Lender refunds repossession expenses charged to customer in part: new GLC legal argument

GLC has settled a court action seeking a refund of a bank's legal expenses levied as the cost of their solicitors raising repossession proceedings against a Scottish homeowner. The action was raised in 2005, and the bulk of legal fees were charged over five years ago.

In Ayr v. BOS plc, the pursuer had contended that on a clear construction of standard condition 12, sch 3, Convenyancing and Feudal Reform (Scotland) Act 1970 and other provisions in that Act, the lender had not been entitled to recoup its legal expenses against its customer because it had failed to serve a pre-litigation 'calling-up notice'.  In light of RBS v. Wilson and others, it ought to have done so.

The case, which was not without additional legal complications, settled extra-judicially for a refund of £600, representing almost half of the lender's costs. GLC will continue to work on how more consumers can secure possible refunds of legal costs, added to their mortgages.

GLC progresses challenge to mortgage arrears charges under Financial Services and Markets Act 2000

GLC has settled litigation against a 'sub-prime' lender in relation to 'administrative charges' imposed when their customers went into arrears of their mortgage. The following charges were applied on a repeat or monthly basis:  ‘Unpaid Direct Debit Fee’ (£25), ‘Arrears Management Fee’ (£50), Late Payment Management Fee (£25), and ‘Litigation Management Fee’ (£115).

Utlising the Financial Services and Markets Act 2000 and other legislation, GLC secured a refund of 75% of the 'administrative charges' imposed historically, a figure of just under £1,000, together with legal expenses. If this was replicated across the current UK 'sub-prime' mortgage book, GLC has estimated around £150m could be refunded to UK consumers; with a similar figure in relation to 'prime' mortgage book.

GLC's Mike Dailly said: "Govan Law Centre has been developing and testing innovative legal arguments as a means to challenge the imposition of unnecessary and unfair mortgage charges where UK consumers are in arrears. We believe the law is on the side of consumers, and we will continue to refine our legal strategy with a view to disseminating free information to empower UK consumers, and facilitate access to justice".

GLC recruitment: new Govanhill Public Legal Education Project

Glasgow's Govan Law Centre (GLC)  requires a newly qualified solicitor with civil court experience. The post is funded for one year and will be based at Govanhill Law Centre's office within Glasgow's Govanhill community. Experience of housing and property factor disputes would be a major advantage.

The successful candidate will lead a dynamic new Public Legal Education (PLE) Project in Govanhill with a focus on empowering local citizens, community groups and residents associations to tackle property factor and landlord and tenant disputes. The PLE project is funded by the Esmée Fairbairn Foundation. The post holder will also undertake some general law centre work in Govanhill, supported by the Glasgow Regeneration Agency, in partnership with Crossroads.

The successful candidate with work with both partners in GLC's professional legal practice.  Applications in writing with C.V. to Principal Solicitor, Govan Law Centre, Orkney Street Enterprise Centre, 18-20 Orkney Street, Glasgow, G51 2BZ.  We will not accept employment agency applications.

The closing date for applications is close of business on Thursday 26 January 2012.  Applications thereafter will not be accepted. GLC aims to be an Equal Opportunities employer.

Decision on 'Pre-action Requirements' in Scottish repossession test cases expected February 2012

The judgment of Sheriff Deutsch in the GLC test cases of RBS plc v. McConnell and Northern Rock (Asset Management) plc v. Millar is expected sometime in February 2012.  These cases test the issue of precisely when compliance with the 'Pre-Action Requirements' from the Applications by Creditors (Pre-Action Requirements) (Scotland) Order 2010 (SSI 2010/317) and Home Owner and Debtor Protection (Scotland) Act 2010 needs to occur, in relation to mortgage arrears repossession actions proceeding on a breach of standard condition 9(1)(a), sch 3 of the Conveyancing and Fedual Reform (Scotland) Act 1970, as amended by the 2010 Act.

Action needed to tackle 'debt farming' of UK consumers in mortgage arrears: launch of Govan Law Centre report

Govan Law Centre (GLC) has found that the average Scottish homeowner in three or more months arrears of their mortgage has £816 added to their account in 'arrears charges' - the bulk of which appear to be unfair in terms of industry regulatory rules - with one fifth of homeowners incurring arrears charges in excess of £2,000. 

As lenders' charging policies apply equally across the country, these figures are likely to be indicative of the general position across the UK. The findings published in a GLC report, entitled 'Debt Farming? - unfair treatment of mortgage customers in arrears by UK lenders', reveal that lenders are continuing to treat mortgage customers in arrears unfairly.

'Sub-prime lenders' continue to be the worst offenders imposing multiple charges most of which are repetitive, unnecessary and excessive. For example some 'sub-prime lenders' can levy some or all of the following charges each month: unpaid direct debit fee £30, arrears fees £45, telemessage fee £25, questionnaire fee £75, referral to solicitors £50, repossession fee, £29.38, litigation management fee £115, and late payment fee £25.

GLC estimate that such charges in current mortgage arrears cases across the UK could represent just under £400m - the bulk of which are arguably unfair and contrary to industry rules. Over the last three years the City regulator, the Financial Services Authority (FSA), has imposed a number of substantial fines on lenders who have failed to treat their mortgage customers in arrears fairly.

GLC is calling upon the regulator to consider requiring both 'sub-prime' and 'prime' lenders to undertake a  review of their active mortgage accounts with a view to voluntarily reimbursing (by way of a credit to the consumer's mortgage account) all of their customers who have been charged unnecessary, unfair, repetitive or excessive charges. To some extent this process is currently happening for the mass misselling of Payment Protection Insurance by authorised firms and financial intermediaries.

US Supreme Court To Hear Disparate Impact Claim

On November 7, 2011, the US Supreme court granted certiorari in Gallagher v. Magner, 619 F.3d 823, 829 (8th Cir. 2010) cert. granted, 10-1032, 2011 WL 531692 (U.S. Nov. 7, 2011).

The case arose out of the Eighth Circuit when several owners and former owners of rental properties in St. Paul, Minnesota brought consolidated actions, challenging the City of St. Paul's enforcement of its housing code.

In 1993, the City enacted the Property Maintenance Code which “[e]stablishes minimum maintenance standards for all structures and premises for basic equipment and facilities for light, ventilation, heating and sanitation; for safety from fire; for crime prevention; for space, use and location; and for safe and sanitary maintenance of all structures and premises.”

To enforce the code, the City established the Department of Neighborhood Housing and Property Improvement (“DNHPI”) as an executive department responsible for administering and enforcing the Housing Code. DNHPI was empowered to inspect all one- and two-family dwellings and administer and enforce laws regulating maintenance of residential property. This sounds all and well; protect the safety of residents and promotes the general appearance of the city … Until Andy Dawkins, the Director of DNHPI instructed his property inspectors to conduct proactive “sweeps” to detect housing code violations.

Dawkins also instructed his inspectors to “code to the max”, by writing up every violation that the inspectors would see, in addition to complaints about violations brought to the DNHPI’s attention by neighbors and other residents of the City. A “user-friendly” reporting system was also set up to allow neighbors and residents of the city to file complaints.

One can only imagine the ensuing tsunami of strategically-placed "complaints" neighbors could volley at each other, but the DNHPI employed a specific variety of strategies for renter-occupied dwellings. These included orders to correct or abate conditions, condemnations, vacant-building registration, fees for excessive consumption of municipal services, tenant evictions, real-estate seizures, revocations of rental registrations, tenant-remedies actions, and even, court actions.

While the DNHPI may sound like the HOA from Hell, its effects were broad, and far reaching. The DNHPI’s tactics fell heavily on low-income, African-American tenants living in privately-owned housing. The Appellant-Plaintiffs included individuals who own or formerly owned rental properties in the City. These property owners allege that they have suffered increased maintenance costs, fees, condemnations, and were forced to sell properties in some instances, due to as many as ten to twenty-five code violations, which ran the gamut of unsavory living conditions, such as rodent infestations and “inadequate sanitary facilities.”

