The Supreme Court issued a ruling today preserving the Consumer Financial Protection Bureau, but allowing the president to fire its director at will.
The 5-4 decision agreed with the position of Seila Law, a California law firm that sued the bureau, arguing that the CFPB’s leadership structure – in which a sole director could be fired only for cause – violated the Constitution’s separation of powers rule, CNBC reported.
“The agency may … continue to operate, but its Director, in light of our decision, must be removable by the President at will,” Chief Justice John Roberts wrote in the majority opinion. Roberts was joined in the decision by the other four conservative justices, CNBC reported.
Despite the decision that the CFPB director could be removed at will, Sen. Elizabeth Warren (D-Mass.) – who spearheaded the creation of the agency – celebrated the fact that the agency would be preserved.
“Let’s not lose sight of the bigger picture: after years of industry attacks and GOP opposition, a conservative Supreme Court recognized what we all knew: @CFPB itself and the law that created it is constitutional,” Warren tweeted. “The CFPB is here to stay.”
The CFPB had two primary,albeit unspoken, functions. First, it was structured as a holding center for fines and assessments against any financial organizations opposed by progressives. Second, it was a distribution hub for the received funds to be transferred to political allies and groups supportive of progressive causes.
The CFPB defenders then appealed the decision to a select appellate court in Washington DC to continue the construct. The Warren crew won the appeal; but today, in an unrelated jurisdictional ruling a New York judge affirmed the minority opinion setting up a possible supreme court pathway to get a final decision.
NEW YORK (AP)– The U.S. government’s beleaguered consumer finance watchdog agency is unconstitutionally structured, a judge said Thursday as she disqualified the agency from serving as a plaintiff in a lawsuit.
Her ruling related to a lawsuit brought against companies loaning money to former National Football League players awaiting payouts from the settlement of a concussion-related lawsuit and to individuals slated to receive money for injuries sustained when they helped in the World Trade Center site cleanup after the Sept. 11, 2001, terrorist attacks.
She let claims brought by the New York State attorney general proceed, but dismissed those that were brought by the CPFB, saying it “lacks authority to bring this enforcement action because its composition violates the Constitution’s separation of powers.”
In ruling, Preska sided with three judges who dissented from the six-judge majority in a January ruling by the U.S. Court of Appeals in Washington. The majority found that the agency director’s power is not excessive and that the president should not have freer rein to fire that person. (read more)
CFPB Interim Director Mick Mulvaney hasalready saidthe CFPB needs to be disassembled.
Taking the agency down is perfectly ok with the Trump administration.
Director Mick Mulvaney appears on Fox Business News to discuss the ongoing tax reform efforts along with ongoing revelations within the Consumer Financial Protection Bureau (CFPB).
There are two really insightful articles, written by Ronald Rubin -who was there at the start of the bureau- about the CFPB, that deserve to be read by anyone looking to understand the organization and the left-wing constructs within it.
Here’s the two articles that deserve to be read. The first one might blow your mind:
♦ #1 Conceived as a government watchdog, with aims to financially fill the coffers of left-wing activist organizations, the CFPB was doomed by an Elizabeth Warren structure that made it an inherently political agency. READ HERE
♦ #2 The sad and sick joke – how the face of the CFPB’s first director falsely claimed caring about consumers, but the reality was entirely political. READ HERE
Immediately upon taking control within the CFPB Director Mick Mulvaney:
Immediately shut down any further hiring and expansion for 30 days.
Immediately froze any new rules and regulations being implemented.
And most importantly stopped any further payments from the CFPB to left-wing political activist groups.
The CFPB was essentially created to work as a legal money laundering operation for progressive causes by fining financial institutions for conduct the CFPB finds in violation of their unilateral and arbitrary rules and regulations. The CFPB then use the proceeds from the fines to fund progressive organizations and causes. That’s the underlying reason why the Democrats are fraught with anxiety right now.
Elizabeth Warren set up the bureau to operate above any oversight. Additionally, the bureau was placed under spending authority of the federal reserve. The CFPB gets its operating budget from the Federal Reserve, not from congress. Again, this was set-up to keep congress from defunding the agency as a way to remove it.
Everything about the way the CFPB was structured was done to avoid any oversight. Hence, a DC circuit court finding the agency held too much power, and deemed the Directors unchecked position unconstitutional.
Mick Mulvaney is now in a position to look at the books, look at the prior records within the bureau, and expose the political agenda within it to the larger public. That is sending the progressives bananas.
Most likely President Trump will not appoint a replacement until Mulvaney has exposed the corruption within the bureau. That sunlight is toxic to Elizabeth Warren and can potentially be politically destructive to the Democrats. If the secrets within the bureau are revealed, there’s a much greater likelihood the bureau will be dissolved.
There are billions of scheme and graft at stake. Within the record-keeping there are more than likely dozens of progressive/Democrat organizations being financed by the secret enterprise that operates without oversight. That’s the risk to the SWAMP.
Pocahontas Financial Control Scheme Returns To Bite Its Creator…
Everyone is aware how apoplectic the Democrat loonery became when their best laid schemes to put Hillary in the White House ran into the reality of electoral Cold Anger carried by the deplorables. Lots has been written about the gobsmacked reaction to the election, yet few have outlined the underlying policy reasons for the scope of the panic.
The desperate need for post-election control showcased the lefts’ reaction to fear. However, it is only by looking at the policy groundwork they lost where a political observer can evaluate the scale of defeat. Democrats created a continuum pathway that is now entirely controlled by the very nemesis of their controlling belief system.
The CFPB was created to establish power and control over almost every financial transaction in the United States. But it is only when you review how Elizabeth Warren and the control agents structured the czar head of the CFPB that you recognize the scale of the intent carried within the construct.
When Senator Elizabeth Warren and crew set up the Director of the CFPB, in the aftermath of the Dodd-Frank Act, they made it so that the appointed director can only be fired for cause by the President.
This design was so the Director could operate outside the control of congress and outside the control of the White House. In essence the CFPB director position was created to work above the reach of any oversight; almost like a tenured position no-one could ever remove.
The position was intentionally put together so that he/she would be untouchable, and the ideologue occupying the position would work on the goals of the CFPB without any oversight.
Elizabeth Warren herself wanted to be the appointed director; however, the reality of her never passing senate confirmation made her drop out.
The CFPB Director has the power to regulate pensions, retirement investment, mortgages, bank loans, credit cards and essentially every aspect of all consumer financial transactions.
However, in response to legal challenges by Credit Unions and Mortgage providers, last October the DC Circuit Court of Appeals ruled that placing so much power in a single Czar or Commissioner was unconstitutional:
[…] The five-year-old agency violates the Constitution’s separation of powers because too much power is in the hands of its director, found the U.S. Court of Appeals for the District of Columbia Circuit. Giving the president the power to get rid of the CFPB’s director and to oversee the agency would fix the situation, the court said. (more)
After the November 8th 2016 election (during the lame-duck Obama period), the CFPB sought an en blanc review of the decision by the circuit court panel. However, in March the Trump administration reversed the government’s position. In essence, Team Trump was now positioned to use the power of the CFPB Director to eliminate itself. The entire DC panel heard the appellate case in May and a decision is pending. [Either outcome Trump wins]
Facing insurmountable legal headwinds, and simultaneously finding himself under the control of the executive branch, the Obama Director of the CFPB Richard Cordray announced his resignation.
President Trump has now appointed OMB Director Mick Mulvaney as interim head of the agency; with no rush on a permanent replacement. [Mulvaney will return to his role as OMB Director as soon as a permanent replacement is nominated. Until then he wears two
While in congress Mick Mulvaney, along with dozens of Dodd Frank critics, strongly opposed the creation of the CFPB and the scope of control within its mandate to regulate all consumer financial transactions. During his confirmation hearing Mulvaneyreferred to the CFPBas “one of the most offensive concepts” in the U.S. government and that he stood by an earlier comment describing it as a “sad, sick joke.”
The Democrats, most specifically Elizabeth “Pocahontas” Warren and crew, are apoplectic at the end result of their too-cute-by-half plans and the possibility of their agency being deconstructed. What is even more delicious to note – in their rush to construct the entire CFPB scheme the Dodd-Frank law does not specify the deputy director as next in line to serve in the event of a vacancy. That means President Trump is within his normal constitutional powers to appoint whomever he likes.
In appointing Mick Mulvaney President Trump has now put in place someone who can be counted on to deconstruct Warren’s leftist plan to control all our financial transactions by dictatorial fiat and unilateral authority. By their own doing Pocahontas et al created a situation they are now powerless to stop.
Expanding the Consequence: This now becomes a critical part of President Trump and Treasury Secretary Mnuchin’s overall strategy to createa secondary financial marketfor smaller banks and credit unions to operate the Main Street economy.
Because Dodd-Frank Act created even fewer and even bigger banks it’s become almost impossible to re-institute something like a Glass Steagall wall between commercial and investment divisions within banks.
Back in July 2010 when Dodd-Frank banking regulation was passed into law, there were approximately 12 to 17 banks who fell under the definition of “too big to fail”.
Meaning 12 to 17 financial institutions could individually negatively impact the economy, and were going to force another TARP-type bailout if they failed in the future. Dodd-Frank regulations were supposed to ensure financial security, and the elimination of risk via taxpayer bailouts, by placing mandatory minimums on how much secure capital was required to be held in order to operate “a bank”.
