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Bucks Blog: Campus Banking Practices Come Under Scrutiny

January 31, 2013 by Leave a Comment

College students are much sought after as banking customers, since young people are likely to stick with the institutions they choose for their first accounts.

On Thursday, the Consumer Financial Protection Bureau said it was opening an inquiry into bank accounts and debit cards marketed to students through colleges and universities to determine if such arrangements are in the best interest of students.

“The bureau wants to find out whether students using college-endorsed banking products are getting a good deal,” Richard Cordray, the agency’s director, said in a prepared statement.

The Credit CARD Act of 2009 barred banks from aggressive marketing of credit cards on campus, and required that agreements between credit card issuers and colleges be made public.

But, the agency said, less is known about deals for other financial products, including college-affiliated bank accounts, and contracts between schools and banks to disburse financial aid to students. Students, including those attending community colleges, often receive financial aid in excess of tuition, and can use the extra money to pay for textbooks and other costs. The banks often provide a debit card, linked to an account, to distribute the funds, and students sometimes think they are required to use the bank promoted by the school to obtain their scholarship or loan money. Some colleges even issue college-branded student identification cards that double as debit cards.

In some cases, companies providing the debit cards for financial aid have come under fire for charging excessive fees. Higher One, a big marketer of student debit cards, last summer settled allegations by the Federal Deposit Insurance Corporation that it had charged excessive fees to students who overdrew their accounts.

Now, the bureau said it is seeking information from students, colleges and banks on what information colleges share with banks when they enter such agreements; how accounts and cards are marketed to students; what fees students are charged; and how students use the cards and accounts in their day-to-day lives.

Comments will be accepted until March 18.

Rohit Chopra, the agency’s student loan ombudsman, said in a telephone interview that students are already under financial pressure from borrowing money to finance their educations. So it’s important, he said, that they aren’t also subject to excessive fees that can chip away at their finances.

Colleges, he said, also need better information, so they can negotiate agreements with banks that contain appropriate protections for students, who often trust that any college-endorsed product must be beneficial to them.

The agency offers a tool on its Web site to help educate students about the best way to select a bank account.

“We want students to know they can, and should, shop around,” he said. The account promoted by their college isn’t necessarily the best deal for them.

Have you used a college-endorsed debit card? How has that worked out for you?

Article source: http://bucks.blogs.nytimes.com/2013/01/31/campus-banking-practices-come-under-scrutiny/?partner=rss&emc=rss

Filed Under: Your Money Tagged With: , ,

Bank Deal Ends Flawed Reviews of Foreclosures

January 11, 2013 by Leave a Comment

Federal banking regulators are trumpeting an $8.5 billion settlement this week with 10 banks as quick justice for aggrieved homeowners, but the deal is actually a way to quietly paper over a deeply flawed review of foreclosed loans across America, according to current and former regulators and consultants.

To avoid criticism as the review stalled and consultants collected more than $1 billion in fees, the regulators, led by the Office of the Comptroller of the Currency, abandoned the effort after examining a sliver of nearly four million loans in foreclosure, the regulators and consultants said.

Because they have no idea how many borrowers were harmed, the regulators are spreading the cash payments over all 3.8 million borrowers — whether there was evidence of harm or not. As a result, many victims of foreclosure abuses like bungled loan modifications, deficient paperwork, excessive fees and wrongful evictions will most likely get less money.

“It’s absurd that this money will be distributed with such little regard to who was actually harmed,” said Bruce Marks, the chief executive of the nonprofit Neighborhood Assistance Corporation of America.

While the comptroller’s office acknowledged flaws in the review, Bryan Hubbard, a spokesman for the agency, said the “settlement results in $3.3 billion being paid to consumers and that is the largest total cash payout of any settlement involving borrowers affected by foreclosures to date.”

The examination was plagued by problems from its start in November 2011, according to interviews with more than 25 people who reviewed foreclosures, 15 current and former regulators and 6 bank officials, who insisted on anonymity because they were not authorized to speak publicly or feared retribution.

Several former employees of a consulting firm doing reviews said that their managers showed bias toward the bank that hired them. Other reviewers said that the test questions used to evaluate each loan were indecipherable and in some cases the process failed to catch serious harm. Many borrowers said they had never heard of the review or were so baffled by the process that they gave up or dismissed it as just another empty promise.

The review, which was hastily dismantled this week, was mandated by bank regulators amid public outrage over accusations that banks were robo-signing mountains of foreclosure filings without verifying them for accuracy. The review was supposed to cover any loan in foreclosure in 2009 and 2010, regardless of whether there was evidence of dubious practices.

