But, alas, the state protections were overruled by the Office of the Comptroller of the Currency, which gave national banks a pass and said they didn’t have to comply with those laws. And guess what happened next.

States that adopted tough anti-predatory lending laws had lower foreclosure rates than states without those laws, according to a new study conducted by the UNC Center for Community Capital.

In addition, after 2004, when the federal government exempted national banks from state anti-predatory lending laws, national banks increased their subprime lending the most in states with those laws. After this loophole opened in 2004, national banks made riskier loans, especially in states where other lenders remained subject to strict anti-predatory lending laws.

These conclusions suggest that when state laws did apply, the laws did a better job of promoting quality lending.

This study is a perfect reminder, as Congress and the administration tackle financial regulatory reform, that not all regulations are onerous, anti-business, and aimed at choking off financial innovation. And it’s more evidence that borrowers buying beyond their means weren’t the only only players in the subprime mess.

The same banks that found their way around these state anti-predatory laws are the ones getting government bailouts, and financial incentives to modify loans. And bonuses for top employees. The  study is an important reminder of their motives and behaviors during the housing boom, at a time when those same banks are lobbying against new reforms.

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.

Richard Prince reported Friday in his “Journal-isms” column that Smiley said he would sever all ties with Wells Fargo until charges that the company steered minorities into higher-rate loans are resolved.

Wells Fargo sponsored Smiley’s radio show on Public Radio International, and underwrote the annual C-Span-televised “State of the Black Union” conference that Smiley organizes. Smiley’s foundation also distributed Wells Fargo materials to young people at foundation events, he told Journal-isms.

“I cut everything off with Wells Fargo,” Smiley declared. He said the move cost “a lot of money”; he said he did not know how much.

Prince also noted that Smiley’s comments came as the TWI article circulated, which reported that Smiley was hired by Wells to be a keynote speaker at the seminars, which were advertised in the black media and launched in eight cities, including Baltimore, Chicago, and Los Angeles.

“I was never a spokesman for Wells Fargo,” Smiley said. “I hate payday loans. My role in these seminars was about financial literacy and wealth building.”

Smiley commented on his business partnership with Wells:

Smiley said his relationship with Wells Fargo was a “package deal.” In return for the company helping to finance his radio show, he went on the road for Wells Fargo. He said he owns his own radio and television show and while it frees him from network control, it also requires him to come up with his own financing.

TWI reported that the seminars appeared on the surface as a way to help black borrowers build wealth — but they were actually just the opposite. A  little-noticed explanation of the “Wealth Building” seminar strategy was contained in a lawsuit recently filed by Illinois Attorney General Lisa Madigan.

According to the suit, 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.

After TWI’s article on Thursday, The Root headlined a post: “Tavis, You Got Some ‘Splainin To Do.” Jack & Jill Politics ran a photograph of Smiley standing a podium during Smiley’s “State of the Black Union” event this year, surrounded by Wells Fargo logos, and offered this:

He has never said jack about predatory lending, and now, we have an idea WHY.

Wells Fargo has also been hit with  lawsuits from the city of Baltimore and the NAACP, alleging the banks targeted minority borrowers for higher cost loans. As TWI reported recently, lawsuits are winding their way through courts around the country, alleging discriminatory behaviors by banks and lenders. Wells has denied all charges in the suits, and has vowed to fight them.

–

You can follow TWI on Twitter and Facebook.

Cheronda Guyton, a senior vice president responsible for commercial foreclosed properties, broke company rules barring personal use of bank property, Wells Fargo said in a statement Monday.

The Times reported last week that Guyton had been spotted by neighbors spending time at the Malibu Colony home with her family this summer. At a party in August, guests were ferried to the beach house from a yacht, residents of the enclave said.

The property’s former owners were victims of convicted swindler Bernie Madoff’s Ponzi scheme, and lost the home as a result.

This story pretty much has everything you might look for if you’re trying to follow the foreclosure crisis. An expensive second home, taken back by the bank. Bernie Madoff. A top executive of a bailed-out bank capitalizing on someone else’s foreclosure mess. The yacht that brought guests to the party.

