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In DC, Sen. Dodd Focuses on Brokers, HSBC Blames Its Victims, Citigroup Escapes, Complaints Lost

Byline: Matthew R. Lee

INNER CITY PRESS, March 22 -- Executives from four embattled subprime mortgage lenders bobbed and weaved Thursday at a Senate hearing which frequently mentioned, but mostly let off the hook, predatory lending. HSBC, for example, which purchased Household International and its $486 million settlement for abuse of consumers, sent executive Brendan McDonagh, who in essence blamed his company's victims, saying they need more "financial literacy." [Ed.'s note: It has been pointed out, and we in fairness run, that Mr. McDonagh also said that "we believe that uniform legislation could benefit the industry and consumers. There are numerous versions of Federal anti-predatory lending legislation that contain many of the key best practices our retail branch network has employed for several years. HSBC supports guidelines that put everyone in the industry on an even playing field."]

            New Century, the shares of which have been delisted from the New York Stock Exchange, declined the invitation to testify from Senate Banking Committee chairman Chris Dodd, Democrat of Connecticut. Sen. Dodd did not summon, even as a fill-in for New Century, Citigroup, which is the fourth largest subprime lender and the only lender with predatory lending settlements with two separate federal agencies. WMC Mortgage, a company that few have heard of, despite being owned by General Electric, was present, as was First Franklin, whose ownership by Merrill Lynch was not noted on Senator Dodd's committee webpage.

            Senator Dodd, who is running for the Democratic nomination for the presidency in 2008, began the hearing by saying that "the purpose is not to point fingers." Republican Senators Shelby and Crapo both said they would favor "market-based solutions." Idaho Senator Crapo went further, questioning whether the Community Reinvestment Act's encouragement to banks to lend in low- and moderate-income neighborhoods might have led to the current market turmoil. Republican Senator Bunning blamed the crisis on former Federal Reserve chairman Alan Greenspan.

            The Federal Reserve sent regulator Roger T. Cole, who finally acknowledged that "we could have done more sooner," while making much of the less than a handful of actions the Fed has taken, including its $70 million fine of Citigroup in 2004. But again, why was Citigroup not invited by Senator Dodd?  Why did North Carolina banking commissioner Joe Smith feel a need to say that "HSBC has been terrific"?

HSBC's McDonagh: a new face of predatory lending?

            Janis Bowlder of the National Council of La Raza described the plight of consumers that come to mortgage counselors. Consumer attorney Irv Ackelsberg put the blame on Wall Street and the process and profits of securitizing high-cost mortgages, and said that focus on mortgage brokers was just a diversion. Immediately after this statement, Senator Dodd went back to speaking about a mortgage brokers' trade association web site's characterization of brokers as mentors. It seems this statement had already been taken down from the web site, but it allowed Sen. Dodd to ask Countrywide's representative if his company made such representations. Of course not, Countrywide said.

            Apparently, while there are predatory practices, there are no predators, even among companies like HSBC and Citigroup which have paid hundreds of millions of dollars to settle charges of predatory lending. Those payments were only made in order to move forward, the companies said. And move forward they will: both are exporting the same predatory lending models to the developing world, and Citigroup recently scooped up an option to be a piece of another predatory lender settling company, ACC / Ameriquest. On Capitol Hill as elsewhere, Senator Dodd is focused on brokers, and the lenders blame their own victims. And so it goes.

            In the process of seeking under the Freedom of Information Act copies of mortgage borrowers' companies, Inner City Press has seen many examples of the  breakdown in regulation of subprime lenders. As far back as December 2003, Inner City Press asked the Kentucky Department of Financial Institutions for copies of complaints against Washington Mutual Finance, a WaMu subsidiary that Citigroup was buying. The Kentucky DFI wrote back:

"We have received numerous complaints against Washington Mutual, most concerning their failure to properly credit customers' accounts but, unfortunately, the Department does not have copies of those complaints. The lady who handles consumer complaints was under the mistaken impression that anything having to do with Washington Mutual was not to be handled by our Department but was to be forwarded to the Office of Thrift Supervision. She thought, since the banking business of Washington Mutual was federally regulated, that the consumer loan business of Washington Mutual was also federally regulated. She has no record of the number or content of such complaints registered over the past three years."

