Today, backed by that taxpayer largess, GM paid $3.5 billion to purchase a subprime lender, meaning GM will pay taxpayers back in part by selling them more cars at less advantageous interest rates. Plus, Felix Salmon notes, GM did not even get a good deal on the company: “[T]he government is now using taxpayer money to buy out AmeriCredit’s shareholders at a 24 percent premium to Wednesday’s closing price.”

The incident underscores how pointless the auto dealer carve-out in the financial regulatory reform bill is, as well. As a standalone company, in a matter of months, AmeriCredit would have come under the regulatory oversight of the new Consumer Financial Protection Bureau. CFPB regulators would have prevented it from using the industry’s worst practices — bait-and-switch scams, hiding fees and interest rates in the small print, selling unnecessary insurance products or offering subprime loans to prime-qualified customers. But, since GM bought AmeriCredit and will roll its services into the company’s auto dealerships, the CFPB will not be able to do so.

The lawsuit, filed in federal court in Tennessee, marshaled a raft of statistics to argue that Wells Fargo offered one lending reality for whites and another for blacks. In Shelby County, which includes Memphis, one of every eight Wells Fargo loans in predominantly black neighborhoods resulted in foreclosure, compared with only one in 59 such loans in white neighborhoods, the lawsuit said.

Such charges, if proven, amount to reverse redlining — marketing expensive loan products specifically to black customers.

For anyone who’s been following the reporting of TWI’s Mary Kane on Wells Fargo, this should come as no surprise. First, there was that Cleveland case in which Wells was found to be violating public nuisance laws by failing to clean up its foreclosed properties. Next came the charges from the state of Illinois that Wells had targeted Latino residents for subprime loans, even in cases when potential borrowers could afford less expensive options. Then came the California-based class-action lawsuit alleging subprime discrimination against the bank. And finally, Mary uncovered the bank’s alleged strategy of hiring high-profile black figures such as Tavis Smiley to lure potential black borrowers to “Wealth Building” seminars, where Wells employees would be waiting to sign attendees up for more expensive subprime loans, according to a lawsuit filed by the Illinois attorney general.

Almost seems like there’s a trend here.

First, via Mortgage Insider, here’s “The Twelve Months of Default,” which starts with bill collectors and ends with a homeowner finding great rentals and happily walking away from a mortgage. It’s amusing enough as a song, but as the New Year begins, it’s not at all a given that walking away would be the smartest strategy for a homeowner, or that it would come with few repercussions. In fact, I’d expect the ethics and personal responsibility controversies over walking away only to increase in 2010, as more homeowners find themselves underwater on their mortgages and strategic default becomes a more accepted strategy. As one former homeowner told the Wall Street Journal recently, he felt fine sleeping at night, despite walking away from his loan, because he believed lenders manipulated the housing market during the boom by accepting dubious appraisals. Strategic default is a debate that’s now in the open, rather than a slightly shameful alternative rarely discussed in the mainstream.

Next up, courtesy of Mish, is “Oh, CRE,” an ode to the growing volume of rapidly souring commercial real estate loans. It also questions, to the tune of “Oh Christmas Tree,” whether the FDIC really should be encouraging banks to modify troubled CRE loans.

So mix up some hot chocolate, add the marshmallows, sit by the fire and listen in. With high unemployment levels causing even prime borrowers to fall behind on their mortgages, and foreclosures showing no signs of slowing down, it’s the best way to celebrate the season these days.

Speaking at the Community Stabilization Symposium in Harbor, Md., Duke said that recent increases in foreclosures have only “exacerbated a pre-existing vacancy problem” in certain cities, according to Housing Wire.

“In the most devastated neighborhoods, some lenders do not even complete the foreclosure process or record the outcome of foreclosure sales because the cost of foreclosing exceeds the value of the property,” Duke said.

These “toxic titles,” she added, have placed a large number of properties in legal limbo. High rates of abandonment pushed many cities such as Flint, Mich. and Cleveland to pursue plans to “right size” by demolishing vacant properties and create land banks, Duke said.

The term “toxic titles” was coined by Kermit Lind, a Cleveland State University law professor who deals with abandoned foreclosure cases all the time. The problem never seemed to get the attention it deserved, probably because housing markets in Cleveland and some other Rust Belt cities are very weak.

As we reported nearly two years ago, here’s how a toxic title results when a  bank abandons a property:

The mortgage company retains a lien, or a charge, on the house, but the borrower still is considered the owner. The property sits in limbo, with the mortgage usually exceeding what it would sell for, because of its decline. If the city has to tear it down, it adds its own $8,000 to $10,000 demolition lien. Not surprisingly, potential buyers aren’t exactly lining up. Non-profit neighborhood groups that could fix up the property face long and expensive legal battles to claim it.

But, as Duke points out in her speech, vacant properties are causing problems in stronger markets as well, spreading “into once economically vibrant coastal cities with jobs and growing populations.”

“Vacant properties are creating a different kind of problem in some California markets. Indeed, as investors sense that home prices have bottomed out, they are approaching servicers with cash offers for the bulk purchase of properties,” Duke said. “In fact, community organizations in areas of California complain that investor interest has heated up to the point that qualified first-time homebuyers and local community organizations are being crowded out of the market.”

During this economic crisis, so much of the attention has been focused on executive pay, the Troubled Asset Relief Program, and bank lending — all worthy subjects. But somehow the problems of growing numbers of vacant homes and toxic titles has been mostly overlooked. And that’s a big mistake. As we wrote last spring, decades of work to rebuild and reinvest in communities is being lost to blight caused by foreclosures — or to speculation by real estate investors.