And now it has something else as well: Someone at the bank appears to have paid the price for unacceptable behavior. With top executives of companies bailed out by the taxpayers still raking in big paychecks, that’s  definitely something we haven’t seen much in this crisis. Too bad it had to take over-the-top behavior like partying in someone’s foreclosed house for that to finally happen.

Flickr: respres

As bank-owned foreclosed properties pile up across the country, from abandoned houses in hard-hit neighborhoods to empty big box retail stores in failed strip malls, the fight over holding someone responsible for the brick and mortar mess left behind by the mortgage crisis continues to heat up.

More than two years into the crisis, local authorities still are slapping banks, servicers and speculators with fines ranging from $30,000 to even $90,000 for ignoring orders to take care of foreclosed and vacant properties under their control. The continuing punitive measures come as servicers already find themselves under fire for failing to complete more loan modifications under the Obama administration’s Making Home Affordable program – an effort that includes $75 billion in taxpayer money as incentives for the lending industry to rework loans. And it also comes as some realtors and lenders are mounting challenges to local anti-blight ordinances, and promoting the use of a mortgage database to track down servicers. Some housing advocates fear the industry will go beyond lobbying for the use of its mortgage system to push for getting rid of local vacant property laws altogether.

Illustration by: Matt Mahurin

The end result: Some of the same servicers the Obama administration is urging to complete more loan modifications still are walking away entirely from vandalized homes, or failing to fix broken windows, get rid of junked cars, clear trash, repair damaged roofs and gutters, or even demolish a condemned house, all of which can be violations of local housing codes. And housing courts keep hearing persistent arguments from servicers that they’re merely temporary custodians who can’t alienate investors by spending money to bring properties up to code.

“They may think it’s unfair, but the law provides that if you have ownership of a property, you take care of it,” said Cleveland Housing Court Judge Raymond Pianka, who regularly fines lenders $5,000 a day for properties that don’t comply with city codes. “There’s no provision to exempt corporations. I’m not going to treat them any differently than the individual property owners who come into my courtroom in wheelchairs and walkers.”

And while the lending industry contends its working more cooperatively than ever with local authorities, not everyone sees it that way.

“For every one vacant property owner who wants to work with the local government, there are five other property owners who are gaming the system,” said Joseph Schilling, a Virginia Tech urban affairs professor and co-founder of the National Vacant Properties Campaign. “My sense is the industry is also overwhelmed, almost as much as the code departments, and properties still fall through the cracks.”

Controversies over vacant properties are one sign of how the aftermath of the mortgage crisis may be as complicated to address as the initial waves of foreclosures themselves.

As TWI reported recently, the volume of REOs, or bank-owned foreclosures, is growing at an alarming rate, exacerbating the foreclosure crisis by sticking hard-hit neighborhoods with vacant and sometimes vandalized homes that drive down property values. REOs are foreclosed properties that lenders take back after they don’t sell at foreclosure auctions or sheriff’s sales. They keep the homes in inventory until they can be sold again.

RealtyTrac, an online foreclosure database, predicts that REOs will total 1.5 million this year, up from 160,000 just a few years ago. And a significant percentage of those REOs still haven’t been listed for sale. That means a glut of bank-owned foreclosed homes remains in limbo in many communities. Some banks hire property managers, but others let houses fall into disrepair. Neighborhoods in Cleveland, Detroit, and other cities with weaker housing markets have been stung by growing blight from REOs. In once-hot areas, like Atlanta, “zombie” subdivisions that were half-built and then abandoned mar the suburbs.

Speculators who buy REOs in bulk over the Internet, then fail to fix them up or abandoned them, have added to the crisis. And more loan defaults are expected, with 9 million foreclosures predicted by 2012, according to the Center for Responsible Lending. On top of all this, the bust in commercial real estate means communities also are increasingly stuck with empty big box retail stores, closed-down car dealerships, and vacant strip malls – more blight, and more problems.