            Subsequent request and appeal to the Office of Thrift Supervision under the Freedom of Information Act did not turn up the mis-forwarded complaints. The complaints were simply lost. Now we'll see where Thursday's hearing's testimony leads.

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Predatory Lending and the No-Name Game: Barclays and Citigroup Escape Deserved Indictments

Byline: Matthew R. Lee of Inner City Press

NEW YORK, March 19 -- As Capitol Hill fills with subprime lending invective, and Wall Street thrills at the chance to buy low to sell high, two of the largest predatory lenders, one long-time and one a recent entrant, continue dodging bullets. 

   Citigroup has twice been fined for predatory lending: for $240 million by the Federal Trade Commission in 2002, and for $70 million by the Federal Reserve Board in 2004.  And yet when Senator Chris Dodd, Democrat of Connecticut, put out a press release Monday that he has invited the CEOs of five subprime lenders to testify on the Hill, Citigroup was not among them.

            What could explain the omission? Some including Inner City Press recalled back to the Hartford days of Sandy Weill's and Chuck Prince's Travelers Insurance. Others looked more present day, to campaign contributions. Given Citigroup's deal to acquire a stake in Ameriquest's Argent, the omission while unexplained appears transparent. Even Ameriquest, long the largest subprime lender, fined over $325 million for its practices, was not among the five invited / summoned. As Mel Brooks said in another context, It's good to be the king.

Citigroup's (and before that, the IMF's) Fischer: taking homes with few fingerprints

            Ameriquest's parent ACC Capital last week laid off most of its workforce. The Orange County Register reported that those laid-off would be getting severance, as if this were benevolence. Employees have pointed out to Inner City Press that sixty days notice of lay-offs is required under the Federal WARN Act. So if there's anyone to thank, it's those who enacted that law. And employees tell Inner City Press that the game here is for ACC to do the layoffs, before Citigroup makes its purchase.

            There is interest at last in how it all feel through the cracks. It is grounded in excuses, that Citigroup would clean up Associates First Capital Corp. back in the year 2000, and HSBC do the same with Household International in 2002.

            Now the global markets riff on another rumored merger: Barclays to buy Holland's ABN Amro, for $80 billion dollars, says the Wall Street Journal. Not mentioned is Barclays significant entry into subprime lending, buying Juniper in 2004 (opposed on consumer protection grounds by the Fair Finance Watch, click here for Federal Reserve response), then more deeply by buying Wachovia's subprime mortgage servicer HomEq, then a nationwide lender, EquiFirst, from Alabama's Regions.

   Why is this angle not being covered? The sole predatory reference in the Google News database for the past month is to a Barclays Capital report of February 22, about other companies' predatory lending and delinquency rates. Apparently a glass house does not dictate what one can throw, having the right friends.

            Inner City Press has interviewed a number of mortgage brokers, who requested anonymity in order for to become scapegoats for the flaws of the lenders they sent to. One maverick broker in eastern Tennessee says that January 2007 was his slowest month in five years, closing only three loans, for $5,000 in fees. "And all three loans," he says, "couldn't be done today." He spot-checked 20 recent loans, and found five of them in foreclosure. "There's a bad season coming," he said. Not for the lenders, it seems.

            Deutsche Bank bought Chapel Funding and something called MortgageIT. Royal Bank of Scotland has long propped up subprime lenders through its Greenwich Capital Markets subsidiary. Morgan Stanley bought Saxon. Some in fact surmise that Wall Street is pulling the strings. Merrill  Lynch bought the major subprime lender First Franklin, then called in its loans to California-based OwnIt, previously controlled by Bank of America.

   Similar pressure led to New Century's delisting.  Fair Finance Watch has commented to the Federal Reserve about New Century, when U.S. Bancorp owned a controlling one-quarter stake. The Federal Reserve bent logic to deem U.S. Bancorp's holding to be only 24.99 percent, in order to ignore New Century issues. Now the Fed is mumbling about the fundamental strength of the economy. They too think  that no names will be named...

