According to USA Today, the Halloween bash at the six-bedroom mansion was a huge success, drawing 1,000 people. It ended only when traffic gridlock got so bad police had to be called.

But the party wasn’t an isolated event. Similar unauthorized parties are taking in place in other cities with vacant homes — evidence of how the problem of empty and foreclosed homes are causing neighborhood blight and other problems. Although some places, like the Phoenix metro area, are showing some signs of progress in dealing with vacancies, there’s been no widespread solution.

As a result, for some neighbors, falling property values from empty homes aren’t the only issue they have to deal with:

In San Diego County, young people have taken over foreclosed houses for late-night rave parties, says Detective Jeff Lauhon of the San Diego County Sheriff’s Office. Lauhon says the culprits were well-organized in some instances: A young couple would get a realtor to give them a tour of a foreclosed house — usually in a rural area on a large property. The woman would distract the realtor while the man surreptitiously left a window open or door ajar. They would then return and invite others for parties that lasted until the wee hours.

At least they’re not pushing dump trucks out of windows.

A party is a temporary way to fill a house, of course. For many cities, the long-term problem of vacant and abandoned foreclosed homes remains a crisis.

As we reported last week, Fannie Mae has a new program to allow owners of foreclosed homes to stay in their properties and rent them back for as long as a year. But filling foreclosed homes with former owners-turned-tenants is also beginning to take hold, on its own, in some of the Sunbelt states that have been hit hardest by the foreclosure crisis, according to Alan Mallach, a visiting scholar with the National Housing Institute and the Brookings Institution.

Mallach told TWI last week that investors increasingly are buying up bank-owned foreclosed homes in the Phoenix area, then renting them back to their former owners. The strategy is to allow the rental for at least five years or so, by which time the investor probably can sell the house again at a profit, while the borrower has a chance to improve his credit. And the best part: Some investors say their plan is to offer the house for sale first to the former owner.

Everybody wins, and if the idea spreads, it may be one way to address the vacancy problem.

Until then, there’s not a lot else out there to clear the backlog of bank-owned homes sitting empty in many neighborhoods.

So in the meantime, unauthorized parties will just have to do.

Did you know that since 2003, when the subprime market really took off, April has been Financial Literacy Month? Now you do. But in an age where financial expertise seems so discredited what qualifies someone to be financially literate?

It’s a fair question. Unfortunately, the answers aren’t reassuring. First, as Konczal notes, “financial literacy” as a course of study doesn’t exactly exist in the economics field. There’s no incentive to get published on it; there’s little academic research as a result. What fills the gap? As we pointed out, subprime lenders align themselves with mainstream financial literacy groups and fund their efforts as a way to distract from the controversies surrounding their products. Konczal explains the problem goes even further, with unqualified “experts” dispensing their alleged personal finance wisdom.

There’s little academic backing, there’s no money for journals, research grants, conferences, the development of theory and expertise that is deployable into policy. That leaves the field wide open to be funded by credit card companies, subprime lenders, and others with a vested interest in certain modes of thought becoming the norm. And for expertise to be filled by people who come from motivational speaking backgrounds, and theory to end up as a mess of common-sense adages and low-level morality plays. The theme of Financial Literacy Month for 2008 was “Financial Responsibility Begins with Me”; why didn’t they call it “caveat emptor”?

One of the biggest hurdles facing the creation of legitimate and useful financial literacy programs will continue to be funding for non-biased, professional counselors.  It’s not a great time to push the government to provide more money to the nation’s Cooperative Extension System — but that national educational network remains a valuable source of credible personal finance research. And as we said, some corporations are beginning to incorporate financial literacy into their human resources responsibilities, given the problem of employees burdened with distracting financial problems.

In the end, that may really be what it takes to get untainted financial literacy education going — the overwhelming debt crisis facing American consumers. Maybe the government and the private sector will come to realize that partnering with credit card companies and subprime lenders isn’t going to get the job done. As Calculated Risk has repeatedly asked, why aren’t consumers being educated on the perils of not paying their credit card bills off in full every month? Probably because, in the absence of untainted financial literacy advice, a company like Visa is backing a high-profile financial literacy initiative. It seems unlikely advising people to pay off their credit cards is the focus of that effort.

As credit tightens, so will the need for legitimate financial literacy education. And as consumer debt becomes something harder to ignore, maybe the unholy alliance of creditors with a stake in the game and financial literacy education programs often aimed at younger borrowers in particular, will finally come to an end.