For its part, however, the lending industry contends that it’s doing more than ever to solve the problem, stepping up to work more closely with state and local governments, and promoting a mortgage database that local officials can use to track down servicers and notify them of violations.

“There was a disconnect a few years ago, but we’re moving forward,” said Robert Klein, CEO of Safeguard Properties, a company that maintains vacant homes nationwide for mortgage servicers and banks. “There’s been tremendous progress made between code enforcement officers and lenders and servicers around the country. I think we’re all on the same page now.”

Empty houses with code violations resulting in stiff fines usually are the result of years of previous neglect, or cases in which servicers can’t be found to be notified of problems, he said. That situation is happening with far less frequency than in the past.  “The $90,000 fines are an exception to the rule,” Klein said.

But in remarks to a recent Mortgage Bankers Association mortgage servicing conference that continue to be passed around on housing and community development listerves, Cary Sternberg of American Home Mortgage in Irving, Tex., went further. Sternberg, the firm’s senior vice president of Real Estate Owned (RE0) properties, contended that servicers increasingly are caught “in the cross hairs of disgruntled and cash-strapped local governments” looking to drum up revenue. The local governments often don’t understand the legal and other constraints under with servicers operate when it comes to REOs, he said.

“They need to look for ways to keep their cities going,” Sternberg said. “It’s a difficult problem to deal with and servicers like us are dealing with cities and municipalities all over.”

In Chula Vista, Calif., Realtors and lenders complained this summer that the city’s landmark anti-blight ordinance, which includes fined of up to $1,000 for lenders that ignore code violations, was driving away new business. Chula Vista’s 2007 ordinance became a national model, with more than 200 other communities adopting similar rules. The city has issued a total of $1.3 million in fines. Realtors asked the city to lessen fines and give firms more time to repair properties. The city is reviewing possible changes to the ordinance.

While servicers and code enforcers have made real progress sharing information through the mortgage database, the huge volume of REOs and continuing foreclosures continues to swamp the resources of everyone involved, Schilling said.

And in some places, problems run even deeper..

“From my experience, servicing of properties in the inner city, particularly in African-American neighborhoods is either non-existent or erratic,” said Kermit Lind, a Cleveland State University law professor who specializes in housing and foreclosure issues. And, he added, “servicers have testified under oath that they receive instructions to stop maintaining properties and walk away. Servicers have complained that they cannot afford to bring their properties up to code and still make money selling them, and that their investors will not allow them to comply with local laws.”

Lind had little sympathy for the plight of servicers, noting archly that “any reasonable person should see that compliance with local building and housing codes protecting the health, safety and welfare of taxpaying neighbors should be subordinated to the duties and responsibilities of servicing and pooling agreements concocted on Wall Street.”

But Christopher Oswald, a lobbyist with the Mortgage Bankers Association, which launched the mortgage database project, said lenders hit with huge fines only face additional obstacles getting foreclosed properties on the market and into the hands of new owners. Communities may once have needed to levy punitive fines to get the attention of servicers, but that problem has been addressed by the mortgage database, known as MERS, he said.

The industry database was expanded to allow its use by local governments. Enter an address, and up pops the name and contact information for a servicer or property management firm.

“We’re both after the same thing – to make sure the properties are maintained,” Oswald said.

The MBA introduced database in a handful of pilot cities more than a year ago, and the effort has been so successful the group plans to expand it nationally, he said.

Schilling said the industry outreach has been particularly successful in the West, in fast growth markets, and in some individual cities such Dayton, Ohio. But there are still problems elsewhere. At a recent housing conference in Kansas City, Schilling said he “got an earful” from housing and code officials throughout the state about how hard it was to find and work with mortgage servicers.

The mortgage database itself has drawbacks. It covers many, but not all, mortgage loans. It has no data at all on commercial real estate owners. And in some cases, a property contact shifts once a house moves from foreclosure to an REO. “There are gaps,” Schilling said.