Now that a top Federal Reserve official is making toxic titles a public issue, that may finally change. But Duke is doing more than just highlighting the problem. It appears the Fed is actually doing something about it as well. From Housing Wire:

The Federal Reserve System will provide assistance to neighborhood stabilization efforts. The Community Affairs staff, chaired by Duke, will provide data analysis and technical assistance to state and local governments trying to solve the foreclosure problem in their communities.

Duke said that the Federal Reserve banks of Cleveland, Richmond and Atlanta are collaborating on a series of capacity-building sessions for several communities in Appalachia to help them leverage federal Neighborhood Stabilization funds.

“In addition, we are studying the Neighborhood Stabilization Program and interviewing some 50 program grantees nationwide to learn about the early successes and challenges to this effort to restore health to communities with high foreclosure rates,” Duke said.

The Fed’s actions to address the fallout from the foreclosure crisis is a great example for the rest of the government to follow. Lawmakers long ago should have tied some strings to taxpayer bailout money that would have required banks to take responsibility for their foreclosed properties, not just walk away from them. It should have been a bigger scandal that banks took TARP money and stuck already hard-hit cities with trashed and vacant properties. Good for Duke for speaking up. Now it’s time for Congress to follow suit.

The Washington Post reports Housing and Urban Development Secretary Shaun Donovan will tell the House Financial Services Committee that the agency wants to increase the up-front cash paid by borrowers,  raise minimum credit scores for borrowers, and limit how much money sellers can kick in, including paying closing costs or giving free upgrades.

The proposals for tighter standards come as the FHA handles a much larger share of the mortgage market than in the past, and more of its loans go bad. As we explained, FHA loan volume has quadrupled since 2006, and a rising number of defaults has prompted fears the agency will be the next in line for a government bailout.

From The Post:

In the past, the FHA has resisted raising down payments or insurance premiums for fear of shutting out qualified borrowers and stunting the housing market’s slow but steady recovery.

But Donovan plans to tell the House committee that the exploding volume of loans the FHA is now handling requires stricter risk controls than the previous administration had in place, according to a copy of his prepared testimony. A recent audit shows that the FHA’s financial cushion already has eroded below the level required by law.

It’s important to connect the dots here, from mortgage fraud schemes to the FHA. Investors that commit mortgage fraud while flipping short sales or through other schemes increasingly have been finding ways to fund their deals through the FHA, as we noted. In some cases, they have been evading FHA anti-flipping rules by setting up land trusts to purchase and hold real estate, and to obscure the identity of the actual purchaser.

As Yves Smith at Naked Capitalism explained, the FHA has been put in a difficult position as a result of the financial crisis:

It is really a shame to see what has happened to the FHA. Prior to the subprime bubble, the FHA has a good record with providing low down payment loans to borrowers. Before readers scoff, it had a simple secret: it screened borrowers. And the old-fashioned process was sufficiently time-consuming that the prospective homeowners also had to grapple with whether they could make the payments…But now the FHA has been assigned a role in the “save the housing market” game plan, which means notions of prudence get compromised.

But it’s even more than that. As we reported nearly a year ago, both the FHA and HUD were mostly ignored during the Bush administration — but now are being called on to turn on a dime and play major roles in saving the mortgage and housing markets.

The FHA must turn itself around and operate at its peak, after years of neglect. While the Obama administration tackles the stimulus plan and other urgent problems, government agencies like FHA and HUD, long relegated to the sidelines, are being called on to ramp themselves up and take on greatly expanded tasks. With the financial crisis so severe, the revitalization has to happen immediately – and there’s no Plan B. Getting these agencies back up to speed is an overlooked challenge facing the new White House regime.

Rising fraud in FHA loans is one example of that challenge. The new rules are a step toward addressing the problem. But the administration also needs to make a top priority of providing the FHA with the resources to put in place additional risk controls and other necessary changes to handle its much larger role. Banks that aren’t lending have gotten most of the government’s attention and money, even as rising fraud in FHA loans is threatening the housing market, and the economy, as a whole. It’s long past time to change that.

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.

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.

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.

Smiley declined any comment for our story.  On Friday, he told Richard Prince, author of the Maynard Institute’s “Journal-isms” column, that he has severed all ties with Wells Fargo until charges that the company unfairly steered African American borrowers into costly subprime mortgages are resolved. “I cut everything off with Wells Fargo,” Smiley told Prince.

Prince noted that Smiley’s comments came as TWI’s story “circulated.”

Today, Smiley has a new posting on his Website regarding his business relationship with Wells Fargo, saying that he severed his ties to the bank earlier this year, and not in recent days.

In his latest statement, Smiley says he actually made that decision in “the first quarter of this year,” some time “shortly after the State of the Black Union” and announced it then in a statement he posted on his Website.

The undated pdf file, which was not issued as a press release, notes that “Wells Fargo currently is not a sponsor of TSG or Tavis Smiley Foundation programs or events and will not be a sponsor for SOBU for 2010.” Wells had sponsored the State of the Black Union 2009, which was held on February 27-28. According to C-SPAN footage, Smiley lauded the bank at the symposium, telling the predominantly African American audience that “Wells Fargo is your financial action planning guide to every stage of life.” Later that day Smiley praised Wells Fargo for its generosity and said, “This conference is free this year because of Wells Fargo. Give them some love.”

On Friday, Smiley told Prince that 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 Prince. Smiley also said the move to end his relationship with Wells cost “a lot of money,” but he said he did not know how much.

In the new statement, Smiley says that “I addressed this issue months ago with a statement on my website during the first quarter of this year when allegations against Wells Fargo first surfaced.”

The NAACP filed suits against Wells Fargo and HSBC on March 13, alleging racial discrimination in lending.

TWI cited Smiley’s earlier statement regarding his relationship with Wells in its story last week. Smiley has declined any additional comment.

This post has been updated.

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