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.

Tavis Smiley interviews Barack Obama in October 2007 (YouTube: BarackObamadotcom)

As the housing market began booming in the mid-2000s, Wells Fargo & Co. teamed up with prominent African American commentator and PBS talk show host Tavis Smiley and financial author Kelvin Boston, the host of “Moneywise,” a multicultural financial affairs show, to host something called “Wealth Building” seminars in black neighborhoods.

Smiley was the keynote speaker, and the big draw, according to Boston and Keith Corbett, executive vice president of the Center for Responsible Lending, who attended two of the seminars. Smiley would charge up the audience — and rattle the Wells Fargo executives in attendance — by launching into a story about how he hated banks, and how they used to refuse to lend him money for his real estate projects in Compton, Calif., and elsewhere. After Hurricane Katrina, Smiley also emphasized the importance of building assets and wealth, saying those who had done so were able to leave New Orleans, while people with nothing had to stay behind, Boston said.

Illustration by: Matt Mahurin

“My spiel was the financial planning process, how you want to be able to save and invest for the future, and to have a plan of action,” Boston said. “Then Tavis talked about his experiences with the banks, and how people should be thinking about some real estate.”

The seminars in some cities drew standing room only crowds, with numerous Wells Fargo representatives on hand, seated at carrels to meet one-on-one with potential borrowers who lined up after the speeches, which were usually held in hotels. The free, day-long events were heavily advertised in the black media, and launched in eight cities, including Baltimore, Chicago, Richmond, Va., and San Francisco.

But what appeared on the surface as a way to help black borrowers build wealth was actually just the opposite, according to a little-noticed explanation of the “Wealth Building” seminar strategy, contained in a lawsuit recently filed by Illinois Attorney General Lisa Madigan.

Wells’ plan for the seminars all along was to target black borrowers for higher-cost subprime mortgages, not for wealth-building, the suit charged. And the seminars were a part of the bank’s overall illegal and discriminatory practice of steering black and Hispanic borrowers into riskier and more expensive loans, the suit said.

“According to a former Wells Fargo Home Mortgage employee, one of these ‘Wealth Building’ seminars held in Maryland was planned for an audience that would be virtually all African American,” the suit said. “The plan for the seminar was for Wells Fargo Home Mortgage employees to talk about subprime mortgages, although they were directed by Wells Fargo Home Mortgage to use the term ‘alternative lending’ when marketing these products.”

The former employee, who is white, was scheduled to speak at the seminar, but was told by a manager that she was “too white,” and that only black employees could make presentations, the suit said.

Wells Fargo, one of the nation’s largest mortgage lenders and a recipient of $25 billion in government bailout money, has denied all the charges in the Illinois suit, as well as other allegations of unfair lending. The bank did not respond to requests for comment on the seminars. Smiley, an author and advocate who hosts the late night talk show, “Tavis Smiley,” and who organizes the State of the Black Union symposiums each year, also declined comment.

Corbett pointed out that Wells’ outreach to the minority community through the seminars wasn’t unusual. Lenders sponsoring financial literacy sessions, holding wealth building seminars, or contributing to local minority advocacy organizations, became a common marketing strategy as the subprime market grew. Some of the efforts were genuine, aimed at finding new customers in minority neighborhoods once deprived of credit. But sometimes they were used instead as a cover to push predatory loans, Corbett said.

“The wealth building seminars are certainly needed,” Corbett said. “But, if, in fact, Wells was selling bad products out of them, it was totally wrong.”

Boston, for his part, described himself as the small player in the seminars, giving an opening talk before Smiley went on. Boston said he spoke in general terms about the need to save money and to invest. Neither he nor Smiley ever mentioned or discussed subprime loans, he said.

“Basically we were just speakers for hire,” Boston said. “We didn’t have any role or any control over what else happened. The main point is that we were not involved in any of their discussions or in anything they sold.”

Corbett said that after the speakers finished, bank employees and other financial experts were offering credit checks, real estate counseling, and other kinds of assistance. Corbett said he also believes some employees were signing up people for loan pre-approvals, on the spot, though he couldn’t be sure of what kind of loans they were. He said attendees lined up to talk to the Wells employees in both events. “If they weren’t actually selling loans, they were setting up borrowers for the kill,”  Corbett said.