Specifically, the Appellant-Plaintiffs allege that the City enforced the Housing Code more aggressively with regard to their properties because they rented to a disproportionately high amount of racial minorities, particularly African-Americans.

The 8th Circuit affirmed the lower court’s decision, except for the dismissal of the Appellant-Plaintiff’s disparate impact claim under the Fair Housing Act. The court held that the Appellant-Plaintiffs had satisfied the first query of the McDonnell-Douglas “Burden Shifting Analysis”, by successfully proving a prima facie case which requires showing “that the objected-to action[s] result[ed] in ... a disparate impact upon protected classes compared to a relevant population.”

The Judge correctly held that this was shown by four things which he ruled were sufficient to advance a theory of disparate impact:

(a) The City experienced a shortage of affordable housing
(b) Racial minorities, especially African-Americans, made up a disproportionate percentage of lower-income households in the City that rely on low-income housing.
(c) The City's aggressive Housing Code enforcement practices increased costs for property owners that rent to low-income tenants.
(d) The increased burden on rental-property owners from aggressive code enforcement resulted in less affordable housing in the City.
Gallagher v. Magner, 619 F.3d 823, 835 (8th Cir. 2010).

Thus, the court held that “given the existing shortage of affordable housing in the City, it is reasonable to infer that the overall amount of affordable housing decreased as a result. And taking into account the demographic evidence in the record, it is reasonable to infer racial minorities, particularly African-Americans, were disproportionately affected by these events.” Id.

In contrast, the City argued that “[the] Appellants must do more than show that the Housing Code increases the cost of low-income housing and that African-Americans tend to have lower incomes.” Id. at 836. The court, however, held that in viewing the evidence in the light most favorable to the moving party, “the evidence demonstrates that there is a shortage of affordable housing and that the City's aggressive code enforcement exacerbated that shortage.” Id.

Turning to the second query of the McDonnell-Douglas test, the court held that “the City has shown that enforcement of the Housing Code promotes the objectives of providing minimum property maintenance standards, keeping the City clean and housing habitable, and making the City's neighborhoods safe and livable.” Id. at 37.
The game goes into overtime, with the burden once again shifting to the plaintiffs to “offer a viable alternative that satisfies the [City's] legitimate policy objectives while reducing the ... discriminatory impact” of the City's code enforcement practices.” Id.

To do so, the Plaintiffs used the City's former program for Housing Code enforcement called “Problem Properties 2000” (“PP2000”). The program’s lists of goals and tactics of included: “identification of properties with a history of unresolved or repeat Housing Code violations, meeting with the owners individually, encouraging the owners to take a more business-like approach to managing their properties, keeping closer tabs on changes of ownership, and using consistent inspectors at each property.” Id. at 838.

Appellant-Plaintiffs contend that PP2000 embodied a flexible and cooperative approach to code enforcement, which achieved the goals of code enforcement while maintaining a consistent supply of affordable housing, something that, the Appellant-Plaintiffs argue, the DNHPI failed to do.

The City argued that this approach would not “reduce the alleged impact on protected class tenants,” and the District Court agreed with them, reasoning that “because participating landlords were not excused from compliance with the Housing Code, they would still incur the same costs of compliance with the housing code, leaving any alleged discriminatory effect on African-Americans unchanged.” Id.

However, the Court disagreed, stating that the Plaintiff-Appellants “offer[ed] evidence that the challenged enforcement practices burdened rental-property owners and thereby reduced affordable housing options. There is also evidence that PP2000 generated a cooperative relationship with property owners, achieved greater code compliance, and resulted in less financial burdens on rental property owners. It is reasonable to infer from these facts, viewed most favorably to Appellants, that PP2000 would significantly reduce the impact on protected class members.” Id.

Thus, the Court of Appeals overruled the District Court’s finding on the issue of disparate impact. The US Supreme Court granted certiorari, and is set to hear the case later this Spring, in 2012. The potential to change the landscape of Fair Housing litigation in this case is huge. The Disparate Impact test has been an invaluable tool in the fight against facially-neutral laws that, as applied, present an onerous burden on a protected class of people. What the Supreme Court will do in this case remains unclear, and the court may or may not strike down the McDonnell-Douglas "Burden Shifting" analysis, as they struck down the Trafficante case earlier this year.

Time to tackle shark practices of debt companies and their Scottish solicitors says GLC

Govan Law Centre (GLC) is concerned that the OFT's Debt Collection Guidance is being routinely ignored in Scotland not only by UK debt purchasing companies but more worryingly by certain firms of Scottish solicitors who undertake debt collection as one of the primary activities of business. 

Besides causing unnecessary human misery, unfair, oppressive, and disproportionate business practices are resulting in vulnerable Scottish homeowners being threatened with homelessness as creditors use inhibitions for tiny debts. The practice results in creditors being able to scupper Scottish Government mortgage to rent transactions, where families facing homelessness can have their house purchased by a social landlord. 

Although, the OFT expects solicitors firms who undertake debt collection work as one of their primary activities of business to obtain a 'Category F' consumer credit licence, most Scottish debt collection firms of solicitors operate under the Law Society of Scotland's 'group consumer credit licence'.  GLC believes this results in a lack of effective regulation of Scottish law firms undertaking debt collection work because the Law Society of Scotland does not specifically regulate such work, and therefore, this work appears to be largely unregulated in practice.

GLC's Mike Dailly said:

"To give an illustration of the problem, we have a case in Glasgow where it has taken us many months to defend a repossession action and broker a complex mortgage to rent transaction, which is now being thwarted by a Scottish firm of solicitors acting on behalf of an English debt purchasing company for a debt of £810.  Last month the company was prepared to accept repayment at £5 per week, but since obtaining an inhibition it wants all of the money as a lump sum".

"Our client is on incapacity benefit and has offered £100 plus £5 per week but the company's solicitors advise their client says no. We believe this Scottish law firm and company have engaged in aggressive, oppressive, and unfair practices contrary to the OFT's expected standards for consumer debt recovery, and contrary to section 25 of the 1974 Consumer Credit Act".

"Govan Law Centre is considering all legal remedies available to our clients against such companies and their Scottish solicitors - including where appropriate 'naming and shaming' - however, it is quite clear there is a major regulatory role here for the Law Society of Scotland which needs to be addressed, a need for the OFT to intervene, and ultimately a pressing need for the Scottish Government to review the ability of their own Mortgage to Rent scheme to be de-railed by unsecured creditors with relatively tiny debts through the inappropriate use of inhibitions".

Lunch with Ben Bernanke and the Future of Housing Finance

Last week I wrote about eating lunch with Federal Reserve Chairman Ben Bernanke, who was in El Paso on Thursday, November 10, to greet returning troops and Fort Bliss and to participate in a town hall on the military base.  As an added part of his trip, he had a private lunch with a dozen or so business people from El Paso.  The purpose of the luncheon was to allow Bernanke to hear from the business community about our concerns and the factors which are affecting our ability to grow and to hire others.

As I explained last week, we each had two minutes to speak about whatever topic we wished.  After we had each made our statement, Bernanke made a general statement addressing some of the concerns raised (for specific points from that discussion, see Part I of this blog). Cindy Ramos-Davidson, CEO of the El Paso Hispanic Chamber of Commerce, who had actually coordinated the event,  then allowed some of the business owners to ask follow up questions.  One of the businessmen asked a question about what Bernanke believes will be the future of Fannie Mae and Freddie Mac.  These huge bloated corporations which have been in conservatorship since September of 2008 have cost taxpayers hundreds of billions of dollars so far.  And with huge bonuses for the executives of the corporations making news this week, today seemed to be  a perfect time to examine Bernanke's answer.

In brief, Bernanke responded that there is a lot of talk of privatizing Fannie Mae and Freddie Mac.  If they were privatized, the government might offer some sort of insurance to back the mortgages.  This would restore their status very much to the pre-2008, pre-conservatorship arrangement that existed for many years.  Under that system, Fannie Mae and Freddie Mac were both largely private corporations with the U.S. government owning a minority interest in both.  The issue with this was that most investors bought the mortgages Fannie and Freddie securitized with the implicit understanding that the mortgages were backed fully by the US government.  And when gross mismanagement drove both corporations into bankruptcy, the U.S. taxpayer had to pick up the tab.

