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Economy

Bank Of America Lawsuits Highlight Broken, Ineffective Mortgage Modification Programs

The Attorneys General of Nevada and Arizona last week slapped Bank of America with lawsuits alleging widespread fraud occurrs in the bank’s mortgage modification programs. BofA, the nation’s biggest bank, has consistently lagged behind the other big mortgage servicers in successfully modifying mortgages for troubled borrowers. Andrew Jakabovics and I also caught the bank violating the contract it signed with Treasury to participate in the Home Affordable Modification Program (HAMP) by siphoning borrowers into its own private modification program without determining their HAMP eligibility.

But these lawsuits allege an even bigger mess, with BofA accused of giving deceptive and inaccurate reasons for rejecting modifications, and stringing borrowers along in the modification process for months, allowing them to continue making futile mortgage payments before ultimately foreclosing on them:

As a result of Bank of America’s misrepresentations, many Arizona consumers stopped making mortgage payments in a perilous attempt to qualify for help. Others waited for months for — or never received — answers on their modification requests, all while fearing that they would lose their homes; many actually lost their homes. Some consumers were misled to continue making payments in the belief that they would be able to obtain modifications and keep their homes.

Had they known they would lose their homes despite making payments, some consumers might have sough short sales or other foreclosure alternatives or simply allowed their homes to be foreclosed, saving the money from the additional payments for other necessary expenses. Other consumers lose willing buyers who could have mitigated their own (and Bank of America’s) financial losses by stepping in to purchase their homes.

Nevada’s attorney general told a very similar tale, accusing BofA of “misleading consumers with false assurances that their homes would not be foreclosed while their requests for modifications were pending, but sending foreclosure notices, scheduling auction dates, and even selling consumers’ homes while they waited for decisions.” The Upshot describes the “Boschian hell” that one Arizona family went through before having its home sold out from under it while waiting to see if it qualified for a modification.

Unfortunately, this story is all too common for homeowners seeking modifications. As Shahien Nasiripour noted today, 29,000 borrowers participating in HAMP have been stuck in the “trial modification” phase of the program for a year or more, unsure of whether they will ultimately keep their home, when that phase is only supposed to last three months. If those families are foreclosed upon in the end, they will have wasted months and months of payments that could have been used for something else.

HAMP, at this point, badly needs to fixed, and other foreclosure prevention efforts need to be undertaken. If they aren’t, the sorts of horror stories outlined above won’t stop, and the economy will continue to be weighed down by preventable foreclosures.

Update

New Jersey Supreme Court Chief Justice Stuart Rabner has ordered six mortgage lenders, including Bank of America, “to file to the court by Jan. 19 documents proving their internal foreclosure application processes are up to standards, or the applications will be suspended.”

Education

One Of Two Things Rep. Jeff Flake Wants To Cut: Head Start Program For Needy Kids

Appearing on Fox and Friends yesterday morning, Rep. Jeff Flake (R-AZ), who will sit on the powerful appropriations committee next year, advocated the creation of a new congressional panel to look for things to cut in the federal budget. When host Brian Kilmeade asked Flake for examples of what he would like to cut, Flake listed only two items: ethanol subsidies and Head Start, the venerable early education program which he said is “not money well spent”:

KILMEADE: But give me an example of what you’d liked to cut, where you saw waste already.

FLAKE: Well, our farm programs, for example. … Another program is Head Start, for example. We spend a considerable amount of money when study after study shows it’s not money well spent. And we’re going to have to cut programs like this, if we’re going to trim this budget.

Watch it:

Flake’s two proposed cuts, representing just $15 billion, would do almost nothing to reduce the deficit. But more importantly, they reveal a disturbing set of priorities, in which help for impoverished children gets the ax before legitimately wasteful programs, or budget-busting tax increases for the wealthy.

Head Start is a valuable early education program, which has helped millions of low-income children and their families through comprehensive education, health, nutrition, and parent involvement services since it was started in 1965. Despite Flake’s claims that “study after study” show the program is a waste, “[s]ubstantial research finds that [Head Start] programs provide educational benefits,” help “improve the health of the children and families they serve,” and “benefits its children and society-at-large by reducing crime.” And contradictory to Flake’s claim, a longterm study in California found that “our society receives nearly $9 in benefits for every $1 invested in Head Start children.”

Certainly, Head Start has room for improvement. But the solution is to fix its problems and improve the program, not to scrap it all together. The Obama administration has been working to do just this, and has increased funding to Head Start though the American Recovery and Reinvestment Act. The Center for American Progress has proposed several ways to improve Head Start, beginning with moving the program to the Department of Education from Health and Human Services, where it is currently housed.