Once their speeches were over, however, Boston said he and Smiley  had nothing to do with the workshops and counseling. He said he and Smiley together did about 15 seminars over a period of about two years. He declined to comment on how much he or Smiley were paid.

In 2005, before the subprime crisis, Boston said, the main worry in the black community over mortgage lending was the banks were lagging behind in their lending to minority neighborhoods. He said expressed his concerns about this to Wells Fargo. Smiley, he said, also later raised questions about subprime lending tactics with the bank. “Tavis definitely had some dealings with them on this issue,” Boston said.

Nonetheless, in hindsight and with the collapse of the subprime mortgage market, Boston said he has second thoughts about participating in the seminars.

“Were we probably used? We probably were,” he said. “If I had the chance to do it over again, would I do it in a different manner? Probably.”

“You look back now and you feel for the homeowner who could have qualified for a better mortgage and got the costly type of mortgage. That concerns me a lot, not just for Wells Fargo, but for everybody out there, Citigroup, Countrywide … they were all doing the same events.”

But at the time, Boston said, having a major bank doing outreach in the black community was considered an encouraging development, after so many years of redlining and restricted access to credit. “We all thought at the time that we were doing a positive thing,” he said.

Boston said he quit doing the seminars after his contract ended two years ago. Smiley, he said, continued to work with Wells Fargo, particularly on his annual State of the Black Union symposiums. On his Website, Smiley recently posted a statement regarding Wells Fargo that said, “in this economic climate, we continue to be reminded every day that there is no perfect company.”

Smiley said in the statement that his relationship with Wells began in 2005, as part of the bank’s  “commitment to increase financial literacy in the African American community.” He said that “the partnership with Wells Fargo focused on building personal wealth, which for most Americans begins with buying a house.”

According to the statement, Smiley also has had partnerships with other companies, but has never served as a spokesperson or representative for any of them, including Wells Fargo. The statement also said Wells Fargo will no longer be one of the sponsors of his Black State of the Union event in 2010, although the bank sponsored the event as recently as last spring.

“Given the fact that Wells Fargo has been an industry leader, they have partnered with many African American and Latino national civil rights organizations on various community initiatives,” the statement said.

The Illinois lawsuit against Wells is one of many such actions winding their way through the court system around the country, offering more details of alleged discriminatory tactics by lenders during the height of the subprime boom. As TWI reported last week, housing advocates call these lawsuits the “smoking guns” of the housing crisis, providing what they see as proof that lenders deliberately targeted minorities for high-rate and risky subprime mortgages, while white borrowers with similar incomes and credit scores received lower-cost loans.

In a city of Baltimore lawsuit against Wells, former employees charged that Wells Fargo loan officers referred to minority borrowers as “mud people” and called subprime mortgages “ghetto loans.” But some prominent black bloggers find the “wealth building” seminars just as egregious, and question why Smiley, Boston, and anyone else who participated in them hasn’t been called on further to account for their actions.

“If Tavis Smiley was white, Wells Fargo and ‘Ghetto Loans’ would be front page news,” wrote Genma Stringer Holmes, a Nashville, Tenn., business owner and blogger who has blasted out several posts on the seminars.

Holmes said Smiley should speak out more against discriminatory subprime lending practices – but he hasn’t been forced to, because the black media has been silent on the issue, she said. The scandal that remains is that the ads and seminars targeted the most vulnerable members of black community, according to Holmes. “People who follow Tavis will follow him off a cliff,” Holmes said.

Boston said he still does seminars and presentations pushing wealth building, but he focuses on avoiding foreclosures and helping with loan modifications. He recently wrapped up work on an upcoming show on helping homeowners facing foreclosures, he said.

This story has been updated for clarity.

–

You can follow TWI on Twitter and Facebook.

And the trouble is expected only to get worse.

Jay Brinkmann, MBA’s chief economist, predicts that, based on rising unemployment projections, the number of foreclosures likely won’t peak until the end of 2010.