Most conservatives favor privatization today.  I am included in that number.  In my opinion, the insurance backing the mortgages should be private as well.  In my experience, people watch their own money more carefully then they watch their neighbor's, and they certainly watch their own money much more carefully than they watch the taxpayers'.  As long as the shadow of the Treasury Department and a possible bailout loom over Fannie and Freddie, the entities will never have incentive to behave responsibly.

Having said that, every housing professional knows that Fannie Mae and Freddie Mac are an indispensable part of the U.S. housing finance process.  That leads me to Bernanke's second comment.  He indicated that Fannie and Freddie might be done away with completely in favor of a system of mortgage lending that more closely resembles Canada and Europe, where nothing similar to Fannie and Freddie exist and the banks finance mortgages through the sale of bonds.  He added that Canada and Europe have home ownership rates similar to the U.S. and implied that since their system works well for them, it could work well for us too.

As a thirteen and a half year mortgage veteran, I was very intrigued.  I decided to check out the facts about housing finance in Canada and Western Europe--for the purposes of this discussion I looked at the United Kingdom, France, and Germany and Switzerland to see how their systems of mortgage finance compare with ours.

To set the baseline for comparisons, according to the U.S. census bureau current U.S. homeownership rates are at about 66% which is down from close to 70% during the height of the boom. Not surprisingly, the median average home price varies by region.  According to the National Association of Realtors, in August of 2011, the median home price in the North East was $244,100, in the Midwest it was $141,700, in the South $151,000, and in the West $189,400.  Our most popular mortgage product is the thirty-year fixed rate mortgage with the interest rate fixed for the entire term of the loan--I saw statistics indicating that 9 out of 10 homeowners have a thirty-year fixed rate mortgage. These conventional conforming mortgage products have no prepayment penalty. While this product is criticized by some who say it is outdated because Americans no longer stay in their homes thirty years, it has remained a safe, secure form of financing. Currently about 5.82% of U.S. homeowners are 60 days or more past due on their mortgage loans--which means that over 94% of U.S. homeowners are making their mortgage payments on time.

CANADA

I started with our neighbor to the north as I expected that it would probably be most similar to the U.S. in terms of lifestyle of the residents including home ownership rates.  About 60% of Canadians own their own homes.  In the 35-44 age group, 58.2% are homeowners.  Conventional mortgages typically require 25% down, but mortgages of over 80% of the sales price or appraised value are available with insurance provided by the Canada Mortgage & Housing Corporation.  I saw one website that claims that GE Capital provides private mortgage insurance financing as well, but the Canadian Department of Finance website states that the Canadian government backs all mortgages over 80%.  A typical mortgage in Canada is fixed for 5 years with an amortization of 25 years.  After the fixed period ends, the rate becomes variable.  Interestingly, all Canadian mortgages appear to have prepayment penalties.  Royal Bank's website is advertising mortgages fixed for 4, 5 and 7 year terms at special pricing of 5% interest fixed for seven years. 

Property in Canada is more expensive than the United States.  Wallet Pop says that prices have increased approximately 7.7% since 2010; the average cost of a home in Vancouver is now $517,000, and in August of this year the average home price in Canada was $349,916.  According to Realty Times, residents of British Columbia need to earn $157,000 to be able to qualify for an average home.  This locks out young couples and first time homebuyers, who are now being encouraged to "rent to own" and to go to builders who specialize in assisting first time buyer.  Wallet Pop recommends that young buyers try Daniels First Home--a builder of condominiums and town homes.  Their website http://www.danielsfirsthome.ca/ advertises that potential buyers can move into their new condos, which start at $199,000, by making deposit payments until they can qualify for financing. 

UNITED KINGDOM

Next, we hop across the pond to the UK.  The mortgage system in the UK also provides amortizations of up to 25 years.  The website of one UK mortgage broker advises that mortgages are typically fixed for 2, 3, and 5 years; right now the rates are fairly comparable among those three terms as the Bank of England has kept rates low to shore up the economy.  It is possible to fix a rate for the entire term of the loan, but the interest rate becomes higher as the term is fixed for longer periods, making this virtually impossible for many borrowers.  After the fixed rate term ends, homeowners pay the Standard Variable Rate, which is 1-2% higher than the Bank of England base rate.  Some borrowers also take advantage of capped rate mortgages which are linked to the Standard Variable Rate but which "cap" the interest rate for a period of time.  Fixed rate mortgages cost the borrower an additional fee which has risen sharply in the last few years, making these mortgages initially much more expensive than Variable Rate mortgages.

Although interest rates are low, qualifying for a mortgage is very difficult, particularly for first-time homebuyers.  The National Housing Federation has a report from Oxford Economics showing that, on the averag,e first-time homebuyers need to put down almost 30% of the sales price in order to purchase and they can borrow only about 2.8% of their income. (Financial Times August 30, 2011).

Homeownership rates have been as high as 72% in the UK (2001), but right now homeownership is on the decline. Current homeownership rates are at 67% and that number is expected to drop to 64% by 2021.  In London, 6 out of 10 Londoners are expected to be renters by 2021.  The average house price in Greater London is 440,230 pounds (approximately $880,460 USD).  A detached home in London (what we would think of as a regular single family residence) costs 810,234 pounds  ($1,620,000 USD approx.)  For Londoners, this means that the average Londoner would need to triple his current salary in order to be able to buy the average home.   Only 4 London burroughs have an average house price of 250,000 pounds ($500,000 USD). This has created a huge housing problem.  According to Kate Dodsworth, Assistant Director of the National Housing Federation, "London has become unaffordable for ordinary, hardworking (people) who have no real chance of buying their own house."  David Orr, chief executive of the National Housing Federation adds, "Homeownership is increasingly becoming the preserve of the wealthy and, in parts of the country like London, the very wealthy."  Currently 800,000 Londoners are on the social housing waiting list and 200,000 are living in over-crowded conditions.  Private rents have increased 30% since 2008.

FRANCE

Any plan to utilize the strategies of Western Europe should include a discussion of France.  The Wall Street Journal On-Line reports that homeownership in France is about 57%.  Required downpayments range from 50% to 10%--French taxpayers can borrow up to 100% of the sales price.  However, Banque de France sets very strict underwriting requirements for mortgages.  The mortgage company qualifies the prospective borrower using 1/3 of his gross income.  Therefore a borrower making $100,000 a year would be qualified on $33,333 of that income.  From that amount, the lender subtracts all taxes, debts and the proposed mortgage payment.  French banks also require that borrowers over 55 submit to a health exam and purchase life insurance to pay off the mortgage upon their deaths.  Because of the difficulty in obtaining a French mortgage, most of the mortgage sites I consulted recommend that would-be buyers from the U.S. and UK might want to get mortgages in their own countries against their own homes and pay cash in France.

Housing is very expensive in France, particularly in Paris.  According to France Today's website, the average price of an apartment in Paris at the end of last year was euros 7000 (approximately $9561.00 USD) per square meter (which is approximately 11 square feet)  That works out to about $868.27 per square foot. According to the Paris Chamber of Notaires, none of the 20 districts of Paris reported prices under euros 5000 ($6829 USD) per square meter.   This would make the low-end pricing $620.81 per square foot for an apartment in Paris.  Since several sites that I consulted last night indicate that the average wage in France is $42,390.00  and French mortgages require the lender to qualify the borrower on 1/3 of his income, I strongly suspect that the majority of the 57% of French who own their properties probably are living in homes that their families have owned for a long time and that these rates are not the result of new purchases.

