The Illinois lawsuit alleges Countrywide "caused significant harm to the public, the market, and scores of Illinois borrowers and homeowners," and seeks damages for residents affected by foreclosure. Attorney General Jerry Brown of California accuses Countrywide of deceptively marketing risky mortgages to consumers and plotting to "mass produce loans for sale on the secondary market." The California lawsuit also seeks restitution for affected borrowers. Both lawsuits also named Countrywide CEO Angelo Mozilo as a defendant.
Illinois to Sue Countrywide Over Lending Practices [CNN]
Calif AG Sues Countrywide Over Alleged Loan Scheme [NYT]

The numbers are still nowhere near where they were before 2006 (PDF), when the new bankruptcy laws caused a massive drop in filings. If the trend continues, however, we can expect the number of bankruptcies this year to bring us back up to pre-2006 numbers, says the American Bankruptcy Institute:

"The sharp spike in consumer bankruptcies reflects the growing financial stress faced by American families, saddled with household debt and mortgage woes," said ABI Executive Director Samuel J. Gerdano. "We expect consumer bankruptcies to top 1 million new cases this year".

Just 25 percent reported gains in their home's value, down from 48 percent in February 2007 and the peak of 76 percent in mid-2005.

When asked about prospects for the year ahead, 27 percent of all home owners in February anticipated additional declines in home prices, up from 21 percent in January and 12 percent in March 2007.

"More homeowners say their homes depreciated: survey" [Reuters]
(Photo: Suburban Cowboy)

Fair Isaac adjusted its FICO scoring system for 2008 so that it now prevents one of these score-enhancing techniques—you can no longer bump up your score by adding your name as an "authorized user" to a stranger's perfect credit account. But the new techniques still work, which really annoys not only FICO but the National Association of Mortgage Bankers.

For a $1,399 fee, TradeLine adds the borrower's name to a stranger's recently paid-off loan just before the account is closed. The account, with its perfect payment history, is then added to the borrower's credit record in 30 to 45 days.

Ted Stearns, chief executive of TradeLine Solutions, said he came up with what the company calls its "seasoned primary accounts" program using a "loophole" in the law. Adding a single account can raise a credit score by 35 to 40 points, he said. But most clients purchase three accounts, at $1,399 for the first one and slight discounts for subsequent ones, to increase a score from say 560 to 700, he said.

He emphasized in an interview that [FICO] is not a law enforcement agency, but would bring concerns to the attention of the Justice Department, Federal Trade Commission, the F.B.I. and attorney general's office if lenders started complaining about such practices.

The F.T.C. and other federal agencies declined to comment on the programs or to say whether any investigations were under way.

"Investigations are nonpublic and we don't opine over whether something is legal or not," said Frank Dorman, public affairs specialist with the F.T.C.

RELATED
"How FICO 08 Changes Your Credit Score"
(Photo: Getty)

ABI Executive Director Samuel J. Gerdano said the situation is likely to worsen in 2008. "The roughly 40% spike in consumer bankruptcies during 2007 presages even higher filings this year, as the heavy consumer debt load is made worse by the home mortgage crisis," Mr. Gerdano said.

"Consumer Bankruptcy Filings Rose 40% in '07" [Wall Street Journal]
(Photo: Getty)

The CEO met with the board over the weekend to decide who should replace him, according to the New York Times.

Truly heinous third quarter results, too large an exposure to risky subprime investments, and reports of an "unauthorized merger approach" to rival Wachovia are thought to have lead to O'Neal's undoing.

Forbes is reporting that O'Neal stood to personally gain $250 million if Merrill Lynch was sold to Wachovia, a shady move that may have sealed his fate.

MSNBC details the rise and fall of Mr. O'Neal:

After being appointed president in 2001, Mr O'Neal pushed through a drastic restructuring of the company that saw the loss of 24,000 jobs. Many who criticised the moves at the time subsequently admitted that a shake-up was needed at the bank, which had become flabby and complacent.
But some argued he was taking the heart of "Mother Merrill" and warned that his subsequent moves to put more of the group's capital at risk would end in tears. This weekend they were claiming vindication.

One business Mr O'Neal allowed to expand rapidly was the buying and packaging of residential mortgages into securities, then sold to investors.

This business made handsome profits until this year when subprime mortgage borrowers started defaulting on payments. The value of the securities that Merrill had retained on its books plummeted and last week it admitted it had written down their value by almost $8bn. That might have been enough to end Mr O'Neal's Merrill career. But further pain is likely. Analysts estimate the continued deterioration in the market has left Merrill sitting on additional losses of more than $4bn.

Executives at rival Wall Street banks say Merrill is also likely to be faced with legal actions from clients to whom it sold securities. "The struggles they are going to go through over the next two years are going to be horrible," said one senior Wall Street figure.