“Our forecast is that jobless rates will peak in the middle of next year, and we’ll expect delinquencies to peak then and foreclosures to peak after,” Brinkmann said, according to The Hill.

Not that Washington policymakers haven’t taken steps to help struggling homeowners. But the Obama administration’s plan, which relies primarily on banks to modify mortgages voluntarily, hasn’t kept pace with the rising number of foreclosures.

As a result, some congressional Democrats would like to return to bankruptcy reform legislation, which failed in the Senate earlier this year. Indeed, a subpanel of the Senate Judiciary Committee held a hearing on “cramdown” this morning in Rhode Island.

Sen. Richard Durbin (D-Ill.) (WDCpix)

Roughly three months after Senate lawmakers killed legislation empowering homeowners to escape foreclosure through bankruptcy, some upper-chamber Democrats are looking to revive the corpse. They hope to pressure the White House into spending valuable political capital on a cause fallen by the wayside.

Up to now, policymakers have relied on programs that subsidize lenders and mortgage servicers who volunteer to alter loans to keep homeowners afloat. Yet those voluntary modifications lag far behind the rising tide of foreclosures. Indeed, only 160,000 homes have been propped up this year under the largest such program — a figure dwarfed by the more than 1.5 million foreclosure filings since January. With unemployment on the rise, the gap is only projected to expand. The dark trends have slowly prodded lawmakers to return to mortgage bankruptcy reform as the possible missing link to addressing the foreclosure crisis — the stick to accompany the financial carrots that have thus far failed to stabilize the housing market.

Illustration by: Matt Mahurin

“After two years of efforts that rely on banks to volunteer to rework mortgages, it is time to admit that the programs that have been put in place thus far to ease the crisis are clearly not working,” Sen. Richard Durbin (D-Ill.), sponsor of the Senate’s bankruptcy reform bill, said Thursday during a foreclosure hearing in the Senate Judiciary Subcommittee on Administrative Oversight and the Courts. “With a simple change to the bankruptcy code … over 1.8 million families could save their homes in this country between now and the end of 2012, if the Senate could only muster the courage to help them.”

Under Durbin’s proposal, bankruptcy judges could reduce, or “cramdown,” the terms of mortgages, including interest rates and principal balances, to make the loans more affordable for struggling homeowners — a power judges have over loans for vacation homes, jewelry and other material assets, but not over primary mortgages.

Yet Durbin represents a somewhat lonely crowd. Not only is the bankruptcy-reform proposal anathema to Republicans, but the Obama administration, once a cheerleader for the change, has abandoned the legislation altogether. Without the active backing of the White House, a cramdown bill that passed the House in March was shot down in the Senate less than two months later. Still, Durbin has vowed to bring it back to the Senate floor this year. But, faced with a crowded legislative calendar, including sweeping health care and climate change reform, he’s running out of opportunities.

That erosion of White House backing, according to housing and consumer advocates, spells bad news for the nation’s homeowners, who are drowning in debt in larger and larger numbers. Indeed, more than 1.5 million homes have filed for foreclosure this year, according to RealtyTrac, an online foreclosure database. The figure represents a 15 percent jump from 2008. And the numbers are rising. In May, roughly 321,000 foreclosures were filed nationwide, RealtyTrac found. In June, the figure was more than 336,000.

The difficulty in addressing the housing crisis can be attributed largely to the shifting causes of mortgage defaults. What began as a problem limited largely to homeowners with risky, variable-rate, low-equity loans, has evolved to plague even those borrowers who took out more stable, fixed-rate mortgages with significant down payments. Rising unemployment has only exacerbated the trouble.

To tackle the crisis, the Obama administration in February rolled out its Making Home Affordable Program, which supplied $75 billion to entice servicers to tamp down mortgage payments to 31 percent of monthly income for homeowners struggling to stay afloat. The White House said at the time that the program would help between 3 million and 4 million families stay in their homes.

Yet, last week, White House officials told a Senate panel that just 325,000 modifications have yet been offered under the program. Of those offers, 160,000 are in a three-month trial modification stage — modifications that will become permanant if the homeowners can meet the new payment terms over that span.

