule, Digital Journal, 3 October 2009.  Url: www.digitaljournal.com/blog/4214
9. Broader U-6 Unemployment Rate Increases to 17.3% in December, Wall Street Journal Blog. 8 January 2010. Url: http://blogs.wsj.com/economics/2010/01/08/broader-u-6-unemployment-rate-increases-to-173-in-december/
10. HopeNow. Url: www.hopenow.com
11. Big Banks Accused of Short Sale Fraud, CNBC, 15 January 2009. Url: http://www.cnbc.com/id/34877347