As an interesting aside, I learned in researching this piece that France's VAT tax is included in the real estate commission and virtually all services.  One ex-pat wrote about her experiences buying radiators in France and said that she paid a professional to install the radiators rather than doing the installation herself because the 19% VAT tax is reduced to a little over 5% if the installation is purchased at the time as the service.  The net effect is that it is cheaper to hire laborers than it is to do the work yourself.  Also, virtually everything in France requires a license, including television sets.  When a individual purchases a television set, the seller is required to report the sale to the French government who then requires that the new owner purchase a license in order to be able to watch television.

GERMANY AND SWITZERLAND

Germany actually has the second largest mortgage market in Europe, just behind the UK.  Sixty percent of new loans originated from 2003-2008 had fixed rates of 5 years or more.  In September of 2010, the average price of an existing home in Germany was euro 265,500 ($398,250.00 USD); the average price of a new home was euro 232,500 ($348,750 USD) and the average price of an apartment was euro 140,000 ($210,000 USD).  According to WSJ On-line, approximately 46% of Germans own their own home.

WSJ On-line cites Swiss homeownership at 37%.  I was unable to find out much about their mechanisms of financing mortgages, but I did determine that in Switzerland the government discourages homeownership by taxing homes both as income and as assets.  The majority of Swiss prefer to rent.

In Summary

While it is fine to say that Europe and Canada enjoy the same rate of homeownership as the U.S. the statistics don't bear that out.  Where mortgage financing is difficult to obtain, buyers cannot buy their homes and sellers cannot sell.  The ultimate effect is that rents become very expensive and properties are soon priced out of the reach of average people.  Home ownership becomes a privilege of the wealthy rather than a goal to which all citizens can aspire. 

So the question is, do we want to import Europe's system of housing and housing finance to the U.S? What do you think?


Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. For more information, visit her website at http://www.frontier2000.net/.

Move to end time bar for abuse victims

The Herald reports that Scots lawyers have called for a change in legislation north of the Border to make it easier for abuse victims to claim compensation. The move comes after an English High Court ruling opened the door to people who suffered at the hands of priests to sue the wider Catholic Church as vicariously liable in tort (delict in Scotland) and not just the individual.

While the ruling in England is not binding in Scotland, human rights lawyers Mike Dailly, of Govan Law Centre, and John Scott, of Capital Defence Lawyers, say it is a significant step that would offer a “persuasive” precedent in the argument if such cases are now raised in Scotland.

Currently actions relating to personal injuries have to be brought within three years, or in the case of children within three years of turning 16, unless certain exceptions apply or the claimant can persuade the court that it would be equitable to disapply the time bar. A Scottish Parliamentary committee will shortly examine a Scottish Government proposal to extend the time bar to five years, but campaigners say this does not go far enough.

GLC's Mike Dailly said: “Very often the nature of sexual abuse is such that many vulnerable people cannot even speak of it until after the time bar has elapsed. The Scottish Government has so far refused to change the law here, but it cannot be right that a victim of sexual abuse in Scotland should be denied access to justice due to a technical time bar rule – justice demands change here.”

Lunch with Ben Bernanke Part I

I had lunch today with Federal Reserve Chairman Ben Bernanke.  No, that's not a joke or a metaphor.  Bernanke was here in El Paso, Texas to greet returning troops from Iraq--the first time in history that a Federal Reserve chair had ever visited a military base--and as part of his visit, the Dallas Federal Reserve had coordinated with the local Federal Reserve board to arrange for Bernanke to have a private roundtable luncheon with invited guests from the El Paso Hispanic Chamber of Commerce.  That luncheon was made possible in part because our CEO, Cindy Ramos-Davidson, is also the President-Elect for the local Federal Reserve board.

I had known about this luncheon for a couple of months, and I have to admit I had very mixed feelings about it. As the 2011 Chairwoman of the Board for the El Paso Hispanic Chamber of Commerce, I had already been informed that my attendance was not optional, and I do appreciate that this is a once in a lifetime opportunity to eat lunch with one of the most powerful men in the world.  On the other hand, as a mortgage broker of 13 and a half years who has seen my business die this year because of Dodd Frank and specifically because of the implementation of the Federal Reserve Rule on loan originator compensation--a rule which discriminates heavily against small businesses and in favor of major banks--I found it difficult to sit down and eat with the man who is at least partially responsible.  At best, he would ignore my comments on this matter completely and at worst he might secretly get some joy from seeing one small business person who lost her business because of his rule.

Only fifteen people were invited to this luncheon and the guest list had to be cleared by the Federal Reserve.  The Fed wanted to see a mix of business people from small, medium, and large businesses. They wanted to see a mix of industries and ownership to include minority and women-owned. No banks were allowed to attend; this was strictly a forum for small business people--as far as I know, the only one of its kind.

What was interesting to me as we got closer to the event was that although there was quite a lot of excitement from the invited guests, there is also a lot of anger toward Bernanke from both very left-leaning members of our organization and very right-leaning ones.  Even Bernanke's visit to Fort Bliss this morning to greet the returning troops drew a lot suspicion in the local media that he was only here as a response to Governor Perry's very open attacks against him.

The stated purpose of the luncheon was for us to get 2 minutes each to address Bernanke and tell him our concerns as small business people.  The Federal Reserve, Cindy told us, is turning its attention to job creation, and in order to accomplish that, they need to hear from small business people about what is keeping businesses from growing and hiring.

All of the businessmen and women in the room had carefully considered their remarks--most had written them down.  And over and over, they repeated the same basic concerns--lack of access to capital is hurting small businesses.  The excuse that these men and women get when the bank refuses their loans or cuts their lines of credit is that new regulations keep them from lending. (The regulations are, of course, the more than 500 new regulations that are part of the massive Dodd Frank bill.)  The small business owners also voiced their concerns over the general state of the economy and the presence of massive regulation in every area of business which discriminates against all forms of small business in favor of big corporations.

I spoke last.  I had thought a lot about what I wanted to say, and when my turn came I spoke in two minutes about the impact that the Federal Reserve rule on loan originator compensation had caused my business.  In thirteen and a half years, this has been the worst year I have ever had.  The rule does not allow me to lower my rates to compete with banks or other lenders that are exempt from its most binding restrictions.  I reminded Mr. Bernanke that 5 years ago there were 53,000 mortgage broker firms in the U.S. employing approximately 418,000 people.  Today, in Texas, a state which at one time had over 30,0000 licensees, there are about 1,200 licensed mortgage originators.  The only solution to the problems in the housing market is to dismantle the regulations.

Bernanke did not address my remarks at all, except to say that we would not want to return to the conditions present five years ago.  But he did remind all of us that the Federal Reserve sets monetary policy--it does not make laws.  Without saying it outright, he also reminded us that Dodd Frank is a bill passed by Congress.  The Federal Reserve is merely enforcing what has already been written into law.

He also made his case for quantitative easing, which I found interesting.  According to Bernanke, QE 1 and QE2 have not cost the tax payers a single dollar.  He stated that the Federal Reserve has actually paid the Treasury $125 billion for the bonds it has purchased, thereby reducing the deficit $125 billion.  When the economy gets better, the Fed will simply sell off the bonds it has purchased. 

Bernanke stated that in 2009, when the first quantitative easing took place, the lower interest rates did improve the housing market as people refinanced and purchased homes.  Today, housing prices are down 30% and interest rates are at all-time lows, but the effect on the housing market is very slight.  What is the difference? Aside from the first time homebuyer tax credits that were in place in 2009, which provided an artificial housing stimulus, the primary difference between 2009 and today is regulation. Bernanke himself admitted that a lot of potential candidates no longer qualify, and this is a huge problem.  However, what he did not say is that the primary reason that homeowners no longer qualify is the strict underwriting standards imposed by Dodd Frank.  When standards for underwriting and qualifying borrowers become codified into federal law, there is very little room for common-sense underwriting.  At the end of the day, that means that more borrowers cannot purchase or refinance homes.