One large downside to Dodd-Frank was that in order to hold the required capital, all banks decreased lending to shore-up their liquid holdings and meet the regulatory minimums. Without the ability to borrow funds, small businesses have a hard time raising money to create business. Growth in the larger economy is hampered by the absence of capital.
Another downstream effect of banks needing to increase their liquid holdings was exponentially worse. Less liquid large banks needed to purchase and absorb the financial assets of more liquid large banks in order to meet the regulatory requirements.
In 2010 there were approximately twelve “too big to fail banks”, and that was seen as a risk within the economy, and more broad-based banking competition was needed to be more secure.
Unfortunately, because of Dodd-Frank by 2016 those twelve banks had merged into only four even bigger banks that were now even bigger risks; albeit supposedly more financially secure in their liquid holdings. This ‘less banks’ reality was opposite of the desired effect.
The four to six big banks (JP Morgan-Chase, Bank of America, Citigroup, Wells Fargo, US BanCorp and Mellon) now control $9+ trillion(that’s “TRILLION). Their size is so enormous that small group now controls most of the U.S. financial market.
Because they control so much of the financial market, instituting a Glass-Steagall firewall between commercial and investment divisions (in addition to the Dodd-Frank liquid holding requirements), would mean the capability of small and mid-size businesses to get the loans needed to expand or even keep their operations running would stop.
2010’s “Too few, too big to fail” became 2016’s “EVEN FEWER, EVEN BIGGER to fail”.
That’s the underlying problem for a Glass-Steagall type of regulation now. The Democrats created Dodd-Frank which: #1 generated constraints on the economy (less lending), #2 made fewer banking options available (banks merged), #3 made top banks even bigger.
This problem is why President Trump and Secretary Mnuchin are working to create a parallel banking system of community and credit union banks, individually less than $40 billion in assets, that are external to Dodd Frank regulations and can act as the primary commercial banks for small to mid-sized businesses.
The goal of “Glass Steagall”, ie. Commercial division -vs- Investment division, is created by generating an entirely new system of smaller banks under lowered regulation. The ten U.S. “big banks” operate as “investment division banks” and are subject to the rules and regulations of Dodd-Frank. The smaller banks and credit unions have less regulation and operate as the “Commercial Side” directly benefitting Main Street.
Instead of fire-walling an individual bank internally (within its organization), the Trump/Mnuchin plan firewalls the banking ‘system’ within the United States internally.
Tragic Downfall of the Consumer Financial Protection Bureau
Sen. Elizabeth Warren and CFPB director Richard Cordray on Capitol Hill, September 2014. (Reuters photo: Jonathan Ernst)
Conceived as a government watchdog with noble aims, the CFPB was doomed by a structure that made it an inherently political agency.
On October 11, 2016, in PHH Corp. v. Consumer Financial Protection Bureau, a three-judge panel of the D.C. Circuit Court of Appeals found the CFPB’s structure unconstitutional and “fixed” it by empowering the president to remove the agency’s director at will. Sounds dull, but this is a tragic story.
In 1988, during my first year of law school, I met a young professor named Elizabeth Warren. She was like a tornado — energetic, fascinating, and scary. She was also a Republican. Despite that last bit of trivia, she hadn’t changed much when Americans began to notice her two decades later.
In fact, a Reagan Republican might have written her 2007 article “Unsafe at Any Rate,” which proposed a new regulatory agency to help consumers understand credit products by simplifying disclosures and ending deceptive industry practices. Free-market economists would approve of her rationale for a “Financial Product Safety Commission:”
To be sure, creating safer marketplaces is not about protecting consumers from all possible bad decisions. . . . Terms hidden in the fine print or obscured with incomprehensible language, unexpected terms, reservation of all power to the seller with nothing left for the buyer, and similar tricks and traps have no place in a well-functioning market. . . . When markets work, they produce value for both buyers and sellers, both borrowers and lenders. But the basic premise of any free market is full information. When a lender can bury a sentence at the bottom of 47 lines of text saying it can change any term at any time for any reason, the market is broken.
Over the next two years, the economy collapsed, Democrats gained control of Congress and the White House, and Warren grew famous criticizing big banks in congressional hearings. She lobbied Democrats to include her agency in their Wall Street–reform legislation, arguing that effective enforcement of consumer-protection laws required a regulator independent from politicians beholden to the financial industry. The Democrats had a better idea: They would make her agency independent from Republicans.
Circumventing the Constitution took two steps. First, Democrats inserted a few clever workarounds into the Dodd-Frank Act, which created the CFPB on July 21, 2010. Commissions such as the one Warren first proposed are ostensibly bipartisan, so a president-appointed director would lead the new agency. Since there might be a Republican president one day, the director would be practically irremovable after Senate confirmation to a five-year term that could extend indefinitely until the next director’s confirmation. To prevent future Republican-led Congresses from cutting the bureau’s budget, funding would be guaranteed through Federal Reserve profits rather than taxpayer dollars.
Next, the enlarged new agency would be staffed with Democrats, top to bottom. There would not be a Republican director nominee for at least five years, and if one was ever confirmed, entrenched left-wing managers could undermine “attempts to weaken consumer protection.” The plan wasn’t perfect, but it was pretty good.
Warren, who had hoped to be the CFPB’s first director, led the one-year agency-building process. She chose loyal Democrats to be her senior deputies; they hired like-minded middle managers, who in turn screened lower-level job seekers. It was too risky for interviewers to discuss politics, so mistakes were possible. I was one of them.
As a Jewish graduate of a liberal college living on Manhattan’s Upper West Side, I fit the stereotypical Democratic profile. In fact, my primary influences were my business-school professors at the University of Chicago, the epicenter of free-market capitalism. I supported the agency Warren proposed in 2007 for the same reason I had worked at the Securities and Exchange Commission — accurate information improves markets’ efficiency. I had not read important sentences at the bottom of the Dodd-Frank Act’s thousands of lines of text.
In March of 2011, I interviewed with Richard Cordray, the pre-operational agency’s new enforcement chief. By May, I had surrendered my prized rent-stabilized apartment and moved to Washington to be the CFPB’s 13th enforcement attorney.
I would not have been so lucky two months later. As screening techniques improved, Republicans were more easily identified and rejected. Political discrimination was not necessarily illegal, but attempts to hide it invited prohibited race, gender, religion, and age discrimination. In retrospect, the Office of Enforcement’s hiring process, which was typical for the bureau, violated more laws than a bar-exam hypothetical.
Job seekers interviewed with two pairs of attorneys and most senior managers. All Office of Enforcement employees were invited to attend the weekly hiring meetings, where interviewers summarized the applicants. Any attendee could voice an opinion before each candidate’s verdict was rendered; even a single strong objection was usually fatal. Note taking was strictly forbidden, and interviewers destroyed their records after the meetings. I never missed one.
Clear verbal and non-verbal signals quickly emerged. The most common, “I don’t think he believes in the mission” was code for “he might not be a Democrat.” At one meeting, Kent Markus, a former Clinton-administration lawyer who had joined the bureau as Cordray’s deputy, remarked that an applicant under consideration “sounds like a good liberal to me.” After a few seconds of nervous laughter and eye contact around the room, Markus recognized his slip. “I didn’t say that,” he awkwardly joked. The episode so unnerved one attorney that he never attended another hiring meeting.
Applicants who had represented financial-industry clients were routinely rejected, depriving the bureau of critical expertise and business perspective. A memorable exception sought to become only the second African-American female enforcement attorney. Following an hour-long debate that would have doomed most applicants, her verdict was postponed pending additional interviews. Her prospects looked good at a subsequent meeting until someone expressed concerns over her frequent use of the F word. She survived a second excruciating hour of debate, and worked for the CFPB just long enough to become a partner at a big law firm.
White men over 40 received the opposite treatment. One attorney’s résumé was so spectacular that interviewers struggled to come up with plausible excuses to reject him. Finally, someone blurted out, “For the love of God, don’t hire him!” Cordray, who always spoke last, had no choice. He asked that the rejection letter be delayed until he could call the Supreme Court justice who had left a voicemail recommending the man.
Warren would have faced less opposition to being the chair of a bipartisan commission, and might have been confirmed before the 2010 midterm elections restored Republicans’ Senate filibuster and House majority. Instead, her efforts to charm Congress failed and she was heartbroken when the president declined to nominate her as director. She left the agency she had conceived and nurtured on its birthday, July 21, 2011. Biblical allusions to original sin and expulsion from the Garden of Eden were spoiled when she was elected Massachusetts’ junior senator later that year.
On July 17, 2011, the president nominated Cordray to lead the bureau. The soft-spoken Ohio Democrat and University of Chicago alumnus — a former Jeopardy champion and state attorney general who had clerked for Judge Robert Bork and two conservative Supreme Court justices — was literally and strategically a smart choice.
But in the rush to pass the Dodd-Frank Act, Democrats had made a drafting error that limited the CFPB’s most important powers until the bureau had its first director. Republicans vowed to use that leverage to filibuster any nomination until Democrats revised the bureau’s structure and funding.
Cordray was preparing for his confirmation hearing when I e-mailed him one of my favorite Ronald Reagan quotes:
“Free men engaged in free enterprise build better nations with more and better goods and services, higher wages and higher standards of living for more people. But free enterprise is not a hunting license”
He still hadn’t decided how to use the quote when I bumped into him in the office late one night. I asked if he was studying harder than he had for Jeopardy, and for the next half hour he reeled off almost every question he’d been asked a quarter-century earlier. He seemed as impressed by my correct answers as I was by his memory.