At the IMF, Comment on Global Subprime Contagion Deferred For Already-Leaked Report

Byline: Matthew Russell Lee of Inner City Press in DC: News Analysis

WASHINGTON, March 15 -- As the failures of two dozen subprime lenders and rising delinquency and foreclosure rates roil the global markets, on Thursday the spokesman for the International Monetary Fund was asked for the IMF's view on slow downs and housing. David Hawley, formally the Fund's senior advisor for external relations, largely dodged the question. He repeated a view that "recent turbulence appears to reflect a market correction," then deferred any more specific comment until the IMF releases its World Economic Outlook publication in April.

            Also garnering no-comments or dodges were questions about Turkey exceeding the IMF's budget target, and about Italy. The entire bi-weekly press conference took barely 11 minutes. No questions were taken online. Whether any were submitted is not known.

            Mr. Hawley declined to comment on a Dow Jones reporter's question about leaks of the WEO data. Earlier on Thursday, Reuters reported on a purloined WEO draft, that the IMF's projection for U.S. economic growth in 2007 is now 2.6%, down from the 2.9% it projected back in September. Is the melt-down in the mortgage market part of the reason for the revision downward? Mr. Hawley wouldn't say.

IMF @ UN, on peace-building, not predatory lending

            In fact, beyond the contagions that now spread from one stock market to the next, several Europe- and Asia-based banks are deeply involved in the U.S. subprime market. Inner City Press has fielded calls from reporters in London and the Netherlands about what they call the U.S. mortgage crisis. Royal Bank of Scotland, for example, has been a major provider of financing to subprime lenders, through its Greenwich Capital Markets subsidiary.  HSBC's problems since buying Household International are well known. Barclays has bought a subprime servicer, from Wachovia, and now an originator too. Nomura is involved in the securitization of such loans. Deutsche Bank has gone further, buying up dubious originators in order to guarantee themselves a stream of high-cost loans.  Now Wall Street is feeling the heat, at least temporarily. As Jesse Jackson said here on Wednesday night, "now the hunter is being trapped with the game."

            And as while question mount about the role and future of the IMF, it would seem they'd have something to say on this global subprime contagion. We'll see.

Ripped Off Worse in the Big Apple, by Citigroup and Chase: High Cost Mortgages Spread in Outer Boroughs in 2005, Study Finds -Inner City Press

   New York, April 24 -- Last spring, a statistical firestorm surrounded the release of the 2004 Home Mortgage Disclosure Act data. For the first time, the data set included information about which loans exceeded the rate spread determined by the Federal Reserve, of three percentage points over the yield of Treasury securities of comparable maturity on first lien loans, five percent on subordinate liens. Consumer groups including the Bronx-based watchdog organization Fair Finance Watch released reports showing disparities at some of the largest banks. These were reported on in the English and Spanish-language press. El Diario reported for example that "at Citigroup, Latinos borrowers were 3.92 times more likely to receive the higher interest rate loans than were white borrowers." Soon afterwards the NYS Attorney General (NYAG) requested information behind the data from four large national banks: Citigroup, JPMorgan Chase, HSBC and Wells Fargo. Less than a week later, the Office of the Comptroller of the Currency and the New York Clearinghouse trade association both sued to block this inquiry.

   Now the 2005 data has become available, with a few exceptions, allowing a comparison to the previous year and that degree, identification of trends. Fair Finance Watch today released the first study of the 2005 data in New York City. Citigroup in 2005 confined its borrowers in The Bronx to higher-cost loans above this rate spread over 35 times more frequently than in Manhattan, worse than Citigroup's record in 2004. The Bronx is the lowest income and most predominantly African American and Latino county in New York State. In Brooklyn, Citigroup was almost as disparate. In 2005, Citigroup confined its borrowers in Brooklyn to higher-cost loans above the rate spread 23 times more frequently than in Manhattan. For the entire New York City Metropolitan Statistical Area in 2005 Citigroup confined African Americans to higher-cost loans above this rate spread over seven times more frequently than whites, also worse than Citigroup's record in 2004.