Not only are those number insufficient to address the rising tide of foreclosures, Adam Levitin, housing expert at the Georgetown University Law Center, told lawmakers Thursday, but of the mortgage modifications that are being made, almost none involve reducing the principal balance of the loan. With the housing market falling — precipitously in some regions — even homeowners who can afford to pay their mortgages will begin to walk away if they aren’t building equity, Levitin warned.

“None of the current loan modification or refinancing efforts attempt to deal with the negative equity problem in a way that offers a long-term solution,” Levitin said.

There remains some disagreement among finance experts over why lenders and servicers have been so reluctant to modify loans, even when foreclosures are often the more expensive option. One theory posits that the servicers will be paid more from foreclosures, even if the owners of the loans will lose out.

“As long as servicers profit because homeowners are in default, they’re not going to volunteer to take a hit,” Alys Cohen, an attorney with the National Consumer Law Center, testified Thursday.

But that confusion, according to cramdown supporters, is just another reason to pass the bill. “Whatever the factors may be that are inhibiting voluntary and government-subsidized loan modifications, they are immaterial if a mortgage loan can be modified in bankruptcy,” said Levitin.

Standing in the way of the legislation are not only the banks but the banks’ supporters on Capitol Hill. Conservatives argue that empowering judges to modify mortgages would make banks more reluctant to lend money, thus exacerbating the credit freeze.

Encapsulating the GOP argument, Sen. Jeff Sessions (Ala.), senior Republican on the Judiciary subpanel, warned Thursday that the cramdown bill would raise rates on everyone. A contract’s a contract, Sessions said, and homeowners who agreed to the terms of a mortgage loan should be held accountable for the payments. “There’s no free lunch here,” he said.

Not that Washington policymakers are unaware that the voluntary efforts aren’t working as planned. The Obama administration this month has already sent letters to servicers urging increased participation in the voluntary modification program.

In another concessionary move, the Treasury this month expanded a program allowing homeowners with mortgages backed by Freddie or Fannie to refinance those loans if the outstanding balance doesn’t exceed 125 percent of the home’s appraised value. Originally, the value cap for such refinancings was set at 105 percent. The change was made in recognition of the increasing number of homeowners who are underwater as home values have plummetted. Indeed, Levitin estimates that 30 percent of all families who bought homes in the last five years currently owe more than their homes are worth.

Lawmakers and advocates alike are warning that, unless Congress steps in to address the housing crisis — which, after all, was the root of the economic downturn — the result will be a spiral of foreclosures leading to more foreclosures, and a prolonging of the larger recession.

“If we fail to act,” said Sen. Sheldon Whitehouse (D-R.I.), chairman of the courts subpanel, “I fear that we put ourselves at risk: that a vicious cycle of foreclosures, falling home values, and declining tax revenues will keep us in recession for years to come.”

Commercial and Administrative Law Subcommittee Chairman Steve Cohen (D-Tenn.) (left) speaks at Thursday's hearing on foreclosures. (YouTube: RepCohen)

The Obama administration has all but abandoned it, and the Senate has already voted it down. But a proposal to allow struggling homeowners to escape foreclosure through bankruptcy got a boost Thursday from a small band of House Democrats convinced that voluntary mortgage modifications aren’t alone solving the housing crisis.

They have a point. Despite White House efforts to entice mortgage lenders and servicers to alter the terms of mortgage loans at their own discretion, participation in the program has been meager. As a result, hundreds-of-thousands of homeowners continue to face foreclosure months after the program took effect. That instability in the housing market has, in turn, stifled federal efforts to heal the banks and get them lending prolifically again. In the eyes of some Democratic lawmakers, the combination of trends is evidence enough that Congress needs to return to its bankruptcy proposal to save the homes that the voluntary strategy is not.

Illustration by: Matt Mahurin

“We need to be prepared to act more aggressively to help distressed homeowners,” Rep. Steve Cohen (D-Tenn.), chairman of the House Judiciary Subcommittee on Commercial and Administrative Law, said during a hearing on the topic Thursday. “Evidence suggests that encouraging voluntary modifications alone is, at best, minimally effective in helping financially struggling borrowers stay in their homes. We can and should be prepared to do more.”