From 2011 to 2016, Republicans regularly passed legislation to restructure the CFPB as a bipartisan commission and bring its funding under the congressional appropriations process. Democrats labeled and rejected all changes as attempts to weaken consumer protection.
The CFPB itself was defined by this existential threat, driven to paranoid secrecy and obsessive self-promotion. It viewed Republican legislative-oversight initiatives as insincere attacks, sometimes appropriately so. But its stonewalling of Congress, and even of its own inspector general, was shocking.
A knowledgeable friend within the bureau once debriefed me on the unit that handled oversight requests. The unwritten policy of its supervising attorneys, and in particular of one former Democratic Senate staffer, was “never give them what they ask for.” When the inspector general complained to Cordray about that supervisor, Cordray took no action because she had accepted a job in the White House. Another former Democratic staffer replaced her. Soon, a career professional in the unit who had resisted pressure to engage in witness coaching and other unethical practices was reprimanded for insubordination and reassigned. The inspector general investigated and issued a report to Cordray that concluded the reprimand was unwarranted and the supervisors had engaged in obstruction.
My own experience as a House Financial Services Committee staffer in 2015 left me no doubt the debriefing was accurate. In one episode, unbeknownst to the CFPB, the committee had obtained internal documents that showed the bureau planned to send discrimination-restitution checks to thousands of Caucasian car buyers — the only way to distribute the restitution fund it had extracted from an auto-finance company based on trumped-up allegations that car dealers had charged higher interest rates on loans to minority customers. The committee’s chairman sent Cordray a letter precisely describing and requesting the documents and related information. I was appalled by the response.
The oversight lawyers sent almost none of the requested information or documents, together with a letter from Cordray pretending the bureau had provided everything. I spent days drafting e-mails demanding either the omitted items or a declaration that they did not exist. Each time, the supervisor simply replied that the chairman’s inquiry was “better suited” to a private briefing with committee staff. Subsequent committee subpoenas fared no better. CFPB enforcement attorneys would have bankrupted a company whose lawyers used similar tactics to stonewall the bureau.
The flip side of the CFPB’s secrecy was its single-minded pursuit of publicity. External Affairs was the bureau’s most powerful division. Headlines drove and often hindered decision-making and operations, as I witnessed first hand.
Shortly after his nomination, Cordray gathered senior enforcement attorneys to discuss an op-ed by Bill McLucas, my first SEC enforcement director. The piece urged the CFPB to adopt the SEC’s Wells process and allow potential defendants to submit their cases directly to the director before he approved lawsuits and other enforcement actions. Everyone at the table rejected the idea, but I stressed the importance of fairness and due process, especially when legal expenses could destroy an innocent defendant. Cordray agreed. I would draft the procedures.
The working group added restrictions to discourage submissions, like strict page limits and a 14-day deadline. I named it the Notice and Opportunity to Respond and Advise, or NORA, process. Everybody liked the friendly, feminine acronym.
However, External Affairs decided “NORA” wasn’t testing well with journalists, and renamed it “Early Warning Notice.” On Saturday, two days before the November 7, 2011 Early Warning Notice press release and media call, the general counsel’s office sent an e-mail postponing the rollout due to legal concerns. Minutes later, External Affairs replied that it was not their problem and there would be no postponement.
Within days of the rollout, a company threatened to sue for trademark infringement, and the original name was restored. I wish I could report that a NORA submission ever persuaded the director to decline an enforcement action.
2011 was a wonderful time to work at the CFPB. Most of the employees had emigrated from distant cities, and they became each other’s second families. Five attorneys huddled with me in a small office dubbed the “Meat Locker” for its arctic air conditioning, and then changed locations every few weeks. My favorite was the “Warren Room,” a cluster of twelve cubicles permeated by non-stop clatter from a nearby ping-pong table.
We pitched ideas for the first investigations. Mine involved the currency-exchange rates credit cards use to convert foreign charges to U.S. dollars. Loud boos and cries of “Who cares about rich tourists?” filled the room. I argued that many international travelers are students and retirees, and the law protects everyone. Plus, we should show wealthier people the CFPB helps them, too. Cordray agreed, and approved my investigation.
Things changed after the recess appointment. Markus, the new enforcement chief, exacerbated hiring biases by soliciting anonymous oral comments about colleagues competing for twelve mid-level supervisor positions. Similar illegal practices throughout the bureau resulted in a dearth of real-world experience, and then socialistic management schemes camouflaged by new-age nomenclature.
Enforcement had issue groups, issue teams, working groups, strategy teams, investigation teams, and litigation teams. Individual initiative was forbidden — investigation ideas were to be submitted to the collective even before preliminary Internet research. An issue group took custody of my exchange-rate investigation and aborted it.
The “us against the world” culture that was exhilarating in a startup became debilitating in a mature agency. Internal policies to minimize record-keeping deprived the CFPB’s enemies of statistics, but limited management tools. External criticism was dismissed as disingenuous, good advice ignored. Problems that could not be acknowledged could not be fixed. Morale and productivity deteriorated. The employees unionized.
There were a few winners, most with political connections, and many more losers. Moderates who objected were marginalized or ostracized.
Leonard Chanin, a 20-year veteran of the Federal Reserve, was the rule making division’s first leader. During meetings, I was humbled by his dignified intellect and mastery of financial laws. In 2013, I asked him why he’d left the bureau. With characteristic understatement, he replied, “I thought it was going to be a professional agency.”
Other employees had fewer options. I once shared a cab with an enforcement attorney who’d had several drinks and was so despondent over her treatment at work that I was terrified she would harm herself.
During my job interview, Cordray asked what I thought Enforcement should do first. I said there was plenty of low-hanging fruit like credit-report errors, inscrutable fine print, and fraud to keep us busy until the skeptics got comfortable. He agreed.
Car dealers were the highest-hanging fruit — the Dodd-Frank Act explicitly exempted them from the CFPB’s jurisdiction. A month after his recess appointment, Cordray approved a resource-intensive campaign to stop dealers from negotiating interest rates on car loans, a critical profit source. The comically aggressive plan involved guessing car buyers’ races from their names and addresses, using manipulated statistics and the controversial disparate-impact legal doctrine to label dealer lending discriminatory, and accusing finance companies of discrimination for purchasing dealers’ loans at competitive market prices.
The original and least controversial use of the disparate-impact doctrine, which allows discrimination to be proven by statistics alone, was in employment cases. Unfortunately, a September 2013 confidential Deloitte consulting report found that CFPB minority employees received below-average performance-review scores — much stronger disparate-impact evidence than the bureau was using for dealers. Union officials were briefed on, but not given, the report.
Cordray still had not fixed the performance-review system on March 6, 2014, when a perfect storm of the CFPB’s flaws erupted. The report’s findings were leaked to the media, and Republicans pounced. During several embarrassing congressional hearings, employees described disturbing discrimination problems at the agency, like a unit nicknamed “the Plantation.”
That summer, I ran into a CFPB-union official who had shivered with me in the Meat Locker three years earlier. I said Cordray’s senior managers must have been keeping him in the dark. “No,” he replied, “Rich knows everything, the smallest details. He’s changed. He’s over at the White House playing basketball with the president. He’s not the same guy.”
Following the hearings, the CFPB attorney who had defended the bureau against Equal Employment Opportunity claims was chosen to run its EEO program. Another year passed before an African American woman in the EEO office testified to Congress that the problems had worsened; the CFPB was more concerned with preventing bad publicity than with preventing discrimination.
The Dodd-Frank Act prohibited “abusive acts or practices” that take unreasonable advantage of someone’s inability to protect their interests. The prohibition did not apply to the CFPB.
Enforcement was still hiring and training attorneys when the recess appointment was announced at the beginning of 2012. Critical procedures had not been written, there was no management structure, and administrative trials were a distant dream.
Around that time, the Department of Housing and Urban Development transferred its investigation of PHH, a huge mortgage originator, to the CFPB. Most laws contain a statute of limitations that prevents lawsuits from being filed too many years after alleged violations occurred. Chuckles and sighs of relief filled Enforcement’s weekly meeting after an attorney announced that PHH had granted him a “tolling agreement” to temporarily stop the statute-of-limitations clock. Somebody sneered, “Suckers!”
In May of 2012, PHH received a massive civil investigative demand — basically, a subpoena for documents and information issued by government agencies such as the CFPB. Enforcement’s brutal Rules of Investigation gave the company 20 days to review the interrogatories and document requests, meet with enforcement attorneys, and petition the director to scale back the CID. Cordray denied PHH’s application for a two-week extension of the filing deadline.
In July of 2012, I got a call from a law-school classmate who suggested I join his law firm. By September, visitors to my new office at the firm could read Cordray’s recommendation letter, which hung next to a photo of us shaking hands moments after he was sworn in.
Critical procedures had not been written, there was no management structure, and administrative trials were a distant dream.
On September 20, 2012, Cordray issued his decision rejecting all of PHH’s modification requests. I had doubts about the opinion, which appeared to punish the company’s defiance, even before I ran into one of PHH’s lawyers the following January. I asked what had gone wrong. “Nothing,” he replied. “We just assumed the CFPB conducted itself like other agencies.”
A month later, I understood. My first CFPB-target client was a small-business owner whose twelve-year commercial relationship with a local bank was governed by the same law PHH would later be accused of violating. In 2011, the bank’s regulator had withdrawn its blessing from the arrangement, charged the bank a small fine, and transferred jurisdiction to the bureau. The file collected dust for over a year before Enforcement asked the man to sign a tolling agreement that only a lawyer would recognize as permanent. Fortunately, he contacted me first.