That’s not all. At Naked Capitalism, guest poster George Washington says the financial industry lobbyists aren’t just trying to kill new laws – they’re actually trying to weaken existing regulations, citing Robert Borosage’s similar argument.

And this is only after the first day of the committee’s hearings.

Good to see how much President Obama has changed the culture of Washington.

The 1977 Community Reinvestment Act was intended to end redlining, a practice in which banks in effect walled off many inner-city neighborhoods from mortgage loans. But some GOP lawmakers say it has outlived its purpose and is being used inappropriately by ACORN to shake down banks for money. They want to repeal the law, scale it back or at least block a Democratic proposal to expand it.

Critics of the law are linking it to ACORN — a subject many Democrats wish would go away — at every opportunity.

This is just silly. The idea that the CRA is to blame for the subprime mess is nothing more than an urban myth, picked up and repeated by people in power who should know better. We’ve said this many times before, but let’s repeat it again, for all those lawmakers who continue to cling to the idea of the CRA as an easy target: The overwhelming majority of subprime loans made during the housing crisis came from unregulated lenders not covered by the CRA.

And although CRA opponents portray it as a burdensome regulation that forced banks into making bad loans to poor people, the mortgage industry never looked at the CRA that way. Guy Cecala, publisher of Inside Mortgage Finance, which covers the subprime industry, told us last year the CRA was seen as a loose regulation that caused little concern.

Banks were routinely found in compliance with the CRA, and an insider joke among bankers was that you’d have to mug a disabled, elderly, minority homeowner to lose your outstanding CRA rating, Cecala said.

Beyond that, as the housing boom grew, so did the number of unregulated mortgage lenders, who made the bulk of subprime loans and who didn’t even have to comply with CRA rules, said John Taylor, president of the National Community Reinvestment Coalition, which represents housing and community development groups. Some 75 percent of subprime loans were made by independent mortgage banks and lenders not covered by the CRA, he said.

The blame-the-CRA movement has grown into a debate almost entirely divorced from the facts. Throwing ACORN and its troubles into the mix only makes that situation worse. A robust, informed discussion on homeownership and low-income borrowers would be welcome. The CRA/ACORN dustup is just the opposite, an exercise in ignorance and headlines that adds nothing to the worthy investigation of America’s housing policies and prudent financial regulation.

“In 2008, we held our presidential election on Sept. 15,” Clinton said. “When the Bush administration decided not to help Lehman Bros … McCain’s chances of winning an election went from 1-in-4 to 1-in-50. The election ended Sept. 15.”

Debating whether the government should have let Lehman fail is a worthy pursuit, and one best debated by economists and policymakers still probing the near-collapse of the country’s financial system. For Clinton, however, it’s a different matter. Blaming Lehman keeps Clinton from giving any credit to Obama for winning on the merits of his campaign. It helps take the focus even further away from Hillary Clinton’s unsuccessful primary campaign, and Bill Clinton’s own role in stirring up controversies that detracted from her effort.

Coming from a more neutral observer, these kind of comments about Lehman might be worth pondering further. Coming from Clinton, they sound more like self-serving revisionist history.

JumpStart Executive Director Laura Levine and Southeast Regional Director William Cheeks (jumpstartcoalition.org)

The JumpStart Coalition for Personal Financial Literacy, a national nonprofit advocacy group that aims to improve the financial management skills of America’s youth, draws lots of attention for its surveys measuring how much kids really understand money. Last spring, Federal Reserve Chairman Ben Bernanke even led a joint news conference to announce JumpStart’s most recent findings, calling it “a leader among organizations seeking to improve the personal financial literacy of students from kindergarten to the university level.”

The 180 corporations, government agencies and nonprofits that are partners and provide financial support to the coalition get prominent billing on JumpStart’s Website, and share in the prestige of a group that promotes national standards for financial literacy education in the country’s classrooms.

But also included in the coalition is CompuCredit, an Atlanta subprime lender that specializes in high-rate credit cards, payday loans, auto financing and debt collection, focusing on customers with poor credit scores. In December of last year, CompuCredit reached a $114 million settlement with the Federal Deposit Insurance Corporation and the Federal Trade Commission, which had charged CompuCredit and two partner banks with deceiving hundreds of thousands of customers by failing to properly disclose upfront fees and credit limits on their cards, thereby sinking borrowers further in debt. In addition, JumpStart’s Southeast regional director, a paid consultant who serves as a liaison to the group’s state affiliates, also counts CompuCredit as a client of his private consulting firm.