In response to the complaints that small business owners can't get loans, Bernanke told us that many banks have a lot of excess funds right now which are on deposit at the Federal Reserve. He said that he hears these same complaints all over the country, and he has instructed employees of the Federal Reserve to work with banks to encourage them to loan money to small businesses. What he did not say is that new FDIC regulations determine the fees that banks have to pay to the FDIC based on their loan portfolio rather than the amount of their deposits, which was formerly the criteria for assessing fees.  And federal requirements governing reserves for banks require that banks hold much more money in reserve against future disasters.  The end result of these regulations is that banks have a lot of incentive to take in deposits and very little to loan out the money. In light of this, Bernanke's advice to business owners in the room who can't get loans, "If your bank says they can't loan you money because of regulations, press them on that," sounds much less practical.  After all, the bank does not need a specific book and page regulation to deny your loan if they have been incentivized by the government to hang on to their money.

What were my impressions?  Bernanke is a very quiet man, which I knew from seeing his press conference which he gave this summer.  Do I think that he regrets his policies?  Not a bit.  But do I believe that it would make any difference if he did?  Not really.  Most of what the Federal Reserve is implementing and will continue to implement is the provisions of the Dodd Frank Bill.  Dodd Frank is a massive framework on which regulators and agencies can hang new rules without ever going back to Congress.  But it was Congress that passed this monstrosity in the first place. Without a full repeal of this destructive piece of legislation, no amount of quantitative easing, or round tables with business people, or positive thoughts for the future is going to make any difference in the financial sector of this country. 

We talk a lot about jobs and housing.  Hundreds of thousands of jobs have been lost in the financial sector alone since 2008.  Tens of thousands of small businesses have been forced to close their doors.  Now we are starting to see massive layoffs from the major banking entities and investment houses.  No part of the financial world is safe.  And as the financial world goes, so goes the rest of the country.

Next week:  Bernanke's predictions for the future of Fannie Mae and Freddie Mac.

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books.  For more information, visit her website at http://www.frontier2000.net/.

Do You Want to See Something Really Scary?:

Do you remember Twilight Zone--The Movie? I did not see it--my mother was extremely strict and never allowed us to watch horror movies or even light comedy containing anything that smacked of the occult. But I remember my father coming back from a trip and telling us that he had been driving with his nephew on a dark, wood-lined road when his nephew told about the scene from Twilight Zone where a set of characters are in a car at night trying to scare each other. Finally, one of them says to the driver of the car, "Do you want to see something really scary?" When his friend agrees, he turns his face away, and when he turns back he has become a monster who kills the young man who is driving.

If Hollywood were making that movie today, rather than having the actor turn into a monster,  the director could have just had him go apply for a mortgage loan.  When he saw the list of conditions, the low appraised value of the property, and the length of time that it takes to get financing today, he would die of a massive fear-induced heart attack.

Sound like an exaggeration.  It isn't.  After 13 and a half years in mortgage lending, I have never seen housing finance even close to as bad as it is today.  Consider these real life Tales from the File Cabinet:

1. A pediatrician who wants to refinance her custom built home but cannot because her 685 credit score does not qualify her for 90% financing she needs in order to be able to pay off the existing note.  Her income is over a quarter of a million dollars annually and she has virtually no debt, but last year she had a small collection (under $60.00) with the U.S. Post office,  and that is keeping her credit score artificially low.  Since El Paso does not qualify for expanded conforming loan amounts, she cannot get an agency loan.

2. A self-employed business man with a credit score of 734 who filed and paid taxes on over $250,000, and qualifies under the existing HARP guidelines but is having difficulty getting a mortgage loan because his company's K1s report non-allowable losses for the current tax year.  The losses are non-allowable so he cannot write them off his 2010 taxes, but the underwriters want to subtract them from his income anyway, which means that he does not qualify.

3. A salaried borrower in Austin, Texas making over $150,000 a year in salaries and commissions who cannot get financing because even though the home he moved into in Austin, Texas has previously been used as a rental property and filed that way on his taxes, he does not currently have a tenant in the house, so Fannie Mae will not allow him to use a lease to offset the payment unless he can demonstrate 30% equity in the property--which he does not have in this current climate of depreciating values.

After using the enhancements to HARP for media coverage last week, this week even the Obama Administration is admitting that the new enhancements to the program will allow only modest gains for refinancing. In reality, because of extremely stringent guidelines even borrowers with good credit, beautiful properties, and high incomes cannot get loans.  These are people who want to refinance so that they can save hundreds of dollars a month on their mortgages, or because they want to shorten the term to a 15 year loan, ultimately saving them hundreds of thousands of dollars, or who would like to be able to take advantage of low interest rates and low housing prices to buy a new primary residence.  All have long credit histories which demonstrate both an ability and a willingness to pay.  And all have excellent documentable incomes.  But in the current environment, they are shut out of financing by guidelines so strict that they are geared to ensure that virtually no one get a mortgage loan.  That's pretty scary.

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen.  For more information, visit her website at http://www.frontier2000.net/ or like her on Facebook at http://www.facebook.com/frontier2000mediagroup

So You Want to Refinance?

The biggest news in housing this week was the announcement of President Obama's executive order to revamp the Making Home Affordable Program (HARP) to make mortgage refinancing more accessible to millions more Americans. Making Home Affordable has been widely criticized as a failure since the original program had targeted about 5 million potential homeowners but was actually able to refinance less than 1 million into new lower interest rate mortgages. But this week in Las Vegas, Obama announced his new fixes to HARP to make the program easier for Americans to refinance their underwater mortgages into new, lower fixed rate mortgages.

Critics of the president's executive order say that ultimately the decision to refinance these underwater mortgages will further damage the credit system by making taxpayers responsible for homes without enough equity. That is really a bogus argument because the only loans being refinanced through HARP are loans which are currently owned by Fannie and Freddie (and these are currently being supported by tax payers). Proponents say that the new program will free up consumer funds which can be pumped back into the economy to stimulate consumer spending--with some estimates at over $20 billion in funds. That, too, is bogus, for several reasons.

The first and most important reason that both the critics and proponents of the new plan are wrong is that the new and improved HARP is not going to work any better than the original. In fact, it will be plagued by many of the same problems that kept the original program from working.

The original Making Home Affordable Program allowed homeowners to refinance homes at up to 125% of their appraised value. When the new adjustments to HARP were announced, many journalists and industry experts began announcing that the new program does not utilize appraisals. That is not true. If there is not a good automated valuation model for the property, an appraisal will be required. Borrowers refinancing into fixed rate loans will not have to consider the property's value, but those refinancing into an ARM will be limited to 105% of the value of their home.

But the excitement over basically discarding property values implies that being underwater in a home is the only issue that keeps homeowners from being able to refinance when in fact there are a host of other reasons that HARP failed the first time and will fail again:

PROBLEM 1: The new Making Home Affordable Program is limited to homeowners with less than 20% equity in their mortgage. FHFA says that this program is reserved for those who "really need it." As with the original program, the current mortgage must be with either Fannie Mae or Freddie Mac and must have been originated prior to May 31, 2009. The issue here is that many Americans who have less than 20% equity in their homes have loans with private mortgage insurance on them. As FHFA's announcement states, participation in HARP is voluntary, so mortgage insurance companies and lenders voluntarily decide to participate in the program. In the original HARP program, MI companies would reissue the MI certificates on the properties only if the loan stayed with the current mortgage holder. Unless  FHFA has figured out a way to change this, that means that anyone with a mortgage with mortgage insurance whose current servicer does not participate in the new enhanced program can't refinance through HARP Phase II. And those whose servicers do participate can refinance only under the guidelines offered by their servicers.

PROBLEM 2: Many borrowers who are underwater in their homes are underwater because they have a first and a second mortgage. Under HARP, a second mortgage cannot be refinanced along with the first. That means that the second mortgage must be re-subordinated to the first mortgage in order for the borrower to be able to take advantage of the lower interest rates. And not all second mortgage holders will do that. For example, a borrower recently called me about refinancing his investment property. At the time that he purchased the home, it was his primary residence, and he had a first and a second lien. Last year, he tried to refinance through Chase, who approved him for the loan but told him that the second lien would have to be re-subordinated in order for him to close. The problem is that the second lien holder, GMAC, will not re-subordinate the second lien because the house is now an investment property and without that re-subordination, he cannot get the loan. I have seen variations on this problem several times in the last few years.