The man felt he’d done nothing wrong, but uncertainty about the investigation would force him to lay off employees. I called the enforcement attorney and offered to come right over and discuss a settlement. When I declined the tolling agreement, he said I had a conflict of interest, hung up, and spent the next month trying to find one. He gave up after I reminded his supervisors that interfering with my client’s constitutional right to counsel was a serious ethics violation.
For the first two hours of the subsequent settlement conference, the attorney refused to discuss a settlement, and continued to press for the tolling agreement. I insisted he make an offer. Finally, he did — ten times more than the bank had paid. I accepted and asked for the settlement documents. Instead, the next day he sent a civil complaint and threatened to sue within 24 hours if my client didn’t sign a tolling agreement.
I replied that my client wanted to make a NORA submission before the director approved the lawsuit. No scenario could have been more appropriate: The legal expenses would crush the man’s business and cost employees their jobs; he’d had no opportunity to present evidence or tell Cordray his side of the story; and Enforcement hadn’t even conducted an investigation.
The response was swift. I was informed that the NORA process was discretionary and the director felt it was not in the bureau’s interests to let my client present his case — request denied. The poor man signed a tolling agreement, but not the irrevocable one Enforcement had sent him before he had a lawyer.
During my first-year legal-ethics seminar, we discussed a scene from A Man for All Seasons in which Will Roper urges Sir Thomas More to arrest Richard Rich, an evil man who has broken no laws. When Roper says he would cut down every law in England to get at the Devil, More replies:
Oh? And when the last law was down, and the Devil turned round on you — where would you hide, Roper, the laws all being flat?
Bruce Mann, Professor Warren’s husband, taught the seminar. Perhaps the film’s ending — More’s execution based on Rich’s perjured testimony — inspired Warren to cut down the Constitution to get at the banks.
SEC enforcement attorneys are often asked, “Is my client a target?” They’re trained to respond, “SEC investigations are a search for the truth — they don’t have targets, they have subjects.” In 2011, I mentioned CFPB attorneys’ exclusive use of “target” to Cordray. He liked the SEC’s practice, and approved the internal procedure I had written to adopt it. Whenever he slipped and used “target” at meetings, he smiled and corrected himself.
By 2013, no other label worked. For each issue the strategy team identified, one or two companies were investigated. The CFPB’s complaint database contained grievances against almost every financial business. Enforcement targeted the companies with the most revenue — what it called the “chokepoints” — rather than those with the most complaints.
Enforcement’s internal procedures restricted the contents of investigation files, about the only thing the CFPB had to turn over to defendants before administrative trials. One of the procedures’ drafters told me that withholding exculpatory evidence from targets was ethical because the bureau was like any civil litigant — it did everything it could within the law to win.
Targets were almost certain to write a check, especially if they were accused of subjective “unfair, deceptive, or abusive acts or practices.” Even the size of the checks didn’t depend on actual wrongdoing — during investigations, Enforcement demanded targets’ financial statements to calculate the maximum fines they could afford to pay.
Defendants who chose to fight the bureau could not seek relief in federal court until all administrative processes were exhausted, despite those processes’ being a farce — Floyd Mayweather Jr. would envy Enforcement’s record in appeals to the director. And even if a case did make it that far, the courts were bound to defer to the director’s judgment unless he had clearly misinterpreted a law. With no meaningful opportunity to defend themselves, many businesses were forced to pay millions of dollars, regardless of guilt or harm to consumers.
Despite these advantages, the CFPB’s misplaced priorities kept it from protecting consumers during the most widespread fraud in recent history.
On September 8, 2016, Wells Fargo paid the CFPB, the Los Angeles city attorney, and the comptroller of the currency $185 million in penalties for bank employees’ having opened millions of unauthorized customer accounts since 2011. External Affairs’ media blitz and the bureau’s $100 million share of the penalties created the illusion that Enforcement had led a heroic investigation. CFPB supporters, with Pavlovian predictability, shamed Republicans for attempting to weaken the agency.
But the settlement reserved only a few million dollars in restitution for victims. Enforcement didn’t advance consumer lawsuits by making the bank admit wrongdoing, and it didn’t do much to help criminal prosecutors beyond giving the Department of Justice legally mandated evidence.
Congressional hearings revealed that two years of examinations, thousands of bank-employee firings, and numerous complaints had failed to get the bureau’s attention before the Los Angeles Times published a detailed exposé late in 2013. Worse yet, from 2013 to 2016, the CFPB took no action while the bank continued the incentive program that drove the unauthorized account openings. Wells Fargo CEO John Stumpf and Carrie Tolstedt, the executive overseeing the program, earned tens of millions of dollars. Tolstedt retired with a huge nest egg two months before the settlement.
The CFPB had waited while the city attorney and OCC completed their investigations, and then negotiated its headline-grabbing penalty. A month after the settlement, it was clear that simply taking regulatory action to highlight the severity of the fraud had triggered the real wake-up call for bank executives. Wells Fargo’s stock lost billions of dollars in value, and its board clawed back $60 million from Stumpf and Tolstedt before firing Stumpf. The $100 million penalty may deter future violations, but no more so than a smaller fine or a CFPB lawsuit would have three years earlier.
During Senate hearings, Cordray implied that Enforcement had stood down because all available personnel were busy investigating deceptive credit-card add-on products and other violations. In doing so, he inadvertently revealed that the campaign to expand the bureau’s reach to car dealers had diverted limited resources from mission-critical tasks.
Fortunately for PHH, the CFPB had accused it of violating a specific mortgage law. For two decades, HUD had interpreted the law and provided guidance that allowed business relationships like the ones Enforcement had investigated at PHH; payments to the company and its affiliates above the reasonable market value of services rendered were deemed illegal kickbacks. An administrative-law judge, following HUD’s interpretation, ordered PHH to refund consumers $6.4 million in excess payments. PHH appealed to the director.
Cordray’s decision was stunning: HUD’s interpretation was wrong; the CFPB was not bound by the mortgage law’s three-year statute of limitations; all payments during the last eight years were kickbacks; PHH didn’t owe $6.4 million, it owed $109 million.
Centuries before a 2016 Nobel Prize winner catalogued the havoc wrought by government officials with God on their side, the founding fathers put checks and balances into the Constitution to limit it. By demonstrating the inevitable consequences of absolute power, Cordray had invited the appellate court to revoke it.
Parts of the decision by the three-judge panel were obvious: HUD’s interpretation of the law was correct; Cordray’s attempt to reinterpret it retroactively violated PHH’s due-process rights; the CFPB could not disregard deadlines in the laws it enforced.
The rest of Judge Brett Kavanaugh’s 100-page opinion, an eloquent dissertation on liberty, democracy, and justice, answered questions that had been debated for six years. The people elect the president. Executive agencies report to the president, who can remove their leaders at will. While the president cannot remove members of independent commissions, their power is tempered by bipartisan collaboration and transparency. The Dodd-Frank Act made the CFPB’s unelected director “the single most powerful official in the entire U.S. Government, other than the President,” and arguably more powerful in consumer financial-protection matters. The Constitution permits single-director executive agencies and independent commissions, but not single-director independent agencies. The most important words in the opinion were buried in footnote twelve: “An agency structure must be adjudged on the basis of what it permits to happen.”
By demonstrating the inevitable consequences of absolute power, Cordray had invited the appellate court to revoke it.
Judge Kavanaugh’s remedy was simple: He struck 18 words from the Dodd-Frank Act and announced, “The President of the United States now has the power to supervise and direct the Director of the CFPB, and may remove the Director at will at any time.” If the ruling were upheld, Warren’s agency would lose its independence. Democrats shrugged; they would undo the decision after winning the election, just 28 days away.
Shimon Peres’s death brought to mind parallels between the CFPB and the state of Israel. Both were established during a brief window of political opportunity created by sympathy for the victims of a catastrophe, both defined by existential threat, and both criticized for territorial expansion. Both might also have used the land-for-peace formula to resolve longstanding conflicts.
The CFPB’s metaphoric swap was Democrats’ restructuring the bureau as a bipartisan commission in exchange for Republicans’ recognizing the agency’s independence by blessing funding through the Federal Reserve. Unlike Israel, Democrats never offered the deal, even after losing everything but their Senate filibuster in the election.
Instead, on November 18, 2016, the CFPB petitioned the full court of appeals to rehear the case. If that fails, Democrats hope to exclude Republicans until Cordray’s term ends in 2018, or even until the 2020 election, by appealing to the Supreme Court. The strategy assumes President Trump cannot remove Cordray for cause — “inefficiency, neglect of duty, or malfeasance in office.”
Late one evening in 2012, I entered the Farragut North metro station a few steps behind Cordray, who was talking on his cell phone. I kept my distance on the long descending escalator, but overheard snippets of the conversation. “That good plan, Kemosabe.” “You plenty wise, Kemosabe.” I remember thinking that his twelve-year-old son couldn’t possibly appreciate how lucky he was. Four years later, on March 16, 2016, Cordray testified before the House Financial Services Committee, which had published its copies of the documents the CFPB refused to provide because the chairman’s requests were “better suited to a briefing.” Representative Sean Duffy asked several pointed questions about the blatant stonewalling. Under oath, Cordray replied, “If you ask for responsive documents in an area, we give you the responsive documents we can.”