On one level, that’s a strange sentiment coming from House Democrats, who already have done more. Indeed, the lower-chamber in March passed legislation empowering bankruptcy judges to reduce, or “cramdown,” mortgage rates and principal balances in order to prevent foreclosures — an avenue available to consumers to save vacation homes, boats and practically any other material asset, but not primary homes.

Yet there’s also no mystery why House Democrats decided to highlight the issue once more: No one else is doing it.

Indeed, while observers on both sides of the debate deemed Senate passage a sure thing, something strange happened last spring. The Obama administration — which had endorsed cramdown in February, arguing that it would provide a vital stick to accompany the financial carrots it was offering lenders — grew silent on the issue. Without a push from the White House — and with enormous opposition coming from the finance industry — the Senate in April killed the proposal, with 12 Democrats voting against the measure.

And the administration’s neutrality on the topic seems to be continuing. Although the Treasury Department was invited to testify at Thursday’s hearing, it declined to send a representative — an episode that Rep. Zoe Lofgren (D-Calif.) deemed “shameful.”

Asked to explain the absence, Treasury spokeswoman Meg Reilly declined. Reilly also declined to weigh in on the Treasury’s current position on cramdown in general.

Not that the White House isn’t aware that it’s current foreclosure-mitigation efforts are coming up short. A few hours after the House hearing, Treasury Secretary Tim Geithner and Housing and Urban Development Secretary Shaun Donovan distributed letters to mortgage servicers urging greater participation in the voluntary modification program.

“Much more progress is needed,” the officials wrote. “We believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share.”

There have been other signals that further efforts are needed to contain the housing crisis. Last week, the administration expanded eligibility for homeowners to refinance troubled mortgages, opening the program to those who owe as much as 125 percent of their home’s value. Previously, eligibility was limited to homeowners underwater only up to 105 percent. The change was acknowledgment that home values in some areas have fallen so precipitously that many homeowners were finding themselves ineligible to refinance under the lower ceiling.

On Capitol Hill, there remains some hope that lawmakers will return to the issue this year. After the Senate voted down the measure in April, cramdown sponsor Sen. Richard Durbin (D-Ill.) vowed to use every opportunity to bring the proposal up again. Durbin’s office said this week that that commitment stands. But with the Senate facing a tough legislative schedule in the months ahead — including plans to overhaul the health care system and tackle climate change — chamber leaders are quickly running out of chances to take up additional measures sure to attract such controversy.

That’s bad news for the nation’s homeowners, who continue to struggle at historic rates. Indeed, more than 321,000 homeowners filed foreclosure paperwork in May, up 18 percent from a year ago, according to RealtyTrac, an online foreclosure database. That one-month tally is more than the 270,000 loan modifications that have been offered in the four months since the Obama plan launched. And with overall unemployment numbers continuing to grow, those foreclosure numbers are expected to rise.

“We are not even at the peak of the crisis,” Alan White, a housing expert at the Valparaiso University School of Law, warned lawmakers Thursday.

In every way, Thursday’s debate rehashed the ideological arguments that swirled around cramdown earlier in the year. Democrats, siding with struggling homeowners, blamed the lenders for doing too little to alter the terms of mortgages to prevent foreclosures. While Republicans, rallying for the banks, argued that homeowners should buck up and accept responsibility for signing on the dotted line.

Rep. Trent Franks (Ariz.), senior Republican on the Judiciary subpanel, said he was “troubled,” “puzzled” and “disturbed” by the Democrats’ attempts to revive the cramdown proposal, which he said “died a deserved death in the Senate.”

“No one mandated borrowers to enter into mortgage contracts,” Franks said. “Is no one to be held accountable in America anymore for entering into a contract?”

Yet cramdown supporters countered that the stabilization of the housing market is not important merely for the benefit of struggling homeowners, but for their neighbors — whose homes lose value with each nearby foreclosure — and for the health of the larger economy as well. Relying on the mortgage industry to volunteer the changes, they argue, is recipe for slower recovery.

“Unless homeowners have leverage to force a favorable result,” said Irwin Trauss, an attorney with Philadelphia Legal Assistance, “lenders will continue to avoid the meaningful modifications that are necessary to keep folks in their homes.”