PROBLEM 3: In Texas, properties qualify under HARP for refinance but they cannot be refinanced because at one time the owners took equity loans against the houses. In Texas, our state law says that once a home has had an equity loan against it, the provision of the home equity law always apply, which means that the homeowner must always maintain 20% equity in the property. So a homeowner cannot legally refinance an underwater property with a home equity loan against it no matter what kind of program FHFA and the President develop.

Besides equity in the properties, there are many issues that have kept borrowers from refinancing over the past few years. One of the most important is income. Over the last two years, income standards have tightened incredibly. HARP does waive lender warranties to Fannie Mae and Freddie Mac, and HARP promised relaxed underwriting guidelines, but the FHFA announcement does not make clear exactly how those guidelines will be relaxed. What we do know is that the Dodd Frank bill's defense to foreclosure provisions call for all loans to have income verified fully. Borrowers whose income is improperly underwritten can use poor underwriting as a defense to foreclosure for their mortgage loan. As a result, lenders are being incredibly strict about underwriting income.

As an example, I am working on a file for a hospital employee who has been on his job for thirteen years. This man has excellent credit and has decided to refinance his home from a thirty year note to a fifteen year note. He qualifies under the current HARP guidelines. I calculated his income using his year to date income based on his pay stub and determined that he fell just under the lender's 45% debt to income ratio guideline. But when I sent in the file, the underwriter informed me that he could not qualify for a 15 year loan--he would have to refinance at 20 years. When I questioned her about the income, she said that she has a worksheet she has to use, and she calculated the income at $300.00 a month less than my calculations.

HARP has published guidelines, but lenders have their own overlays which often exceed those guidelines to make sure that they are originating quality loans. Being able to refinance is about much more than having a decent credit score or sufficient equity in your home. It is about getting the underwriter to agree that you make enough money to pay the loan back based on an ever tightening set of underwriting standards regarding income. Income qualifications have kept a lot of borrowers from qualifying to refinance under the current guidelines, and unless HARP specifically issues an income waiver--which would be completely contrary to all of the provisions of Dodd Frank--many borrowers are going to continue to find themselves locked out of an opportunity to refinance.

PROBLEM 4: While it is makes a great soundbite to go to Las Vegas and announce that borrowers will be able to refinance in the parts of the country that have been hardest hit by the economic downturns, the reality is quite a lot different. As with the current HARP program, only borrowers who currently have loans with Fannie Mae and Freddie Mac qualify to refinance under the program. That means that borrowers with exotic mortgage products such as negative amortization cannot use this new program. People who had jumbo loans--which until a few years ago was everyone financing over $417,000, do not qualify. And consumers who financed into subprime loans do not qualify. While the Fannie/Freddie portfolio does cover a lot of consumers, it also misses a lot. In the years between 2003-2008, Fannie and Freddie's market share had shrunk significantly since they could not effectively compete with many of the other products on the market. So in Arizona, California, Nevada and Florida, where many people are underwater on their mortgages, many borrowers who would qualify are in the wrong type of mortgage to be able to get the loans.

As I said at the beginning of this post, critics are saying that the enhancements to HARP will cause Fannie and Freddie to take on the responsibility of underwater mortgages.  In fact, FHFA's goal is to encourage borrowers to refinance into shorter term mortgages so that they can recover equity faster.  If the program were successful and it worked as FHFA hopes, this would in fact cause many of these mortgages to recover equity and to in fact be paid off in fifteen years.  And this is probably the basis for the billions of dollars in savings that the White House and FHFA tout that HARP Phase II will give to consumers.   As a loan originator for over thirteen years, I can tell you that the savings of going from a thirty year to a fifteen year mortgage is huge over the life of the loan--depending on the size and interest rate of the current mortgage, it can amount to hundreds of thousands of dollars.  However, the economic impact of that savings will not be felt in the general economy for fifteen years when the houses are paid off.  If consumers were to follow the FHFA's proposals to refinance their homes into shorter loans, they would actually see an increase (albeit a small one) in their monthly payments in the immediate future, which would lead to less disposable income in the short term.  Of course, if consumers stay in their homes and pay them off, fifteen years from now they will not have house payments so then they could increase their spending, but that won't help the economy now.

In the short term, this program will provide fees and income for mortgage lenders and great video opporunities for the president.  University of Virginia professor Larry Sabato told CBS this week that people need to see the President on television "trying to solve problems."  HARP II creates sound bites, but beyond that it is not going to do much more than its predecessor about changing the fate of homeowners or the current housing situation in the U.S. either for better or for worse. At the end of the day, HARP II will produce very little change and more hype than hope.

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. For more information visit her website at http://www.frontier2000.net

Too Much Information

Last year I wrote a blog about a practice that FICO had just rolled out to help banks determine the credit worthiness of their clientele based not only on their history of paying their bills, but on other factors as well.  

At that time, the Fair Isaac Company--creators and owners of the FICO score system that governs our lives--had announced a new system marketed to banks to track depositor behavior. The then new system assigns each bank client a score based on deposit and withdrawal activity. Presumably, checks for non-sufficient funds and returned checks count against the borrower's score. The scoring system alerts the bank when there is a change to the borrower's financial activity--for instance, a direct deposit which stops may signal the loss of a job. Using up the savings may also signal financial difficulties. And that can be the bank's cue to cut off credit.

In addition to tracking bank information, credit bureaus are also using income estimates to determine potential debt to income ratio. Although credit reporting agencies do not have direct access to income documents or to IRS-filed tax returns, the Federal Reserve has cleared the way for lenders to use credit bureaus' income estimates to determine whether a particular borrower would be creditworthy for credit cards and credit lines. Using existing credit lines and the type, balance, and age of the consumer's mortgage, the credit bureaus attempt to determine what the client's annual income is. His stated income on a credit application can then be cross checked against the credit bureau's guesstimate to see whether the numbers line up.

The banks are also tracking the consumer's home's value.  A WSJ article from 2010 tells of Ken Lin, who had a very good credit score but was denied for a credit card. He was flagged as high risk because he lives in California where his property value had declined but his mortgage balance had remained steady, signaling that he was on an interest-only mortgage. 

The cash value of bank accounts and other "liquid assets" can be an important mitigating factor in determining credit worthiness, but previously credit reports did not disclose financial liquidity just as they did not disclose income. Now, however, Experian offers a service which estimates financial liquidity for consumers so that the banks can use this information to determine credit worthiness.

For more than a decade, the importance of a good credit score has been drilled into us, with the result that many more Americans know their credit score and understand its impact on their lives.  And as a result, many Americans have tried hard to maintain their credit through the tough times of the past two years, knowing that a poor credit score has long on-going consequences. 

Now, as experts speculate about whether we are officially headed back into another recession, FICO has introduced yet another new set of perimeters for credit reports. On October 10, 2011, they announced a new initiative through CoreLogic which will provide lenders with still more info on prospective borrowers.

The new credit scoring models will include previously excluded items such as child support payments.  Right now, child support shows up on credit reports only if it goes into collection.  Regular payments do not appear on a credit report.  The system will also score apartment rentals and applications to payday lenders.

In FICO's press release about the new system, VP of scoring and analytics Greg Pelling said that, "Lenders today need as much actionable consumer information as possible so that they can safely grow origination volumes and avoid future losses."  And indeed, some analysts are saying that the new information will help people with thin credit files get approved for credit more easily because the models will allow lending institutions to take into consideration payment histories that currently do not report. This can mean that borrowers who have paid all of their bills on time but not utilized much "traditional" credit can have an easier time being approved.