Richard Cordray, head of the Consumer Financial Protection Bureau (CFPB), used a private device for government communications, and didn’t create appropriate records of those messages with the bureau, according to documents obtained exclusively by The Daily Caller.
A longtime Democrat from Ohio, Cordray has served as head of the CFPB since January 2012, a position he is scheduled to hold through July 2018.
A source told The DC that he submitted a Freedom of Information Act (FOIA) request in August 2016 for more than a year’s worth of text messages on official devices to and from various CFPB staffers.
The bureau responded that there were no records on any “CFPB issued or CFPB reimbursed devices” for any text messages sent or received associated with Cordray.
A recent court decision in October 2016 ruled that the structure of the CFPB is unconstitutional because the president doesn’t have power to fire the director. The CFPB was a creation of Elizabeth Warren and created so that directors can only be dismissed with cause.
It’s not clear if President Donald Trump has the power to dismiss Cordray without cause.
So a couple of weeks ago, we did a show about how the CFPB used a site to use names, to determine the race of a borrower. If you recall, 2 out of 3 of our test subjects came out with the wrong race. I, Brian Stevens, was the only correct conclusion.
We use our show, The National Real Estate Post, to point out the absurdity of the lending ecosystem. The problem is, because we use humor as our conduit, we’re not often taken seriously. However, when you consider the point that the CFPB uses a site, with an algorithm, to determine a consumer’s race; it’s not funny. Further, when you consider that the CFPB, a government agency, then uses that information to slander and sue lenders, it becomes less funny. Finally when you consider the fact that a government agency, who uses flawed racially bias information to slander and sue lenders, then tries to hide that information, we’ve got problems that make Donald Trump’s bullshit look like a playground prank. Yet here we are.
So the problem is, the CFPB operates as “judge, jury, and executioner” over those they regulate. For example; did you know the CFPB operates outside of congress, unaccountable to the judicial system, and off the books of taxpayers. Honestly, the CFPB is not part of the annual budget determined by congress. They are funded by the Federal Reserve, which means they can receive as little or as much money as they choose. That must be nice.
Did you know when the CFPB chooses to seemingly and ambiguously sue a lender, they use predetermined administrative law judges? In the past, they use judges from the SEC. So in the past, the CFPB gets to pick the judge on the cases they bring against lenders. How is a government agency allowed to operate under these rules? Short answer is “you’re not accountable to anyone.” This should infuriate you.
Good news is, the CFPB is no longer using SEC admin judges. The bad news is, they have white page job postings looking for their own judges. In an article by Ballard Spahr, who are probably the best CFPB law minds in the country, posted an article on July 20, that goes as follows:
The CFPB recently posted a job opening for an administrative law judge (ALJ). According to the government jobswebsite, the position is closed which suggests that it has been filled. A recent Politico article indicated that the CFPB posted the opening because it has ended its arrangement with the SEC to borrow ALJs.
OK so it’s time to insert outrage here. In case you missed it, the CFPB has a posting, on a government site, looking for judges to hire. To hire to work as the unbiased voice of reason to settle cases the CFPB has brought and will continue to bring against lenders. How can this happen?
Fast forward. It has now been proven that the CFPB has been using an algorithm to determine someone’s race based exclusively on their name. I proved this absurdity a month ago on my show “The National Real Estate Post,” and I’ll prove it again. I’m going to ask the first person I see their name, race, and identity. Here it goes.
That’s Andrew Strah, he’s a 20 something “tech support” at listing booster. After our short video clip he went back to his computer and “googled” his name. After all he was a little perplexed about the nature of my questions and wanted to find the answer to a question he never really considered. It turns out his name is Greek/Italian. His last name is Slavonian, which makes this Black/White kid Russian; according to him. How is it fair for the CFPB to use any system to determine anyone’s race when such issues are personal and complicated.
Yet this is the system the CFPB is using to pigeon hole guys like Andrew, and then bring lawsuits against lenders for being racist. If ever there was a system that made no sense this is it. Again, insert outrage here.
An agency with an unlimited budget, off the books, and unaccountable to the taxpayer. The very people they are protecting, while buying judges to bring lawsuits against people, with a protocol that makes no sense. Yet this is the system that allows the CFPB to force companies like Hudson City Savings and loan to pay 27 Million for Redlining for which they were not guilty. Insert outrage here.
Now the best part of the story. The CFPB knew that their information was bullshit. In an article from Right Side News.
Much like using a “ready-fire-aim” approach to shooting at targets, the Consumer Financial Protection Bureau (CFPB) appears to have conducted in racial discrimination witch hunt against auto lenders in this same manner. The CFPB investigated and sought racial discrimination charges against auto lenders, as it turns out, on the basis of guessing the race and ethnicity of borrowers based on their last names, and using this “evidence” to prove their allegations. Only 54 percent of those identified as African-American by this “proxy methodology,” theWall Street Journal reported, were actually African-Americans. The CFPB drafted rules to solve a problem they only believed existed, racial discrimination in auto lending.
The Republican staff of the House Financial Services Committee has released a trove of documents showing that bureau officials knew their information was flawed and even deliberated on ways to prevent people outside the bureau from learning how flawed it was.
The bureau has been guessing the race and ethnicity of car-loan borrowers based on their last names and addresses—and then suing banks whenever it looks like the people the government guesses are white seem to be getting a better deal than the people it guesses are minorities. This largely fact-free prosecutorial method is the reason a bipartisan House super majority recently voted to roll back the bureau’s auto-loan rules.
And we wonder why lenders don’t trust and will not approach the CFPB. They are crooked and untouchable and now we know that they know it.
Strangely, I think the solution is not as severe as my opinion in this article would suggest. I believe lending needs an agency. I think the CFPB is the answer. Further, I think every lender in the country agrees. The problem is that we have the wrong CFPB. It cannot be built on lies. It cannot view lenders as the problem. It cannot be unaccountable to congress. It cannot be off the books of the taxpayers.
The CFPB needs to view lenders as its partners. It needs to enforce rules and violations where they truly exist. It need to have more than one voice in rule making. It needs to make its direction clearly stated and understandable. Finally, it needs to work toward consumer protection.
It’s the great credit divide in American housing: If you buy a home and pay your mortgage on time regularly, your credit score typically benefits. If you rent an apartment and pay the landlord on time every month, you get no boost to your score. Since most landlords aren’t set up or approved to report rent payments to the national credit bureaus, their tenants’ credit scores often suffer as a direct result.
All this has huge implications for renters who hope one day to buy a house. To qualify for a mortgage, they’ll need good credit scores. Young, first-time buyers are especially vulnerable — they often have “thin” credit files with few accounts and would greatly benefit by having their rent histories included in credit reports and factored into their scores. Without a major positive such as rent payments in their files, a missed payment on a credit card or auto loan could have significant negative effects on their credit scores.
You probably know folks like these — sons, daughters, neighbors, friends. Or you may be one of the casualties of the system yourself, a renter with a perfect payment history that creditors will never see when they pull your credit. Think of it this way and the great divide gets intensely personal.
But here’s some good news: Growing numbers of landlords are now reporting rent payments to the bureaus with the help of high-tech intermediaries who set up electronic rent-collection systems for tenants.
One of these, RentTrack, says it already has coverage in thousands of rental buildings nationwide, with a total of 100,000-plus apartment units, and expects to be reporting rent payments for more than 1 million tenants within the year. Two others, ClearNow Inc. and PayYourRent, also report to one of the national bureaus, Experian, which includes the data in consumer credit files. RentTrack reports to Experian and TransUnion.
Why does this matter? Two new studies illustrate what can happen when on-time rent payments are factored into consumers’ credit reports and scores. RentTrack examined a sample of the tenants in its database and found that 100% of renters who previously were rated as “unscoreable” — there wasn’t enough information in their credit files to evaluate — became scoreable once they had two months to six months of rental payments reported to the credit bureaus.
Tenants who had scores below 650 at the start of the sampling gained an average of 29 points with the inclusion of positive monthly payment data. Overall, residents in all score brackets saw an average gain of 9 points. The scores were computed using the VantageScore model, which competes with FICO scores and uses a similar 300 to 850 scoring scale, with high scores indicating low risk of nonpayment.
Experian, the first major credit bureau to begin integrating rental payment records into credit files, also completed a major study recently. Using a sample of 20,000 tenants who live in government-subsidized apartment buildings, Experian found that 100% of unscoreable tenants became scoreable, and that 97% of them had scores in the “prime” (average 688) and “non-prime” (average 649) categories. Among tenants who had scores before the start of the research, fully 75% saw increases after the addition of positive rental information, typically 11 points or higher.
Think about what these two studies are really saying: Tenants often would score higher — sometimes significantly higher — if rent payments were reported to the national credit bureaus. Many deserve higher credit scores but don’t get them.
Matt Briggs, chief executive and founder of RentTrack, says for many tenants, their steady rent payments “may be the only major positive thing in their credit report,” so including them can be crucial when lenders pull their scores.
Justin Yung, vice president of ClearNow, told me that “for most [tenants] the rent is the largest payment they make per month and yet it doesn’t appear on their credit report” unless their landlord has signed up with one of the electronic payment firms.
Is this something difficult or complicated? Not really. You, your landlord or property manager can go to one of the three companies’ websites (RentTrack.com, ClearNow.com and PayYourRent.com), check out the procedures and request coverage. Costs to tenants are either minimal or zero, and the benefits to the landlord of having tenants pay rents electronically appear to be attractive.