The comptroller and Federal Reserve ordered the banks to hire consultants for the review, and the regulators solicited claims from borrowers.

Patricia McIntosh, 46, said she would have jumped at aid to avoid the foreclosure on her home in Lynn, Mass., but never got notice of the review. “When you go through a foreclosure, you are sifting through so much junk mail and scams,” Ms. McIntosh said, “so I keep my eyes open and I never got anything.”

Ms. McIntosh said she believed she was eligible for relief after U.S. Bank foreclosed on her home in the midst of a loan modification.

Christine Lucier, 32, of Northbridge, Mass., is also in limbo, unsure of what aid she may receive now that the settlement will be widely disbursed. Of the $8.5 billion settlement, $3.3 billion will be shared among the 3.8 million borrowers, and the rest comes mostly from banks’ lowering of interest payments or loan amounts for homeowners. In March 2012, Ms. Lucier received a letter from Bank of America notifying her that she was behind on her mortgage payments and in foreclosure. She thought she was having a nightmare, because the bank had evicted her in 2008.

She learned the bank had inexplicably reversed her foreclosure in November 2010. Since then, the two-bedroom colonial house had been looted by vandals and stripped of its wiring and copper piping. “My life has been turned upside down and I have to go through foreclosure again,” Ms. Lucier said.

Now that the foreclosure review has been shut down, no one will know whether examples like Ms. Lucier are anomalies. Bank executives thought that the review would prove that, while their foreclosure procedures had deficiencies, they did not result in the widespread wrongful eviction of homeowners. And housing advocates thought that the examination would prove extensive wrongdoing by the banks.

As of this week, the comptroller’s office said that it had identified 654,000 potentially problematic foreclosures — a combination of 495,000 claims submitted by borrowers and 159,000 files that the consultants flagged for review. The regulator said it was still determining the number of reviews completed, but the consultants said that only a third of the loans were fully reviewed.

A critical flaw from the start was that the federal government farmed out the work of scouring the millions of foreclosures to several consulting firms that charged as much as $250 an hour and outsourced work to contract employees, many of whom had no experience reviewing mortgages, according to the reviewers, regulators and bankers.

Article source: http://www.nytimes.com/2013/01/11/business/bank-deal-ends-flawed-reviews-of-foreclosures.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Countrywide to Distribute Settlement to Its Clients

July 22, 2011 by Leave a Comment

The number of consumers recovering money in the settlement is the biggest in the F.T.C.’s history and wound up being double what the commission had estimated. Most will get $500 or less, but 5 percent will receive $5,000 or more, the trade commission said.

“It is astonishing that one single company could be responsible for overcharging more than 450,000 homeowners, which is more than 1 percent of all the mortgages in the United States,” Jon Leibowitz, chairman of the trade commission, said in an interview. Countrywide’s “was a business model based on deceit and corruption, and the harm they caused to American consumers is absolutely massive and extraordinary.”

The excessive fees and improper charges were levied on borrowers whose loans were serviced by Countrywide. Most of those receiving money under the settlement — almost 350,000 customers — were routinely charged excessive amounts by Countrywide for default-related services.

To profit from property inspections, title searches and maintenance on homes going through foreclosure, Countrywide set up subsidiaries to do the work and marked up the cost of the services by more than 100 percent. The company’s strategy was aimed at increasing profits from default-related services during bad economic times, the trade commission said. Some troubled borrowers were charged $300 by Countrywide to mow their lawns, for example.

An additional 102,331 people will share in the settlement because Countrywide gave them incorrect figures about how much they owed on their mortgages or added fees and escrow charges without notice, the trade commission said. Because these borrowers had filed Chapter 13 bankruptcies to try to keep their homes, the erroneous amounts supplied by Countrywide were also filed with the courts. Of these borrowers, about 43,000 were charged improper fees that Countrywide levied after their bankruptcies had been concluded and they were no longer under court supervision.

The recipients under the settlement are borrowers whose loans were serviced by Countrywide between Jan. 1, 2005, and July 1, 2008. In addition to being the nation’s largest mortgage lender, Countrywide was the biggest loan servicer, administering $1.4 trillion in mortgages. Countrywide nearly collapsed under the weight of its subprime lending, however, and was acquired in a fire sale by Bank of America in 2008.