JumpStart executive director Laura Levine said that she was aware that CompuCredit belongs to JumpStart’s coalition, and that the coalition’s Southeast Regional Director William Cheeks also works for CompuCredit as a consultant. But, she said, no questions had been raised about the situation until an inquiry from TWI. Levine said JumpStart staff would explore the matter.

“No one’s called it to our attention as a problem,” Levine said. “Now that we’ve talked about it we will look into it further.”

JumpStart is not taxpayer-funded, although government agencies like the FDIC and Freddie Mac are partners. Corporate partners pay $5,000 annual dues to the coalition, with lesser fees for government groups and nonprofits. Membership has to be accepted by the board of directors, Levine said. Businesses that only do payday loans would never be approved for membership, she said, but the situation “gets into a real grey area” when a company, like CompuCredit, offers a range of financial products.

JumpStart describes its mission as promoting financial literacy through advocacy, research, standards for financial literacy education, and educational resources.

It also maintains an online clearinghouse of approved personal finance materials for educational use. Its partners provide financial support, and JumpStart in turn offers guidance and resources to help member organizations with their own financial literacy efforts. It does not allow any coalition members to sell or distribute their own products through JumpStart.

Regarding Cheeks, Levine noted that he is a consultant, not an employee, and that JumpStart can’t dictate what clients his private firm might accept. “We’re a coalition of organizations and entities that share a commitment to financial literacy education,” Levine said. “We have a lot of financial services firms that may be competitors, or may have different positions from each other. They aren’t working for us. They came to JumpStart to share in our support of financial education and financial literacy efforts.”

But Irene Leech, president of the Virginia Citizens Consumer Council, said she found CompuCredit’s involvement with JumpStart troubling.

“I’m disappointed,” said Leech, who also specializes in consumer issues as a Virginia Tech professor. “It’s distasteful, and it doesn’t improve its efforts. I would have absolutely said no to both these situations, at a bare minimum. I have a pretty high expectation for a group like this. There are many professional and academic organizations that I belong to that are members, along with the consumer groups. They’re the entity that everyone is looking to when it comes to measuring financial literacy with a high degree of accuracy.”

Leech added that “I just wouldn’t have thought that their leadership would have wanted to go this way. I’m really sad they’ve gone this route.”

In Virginia, JumpStart’s state coalition was credited with helping require financial literacy education in school curriculums, and also is active in other states to promote financial literacy at a local level, Leech said. Next month, JumpStart will sponsor its first national educator conference for K-12 teachers, devoted specifically to personal finance education. FDIC Chair Sheila Bair is scheduled as the keynote speaker.

At last spring’s joint news conference, Bernanke said the regional Federal Reserve banks work closely with JumpStart state coalitions on financial literacy issues. And JumpStart is probably most well-known for its biennial financial literacy surveys, which usually receive wide press attention. The April 2008 survey found that graduating high school seniors still were struggling with financial literacy basics.

Regarding the coalition partners, Levine said that “Many of our partners conduct financial education or support financial education activities–JumpStart’s role is to support, in some ways, what the partners do. For example, if a partner has a financial education product, we list it in our clearinghouse to try to help users find it. So, we don’t specifically ask them to do things for us.  We ask them to base their materials on the national standards, to help advance the
mission of the coalition.”

“We generally recommend their participation in financial literacy activities and efforts,” Levine continued, “but we don’t specifically ask them to do things.  Partners support us financially for the effort that we do, generally, on behalf of all, such as publication of the standards, operation of the clearinghouse, (and) promoting Financial Literacy Month.”

Leech said JumpStart has been very successful, particularly at the state level, in getting more businesses to join the coalition. But while partners from Merrill Lynch to Experian sponsor JumpStart surveys, conferences and other activities, CompuCredit should be treated as a different case, she said. Subprime lenders often seek to align themselves with more mainstream organizations to deflect controversy over their practices, Leech noted. CompuCredit’s membership in the JumpStart coalition reminds her of businesses that create fake consumer groups with benign-sounding names as cover, she said, and there should be no grey area in determining whether the firm belongs in JumpStart.

“I’m not buying any of it. We all know that folks are being taken advantage of” by subprime firms and payday lenders, Leech said.