Disparate Impact: The president’s new credit watchdog agency is warning lenders they could be investigated for discrimination if they scrutinize welfare recipients applying for home loans. Here we go again.
In an agency bulletin, the Consumer Financial Protection Bureau specifically advised mortgage lenders not to verify the income of people receiving Social Security Disability Insurance benefits.
SSDI enrollment has exploded under Obama, and fraud is rampant in the program. A recent probe by Congress found doctors rubber-stamping claims for the generous benefits. A random review found more than 1-in-4 cases failed to provide evidence to support claims.
No wonder mortgage lenders are asking for verification.
Last year, the number of Americans receiving payments skyrocketed to a record 15 million-plus. A disproportionate share of enrollees are African-American — blacks make up 12% of the population, but over 17% of all SSDI recipients — and black groups have complained to regulators that mortgage underwriters are making unreasonable demands for income verification.
The NAACP argues disability payments are a “critical source of financial support” for blacks, noting their average monthly benefit is almost $1,000.
“The program’s benefits provide a significant income boost to lower-earning African-Americans,” NAACP asserted, noting the share of blacks on federal disability is more than double that for whites.
In response, CFPB has issued a five-page edict warning mortgage lenders they could face “disparate impact” liability if they question whether “all or part” of a minority applicant’s income “derives from a public assistance program.”
If they know what’s good for them, they’ll “avoid unnecessary documentation requests and increase access to credit for persons receiving Social Security disability income.”
In a separate warning, HUD was more forceful: “A lender shouldn’t ask a consumer for documentation or about the nature of his or her disability under any circumstances.”
We can’t say we’re shocked. As we’ve reported — contrary to other media reporting — CFPB’s new Qualified Mortgage rule mandates payments from “government assistance programs are acceptable” forms of income for home loan qualification. (It’s in the 804-page regulation, if financial journalists would just take the time to read it.)
More, the Justice Department has ordered the biggest mortgage lenders in the country, including Wells Fargo and Bank of America, to offer loans to people on “public assistance.” They’re even required to post branch notices promoting the risky welfare acceptance policy.
The administration is actually forcing banks to target high-risk borrowers for 30-year debt under threat of prosecution.
Though President Obama’s worried about a plunge in new-home buying among jobless minorities, he’s just setting them up for failure all over again. A mortgage requires a stable job and income to avoid defaults and foreclosures.
Failure to require income documentation contributed to the mortgage crisis and was something CFPB was created to stop.
Exempting public-assistance income from the rules exposes the bogus nature of Obama’s financial “reforms.”
When it comes to housing, sometimes it seems we never learn. Just when America appeared to be recovering from the last housing crisis—the trigger, in many ways, for 2008’s grand financial meltdown and the beginning of a three-year recession—another one may be looming on the horizon.
There are at several big red flags.
For one, the housing market never truly recovered from the recession.TruliaChief Economist Jed Kolko points out that, while the third quarter of 2014 saw improvement in a number of housing key barometers, none have returned to normal, pre-recession levels. Existing home sales are now 80 percent of the way back to normal, while home prices are stuck at 75 percent back, remaining undervalued by 3.4 percent. More troubling, new construction is less than halfway (49 percent) back to normal. Kolko also notes that the fundamental building blocks of the economy, including employment levels, income and household formation, have also been slow to improve. “In this recovery, jobs and housing can’t get what they need from each other,” he writes.
Americans are spending more than 33 percent of their income on housing.
Second, Americans continue to overspend on housing. Even as the economy drags itself out of its recession, a spate of reports show that families are having a harder and harder time paying for housing. Part of the problem is that Americans continue to want more space in bigger homes, and not just in the suburbs but in urban areas, as well. Americans more than 33 percent of their income on housing in 2013, up nearly 13 percent from two decades ago, according to newly released data from the Bureau of Labor Statistics (BLS). The graph below plots the trend by age.
Over-spending on housing is far worse in some places than others; the housing market and its recovery remain highly uneven. Another BLS report released last month showed that households in Washington, D.C., spent nearly twice as much on housing ($17,603) as those in Cleveland, Ohio ($9,061). The chart below, from the BLS report, shows average annual expenses on housing related items:
The result, of course, is that more and more American households, especially middle- and working-class people, are having a harder time affording housing. This is particularly the case in reviving urban centers, as more affluent, highly educated and creative-class workers snap up the best spaces, particularly those along convenient transit, pushing the service and working class further out.
Last but certainly not least, the rate of home ownership continues to fall, and dramatically. Home ownership has reached its lowest level in two decades—64.4 percent (as of the third quarter of 2014). Here’s the data, from the U.S. Census Bureau:
Home ownership currently hovers from the mid-50 to low-60 percent range in some of the most highly productive and innovative metros in this country—places like San Francisco, New York, and Los Angeles. This range seems “to provide the flexibility of rental and ownership options required for a fast-paced, rapidly changing knowledge economy. Widespread home ownership is no longer the key to a thriving economy,” I’ve written.
What we are going through is much more than a generational shift or simple lifestyle change. It’s a deep economic shift—I’ve called it the Great Reset. It entails a shift away from the economic system, population patterns and geographic layout of the old suburban growth model, which was deeply connected to old industrial economy, toward a new kind of denser, more urban growth more in line with today’s knowledge economy. We remain in the early stages of this reset. If history is any guide, the complete shift will take a generation or so.
It’s time to impose stricter underwriting standards and encourage the dense, mixed-use, more flexible housing options that the knowledge economy requires.
The upshot, as the Nobel Prize winner Edmund Phelpshas written, is that it is time for Americans to get over their house passion. The new knowledge economy requires we spend less on housing and cars, and more on education, human capital and innovation—exactly those inputs that fuel the new economic and social system.
But we’re not moving in that direction; in fact, we appear to be going the other way. This past weekend, Peter J. Wallison pointed out in a New York Times op-ed that federal regulators moved back off tougher mortgage-underwriting standards brought on by 2010’s Dodd-Frank Act and instead relaxed them. Regulators are hoping to encourage more home ownership, but they’re essentially recreating the conditions that led to 2008’s crash.
Wallison notes that this amounts to “underwriting the next housing crisis.” He’s right: It’s time to impose stricter underwriting standards and encourage the dense, mixed-use, more flexible housing options that the knowledge economy requires.
During the depression and after World War II, this country’s leaders pioneered a series of purposeful and ultimately game-changing polices that set in motion the old suburban growth model, helping propel the industrial economy and creating a middle class of workers and owners. Now that our economy has changed again, we need to do the same for the denser urban growth model, creating more flexible housing system that can help bolster today’s economy.
The dramatic resurgence of the oil industry over the past few years has been a notable factor in the national economic recovery. Production levels have reached totals not seen since the late 1980s and continue to increase, and rig counts are in the 1,900 range. While prices have dipped recently, it will take more than that to markedly slow the level of activity. Cycles are inevitable, but activity is forecast to remain at relatively high levels.
An outgrowth of oil and gas activity strength is a need for additional workers. At the same time, the industry workforce is aging, and shortages are likely to emerge in key fields ranging from petroleum engineers to experienced drilling crews. I was recently asked to comment on the topic at a gathering of energy workforce professionals. Because the industry is so important to many parts of Texas, it’s an issue with relevance to future prosperity.
Although direct employment in the energy industry is a small percentage of total jobs in the state, the work is often well paying. Moreover, the ripple effects through the economy of this high value-added industry are large, especially in areas which have a substantial concentration of support services.
Employment in oil and gas extraction has expanded rapidly, up from 119,800 in January 2004 to 213,500 in September 2014. Strong demand for key occupations is evidenced by the high salaries; for example, median pay was $130,280 for petroleum engineers in 2012 according to the Bureau of Labor Statistics (BLS).
Due to expansion in the industry alone, the BLS estimates employment growth of 39 percent through 2022 for petroleum engineers, which comprised 11 percent of total employment in oil and gas extraction in 2012. Other key categories (such as geoscientists, wellhead pumpers, and roustabouts) are also expected to see employment gains exceeding 15 percent. In high-activity regions, shortages are emerging in secondary fields such as welders, electricians, and truck drivers.
The fact that the industry workforce is aging is widely recognized. The cyclical nature of the energy industry contributes to uneven entry into fields such as petroleum engineering and others which support oil and gas activity. For example, the current surge has pushed up wages, and enrollment in related fields has increased sharply. Past downturns, however, led to relatively low enrollments, and therefore relatively lower numbers of workers in some age cohorts. The loss of the large baby boom generation of experienced workers to retirement will affect all industries. This problem is compounded in the energy sector because of the long stagnation of the industry in the 1980s and 1990s resulting in a generation of workers with little incentive to enter the industry. As a result, the projected need for workers due to replacement is particularly high for key fields.
The BLS estimates that 9,800 petroleum engineers (25.5 percent of the total) working in 2012 will need to be replaced by 2022 because they retire or permanently leave the field. Replacement rates are also projected to be high for other crucial occupations including petroleum pump system operators, refinery operators, and gaugers (37.1 percent); derrick, rotary drill, and service unit operators, oil, gas, and mining (40.4 percent).
Putting together the needs from industry expansion and replacement, most critical occupations will require new workers equal to 40 percent or more of the current employment levels. The total need for petroleum engineers is estimated to equal approximately 64.5 percent of the current workforce. Clearly, it will be a major challenge to deal with this rapid turnover.