An even bigger concern is that the lending industry will lobby state and local governments not just to use the database, but to also get rid of their local vacant property ordinances. Communities still need those regulations on the books as a powerful tool to make sure servicers and lenders take care of their properties, Schilling said.

The MBA isn’t actively lobbying against any anti-blight measures, Oswald said. But it makes sense for some towns to realize they may not need anti-blight ordinances if they can track down owners through the database instead. Communities can then avoid having to issue large fines that may delay transferring properties to new owners, he said.

“Anything standing in the way of getting servicers to put properties back on the market would be of concern to us, and should be of concern to local code officials too,” Oswald said.

Some local officials already have plenty of concerns about getting foreclosed homes back on track.

In Cleveland, Judge Pianka said some banks and servicers finally are catching on, showing up in his courtroom to answer to violations and repair properties. He’ll often forgive the big fines if a firm cleans up its property. (Court records show Pianka reduced a $30,000 fine for U.S. Bank to $3,000, after the bank brought a house into compliance.) But a recent court docket also gave a glimpse of continuing disputes, from the speculator from Dubai, who bought six properties, sight unseen, off Craigslist, and hasn’t fixed them up, to a real estate company that purchased REO worth only $1,000, and already has racked up $50,000 in fines.

Pianka recently spoke to a conference of property management contractors sponsored by Safeguard, showing photographs of graffiti-scarred, abandoned homes, and letting the lending industry know he’ll hold them accountable for their foreclosures. Klein, of Safeguard, said the judge’s talk was well-received – another small step in a continuing battle over cleaning up after the foreclosure mess.

Reports of increasing mortgage defaults signal that foreclosures are likely to increase again and peak in mid-2010. With increasing unemployment and high rates of negative equity, we have a fertile breeding ground for even more foreclosures, which add to the already-high level of for-sale inventory that needs to be cleared before values begin to rise.

Last week, the Treasury Department released the latest figures surrounding its efforts to entice mortgage servicers to modify loans voluntarily, revealing that more than 230,000 mortgages are in trial modifications under that $75 billion program. The administration says it’s on pace to alter 500,000 loans by the start of November. Yet as The New York Times pointed out earlier in the week, the effort is hardly keeping pace with the rising number of foreclosure filings, which topped 336,000 in June alone, according to RealtyTrac.

On top of the pace, some servicers are using dubious modification tactics, like forcing homeowners to waive their legal rights when they agree to the changes. Also, most servicers are reducing their rates, but not the principal balances of the loans. The result is that homeowners have little chance to build equity — and therefore little incentive to fight to stay put. From the Times:

With home prices falling, a better way to avoid redefault would be to forgive principal. In apparent deference to banks that do not want the losses associated with principal reductions, Obama officials have not pressed lenders to adopt that approach.

Democratic leaders in both the House and Senate have warned that, if the voluntary modification program doesn’t pick up speed, they’ll push for the return of legislation empowering homeowners to escape foreclosure through bankruptcy — a measure killed by the Senate in May April. Of course, roughly 1 million more homes are projected to foreclose in the meantime.

Durbin’s new initiative is raising the hopes of cramdown proponents. At Creditslips, University of Illinois law professor and credit expert Robert Lawless called Durbin’s revival “hopefully an indication there may be some interest in moving the legislation forward.”

There have been increasing reports (e.g., here) recently that lenders are not doing voluntary mortgage modifications in the numbers that need to happen. Yeah, I know — who could have possibly foreseen the possibility that a solely voluntary system would not work? There need to be carrots that encourage lenders to do the modifications. The change in the bankruptcy law is the missing piece — the stick that makes the program work.

A renewed interest in cramdown may have less to do with a sudden acknowledgement of its merits than the shortfalls of Making Home Affordable, the Obama administration’s program to encourage loan modifications. The goal of that program is to rework loans for 3 to 4 million borrowers. But a new report by the General Accounting Office calls that estimate too optimistic. It also says the administration needs to do more to make sure servicers are equipped to participate – and that they follow the rules, CNN Money reports.