For his part, Cheeks, president of a Georgia fiscal management consulting firm, described himself as a retired Equifax executive whose main goal is consumer education. As to whether any conflict of interest exists by consulting for both JumpStart and CompuCredit, Cheeks said that “I consult with a lot of companies” and added, “I’m not going to get into that discussion.”

“I work to help consumers understand credit – how credit works, how to improve their credit,” said Cheeks, a former Vice President for Consumer Education at Equifax. “I do that for all of my clients. I am a consumer educator. That is exactly what I do. With JumpStart, my focus is kids. I want to get to students as early in life as a possible, so they can build a good credit history.”

He declined further comment regarding CompuCredit.

Guy Cecala, publisher of Inside Mortgage Finance, which covers the subprime industry, said subprime lenders like CompuCredit usually have a problem when it comes to supporting financial literacy, since some basic lessons would be not to take out payday loans or to pile up debt on high-rate credit cards.

The FDIC, for example, said its charges against CompuCredit stemmed from a fee-based credit card marketed to consumers with low credit. The FDIC said the solicitations “failed to adequately disclose significant upfront fees and misrepresented the consumer’s initial available credit. The solicitations appeared to offer credit cards with a $300 credit limit; however, consumers were immediately charged as much as $185 in inadequately disclosed fees, leaving them with as little as $115 in available credit.”

CompuCredit did not admit or deny liability in the settlement of the charges. A company spokesman did not respond for comment.

Subprime lenders have been reinventing themselves since the mortgage crisis hit, turning to conducting mortgage loan modifications or offering foreclosure counseling, Cecala said. CompuCredit’s affiliation with JumpStart fits that mold, he said.

On its Website, CompuCredit says it provides a “much needed second chance” to consumers overlooked by traditional financial institutions. It also lists financial literacy among its philanthropic activities. The company also features a “financial wellness” section, which includes a financial literacy guide for consumers.

Levine said Cheeks has been a consultant for Jumpstart for about five years. CompuCredit has been a coalition partner since at least 2007, she said.

CompuCredit has been involved in controversy over its financial literacy efforts before. The Southern Christian Leadership Conference drew criticism for entering into a 2007 partnership with CompuCredit, with plans for joint “economic empowerment” workshops aimed at educating minorities borrowers about credit, and a co-branded credit card.

When Taylor died without a will on Nov. 27, 2007, the bulk of his $5.8 million estate went to his daughter, Jackie Taylor, now 3, who lives with her mother, Taylor’s high school sweetheart, Jackie Garcia, in Coral Gables, Fla. Taylor’s mother did not get a penny. Nor did his grandmother, great-grandmother, two of his half-siblings or any of the cousins or relatives who had grown accustomed to his largesse.

The result, for his mother, Donna Junor, has been a new hardship:

In Junor’s case, she was left with possessions that carry costs and fees that she says exceed her income as a substitute teacher. She could not pay the real-estate taxes last year on the townhouse she bought in 2005 with $222,000 her son had given her. Another tax bill is due at the end of November. She hasn’t paid her homeowners association dues in months. The lawyers have begun chasing.

Sean Taylor’s story was always a sad one, a young man who lost his life far too soon. He died a day after he was shot while confronting burglars in his home. That his $900,000 house is facing foreclosure, and that his mom could lose her home as well, only adds to the sadness. It’s also a reminder that behind the numbers of the foreclosure crisis are real and complicated stories of pain, loss, and homes that once represented someone’s achievements and dreams, taken back by the bank.

As Clusterstock noted, the fall of Enron occurred back in 2001 — but it’s still making news.

If Enron is any indication, we’ll be hearing about the collapsed businesses of the financial crisis for years to come.  The Enron bankruptcy seems like eons ago, but the fallout never ends.

Maybe. But where’s the legal fallout from the current financial crisis?

As we mentioned on Monday, save for Bernard Madoff, there haven’t been any high-profile prosecutions over the subprime mortgage market mess. Wouldn’t backdating financial reports to mask a bank’s failing situation, as apparently was the case with IndyMac, qualify as criminal? Enron failed after all the accounting tricks it used for years couldn’t hide its real situation anymore. Courts have found the actions of its top executives worthy of jail terms. When will we hear about bankers going to jail?

Enron’s bankruptcy should be small change, compared to a global financial crisis. Let’s see how far the fallout goes, this time around.