From the AP, emphasis ours:

Washington Mutual said its loan loss provision for the quarter will total $975 million. The provision exceeds net charge-offs — loans written off as having no chance of being recovered — by $550 million. Loss provisions, on top of paying current charge-offs, are used to cover future losses.

The company will also write down the value of various loans and portfolios by about $410 million.
...
Rising delinquencies and defaults among mortgages, especially subprime loans given to customers with poor credit history, have led to the near disappearance of investors willing to buy the loans in the secondary markets and forced lenders to reserve more cash for losses.

Washington Mutual 3Q Earnings to Tumble [AP]
(Photo:cmorran123)

The lender stopped taking loan applications Aug 1st and its assets (including $45 billion of loans) were sold to Citigroup late last month.

Last year Ameriquest agreed to pay $325 million in a multistate class-action settlement over claims of deceptive lending practices which included failing to disclose that the loans had adjustable rates, failing to disclose the terms of the loan, refinancing homeowners into inappropriate loans, inflating home appraisals, and charging excessive fees such as prepayment penalties and loan origination fees. Ameriquest did not admit wrongdoing.

Earlier this year a number of former Ameriquest mortgage brokers spoke to NPR, detailing the steady diet of corruption that led to Ameriquest's downfall. Commonplace tactics included "sending papers to the Art Department," a term that was code for forging w2s in order to qualify consumers for loans they couldn't afford.

If consumers qualified for a fixed rate mortgage, they often told that their mortgages were fixed for "as long as they wanted" when in reality, they were only fixed for 2 years. In order to fool the applicants into signing up for the pricier loan, fixed rate mortgage papers were stacked on top of variable rate ones. After tricking the customer into signing all of them, the fixed rate papers were discarded.

There is a little bit of a happy ending to the story: If you were defrauded by Ameriquest, you may have some money coming to you in the form of a class action settlement. It may be cold comfort some, but hey, its money. To see if you qualify, click here. The deadline is today.

So long, Ameriquest. You will not be missed.

Ameriquest

Meet the Continental Finance MasterCard. After all the fees have been collected, it has a credit limit of $53. From MMMM:

• Account setup fee: $99
  
• Program participation fee: $89
  
• Annual fee: $49
  
• Account maintenance fee: $120 (charged @ $10/month)
  
• Purchase APR: 19.92%
  
• Authorized user fee: $30 (great! seems like $53 credit is a bit too much for a single person to handle)
  
• Credit limit increase fee: $25 (and you don't even have to ask for it!)
  
• Internet payment fee: $4 for each authorized internet payment.

Damn. This card is shockingly awful. And to make matters worse: Golb points out that if you use this card to repair your credit history you're stuck with it because canceling the account will shorten your credit history and drop your score. What a headache.

The Worst Credit Card I Have Ever Seen [Money, Matter, and More Musings]

"Current conditions in the secondary mortgage markets create significant near-term profitability challenges," Capital One said in a statement. "Further, recent and continuing developments in the mortgage markets reduce the long-term outlook for profitability in the business, as the company expects markets for prime, non-conforming mortgage products are likely to remain challenged."

Capital One closes mortgage biz [MSN Money]

"Countrywide has taken decisive steps which we believe will address the challenges arising in this environment and enable the company to meet its funding needs and continue growing its franchise," Countrywide President and Chief Operating Officer David Sambol said in a statement.

Sadly, this doesn't seem to be good news. From Bloomberg:

"When a company draws on its bank lines, it just basically gives off the impression that it has run out of options,'' said Christopher Wolfe, managing director at Fitch Ratings, which today dropped Countrywide to BBB+, its third-lowest investment- grade rating. "Typically these bank lines are there but not really meant to be used.''

Countrywide borrows $11.5B from 40 banks [Houston Chronicle]
Countrywide Taps $11.5 Billion Credit Line From Banks [Bloomberg]
(Photo:Bloomberg)

Sure, the market going ape-shit last week is disturbing, especially if you have investments, but SmartMoney says "long-term investors should probably resist the urge to jump... committing the dreaded deed of selling into a falling market would almost certainly scorch a portfolio."

Credit Crunch: Winners and Loser of the Current Subprime and Credit Market Turmoil [Financial Times via The big Picture]

Experts Say Selling Into Decline a Bad Strategy [SmartMoney]

(Image: Financial Times)

From Reuters:

Her proposals were a sign that America's brewing housing crisis has become an issue facing candidates in the November 2008 election, with thousands facing the prospect of losing their homes because they accepted mortgages that are now too expensive.

The New York senator, on the campaign trail in New Hampshire, also proposed a $1 billion fund to supplement state programs that help homeowners catch up on mortgage payments, renegotiate loan terms or provide financial counseling.