The GAO also critiqued the administration for not having the controls in place to properly monitor the program. Specifically, the agency is concerned that Treasury is not evaluating servicers’ capacity to meet the plan’s requirements and guidelines. Also, the agency has failed to fully staff the Homeownership Preservation Office, which is responsible for overseeing the modification program.

And, though Treasury has hired Freddie Mac to review servicers’ performance, it has not put established procedures to address those servicers who don’t comply.

Already, reports have surfaced that financial institutions are not adhering to the program’s rules. At a Senate Banking Committee hearing last week, a consumer advocate said some servicers are violating the guidelines by demanding upfront payments, denying borrowers not in default and initiating foreclosures while borrowers’ applications are being reviewed. Senator Christopher Dodd, D-Conn., has asked the administration to look into these allegations.

Given those drawbacks, it’s little wonder that tactics like cramdown are being revived. The Obama administration plans to meet with servicers July 28, to pressure them to modify more loans. But with rising unemployment contributing to a record 1.5 million foreclosures just in the first half of this year,  a strategy that involves more than just a carrot may be called for. The Obama administration stood on the sidelines before, as cramdown failed, and has openly abandoned the idea. But unless it can get servicers to not only write down loans but to reduce loan balances as well — something that hasn’t happened so far –  it may be forced to rethink that decision and take a second look at cramdown, the missing stick in its strategy so far.

Both ideas are interesting, if not outright promising. And as TWI reported on Monday, the time may be ripe for a shift in strategy in the housing crisis, which is only getting worse despite previous government efforts to curb foreclosures, such as loan modifications.

Reuters had only a few details of how the new ideas, which seem very much like trial balloons, might work.

First, on renting homes back:

Under one idea being discussed, delinquent homeowners would surrender ownership of their homes, but would continue to live in the property for several years, the sources told Reuters.

Officials are mulling several ideas on how to swap a homeowner’s loan for a rental lease without disrupting mortgage markets.

The government could pay mortgage service companies cash to take part in the program — or encourage lenders to sell the homes to a third party that would write rental agreements — under two scenarios under consideration.

Many non-profit agencies manage affordable properties and might be interested in partnering in such a rental program, said John Taylor, the president of the National Community Reinvestment Coalition.

On allowing unemployment homeowners loan breaks:

The (Obama Administration) official told Reuters it was reasonable for policymakers to consider options for loan forbearance — allowing borrowers to delay, defer or skip payments — that are more effective than those currently available in the private sector.

But the official said the idea, which is still evolving, was difficult from a policy perspective and carries potential hazards. It could help more people struggling with economic difficulty, but it also could create perverse incentives that distort the housing market, said the official, who did not want to speak on the record about internal administration debates.

The official said such a program would be in keeping with other measures to help workers who have lost jobs in the current recession.

At The Atlantic, Daniel Indiviglio was wary:

The logistics get ugly. How long do you allow deferrals for? If unemployment is likely to remain high for another six months, or a year, can you allow mortgage payment holidays to last that long? Maybe by perverse incentives, that source means that if the deferrals extended until employment is finally found, then people would have an incentive to remain unemployed. That’s easily remedied with a time limit, however. But then you also face the problem of just deferring many foreclosures, instead of preventing them: once that time limit expires, those homeowners might still be unemployed and unable to make payments.

Beyond the relative merits of these ideas, the bigger issue is that there’s a sense that it’s time to try some new and far more forceful tactics, even controversial ones. The New York Times today, for example, calls on the Obama administration to go forward some bold action on the economy.

Unemployment is rising. Foreclosures are surging. Lending is still constrained. So why exactly is the Obama administration waiting to act?