But even with its problems, there are dozens of better places Flake could look to cut $7 billion dollars — a relatively meager sum that represents just 0.002 percent of the federal budget — than on the backs of needy children.

Despite New Funding Offsets, US Chamber Of Commerce Still Opposing 9/11 First Responders Bill

Last week, ThinkProgress reported that the U.S. Chamber of Commerce had quietly lobbied to help Republicans kill the “James Zadroga 9/11 Health and Compensation Act of 2010,” a bill to compensate the first responders and emergency workers who suffered illnesses from working at Ground Zero.

The Chamber — a powerful trade association representing the health insurance industry, ExxonMobil, as well as dozens of foreign corporations — opposed the bill because it paid for health care benefits by ending a special tax loophole exploited by foreign corporations with business interests in the United States. The Chamber also demanded that Congress should stop deliberating over benefits for 9/11 heroes, and instead focus on extending “all of the expiring 2001 and 2003″ tax cuts.

Disclosures reveal that the Chamber used part of its multi-million lobbying budget on defeating the bill because of its funding provision. The Republican caucus, which was unified in opposition to the legislation, cited both the priority of the Bush tax cuts for the richest 2 percent and the Chamber’s concerns about closing the tax loophole.

Over the weekend, Sen. Kirsten Gillibrand (D-NY) tried to revive the bill by changing the way the compensation fund would be paid for. Instead of ending the foreign corporate tax loophole, Gillibrand proposed a new funding mechanism, including a 2 percent excise fee on certain foreign companies that receive U.S. government contracts. However, the Chamber still believes the bill’s offsets are unacceptable.

Asked for comment by ThinkProgress, Chamber spokesperson Tita Freeman told us that the Chamber takes no position on compensating 9/11 first responders, but absolutely opposes Gillibrand’s new funding mechanism because the Chamber believes it to be “harmful to the business community and the economy.”

Education

House Republicans Displeased That Continuing Resolution Would Prevent Pell Grant Cuts

After Senate Republicans last week refused to support an omnibus spending bill designed to meet their specific parameters, Senate Democrats are scrambling to pass a continuing resolution to fund the government through March 4. As I noted yesterday, there are some worrying aspects about the CR, including that it doesn’t provide funding to implement the Dodd-Frank financial reform law.

However, Democrats did see fit to use the CR to address an important and pressing problem: covering the $5.7 billion shortfall in the Pell Grant program (which provides college tuition funding to low- and moderate-income students). Due to unexpected demand in the wake of the Great Recession, the program needed a funding fix to prevent grant cuts in 2011. Some House Republicans, however, are displeased that the extra funding was included:

House Appropriations Committee ranking member Jerry Lewis (R-Calif.) decried the inclusion of $5.7 billion for the Pell Grant program, which will incur a shortage without additional funding, calling it “a perennial priority of the House Democrat leadership and Appropriations Committee Chairman [David] Obey [D-Wis.]“…The “Democrat majority will cap off the year with yet another massive spending bill that will force our nation into further deficits and debt,” Lewis said in a statement.

Incoming House Appropriations Committee Chairman Hal Rogers (R-KY) emphasized that he intends to cut all federal discretionary spending back to the 2008 level, which would entail significant Pell Grant reductions. Simply allowing the shortfall to persist would reduce grants for 9 million students, with the maximum grant cut by $845.

While the House GOP derides Pell Grants as a “perennial priority of House Democrats,” the program is integral to both ensuring access to higher education for disadvantaged populations and boosting the country’s economic competitiveness. According to the National Center for Education Statistics, Pell recipients largely come from traditionally underserved communities, and are “more likely to be female and first-generation college students, and less likely to be white than those who don’t receive the grants.”

Meanwhile, rising tuition is posing an ever-growing problem for higher education students. According to the Pew Research Center, students in 2008 borrowed 50 percent more to finance their education that students in 1996; the average loan amount for a bachelor’s degree recipient is currently about $23,000.

America is now 12th worldwide in percentage of 25-to-34-year-olds with a college degree, trailing, among others, Russia, New Zealand, South Korea, Ireland, and Israel. By 2025, according to estimates by the Lumina Foundation, our nation will be short 16 million college-educated workers, a shortfall which Pell Grants can help to address. But House Republicans seem more eager to cut tuition assistance than work to ensure that America has an economically competitive workforce in the future.

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