But for most Americans, increased scrutiny into their financial lives is going to increasingly limit access to credit.  People who are struggling financially--particularly small business owners who are living on credit cards while trying to keep their businesses open--have increasingly seen their access to credit and capital cut off on the last few months.  Cutting off credit to people who are struggling may be a prudent move for a financial institution, but for the small business owner or the family trying to make ends meet, not being able to get credit in tough times may mean the difference between weathering the current financial storm and drowning.  At a time when falling home values and stringent underwriting guidelines are causing many otherwise qualified Americans to be locked out of the ability to refinance their homes to take advantage of historically low rates and lower their payments, should we really be adding in another level of scrutiny to make it still harder for people to qualify for loans?  As we continue to scrutinize every aspect of potential borrowers' financial lives, we can find more and more reasons to deny more and more people access to loans that could dramatically improve their financial situations.

It will be interesting to see how FICO compiles and processes the information obtained.  For example, traditional credit reports report borrowers who have been late 30 days on a payment as delinquent.  However, apartments and other housing rental agencies tend to consider payments made after 15 days delinquent.  Will FICO report delinquent payments on accounts not past due 30 days if that is how the reporting organization listed them? 

All of this new access to info just means that for the consumer who is beginning to have some financial problems--loss of equity in a home, loss of one of the household incomes, etc. the financial service provider can identify those persons and cut off their access to credit even if they have had a perfect pay history.  It is a little like the credit version of "Minority Report"; we can now determine whether a person is at risk to default and punish them before they have a chance to make their first late payment.

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. For more information, visit her website at http://www.frontier2000.net.

 

Civil Rights Legend Passes Away Into History

Derrick Bell, distinguished Civil Rights advocate and father of Critical Race Theory, died today at the age of 80, the New York Times reports.

Bell, the first African-American law professor at Harvard, and the first dean of a non-historically black law school, led an interesting life, influencing our own President Barack Obama, who compared him to bus boycott heroine Rosa Parks. He left Harvard Law School when they refused to change their hiring practices to allow minorities a chance to teach at the famous Ivy League school.

Perhaps more famous for rejecting high positions in education and government than accepting them, Bell once resigned from working at the Civil Rights Division of the Justice Department in his 20s, after his superiors told him to give up his membership in the N.A.A.C.P., believing it posed a conflict of interest.

Professor Bell’s core beliefs included what he called “the interest convergence dilemma” — the idea that whites would not support efforts to improve the position of blacks unless it was in their interest. Asked how the status of blacks could be improved, he said he generally supported civil rights litigation, but cautioned that even favorable rulings would probably yield disappointing results and that it was best to be prepared for that.

Ever the pragmatist, Professor Bell's teaching style was unique, in that he would forgo dry, boring, legal analyses and employ an allegorical method of teaching. Short stories, fictional characters, and other literary devices marked a successful foray into story writing, an example of such was the short story, "Space Traders", which appeared in his 1992 book, “Faces at the Bottom of the Well: The Permanence of Racism.” In the story, as Professor Bell later described it, creatures from another planet offer the United States “enough gold to retire the national debt, a magic chemical that will cleanse America’s polluted skies and waters, and a limitless source of safe energy to replace our dwindling reserves.” In exchange, the creatures ask for only one thing: America’s black population, which would be sent to outer space. The white population accepts the offer by an overwhelming margin. (In 1994 the story was adapted as one of three segments in a television movie titled “Cosmic Slop.”)

This teaching style, as revolutionary as it was, did have several critics, one of which was Judge Richard Posner of the United States Court of Appeals for the Seventh Circuit, who “label[ed] critical race theorists and postmodernists the ‘lunatic core’ of ‘radical legal egalitarianism.’” He writes,

"What is most arresting about critical race theory is that...it turns its back on the Western tradition of rational inquiry, forswearing analysis for narrative. Rather than marshal logical arguments and empirical data, critical race theorists tell stories — fictional, science-fictional, quasi-fictional, autobiographical, anecdotal — designed to expose the pervasive and debilitating racism of America today. By repudiating reasoned argumentation, the storytellers reinforce stereotypes about the intellectual capacities of nonwhites."

Others lauded Bell's Critical Race Theory, such as Judge Alex Kozinski, in the United States Court of Appeals for the Ninth Circuit, who writes that Critical Race Theorists have constructed a philosophy which makes a valid exchange of ideas between the various disciplines unattainable.

"The radical multiculturalists' views raise insuperable barriers to mutual understanding. Consider the Space Traders story. How does one have a meaningful dialogue with Derrick Bell? Because his thesis is utterly untestable, one quickly reaches a dead end after either accepting or rejecting his assertion that white Americans would cheerfully sell all blacks to the aliens. The story is also a poke in the eye of American Jews, particularly those who risked life and limb by actively participating in the civil rights protests of the 1960s. Bell clearly implies that this was done out of tawdry self-interest. Perhaps most galling is Bell's insensitivity in making the symbol of Jewish hypocrisy the little girl who perished in the Holocaust — as close to a saint as Jews have. A Jewish professor who invoked the name of Rosa Parks so derisively would be bitterly condemned — and rightly so."

In addition to his wife, he is survived by three sons from his first marriage, Derrick A. Bell III and Douglas Dubois Bell, both of Pittsburgh, and Carter Robeson Bell of New York; two sisters, Janet Bell of Pittsburgh and Constance Bell of Akron, Ohio; and a brother, Charles, of New York.

The Occupation

We are now in the third week of the Occupy Wall Street protests, as thousands gather in New York and elsewhere around the country, to protest Wall Street, corporate greed, and capitalism.  Over the weekend 700 protesters were arrested for blocking the Brooklyn Bridge, but the arrests and the protests have brought increased attention to a group whose primary goal is to "demolish capitalism" and the free market system.

The Occupy Wall Street protesters have been joined by Susan Sarandon, Michael Moore and other leftist activists who support the assertion that Wall Street has too much influence over the world. (Of course, no one is going to stage an Occupy Hollywood protest to point out the fact that actors are notoriously over-paid and that Hollywood exercises undue influence over the world, but I digress.)  Billionaire George Soros has also signified his support and sympathy for the movement.

Interestingly, beyond the destruction of capitalism, Occupy Wall Street does not seem to have any clear goals, except perhaps to set up a counter movement to the Tea Parties which will promote socialism and  organized labor. The protesters want to replace the free market system with a new system in which presumably the government will be the only entity with undue influence.

Since promoting "freedom" is a goal of Occupy Wall Street, a blogger sympathetic to the cause asked fifteen of the protesters to define freedom.  I have excerpted some of the real answers to the question of "What does freedom mean to you?"  For a complete list of the answers, see http://rortybomb.wordpress.com.  I found these definitions truly enlightening:

"Freedom is bound up with the idea of possibilities.  The idea of limitless possibilities is the ideal of limitless freedom...But we still live in a state of unfreedom...The goal of history and transforming society must be to make these possibilities available to everyone."

"Revolution means freedom from necessity."

"Freedom means living my life however I want to...The ability to do what I want with my life, without the confines of debt, without the confines of politics, without the confines of anything else."

"Being able to have enough activities, friends and the social basis of self respect..."

"Freedom means freedom from necessity."

"I think freedom is your ability to carry out what you want to do...If you are always working for a boss, you don't have freedom either. Freedom is always that you're emancipated from your physical necessities and your mental baggage."

"Freedom means the ability to speak your mind, to live your life free of worrying about how you'll pay your next bill or whether you'll have a roof over your head."

And the media is wondering that these people don't appear to have a clear-cut objective for the protest!  The Occupy Wall Street protests is spreading to cities as far from New York as Albuquerque, New Mexico, and the protesters are reportedly going to New York from across the nation to take part.  This week, protests are expected to include representatives from The Teamsters Union.

Unfortunately, the above quotes about freedom represent current attitudes about freedom for many Americans.  (And while some of the protesters quoted here are students who are not yet twenty years old, others are grandparents, so this is a fair cross-sampling of ages.)

None of these definitions of freedom includes personal responsibility or risk taking.  But in reality, no one can ever experience freedom without taking responsibility for his or her own life. When we take responsibility for our lives, we take risks and we incur debt.  But in doing so, we make both good decisions and bad ones, and we earn the right to chart our own course in life.  When we live in an entitlement society where the government meets our needs and provides all of our necessities, the government also determines how much we can have, where we can live and what we can achieve. 