Days after Rep. Michele Bachmann [R-Minn.] launched a petition against the Association of Community Organizations for Reform Now, ACORN is shooting back with a petition of its own.

“When you pick on ACORN, you pick on ME!” the petition says. “Congresswoman Michele Bachmann would rather pick on ACORN than stop the foreclosure crisis — even though Bachmann’s district has the highest rate of foreclosures in Minnesota.”

In April, the Minnesota Independent found that Bachmann’s 6th Congressional District had Minnesota’s highest rate of foreclosures as a percentage of households, at 1.80 percent.

You can’t pin this one on Republicans alone. It’s true that Sen. Johnny Isakson (R-Ga.) came up with the idea to revitalize the proposal, which first surfaced earlier this year in negotiations over the stimulus package – -but Senate Banking Committee Chairman Christopher Dodd (D-Conn.) is a co-sponsor. Coincidentally, I’m sure, Dodd is in the midst of a tough re-election battle. I’d imagine offering a $15,000 credit for first-time homebuyers and eliminating any income ceilings so even wealthy people are eligible probably will lpay pretty well in Greenwich.

First, a little background. As TWI reported recently, Congress approved the $8,000 tax credit as a way to jumpstart the housing market, and HUD came up with a plan to allow homebuyers to access the credit immediately for downpayment money. This seemed slightly problematic to many, given the long history of fraud and abuse associated with downpayment assistance schemes for government-backed loans. Also, some wondered why the government was helping people who couldn’t afford downpayments to buy houses, given that having no skin in the game leads to defaults, which was supposed to be one of the lessons learned from the mortgage crisis.

To its credit, HUD came out with revised guidelines for the program, requiring borrowers to put down some of their own money for the downpayment, along with accessing the credit. And it issued stern warnings to third-party firms that might try to offer bridge loans for the credits at high interest rates.

That should have ended it. But then lawmakers came up with the new idea to increase the size of the credit and open it to everyone. Here’s how Clusterstock summarizes it:

The government continues its desperate effort to make the cost of dwelling more expensive. There’s already an $8,000 homebuyer tax credit, but it’s obviously not done enough, so Senators Johnny Isaacson and Christopher Dodd are proposing to up it to $15,000.

And, perhaps more importantly, they’re eliminating the income requirements. Under the previous tax credit, a couple had to have a combined income of less than $150,000. Now any upper-middle class homebuyer is eligible, and hopefully this will get the McMansion sales going again.

Yes, that’s just what America needs – more McMansions.

It’s true that interest rates are jumping and the housing market isn’t exactly soaring. And the Obama administration’s homeowner rescue plan isn’t quite taking off, either. Those are serious problems that need to be addressed. Is handing out a $15,000 tax credit the best way to accomplish that?

If this tax credit expansion passes, look for someone to suggest a way to let borrowers turn it into downpayment money. Then they can buy bigger houses than they probably can afford.

We might not have learned much from the current foreclosure crisis, but at least the builders of all those McMansions will be happy.

At the Society of Professional Journalists DC Pro Chapter’s Dateline Awards Dinner on Tuesday, Mary — who was up against some of the best reporters in Washington — took first place in the “Best Feature in a Daily Newspaper” category for a heart-wrenching story she wrote about one Northern Virginia immigrant’s eviction during the holiday season. Mary also took second place in the “Best Business Reporting in a Daily Newspaper” category for a two-part series on foreclosures in Prince George’s County, Md.

TWI is very fortunate to have a reporter of Mary’s caliber digging up the real-life stories of the people at the center of the housing crisis. Congratulations, Mary. You deserve it!

Sen. Chris Dodd (D-Conn.) (WDCpix)

Not long after foreclosures started to take off in 2007 and the mortgage market’s collapse began to cripple the economy, one lesson seemed obvious: The predatory lending practices that led to the crisis had to be reined in.