Potential solutions which have been attempted or discussed present problems, and it will require cooperative efforts between the industry and higher education and training institutions to adequately deal with future workforce shortages. Universities have had problems filling open teaching positions, because private-sector jobs are more lucrative for qualified candidates. Given budget constraints and other considerations, it is not feasible for universities to compete on the basis of salary. Without additional teaching and research staff, it will be difficult to continue to expand enrollment while maintaining education quality. At the same time, high-paying jobs are enticing students into the workforce, and fewer are entering doctoral programs.
Another option which has been suggested is for engineers who are experienced in the workplace to spend some of their time teaching. However, busy companies are naturally resistant to allowing employees to take time away from their regular duties. Innovative training and associate degree and certification programs blending classroom and hands-on experience show promise for helping deal with current and potential shortages in support occupations. Such programs can prepare students for well-paying technical jobs in the industry. Encouraging experienced professionals to work past retirement, using flexible hours and locations to appeal to Millennials, and other innovative approaches must be part of the mix, as well as encouraging the entry of females into the field (only 20 percent of the current workforce is female, but over 40 percent of the new entries).
Industry observers have long been aware of the coming “changing of the guard” in the oil and gas business. We are now approaching the crucial time period for ensuring the availability of the workers needed to fill future jobs. Cooperative efforts between the industry and higher education/training institutions will likely be required, and it’s time to act.
In a recent Wall Street Journal article, several couples across the country are quoted saying that instead of downsizing to a new home, they are choosing to live with their adult children.
This is what many families across the country are doing for both a “peace of mind” and for “higher property values.”
“For both domestic and foreign buyers, the hottest amenity in real estate these days is an in-law unit, an apartment carved out of an existing home or a stand-alone dwelling built on the homeowners’ property,” writes Katy McLaughlin of the WSJ. “While the adult children get the peace of mind of having mom and dad nearby, real-estate agents say the in-law accommodations are adding value to their homes.”
And how much more are these homes worth? In an analysis by Zillow, the homes with this type of living accommodations were priced about 60 percent higher than regular single-family homes.
Local builders are noticing the trend, too. Horsham based Toll Brothers are building more communities that include both large, single-family homes and smaller homes for empty nesters, the company’s chief marketing officer, Kira Sterling, told the WSJ.
Kenny DeLaGarza, a building inspector for the city of Midland, at a 600-home Betenbough development.
Single-family home construction is expected to increase 26 percent in 2015, the National Association of Home Builders reported Oct. 31. NAHB expects single-family production to total 802,000 units next year and reach 1.1 million by 2016.
Economists participating in the NAHB’s 2014 Fall Construction Forecast Webinar said that a growing economy, increased household formation, low interest rates and pent-up demand should help drive the market next year. They also said they expect continued growth in multifamily starts given the nation’s rental demand.
The NAHB called the 2000-03 period a benchmark for normal housing activity; during those years, single-family production averaged 1.3 million units a year. The organization said it expects single-family starts to be at 90 percent of normal by the fourth quarter 2016.
NAHB Chief Economist David Crowe said multifamily starts currently are at normal production levels and are projected to increase 15 percent to 365,000 by the end of the year and hold steady into next year.
The NAHB Remodeling Market Index also showed increased activity, although it’s expected to be down 3.4 percent compared to last year because of sluggish activity in the first quarter 2014. Remodeling activity will continue to increase gradually in 2015 and 2016.
Moody’s Analytics Chief Economist Mark Zandi told the NAHB that he expects an undersupply of housing given increasing job growth. Currently, the nation’s supply stands at just over 1 million units annually, well below what’s considered normal; in a normal year, there should be demand for 1.7 million units.
Zandi noted that increasing housing stock by 700,000 units should help meet demand and create 2.1 million jobs. He also noted that things should level off by the end of 2017, when mortgage rates probably will rise to around 6 percent.
“The housing market will be fine because of better employment, higher wages and solid economic growth, which will trump the effect of higher mortgage rates,” Zandi told the NAHB.
Robert Denk, NAHB assistant vice president for forecasting and analysis, said that he expects housing recovery to vary by state and region, noting that states with higher levels of payroll employment or labor market recovery are associated with healthier housing markets
States with the healthiest job growth include Louisiana, Montana, North Dakota, Texas and Wyoming, as well as farm belt states like Iowa.
Meanwhile Alabama, Arizona, Nevada, New Jersey, New Mexico and Rhode Island continue to have weaker markets.
Despite an improving job market and low interest rates, the share of first-time homebuyers fell to its lowest point in nearly three decades and is preventing a healthier housing market from reaching its full potential, according to an annual survey released by the National Association of Realtors (NAR). The survey additionally found that an overwhelming majority of buyers search for homes online and then purchase their home through a real estate agent.
The 2014 NAR Profile of Home Buyers and Sellers continues a long-running series of large national NAR surveys evaluating the demographics, preferences, motivations, plans and experiences of recent home buyers and sellers; the series dates back to 1981. Results are representative of owner-occupants and do not include investors or vacation homes.
The long-term average in this survey, dating back to 1981, shows that four out of 10 purchases are from first-time home buyers. In this year’s survey, the share of first-time home buyers dropped five percentage points from a year ago to 33 percent, representing the lowest share since 1987 (30 percent).
“Rising rents and repaying student loan debt makes saving for a down payment more difficult, especially for young adults who’ve experienced limited job prospects and flat wage growth since entering the workforce,” said Lawrence Yun, NAR chief economist. “Adding more bumps in the road, is that those finally in a position to buy have had to overcome low inventory levels in their price range, competition from investors, tight credit conditions and high mortgage insurance premiums.”
Yun added, “Stronger job growth should eventually support higher wages, but nearly half (47 percent) of first-time buyers in this year’s survey (43 percent in 2013) said the mortgage application and approval process was much more or somewhat more difficult than expected. Less stringent credit standards and mortgage insurance premiums commensurate with current buyer risk profiles are needed to boost first-time buyer participation, especially with interest rates likely rising in upcoming years.”
The household composition of buyers responding to the survey was mostly unchanged from a year ago. Sixty-five percent of buyers were married couples, 16 percent single women, nine percent single men and eight percent unmarried couples.
In 2009, 60 percent of buyers were married, 21 percent were single women, 10 percent single men and 8 percent unmarried couples. Thirteen percent of survey respondents were multi-generational households, including adult children, parents and/or grandparents.
The median age of first-time buyers was 31, unchanged from the last two years, and the median income was $68,300 ($67,400 in 2013). The typical first-time buyer purchased a 1,570 square-foot home costing $169,000, while the typical repeat buyer was 53 years old and earned $95,000. Repeat buyers purchased a median 2,030-square foot home costing $240,000.
When asked about the primary reason for purchasing, 53 percent of first-time buyers cited a desire to own a home of their own. For repeat buyers, 12 percent had a job-related move, 11 percent wanted a home in a better area, and another 10 percent said they wanted a larger home. Responses for other reasons were in the single digits.
According to the survey, 79 percent of recent buyers said their home is a good investment, and 40 percent believe it’s better than stocks.
Financing the purchase Nearly nine out of 10 buyers (88 percent) financed their purchase. Younger buyers were more likely to finance (97 percent) compared to buyers aged 65 years and older (64 percent). The median down payment ranged from six percent for first-time buyers to 13 percent for repeat buyers. Among 23 percent of first-time buyers who said saving for a down payment was difficult, more than half (57 percent) said student loans delayed saving, up from 54 percent a year ago.
In addition to tapping into their own savings (81 percent), first-time homebuyers used a variety of outside resources for their loan downpayment. Twenty-six percent received a gift from a friend or relative—most likely their parents—and six percent received a loan from a relative or friend. Ten percent of buyers sold stocks or bonds and tapped into a 401(k) fund.
Ninety-three percent of entry-level buyers chose a fixed-rate mortgage, with 35 percent financing their purchase with a low-down payment Federal Housing Administration-backed mortgage (39 percent in 2013), and nine percent using the Veterans Affairs loan program with no downpayment requirements.
“FHA premiums are too high in relation to default rates and have likely dissuaded some prospective first-time buyers from entering the market,” said Yun. “To put it in perspective, 56 percent of first-time buyers used a FHA loan in 2010. The current high mortgage insurance added to their monthly payment is likely causing some young adults to forgo taking out a loan.”
Buyers used a wide variety of resources in searching for a home, with the Internet (92 percent) and real estate agents (87 percent) leading the way. Other noteworthy results included mobile or tablet applications (50 percent), mobile or tablet search engines (48 percent), yard signs (48 percent) and open houses (44 percent).
According to NAR President Steve Brown, co-owner of Irongate, Inc., Realtors® in Dayton, Ohio, although more buyers used the Internet as the first step of their search than any other option (43 percent), the Internet hasn’t replaced the real estate agent’s role in a transaction.
“Ninety percent of home buyers who searched for homes online ended up purchasing their home through an agent,” Brown said. “In fact, buyers who used the Internet were more likely to purchase their home through an agent than those who didn’t (67 percent). Realtors are not only the source of online real estate data, they also use their unparalleled local market knowledge and resources to close the deal for buyers and sellers.”
When buyers were asked where they first learned about the home they purchased, 43 percent said the Internet (unchanged from last year, but up from 36 percent in 2009); 33 percent from a real estate agent; 9 percent a yard sign or open house; six percent from a friend, neighbor or relative; five percent from home builders; three percent directly from the seller; and one percent a print or newspaper ad.
Likely highlighting the low inventory levels seen earlier in 2014, buyers visited 10 homes and typically found the one they eventually purchased two weeks quicker than last year (10 weeks compared to 12 in 2013). Overall, 89 percent were satisfied with the buying process.