The protesters who are standing outside in New York protesting capitalism are asking that the free markets be replaced by a cradle-to-grave entitlement society where they will not have student loans, or debts, or jobs they hate, or responsibility.  They are also asking for a society in which they will never experience success or aspire to truly improve themselves. If their dream of "freedom" is achieved, they will live in a society where a massive government becomes the source of everything. As Dwight Eisenhower said, "Every step we take towards making the State our Caretaker of our lives, by that much we move toward making the State our Master."

For more by Alexandra Swann, visit her website at http://www.frontier2000.net/.

Public consultation on Property Factors (Scotland) Act 'Code of Conduct'

The Scottish Government has launched 12-week consultation on a proposed statutory Code of Conduct, to be made under the Property Factors (Scotland) Act 2011, which was passed by the Scottish Parliament earlier this year.

Property managers administer communal areas, roofs and stairwells in an estimated 225,000 flats and tenements across Scotland. Land maintenance companies look after the common green space on many new housing estates. The act, which comes into force no later than October 1, 2012, aims to provide protection for homeowners in Scotland who receive services from property factors.

Compulsory registration for all property factors and a tribunal based dispute resolution process for homeowners will be introduced.

Minister for Housing and Transport, Keith Brown said: "Property managers have an important role to play in maintaining and improving housing stock condition and open space. While the majority of property factors provide a good, effective service, the Scottish Parliament voiced concerns about how some property and land management services are delivered".

"The act will provide protection for homeowners in Scotland who receive services and the code of conduct is a central element of that act. “I would urge everyone with an interest in this important issue to respond to the consultation.”

During the consultation period the Scottish Government will hold a series of consultation workshops for property factors and for homeowners and members of the public. The act was introduced as a member’s bill drafted by GLC on behalf of Glasgow MSP, Patricia Ferguson. The Scottish Government supported the bill and worked with Ms Ferguson to make the legislation as effective as possible.

The consultation will run from Monday 26 September until Friday 16 December.

Making Not Working Pay

A little over a month  ago, the regional director of the SBA called for a roundtable discussion with the El Paso Hispanic Chamber of Commerce and area businesses.  In my current role as chairperson, I attended.  We were told that The White House was asking for this meeting in order to get feedback from the local business community about their needs.

As the round table discussion started, I saw that the room contained a good representation of local businesses, many of whom contract to perform various services for the federal government.  We also had a local city councilwoman in attendance to represent the city of El Paso.

The SBA director kicked off the discussion by getting some feedback on how waiting times at the international bridges were affecting local businesses. (Since many businesses here do business on both sides of the border, excessive waiting times are always and issue.)  Then she came to what appeared to be the real theme of her visit, "Tell me how immigration policies  and problems with immigration are affecting your businesses."

The business owners at the table, who were predominately Hispanic, sat quietly without commenting.  The regional director prodded us. "Let me tell you how this works. Everyone will speak.  The President really wants to know how we can help your businesses. You can speak now or I can call on you.  Now tell me how you are being impacted by immigration."

One of the participants spoke up.  "I do have an issue, but it's not really about immigration."  She nodded at him to continue.  This man owns a landscaping business and has a contract to perform services for the federal government.  As part of his contract, when the government agency contacts him to perform landscaping services, he has about a week to get a crew together to do the job.  His issue:  the trained workers he has relied on to do the landscaping work will not take the jobs because they are collecting unemployment and don't see the need to go to work as long as they have their unemployment checks.

Immediately, it was as though a flood gate had opened.  One after the other, business owners around the table began to echo this problem.  They can't get workers to take the jobs that are available; people coming in for interviews are coming in only to satisfy the conditions of continuing to draw their unemployment.  What the business people at the table most wanted the SBA to know is that extending unemployment indefinitely keeps people from taking jobs that they could take and would take if they were not drawing unemployment.

The councilwoman now spoke up.  She explained that it is not that the unemployed don't want to take these jobs--they can't afford to.  She cited the case of a man in her district who is making $10.00 an hour on unemployment with no federal withholding.  He cannot afford to take a job paying $7.00 an hour with withholding. If the landscaper wants to woo workers who are currently drawing unemployment, he needs to raise the wages he is paying enough that his workers are taking home $10.00 after taxes.  Then, workers will be interested.  The landscaper replied that he cannot afford to pay that much for workers.

This impromptu discussion about unemployment and the administration's policies towards unemployment highlighted the huge disconnect between the federal government and the business community, and it is particularly relevant in light of the provisions of the American Jobs Act, proposed by the president.  The American Jobs Act seeks to extend unemployment benefits for an additional year (though not longer than 99 weeks) and to make discrimination against the long term unemployed illegal.  An unemployed person who interviews for a job could sue for discrimination and file a complaint with EEOC if he does not get hired.  But the bill overlooks the realities that the dynamic of unemployment benefits creates for both workers and business owners.

I experienced this personally 14 years ago when I worked briefly for a national employment agency before starting my own business. Unemployment has always been about 2% higher in El Paso than in the rest of the nation, so we saw a great many unemployed people come through our doors.  And since we offered temporary jobs as well as permanent jobs, I worked with many repeat employees.

The common theme among the temporaries was that as long as they were receiving their unemployment checks, they could be more selective about where they worked.  So while I had certain candidates who called me every day asking for work, when I would find a position for them they typically found some sort of a problem with the position that made it unacceptable.  The location was too far away--"I'm not going to use up my gas and wear out my tires going all the way out there;"  the supervisor was unpleasant, or "My uenemployment benefits are more than that job pays."  I often tried to explain that while the unemployment benefits might indeed be initially higher than the pay, unemployment ends.  A job might lead to wage increases, promotions, or an opportunity for a better job.  Unemployment insurance leads to none of these.  But most of the people I met had their minds made up--they were not going to work for less money than they could get for staying home.  As they declined work, their skills grew more outdated, and their job prospects continued to drop. What seemed to be a good short term decision to turn down work turned into a cycle that made it hard for these people to go back to work when they finally had to do so.

Over the weekend I was reminded of one of Obama's first stimulus programs, Making Work Pay.  Making Work Pay is a tax credit that was built into the American Recovery and Reinvestment Act of 2009, which entitles eligible Americans to a tax refund.  What struck me over the weekend was how ludicrous the name of this program really is.  After all, making work pay is a function of a free market system.  Making work pay is what every entrepreneur with any sort of a skill does when he or she decides to take that skill and invest his or her time, money and lifeblood in a business.  Making Work Pay is the motivation behind business ownership, business growth, and business success.  Every profitable business starts when someone looks in the mirror and says, "This is what I know how to do.  How can I get paid more do it?"  It is not a function of any government and certainly not one that is as anti-business as this one.

This distinction is especially important as we are looking at Stimulus 2--The American Jobs Act.  The American Jobs Act promises to help both small businesses and the unemployed.  But in reality, it just creates more incentives and more penalties.  How many small businesses want to risk a run-in with the EEOC or a possible lawsuit by interviewing an unemployed person who may not get the job?  It is easier just to never call those candidates in at all.  How many unemployed people who are netting $10.00 an hour for 99 weeks want to get up early and work all day in the sun doing landscaping for $7.00 before taxes?  Probably not many.  No matter how many jobs are available, if the private employers cannot compete with the unemployment benefits, they are not going to find willing workers. 

Mike Rowe (of Dirty Jobs fame) was on Fox and Friends yesterday morning talking about vocational training. According to Rowe there are over 740,000 jobs currently available in construction and manufacturing which cannot be filled because workers do not have the necessary skills to do these jobs.  His point was that we need to close the skills gap in America by redefining what we consider to be a good job.  While I have no way to verify Rowe's figures, I do wonder how many of those jobs might be filled by a person currently on unemployment if he or she were not incentivized not to work?

To bring back American jobs, we need an environment that is friendly to business rather than contentious.  And we need to reward work and initiative rather than choosing as a society to make not working pay.

Alexandra Swann is a small business owner and the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen. For more information, visit her website at http://www.frontier2000.net/.