But despite massive government bailouts of banks and lenders due to losses from toxic mortgages, that reform still hasn’t happened. As the Obama administration urges lawmakers to quickly enact sweeping health care legislation this summer, the momentum to halt abusive lending practices and overhaul mortgage lending, by contrast, has stalled. A mortgage reform bill that passed the House in May was so complicated and contradictory it wound up angering some of the same consumer advocates who have been battling predatory lending. And – flaws and all – the measure isn’t likely to be taken up in the Senate anytime soon. Senate Banking Committee Chairman Christopher Dodd (D-Conn.) told reporters recently that mortgage reform will have to wait: “We’ve got a lot on our plate. We’ve got other things to do.” Dodd added that “There isn’t a lot of predatory lending going on right now… I’m not minimizing what happened before, and I don’t want to see a repetition of it, but there’s not subprime lending going on today.”

Illustration by: Matt Mahurin

To many housing activists, the lack of action on the predatory lending bill is the final insult of a failed campaign to rapidly reform mortgage lending – something that once seemed like a slam dunk. First, a mortgage cramdown measure that would have forced lenders to write down loan amounts for borrowers in bankruptcy failed, after 12 Senate Democrats joined Republicans in refusing to support it. Then came dashed hopes for a more comprehensive predatory lending bill, and for quick action on it. To some, the window to tackle mortgage reform is open right now, and the time to act is before the housing market recovers and lending picks up again. The failure so far to do so, they worry, means little is being learned in Congress from the most severe financial crisis since the Great Depression – and even less progress is being made to ensure it doesn’t happen again.

“If there was anything that seemed like a sure bet, it was reforming mortgage lending,” said Alan White, a Valparaiso University law professor who studies subprime lending and foreclosures. “But the momentum seems to be fizzling. It’s certainly possible the subprime market could come back in some form someday, and I am surprised there hasn’t been more movement for real mortgage reform. The Blue Dog Democrats are being strong advocates for for the banking industry, and that makes it difficult for the more consumer-minded Democrats to get some kind of regulation passed.”

It gets even more complicated. Housing advocates aren’t eager to launch a high-profile campaign against Dodd over his relegation of the predatory lending bill to the back burner, given that Dodd is in the midst of a tough re-election battle. Should he lose, the next in line to head the Senate Banking committee would be Sen. Tim Johnson (S.D.), the only Senate Democrat to vote against Dodd’s credit card reform bill.

Beyond that, the House bill seems to have split the housing advocacy community, with some supporting it despite its drawbacks, and others strongly opposing it. The controversy is surprising, considering the measure was co-sponsored by Rep. Barney Frank (D-Mass.) chairman of the House Financial Services Committee, who has a history of consumer advocacy. As TWI has pointed out, Frank is trying to promote lending reforms without totally alienating the financial industry.

But it’s the housing advocates who are angry this time. Nine consumer, housing and civil rights groups, including the National Consumer Law Center and the National Association of Consumer Advocates, criticized Frank’s bill, saying it undermines existing state consumer protection laws. The NCLC said the bill would “do more harm than good” by pre-empting the state anti-predatory measures and by limiting the ability to sue Wall Street investment firms that buy up risky mortgages.

“The bill is complex, convoluted, and simply will not accomplish its main goal – to fundamentally change the way mortgages are made in this country,” the NCLC said in a statement.

The bill still won praise from some other consumer groups for prohibiting lenders from steering borrowers into higher cost loans and for requiring lenders to verify that borrowers have the ability to repay their mortgages, a long-sought goal of many housing advocates. And it bans pre-payment penalties, another fixture of subprime lending. But the bill doesn’t apply strong penalties for violating the law, and it includes the limits on legal challenges. The measure seems to have something in it for both mortgage lenders and consumer advocates, which only served to make everyone unhappy, Valparaiso’s White said.

Explained one advocate, who declined to go on the record in order to speak freely: “It’s the most complicated, arcane, ridiculous, confusing piece of crap any of us has ever seen.”

Other mortgage reforms also are running into complications. The National Association of Mortgage Brokers, for example, plans to restart a legal challenge to a new government approved code of conduct for appraisals, which is aimed at keeping lenders and brokers from pressuring appraisers to inflate home values. The new regulation stems from a mortgage fraud lawsuit by New York Attorney General Andrew Cuomo. It went into effect May 1 and requires mortgage giants Fannie Mae and Freddie Mac to only buy loans appraised under the new standard.