  JPMorgan Chase was nearly as disparate in New York City. In 2005, JPM Chase confined its borrowers in Queens to higher-cost loans above the rate spread 8.64 times more frequently than in Manhattan. Chase's disparities were also intra-borough: in 2005 at JPMorgan Chase African Americans in Manhattan were confined to higher cost loans over the rate spread 11.42 times more frequently than whites in Manhattan.

 Redlining and continued disproportional denials to people of color are also evidenced by the 2005 data for NYC, the Fair Finance Watch study says. Citigroup denied applications from The Bronx 4.62 times more frequently than applications from Manhattan; the disparity at Wells Fargo was nearby as bad, at three-to-one. While the disparities are nationwide, they are more pronounced in New York City. Nationwide for conventional, first-lien home purchase loans, Citigroup denied the applications of African Americans 2.69 times more frequently than those of whites, and denied the applications of Latinos 2.02 times more frequently than whites, both disparities worse even than in 2004. Bank of America in 2005 was more disparate to Latinos, denying their applications 2.38 times more frequently than whites, and denying African Americans 2.27 times more frequently than whites.

  The banks at issue have tried to blur the issues, in strikingly similar cover letters they sent along with the data. Citigroup's senior vice president Eric Eve, for example, wrote in a March 30 letter that "Citigroup, as we expect will be the case with most other lenders, will show a greater percentage of loans above the threshold for 2005 than 2004... The issue is the narrowing gap between short- and long-term interest rates, a phenomenon known as the 'flattening yield curve.' This is not an indication that borrowers were treated differently in 2005."

  Based on Citigroup's 2004 disparities reported, for example, by
El Diario, merely denying that practices in 2005 were different that in 2004 might seem to be a strangely limp defense. In fact, Citigroup's 2005 data show worsening disparities. In the state's poorest and least white county, The Bronx, for example, Citigroup confined 7.39% of its borrowers to higher cost loans over the rate spread -- 35.19 times more frequently than in more affluent and less minority Manhattan, where only 0.21% of Citigroup's borrowers were confined to rate spread loans. While of the five boroughs, The Bronx had the highest percentage of loans from Citigroup over the rate spread, Citigroup's percentage of higher cost loans in each of the four outer boroughs was higher than in more suburban, and less diverse, Westchester.

Citigroup's CEO Charles Price and chairman emeritus Sandy Weill were each questioned directly about these patterns on April 18 at the company's annual shareholders' meeting at Carnegie Hall. Mr. Weill referred the question to Mr. Prince, who said that the issues are "too complex to be addressed in this forum," adding that the disparities were clearly not so bad that the Federal Reserve would continue to block Citigroup from large mergers. His reference, repeated throughout the shareholders' meeting, was to the Federal Reserve's recent lifting of its year-old ban on significant expansion, which took place before Citigroup's 2005 mortgage data was released.

  Mr. Prince's claim that the Federal Reserve has implicitly condoned the disparities in Citigroup's 2005 mortgage data appears dubious. As was pointed out at the shareholders' meeting, the 2005 data was released after the Fed lifted its ban on significant expansion. And the lifting of the ban, at most, only puts Citigroup back on par with its competitors, including for example HSBC.

   HSBC's March 29 letter accompanying its data is nearly identical to Citigroup's, concluding that "had the yield spread between short term and long term interest rates stayed at the 2004 levels, far fewer longer maturity loans would have exceeded the thresholds in 2005. Consequently, a meaningful comparison of the rates at which loans exceeded the rate spread between 2004 and 2005 cannot be made."

While it may be true that a comparison of the raw percentages of a lender's 2004 and 2005 loans that exceeded the rate spread should also take into account "the effect of monetary policy" (as Citigroup's March 30 letter puts it), there is no reason that the disparities between white and African Americans and Latinos cannot be compared year to year. In this comparison, the NYAG Four were more disparate in 2005 than in 2004.