She pressed for eliminating penalties for early repayment of mortgages, which are often associated with less traditional home loans to individuals who fall short of qualifying for prime loans and turn to more expensive subprime mortgages.

UPDATE 1-Clinton proposes crackdown in US mortgage market [Reuters]
American Home Falls Swiftly [Forbes]
RELATED: $1 Billion Pledged For Refinancing Subprime Mortages, But It's Not Nearly Enough
(Photo:)

Who's reading us now? Stephen Colbert weighs in on a bunch of Consumerist topics with more gravitas than we can muster ourselves. Sorry we missed the whole "dentist puts boar tusks in your mouth while you're anesthetized" story. We'll try to do better next time.

Enjoy.

Comedy Central

As I started looking for places, I noticed everything that used to be for rent was now for sale due to the same foreclosure effect that happened to my landlord.

It also appeared that the rents were going up..... but... were the really? or am I just paranoid and bitter?

Since I was waiting to get my research published, I figured I could waste ample amounts of time coding perl scripts and learning google maps.

This project was born out of boredom.

CraigStatsSF [via BoingBoing]

Customers who accept the restitution forfeit their right to sue Ameriquest unless their home goes into foreclosure, in which case... sue away. From the San Francisco Chronicle:

While the average restitution payment is expected to be $812.15, the amount could be larger depending on how many people participate in the settlement. Consumers who accept the restitution give up their right to sue Ameriquest, unless their home goes into foreclosure, in which case they can still sue.

The settlement also involves customers of two Ameriquest-related companies: Town and County Credit Corp. and AMC Mortgage Services Inc., formerly known as Bedford Home Loans.

Glad tidings for clients soaked by Ameriquest [SFC]

PREVIOUSLY: Ameriquest Employees Confess: Lying to Customers, Forging Papers

California and Florida felt the pinch last month, as well as Ohio and Michigan. Bloomberg says home prices have fallen as much as 25% in California and Florida.

The jump in 30-year mortgage rates by more than a half a percentage point since May is putting a crimp on borrowers with the best credit just as a crackdown in subprime lending standards limits the pool of qualified buyers. Foreclosures also are increasing as the supply of unsold homes hit a record 4.43 million in May, according to the National Association of Realtors.

Foreclosure rates in ``most states remained substantially above last year's levels,'' RealtyTrac Chief Executive Officer James Saccacio said in a statement.

In June, defaults surged 87 percent to 164,644 from a year ago, said RealtyTrac, a seller of foreclosure data, in the statement today. Last month's total was 7 percent lower than in May. California, Florida, Ohio and Michigan accounted for half the national total in June.

U.S. Foreclosure Filings Jump to Record in First Half (Update3) [Bloomberg]
(Photo:Drewski2112)

From CNNMoney:

"In October alone more than $50 billion in ARMs will reset," according to Mark Zandi, chief economist and co-founder of Moody's Economy.com. That's a record, according to Zandi.

A buyer in 2005 with poor credit and limited means might have signed on for a $200,000 2/28 hybrid ARM, locking in a fixed rate of 4 percent for two years. After paying $955 a month, his bill would now be set to spike to $1,331, a 39 percent increase.

"There were increasingly poor quality loans made starting in the spring of 2005," he said, "with the poorest of all made during the fall of 2006."

Lenders approved many borrowers who had little chance of being able to afford the payments two and three years out. They approved applications without any proof of income or assets ("liar loans") and others that barely could make the low teaser-rate payments. Some borrowers chose interest-only ARMs, which left the principal of the loan untouched

Scary, scary stuff.

Mortgage resets: Record bill coming due [CNNMoney]
(Photo: mbostock)
PREVIOUSLY: Ameriquest Employees Confess: Lying To Customers, Forging Papers

H&R Block Inc.'s mortgage unit lost a $1.5 billion credit line, falling ``dangerously close'' to the minimum amount demanded by a hedge fund firm that has agreed to buy the money-losing home lender.

The so-called warehouse credit facility for Option One Mortgage Corp. wasn't renewed by Lehman Brothers Holdings Inc. when it expired on June 28, Kansas City, Missouri-based H&R Block said in a federal filing. That reduced the unit's borrowing capacity to $8 billion in committed loans and $2 billion in uncommitted lines of credit.

Cerberus Capital Management LP, a New York-based hedge fund manager, demanded Option One maintain warehouse lines of at least $8 billion when it agreed to buy the unit in April. Investors are counting on the sale to stem mortgage losses that totaled $808 million in fiscal 2007 and free H&R Block to focus on its tax preparation business, which hasn't grown in the last two years.

``This leaves Option One skirting dangerously close to the line,'' said Kathleen Shanley, an analyst at Gimme Credit who has a ``deteriorating'' credit score on H&R Block. ``The company has little margin for error.''