A stubborn lack of progress in stopping foreclosures clearly is pushing Washington to consider some stronger responses. Whatever bold action the administration might come up with will run into criticism and opposition. So be it. It’s a little late to get into philosophical discussions about the government’s correct role in propping up the economy. We no longer have the luxury of figuring out a strategy that keeps everyone happy. The time may have passed to ponder moral hazards. Foreclosures are spilling over onto everyone, and dragging the entire economy down, and not just in the short term. As housing expert Alan Mallach told TWI, we’re coming to the realization that we can’t “loan modify” our way out of this.

It’s time for the Obama administration to push forward with another strategy. Actually, as foreclosures pile up and neighborhoods suffer, it’s well past time.

This morning the Press Democrat ran a front page article titled: “Fight Against Blight“. It details the plight of Phyllis Sharrow of Petaluma who has the unfortunate luck of living next to a foreclosed property. Weeds have overtaken the lawn of the abandoned home next door and her property value is being affected. Calls to Bank of America to try to get the place cleaned up go unanswered. This has been going on for 2 years prompting her to put a sign outside her home with an arrow pointing at the foreclosure stating: “Bank of America. Your taxpayer bailout dollars at work. Our home values lose!”

And there’s a bigger shock for poor Ms. Sharrow: According to the Healdsburg Housing Bubble blog, Bank of America issued a notice of foreclosure but never completed the foreclosure sale. In other words, Bank of America walked away, letting the property sit there, in limbo, the owners gone and no one taking responsibility for it.

It looks like the home was never foreclosed on and therefore is not owned by the bank.

Is Bank of America just sitting on this loan and letting the property deteriorate? I’ve heard that banks are reluctant to foreclose because A) this forces them to recognize a loss on the loan, and B) if they do foreclose they are the owners and are responsible for the property taxes.

To me it looks as if that is what is happening here. But how long can this go on? You would think the banks would want to flush out these loans before the mid- to high-end foreclosure crisis is upon us.

Yes, you would think that — especially from banks propped up by a taxpayer bailout. So far, however, servicers are too swamped to modify large numbers of loans and — as this case illustrates — banks are walking away from their properties, even beyond the Rust Belt.

You can’t blame homeowners like Ms. Sharrow for feeling like they are hardly getting their money’s worth from that bailout. Maybe she needs to bring that yard sign to Washington, where few are paying much attention to the problem of bank-owned abandoned homes. Instead, as Sen. Dick Durbin (D-Ill.) pointed out recently, the banks own the place.

And those banks aren’t up against outraged and powerful lawmakers, calling them on the carpet for these practices. Business just goes on as usual. Meantime, in the real world, there’s a frustrated neighbor, a two-year battle, and a yard sign calling for attention.

From The San Francisco Chronicle:

John Russo, Oakland city attorney, said the city is gearing up to use California’s new foreclosure-blight law to force lenders to maintain their properties.

The $1,000-a-day fine “is a powerful tool for some tough and fair negotiations with banks,” he said. “The most important thing is to have banks understand that it’s not OK to treat foreclosed properties just like numbers on their ledgers; these are actual homes in the fabric of our neighborhoods. If banks have several properties on a block that they’re holding, waiting for the market to turn, maybe they need to hire security guards. That is their responsibility; it is their property.”

In Boston, city officials aggressively are going after banks, The Boston Herald reports:

City inspectors have slapped thousands of dollars in liens on 43 vacant or foreclosed properties blighting Hub neighborhoods to halt the national housing crisis from spreading more urban decay.

Among those being targeted are big banks, including Deutsche Bank and Wells Fargo, who have ignored their responsibility to maintain the seized homes. The liens, totaling more than $67,000, reflect the cost to the Inspectional Services Department for boarding and securing the vacant properties, according to the agency.

“Pay up or we’re going to take your property,” said Mayor Thomas M. Menino, who is fed up with big banks that continue to let their foreclosed properties languish and drive down Hub property values.

As Mike points out today, Sen. Richard Durbin (D-Ill.) complained last week that banks have so much sway on Capitol Hill that they “frankly own the place.” That same attitude seems to hold true in neighborhoods scarred by bank-owned foreclosures. But with new anti-blight laws, it looks like those neighborhoods are beginning to fight back.