  And the 2005 disparities extended beyond this quartet. Strikingly the largest lender, both prime and subprime, to African Americans in NYC in 2005 was Ameriquest and its affiliates including Argent, which made 6394 loans in NYC in 2005, 4656 (or 72.8%) of them over the rate spread. Ameriquest recently settled charges of predatory lending for $325 million, while leaving its Argent affiliate entirely unreformed. In NYC in 2005 Washington Mutual and its higher-cost affiliate, Long Beach Mortgage, together confined their borrowers in The Bronx to higher-cost loans above this rate spread over 35 times more frequently than whites, worse than their record in 2004. ICP's analysis of other NYC lenders continues. Some lenders are trying to avoid such comparisons by only providing data to the public in unanalyzable form, an evasion it's proved surprisingly difficult to get regulatory guidance on. Evaders for now include New York Community Bank, North Fork / Greenpoint, Lehman Brothers and AIG, down through the NYAG-sued subprime lender Delta Funding Corporation. Each federal regulator has an evader in its midst; none of the agencies has yet acted on this issue.

In New York, the NYAG is now focused on running to become state governor; in any event his inquiry has been blocked for now by the courts. So who will take action, on the disparities in the 2005 data? Given preemption and inertia at the federal bank supervisory agencies, this appears to require regulation from below. As to JPMorgan Chase, the issues can be raised to the Office of the Comptroller of the Currency, on Chase's proposal to buy 338 branches from the Bank of New York. Fair Finance Watch filed such comments on April 10, as reported on Associated Press and elsewhere. Now that Citigroup is no longer explicitly blocked from large acquisitions by the Federal Reserve, its pent-up M&A hunger may soon trigger the Community Reinvestment Act lending reviews that accompany merger reviews. Wells Fargo is embroiled in fights about its environmental record, with no reforms in sight. HSBC is buying, but in Mexico for now. Everything is growing, including the disparities in the data. And what of 2006, the loans being made today? More scrutiny and enforcement actions are needed, to cut through the fogs of the banks' excuses.

Definition: the Federal Reserve has defined higher-cost loans as those loans with annual percentage rates above the rate spread of three percent over the yield on Treasury securities of comparable duration on first lien loans, five percent on subordinate liens.

Source: info [at]

* * *

Argent Mortgage Layoffs, One Week After Ameriquest's $325 Predatory Lending Settlement

 Just after after announcing a $325 million predatory lending settlement by three of its subsidiaries, ACC Capital Holdings on January 30 has reportedly laid off 16% of the workforce of its non-covered subsidiary, Argent Mortgage.  So, analysts wonder, will Ameriquest’s settlement be paid by eliminating what few levels of oversight exist in Argent Mortgage’s subprime lending process?  The layoff reports have reached Inner City Press from impacted employees, one of whom writes:

Subject: Argent Layoffs

Sent: Mon, 30 Jan 2006 16:39:48 -0800 (EST)

From: [Name withheld]

To: Ameriquest-Watch [at]

Argent has laid off 16% of their workforce, approximately 1250-1500 [Editor's note: see 2/1/06 update, below] in job cuts that took place this past Friday and Today. The positions include mostly production jobs, but cuts were also made within their corporate staff. No sales positions were eliminated. One of the biggest changes to come from this consolidation has been the elimination of set-up and doc draw employees. Underwriters will perform the set-up function, and funders will assume the duties of the doc-drawers. Customer service levels and turn time may be affected by these changes.

Layoffs by Location:

200 Doc-drawers and set-up workers in White Plains, NY

~100 Doc-drawers and set-up workers in Schaumburg, IL


Subject: Argent Update 1/30/06

Sent: Tue, 31 Jan 2006 00:26:48 +0000

From: [Name withheld]

To: Ameriquest-Watch [at]

I thought you would be interested to know that Argent Mortgage laid off approximately 16% of its workforce today. Luckily, I still have a job, but I would like to see what you write about it. I find your site very informative.