The NAMB and other industry groups, however, contend the regulation isn’t needed and only adds to the cost of buying a home. The NAMB plans to file another legal challenge soon to overturn the rule, after withdrawing an earlier attempt, said NAMB President Marc Savitt.

His group also continues opposing any changes in the way brokers get paid for making loans – something once considered an obvious target for reform.

An industry practice known as the yield spread premium, a form of sales commissions for mortgage brokers, has long been controversial, with consumer advocates contending some brokers misuse it to con borrowers into higher-rate mortgages. Frank’s bill appears to outlaw the yield spread premium – but no one’s entirely sure. “There are four different interpretations of the language right now,” Savitt said. Regardless, he said, “the yield spread premium and mortgage brokers are being used as scapegoats right now. Mortgage brokers don’t develop loan programs and don’t underwrite and approve loans, so how could this all be our fault?”

The problem for mortgage reform, said Margot Saunders, an attorney with the National Consumer Law Center, is that with mortgage brokers and mortgage originators in every congressional District, Congress has plenty of financial incentive to listen to arguments like that from the lending industry – and already does so. As the New York Times noted in an editorial on passage of the House anti-predatory lending measure: “The Senate needs to improve on the legislation and ensure that stronger reforms quickly become law. To do that, Senators will finally have to stand up to the mortgage industry and its all-too-well-paid lobbyists.”

Saunders and others say they’re trying to remain hopeful the Senate will take up mortgage reform again in the fall – but they’re not counting on it. “Congress,” said Saunders, “just acts like homeowners don’t matter.”

None of the current proposals, for example, even addresses the possibility of linking compensation to a loan’s performance, which would cut out incentives for brokers and lenders to make high-rate mortgages that borrowers can’t repay, Saunders said.

But some see some positive signs on reform. Both the Federal Reserve and the Federal Trade Commission are working on new rules for mortgages and other types of lending, which are expected to require greater disclosures of terms and rates. The Obama administration is backing a proposal to create a Financial Products Safety Commission, which would regulate mortgages, credit cards, and other kinds of lending by requiring more consumer protections.

And Congress may be slow to act on mortgage reform not because of lending industry opposition, but because “it’s incredibly complicated” to do so, and “Congress is running out of time” with so many other issues on its plate, said Bert Ely, a banking industry analyst.

Whatever the reason, Congress’ plate is full – and mortgage reform isn’t on it, at least in the near future. In the meantime, 5.4 million mortgages are delinquent or in some stage of foreclosure, and home prices continue to fall.

This hasn’t worked out on many levels for Andrews, particularly since Atlantic blogger Megan McArdle  turned up evidence of his second wife’s two bankruptcy filings — one while married to Andrews. Andrews wrote that one reason he bought a $460,000 home he really couldn’t afford, given his steep child support payments from his previous marriage, is that his new wife wanted the house. Now Clusterstock notes that Andrews’ tale has spawned a chorus of “But My Wife Made Me Buy This Crappy Overpriced House”‘ excuses on real estate blogs.

On StreetEasy, a New York region real estate blog, one soon-to-be homeowner already regretting his impending purchase wrote this:

I went into contract this week, and this is mostly a function of needing to find a place to live due to relocation. My corporate housing was running out. Wife pressure to close a deal probably also adds to the mix.

The wife made him to do it, too! Apparently, Andrews isn’t the first to make this argument. Clusterstock links to an infamous 2006 Century 21 television commercial titled “Suzanne Researched This” that espoused the same theory.

Basically, the commercial touts the fact that your Century 21 broker will team up with your browbeating wife and guilt you into buying the home you can’t afford. It must be watched. We still think it kind of might be a parody.

I can’t buy this theory in any form, because it’s nothing more than a sexist throwback. In the excerpt of his book, I thought Andrews dodged his responsibilities a bit by emphasizing his wife’s desire for the house; he’s the economic reporter — couldn’t he just have said the numbers don’t add up? Of course, as we pointed out earlier, families under financial stress sometimes stay together through a recession and fall apart when times get better. I’d imagine this is especially true for couples who are already blaming each other for home purchase decisions they made together.