It took more than a year to identify all of the borrowers injured by Countrywide’s practices because the company’s records were completely disorganized and chaotic, according to people briefed on the investigation. After the deal was struck, Bank of America was given 30 days to provide the F.T.C. with a list of borrowers who had been overcharged. The company failed to meet the deadline and its later assessments of those who had been victimized were found to be incomplete.

Ultimately, Bank of America had to hire an accounting firm to determine that it had correctly identified all the borrowers who were owed money.

When Bank of America settled the F.T.C.’s charges last year, it said it was doing so “to avoid the expense and distraction associated with litigating the case.” The company did not admit wrongdoing but was barred from the conduct cited by the commission. It also agreed to use a “data integrity program” to ensure that the information it used in servicing loans in Chapter 13 cases was accurate.

Article source: http://feeds.nytimes.com/click.phdo?i=0f5a23d433a39949febd340f52e2c4e0

Filed Under: Economy News Tagged With: , ,

Square Feet: A Closer, and Skeptical, Look at Nontraded REITs

July 20, 2011 by Leave a Comment

Cole took this unusual step after the Townsend Group of Cleveland, an adviser to the state pension board, reviewed the investment at the request of public officials and said it was unsuitable for a pension fund. Townsend’s long list of reasons included the excessive fees paid by investors and the company’s lack of liquidity and “appropriate policies for investment valuation,” public documents show.

The events in West Warwick brought unwanted attention to a relatively small and little-known sector of the real estate industry that has been around for more than a decade but has grown rapidly in recent years. Nontraded REITs are securities that are not listed on any exchange and are sold through financial advisers, which receive generous fees. Recently, this sector has been receiving heightened scrutiny from both the Securities and Exchange Commission and the Financial Industry Regulatory Authority, or Finra.

In May, Finra filed a complaint against David Lerner Associates, a broker-dealer in Syosset, N.Y., accusing the company of aggressively marketing $300 million worth of shares of the nontraded Apple hotel REIT to unsophisticated and elderly customers without telling them that the income from the stock was insufficient to support the dividends. Lerner has called the charges “baseless.”

Since 2004, the nontraded real estate investment trust sector has more than doubled and now has more than 63 sponsors, according to Blue Vault Partners, a research firm in Cumming, Ga. Last year, these sponsors raised $8.5 billion, a 30 percent increase over 2009. As much as $10 billion may be raised this year, approaching the $11.8 billion in investment at the peak of the market in 2007, Blue Vault said.

Like their publicly traded counterparts, nontraded REITs invest in real estate and are supposed to distribute at least 90 percent of their taxable income to shareholders annually in the form of dividends. REITs generally pay no corporate income tax.

But critics of nontraded REITs say there are a number of troubling features about the trusts, including high upfront fees that lower the value of the investment by as much as 17 cents on the dollar. Sales commissions and fees are typically 9 to 10 percent, and there are also charges for leasing, management and acquisition of commercial buildings. Critics also cite a lack of transparency about how the companies value their real estate holdings, inherent conflicts of interest because the sponsor generally invests little in the REIT but owns the entity that collects the fees.

Investors are told that nontraded securities, which have limited liquidity, allow ordinary people to participate in real estate investment while earning a higher dividend than what the traded ones offer, free from the volatility of the stock market. According to this pitch, investors are spared the anxiety of worrying that their shares, usually sold at $10, will go up and down.

Stacy H. Chitty, a former nontraded REIT executive who is now a Blue Vault partner, said much of the fluctuation in the stock market was driven by emotion. “It’s this little occurrence here, this little occurrence there,” he said. “Share price is not an accurate picture. In nontraded instruments you don’t have that daily up-and-down swing. It’s a long-term proposition.”

But nontraded trusts are now required to update their net asset values every 18 months after their initial offering, and their own disclosures to the S.E.C. show their values dropping well below the price at which the shares were originally issued. For example, one REIT, American Realty Capital Trust, recently reported that its shares, which had been sold at $10, were now worth $6.62. The sponsor, American Realty Capital of New York, raised $2.3 billion in the last 18 months, according to its chief executive, Nicholas S. Schorsch. Other sponsors, including Cole, have reported similar declines in share price, public records show.

“One common sales tactic we object to is the suggestion that they are eliminating volatility simply because they don’t tell you what the value is,” said Michael McTiernan, a lawyer for the S.E.C.’s corporate finance division. “It’s not that it’s not volatile. It’s just that you don’t know.”

Article source: http://feeds.nytimes.com/click.phdo?i=8ada12391d505fa56421908d5db32572

Filed Under: Business News Tagged With: , ,