The Federal Housing Administration, hit by increasing mortgage-related losses, is in danger of seeing its reserves fall below the level demanded by Congress, according to government officials, in a development that could raise concerns about whether the agency needs a taxpayer bailout.

In the past two years, the number of loans insured by the FHA has soared and its market share reached 23% in the second quarter, up from 2.7% in 2006, according to Inside Mortgage Finance. FHA-backed loans outstanding totaled $429 billion in fiscal 2008, a number projected to hit $627 billion this year.

Rising defaults have eaten through the FHA’s cushion. Some 7.8% of FHA loans at the end of the second quarter were 90 days late or more, or in foreclosure, according to the Mortgage Bankers Association, a figure roughly equal to the national average for all loans. That is up from 5.4% a year ago.

TWI wrote in January about concerns regarding the FHA and its dwindling insurance portfolio. As we noted then, Washington housing consultant Howard Glaser pointed out that with its larger share of the housing market, the FHA was becoming a $2 trillion company without a risk control officer. If that doesn’t make you nervous, it should.

But the bigger issue for the FHA — and for some other government agencies — is the legacy left by the previous two administrations. Beginning, in fact, with former Vice President Al Gore’s Reinventing Government initiative but expanding with a vengeance and an anti-government fervor during the Bush years, the idea of downsizing government reigned supreme. The FHA, like its parent agency, the Department of Housing and Urban Development, was shunted aside, stripped of many of its powers and personnel, left to languish and demoralized. Now a smaller and weakened FHA is supposed to turn on a dime and save the mortgage market. Little wonder the agency is running into problems.

Here’s how Sheila Crowley, president of the National Low Income Housing Coalition, summed things up in January for TWI:

“When you’ve been operating under a belief system that government is the problem and is not helpful, which has been the direction under the Bush Administration, people get demoralized and that makes it harder to get anything done,” she said. “HUD and the FHA have lost a lot of people and they’ve been neglected over the past eight years. There just aren’t enough people left to do everything the government is asking them to do. It’s a pretty hefty assignment to turn them around.”

The FHA has never had to ask for government help since it began in 1934. That may change, if loan defaults keep growing and the insurance fund shrinks even more. If there’s yet another taxpayer bailout, the government won’t need to look far to find someone to blame.

That’s why a new documentary “American Casino,” by famous filmmakers Andrew and Leslie Cockburn, is already getting attention. In it, a former banker from Bear Stearns, is filmed, with his identity concealed, elaborating on Wall Street’s role in packaging and selling subprime loans, and admitting that the financial world knew the whole thing was a big scam all along.

But think about that for a moment. The former banker insisted on being filmed in shadow, to feel free enough to talk about Wall Street’s role in the crisis. How telling is that? On Wall Street, apparently, you have to hide in anonymity to tell the truth about the mortgage market meltdown.

Here’s David Denby in The New Yorker, describing the former banker’s turn on the screen:

We might be watching a retired criminal or spy, a man both proud of his dexterity and ashamed of the disaster that it led to. Out of the shadows, he explains how such bizarre instruments as collateralized debt obligations (C.D.O.s) quieted the normal skepticism of investors. Here’s the drill: when the bank assembled a group of mortgage-backed bonds as an investment product, it submitted them to a ratings agency. But the agency, rather than run its own computer models on the trustworthiness of such bonds, he says, merely handed the job back to the bank, which ran its models. Having received a fee of perhaps a hundred thousand dollars for not doing anything, the agency then signed off on the phony ratings. You can read about a scam like that in a newspaper and be surprised, but when the perpetrator actually explains it to you your reaction falls somewhere between nausea and hilarity. It’s as if the Russian Mafia had paid a Colombian drug cartel to certify its integrity.

At the Wall Street Journal’s Speakeasy blog, the Cockburns were asked whether they thought any of the financial executives they talked to for the film were contrite.

I think that when some of them came to the film, they were very thoughtful about the link between what they were doing and what was actually happening.  It’s a very enclosed world on Wall Street. As one of the execs says, if we’d all gotten in a car and seen for ourselves what was going on Florida, or California, or wherever, we might have viewed things differently.

That’s an especially interesting comment, given that the aftermath of the foreclosure crisis in some cities is shaping up to be as bad, or worse, than the foreclosures themselves, with trashed and vandalized bank-owned foreclosures piling up. Now would be a good time for Wall Street to take a road trip into the rest of the country. And policymakers in Washington should probably go along.