   Beyond the kind words, one of the questions raises by the specific job-functions that have reportedly been targeted for the layoffs is whether, just after three subsidiaries have settled predatory lending charges, the non-covered subsidiary should be eliminating what oversight it has of its lending process.  What will the attorneys general (or the U.S. Senators considering the nomination of ACC founder Roland Arnall to become U.S. ambassador to the Netherlands) or most importantly the consumers impacted by ACC and Argent have to say about these strangely-timed layoffs? Only time will tell…

  In other media, North Carolina’s attorney general’s spokeswoman has tried to explain the loopholes in the settlement by telling the Charlotte Observer that the settlement was necessarily "limited to activities over which Ameriquest had direct control."  We note that by laying-off 1200 employees at Argent, ACC can claim to have even less control over Argent’s high-cost subprime mortgages. The St. Louis Post-Dispatch has reported on a sample instance of a borrower whom ACC instructed “to file another application - and this time include a letter stating that she owns a cleaning company. ‘They told me what to write,’ she recalls. She says Ameriquest loan officers instructed her to write that she had received an advance of $12,000 to clean two office buildings. It wasn't true, but Hopkins says she and her husband needed the $125,000 loan... They eventually lost the house.” 

In other St. Louis news, Fair Finance Watch has filed comment on the proposed acquisition there of Forbes First National Corporation’s Pioneer Bank & Trust Company by notorious subprime lender National City Corporation – click here to view, and click here for FFW Jan. 30 comments on Whitney National Bank’s attempt to buy 1st National Bank & Trust in Florida.

[Editor's update 1: late on the afternoon of Jan. 31, ACC's spokesman confirmed by email the Argent layoffs, reported 24 hours earlier by Inner City Press. He wrote that "this consolidation increases our efficiency."]

[Editor's update 2: on February 1, ACC emphasized to Inner City Press that while the 15% layoff figure is correct, the individual who first wrote in to us with the employee number over 1,000 was wrong, that the number is 600. Duly noted -- along with ACC's argument that that Argent does not, even cannot, control the mortgages it makes, much less now with 600 fewer employees.]

Predatory Lending Settlement Leaves Out Ameriquest’s Largest Lender, Argent, Critics Say

Jan. 23 – Earlier today, the largest subprime mortgage lending conglomerate in the United States, ACC Capital Holdings Corporation, announced a $325 million predatory lending settlement with the attorneys general of more than 40 states. Almost immediately, questions were raised as to why the settlement does not cover ACC’s subsidiary which made the most high-cost loans in 2004, Argent Mortgage.

            The settlement comes at a convenient time for ACC and its founder, Roland Arnall. In two weeks, the company plans a major multi-million dollar advertising campaign connected to the National Football League’s Super Bowl XV in Detroit. Arnall has been nominated to become the United States ambassador to the Netherlands. He has seen his confirmation stalled for months due to the pending settlement. But given the perceived loopholes in the settlement, critics question whether Arnall’s nomination should be forward in the U.S. Senate.

            In 2004, the most recent year for which Home Mortgage Disclosure Act data is available, ACC’s Ameriquest Mortgage made 185,833 loans, while its Argent Mortgage unit made 215,403 loans, more than half of them over the federal regulators’ high cost definition, of three percent over comparable Treasury securities on a first lien, and over five percent on a subordinate lien.  Studies of the data have shown that ACC and Argent direct a much higher percent of their high cost loans to African Americans and Latinos than is true of other, prime-priced lenders.

            Inner City Press in mid-2005 submitted Freedom of Information Act requests to many states’ attorneys general, for copies of consumer complaints against ACC and Argent. ACC’s legal department opposed the release of any information, resulting in ongoing litigation, including in Texas.

            ACC and its predecessors have previously purported to reform their practices, as far back as 1996 with the Department of Justice and Office of Thrift Supervision (when the company was named Long Beach Mortgage), in 2000 with the Federal Trade Commission, and since. Among those questioning the settlement are class action lawyers, by means of a press release. Consumer protection advocates, however, emphasize the need for binding reforms at ACC including Argent, and not only monetary settlement for past loans.  This is a developing story.

   The settlement has also given rise to questions about the due diligence performed by the investment banks which have helped package Ameriquest’s loans and sell them as mortgage-backed securities, including the three largest banks in the United States: Citigroup, JP Morgan Chase and Bank of America. Each of these three banks has securitized Ameriquest loans, while claiming to screen out predatory loans. With today’s settlements, questions are being raised about these banks previous defenses of their practices.

Other, earlier Inner City Press are listed here, and some are available in the ProQuest service.

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