H&R Block Mortgage Unit Loses $1.5 Billion Loan Line [Bloomberg]
(Photo: Maulleigh)

PREVIOUSLY: H&R Block Subprime Lending Division Loses $676.8 Million

May's figures are down 13.3% off last year's numbers, according to the AP. Economists had been expecting a rise in May, but didn't get it.

According to Bloomberg, mortgage applications are up, but it might be due to a flood of subprime mortgage holders attempting to refinance to avoid foreclosure.

U.S. Pending Home Resales Drop to Lowest Since 2001 (Update2) [Bloomberg]
Pending Home Sales Drop 3.5 Percent [MSN Money]
(Photo: iowa_spirit_walker)

The company reported losing $85.5 million, or 26 cents per share, during the February-April period, which is when the nation's largest tax preparer sees the majority of its revenue. By comparison, the company earned $587.5 million, or $1.79, during the same period a year ago.

Yikes. Other than the subprime lending, H&R Block is doing well. The rest of the company earned $591.2 million. —MEGHANN MARCO

H&R Block reports $85.5 million 4Q loss [BusinessWeek]
(Photo: Maulleigh)

• Originations and new accounts
  
• Borrowers who pose higher risk
  
• Borrowers with thin or young credit bureau files

  Fair Isaac says that, in addition to better predicting the behavior of subprime borrowers, the new FICO score will do a better job in assessing new accounts and borrowers who have little or no credit histories, such as young people and immigrants.

  Most people can expect their score to rise or fall slightly. — CAREY GREENBERG-BERGER

  Fair Isaac changes FICO scoring [Minnesota Star Tribune]
  (Photo: Casey Serin)

• Amerquest showed the film Boiler Room as a training film to new hires. The film is about crooked stock brokers who sell bogus stocks to unsuspecting investors.

•Customers were told that their mortgages were fixed for "as long as they wanted" when in reality, they were only fixed for 2 years.

• Fixed rate mortgage papers were stacked on top of variable rate ones. After tricking the customer into signing all of them, the fixed rate papers were discarded.

•"Sending papers to the Art Department" was slang for covering the income numbers on w2s and writing in bigger ones, so as to qualify customers for mortgages they could not afford.

It's a great piece, everyone should head over to NPR and have a listen. —MEGHANN MARCO

Former Ameriquest Workers Tell of Deception [NPR]

The Poverty Business [BusinessWeek]
(Photo: Meghann Marco)

The big idea is that its a better deal for the bank if they can work something out with you, because with so many vacant homes on the market these days... foreclosing just isn't what it used to be —MEGHANN MARCO.

Fighting to Keep the Roof [Washington Post]
(Photo: Spidra Webster)

Last year they made $602 million dollars in the first quarter. This year they made $62 million. Hmmm. From the NYT:

It was the company's second consecutive quarterly profit, but the number was weighed down heavily by losses from subprime mortgage loans made by the General Motors Acceptance Corporation.

G.M. Profit Down 90% From 2006 [NYT]
(Photo: jm3)

Sales of existing homes fell 8.4 percent to an annual rate of 6.12 million in March from February's 6.68 million rate, the National Association of Realtors said. It was the biggest one-month drop since January 1989.

"Even if they're not trying to sell their house or getting hammered with problems with a subprime mortgage, consumers can't ignore the headlines."

Neuhart pointed out that the Conference Board's question asking if consumers intend to buy a home in the next six months, found only 2.7 saying they are looking to buy in the April survey, which is down more than 20 percent from the 3.4 percent who were looking to buy only two months earlier.

"It's a market a lot of consumers are frightened to enter," he said.

Home sales: Worst drop in 18 years [CNN Money]
(Photo: A Fighting Faith)

About 85 percent of mortgage borrowers have credit scores of 620 or higher. So far — knock on wood — most of these prime customers needn't worry about being turned down for home loans on the basis of their riskiness as borrowers, so long as they're willing to let the lender verify their incomes and assets.

Subprime mortgage industry meltdown [Bankrate]
(Photo: drewski2112)

NACA requires that people who ask for its help attend intensive housing counseling workshops. It also assesses the person's ability to own and maintain a home. It then helps the person obtain a mortgage with one of its partner lending institutions, the biggest ones being CitiGroup and Bank of America.

In 2003, Citigroup made available $3 billion in mortgage loans to NACA through 2013. Bank of America, which has worked with NACA since 1995, committed at least $6 billion through 2015.

The group traditionally found the money was best used to finance new home loans for low- and moderate-income buyers.But with the mortgage crisis unfolding, it decided that $1 billion should be used to refinance the loans of people preyed upon by abusive lenders. The group expects to refinance about 7,000 mortgages — a small number, given estimates that more than 1 million homeowners nationwide could be at risk of foreclosure.