First-time home buyers plan to stay in their home for 10 years and repeat buyers plan to hold their property for 15 years; sellers in this year’s survey had been in their previous home for a median of 10 years.
The biggest factors influencing neighborhood choice were quality of the neighborhood (69 percent), convenience to jobs (52 percent), overall affordability of homes (47 percent), and convenience to family and friends (43 percent). Other factors with relatively high responses included convenience to shopping (31 percent), quality of the school district (30 percent), neighborhood design (28 percent) and convenience to entertainment or leisure activities (25 percent).
This year’s survey also highlighted the significant role transportation costs and “green” features have in the purchase decision process. Seventy percent of buyers said transportation costs were important, while 86 percent said heating and cooling costs were important. Over two-thirds said energy efficient appliances and lighting were important (68 and 66 percent, respectively).
Seventy-nine percent of respondents purchased a detached single-family home, eight percent a townhouse or row house, 8 percent a condo and six percent some other kind of housing. First-time home buyers were slightly more likely (10 percent) to purchase a townhouse or a condo than repeat buyers (seven percent). The typical home had three bedrooms and two bathrooms.
The majority of buyers surveyed purchased in a suburb or subdivision (50 percent). The remaining bought in a small town (20 percent), urban area (16 percent), rural area (11 percent) or resort/recreation area (three percent). Buyers’ median distance from their previous residence was 12 miles.
Characteristics of sellers The typical seller over the past year was 54 years old (53 in 2013; 46 in 2009), was married (74 percent), had a household income of $96,700, and was in their home for 10 years before selling—a new high for tenure in home. Seventeen percent of sellers wanted to sell earlier but were stalled because their home had been worth less than their mortgage (13 percent in 2013).
“Faster price appreciation this past year finally allowed more previously stuck homeowners with little or no equity the ability to sell after waiting the last few years,” Yun said.
Sellers realized a median equity gain of $30,100 ($25,000 in 2013)—a 17 percent increase (13 percent last year) over the original purchase price. Sellers who owned a home for one year to five years typically reported higher gains than those who owned a home for six to 10 years, underlining the price swings since the recession.
The median time on the market for recently sold homes dropped to four weeks in this year’s report compared to five weeks last year, indicating tight inventory in many local markets. Sellers moved a median distance of 20 miles and approximately 71 percent moved to a larger or comparably sized home.
A combined 60 percent of responding sellers found a real estate agent through a referral by a friend, neighbor or relative, or used their agent from a previous transaction. Eighty-three percent are likely to use the agent again or recommend to others.
For the past three years, 88 percent of sellers have sold with the assistance of an agent and only nine percent of sales have been for-sale-by-owner, or FSBO sales.
For-sale-by-owner transactions accounted for 9 percent of sales, unchanged from a year ago and matching the record lows set in 2010 and 2012; the record high was 20 percent in 1987. The share of homes sold without professional representation has trended lower since reaching a cyclical peak of 18 percent in 1997.
Factoring out private sales between parties who knew each other in advance, the actual number of homes sold on the open market without professional assistance was 5 percent. The most difficult tasks reported by FSBOs are getting the right price, selling within the length of time planned, preparing or fixing up the home for sale, and understanding and completing paperwork.
NAR mailed a 127-question survey in July 2014 using a random sample weighted to be representative of sales on a geographic basis. A total of 6,572 responses were received from primary residence buyers. After accounting for undeliverable questionnaires, the survey had an adjusted response rate of 9.4 percent. The recent home buyers had to have purchased a home between July of 2013 and June of 2014. Because of rounding and omissions for space, percentage distributions for some findings may not add up to 100 percent. All information is characteristic of the 12-month period ending in June 2014 with the exception of income data, which are for 2013.
The excesses of 1980s New York investment banking as captured best (and with just a dose of hyperbole) by Bret Easton Ellis’s American Psycho may be long gone in the US, but they certainly are alive and well in other banking meccas, such as the one place where every financier wants to work these days (thanks to the Chinese government making it rain credit): Hong Kong. It is here that yesterday a 29-year-old British banker, Rurik Jutting, a Cambridge University grad and current Bank of America Merrill Lynch, former Barclays employee, was arrested in connection with the grisly murder of two prostitutes. One of the two victims had been hidden in a suitcase on a balcony, while the other, a foreign woman of between 25 and 30, was found lying inside the apartment with wounds to her neck and buttocks, the police said in a statement. | A spokesman for Bank of America Merrill Lynch told Reuters on Sunday that the U.S. bank had, until recently, an employee bearing the same name as a man Hong Kong media have described as the chief suspect in the double murder case. Bank of America Merrill Lynch would not give more details nor clarify when the person had left the bank.
Britain’s Foreign Office in London said on Saturday a British national had been arrested in Hong Kong, without specifying the nature of any suspected crime.
The details of the crime are straight out of American Psycho 2: the Hong Kong Sequel. One of the murdered women was aged between 25 and 30 and had cut wounds to her neck and buttock, according to a police statement. The second woman’s body, also with neck injuries, was discovered in a suitcase on the apartment’s balcony, the police said. A knife was seized at the scene.
According to the WSJ, the arrested suspect, who called police to the apartment in the early hours of Nov. 1, was until recently a Hong Kong-based employee of Bank of America Merrill Lynch.
Filings with Hong Kong’s securities regulator show that the suspect was an employee with the bank as recently as Oct. 31.The man had called police in the early hours of Saturday and asked them to investigate the case, police said.
Hong Kong’s Apple Daily newspaper said the suspect had taken about 2,000 photographs and some video footage of the victims after the killings including close-ups of their wounds. Local media said the two women were prostitutes.
The apartment where the bodies were found is on the 31st floor in a building popular with financial professionals, where average rents are about HK$30,000 (nearly $4,000) a month.
According to the Telegraph the suspect, who had previously worked at Barclays from 2008 until 2010 before moving to BofA, and specifically its Hong Kong office in July last year, had apparently vanished from his workplace a week ago. It has also been reported that he resigned from his post days before news of the murders emerged.
And as usual in situations like these, the UK’s Daily Mail has the granular details. It reports that the British banker arrested on suspicion of a double murder in Hong Kong has been identified as 29-year-old Rurik Jutting.
Mr Jutting, who attended Cambridge University, is being held by police after the bodies of two prostitutes were discovered in his up-market apartment in the early hours of yesterday morning.
Officers found the women, thought to be a 25-year-old from Indonesia and a 30-year-old from the Philippines, after Mr Jutting allegedly called police to the address, which is located near the city’s red light district. The naked body of the Filipina victim, who had suffered a series of knife wounds, was found inside the 31st-floor apartment in J Residence – a development of exclusive properties in the city’s Wan Chai district that are popular with young expatriate executives.
The second woman was reportedly discovered naked and partially decapitated in a suitcase on the balcony of the apartment. She is believed to have been tied up and to have been left there for around a week.
Sex toys and cocaine were also reportedly found, along with a knife which was seized by officers.
Mr Jutting’s phone is today being examined by police in a bid to identify possible further victims, according to the South China Morning Post.
It is understood that photos of the woman who was found in the suitcase, apparently taken after she died, were among roughly 2,000 that officers found on the device.
Mr Jutting attended Winchester College, an independent boys school in Hampshire, before continuing his studies in history and law at Pembroke College, Cambridge, where he became secretary of the history society.
He appears to have worked at Barclays in London between 2008 and 2010, when he took a job with Bank of America Merrill Lynch. He was moved to the bank’s Hong Kong office in July last year.
A spokesman for Bank of America Merrill Lynch confirmed that it had previously employed a man by the same name but would not give more details nor clarify when the person had left the bank.
CCTV footage from the apartment block, located near Hong Kong’s red light district, showed the banker and the Filipina woman returning to the 31st floor shortly after midnight local time yesterday.
He allegedly called police to his home at 3.42am, shortly after the woman he was seen with is believed to have been killed.
She was found with two wounds to her neck and her throat had been slashed. She was pronounced dead at the scene.
The body on the balcony, wrapped in a carpet and inside a black suitcase, which measured about three feet by 18 inches, was not found by police until eight hours later.
A police source quoted by the South China Morning Post said: ‘She was nearly decapitated and her hands and legs were bound with ropes. ‘She was naked and wrapped in a towel before being stuffed into the suitcase. Her passport was found at the scene.’
Wan Chai, the district where the apartment is located, is known for its bustling nightclub scene of ‘girly bars,’ popular with expatriate men and staffed by sex workers from South East Asia. Police have today been contacting nearby bars in an attempt to find out more about the background of the two murdered women.
One resident in the 40-storey block, where most of the residents are expatriates, said he had noticed an unusual smell in recent days. He told the South China Morning Post that there had been ‘a stink in the building like a dead animal’.
And just like that, the worst excesses of the “peak banking” days from 1980, when sad scenes like these were a frequent occurrence, are back.
Government workers remove the body of a woman who was found dead at a flat in Hong Kong’s Wan chai district in the early hours of this morning. A British man was been arrested in connection with the murders.
A second victim was found stuffed inside a suitcase on the balcony of the residential flat in Hong Kong
The 40-storey J Residence is reportedly a high-end development favored by junior expatriate bankers
Bank Of America Psycho Killer Was Busy Helping Hedge Funds Avoid Taxes During His Business Hours
The most bizarre story of the weekend was that of Bank of America’s 29-year-old banker Rurik Jutting, who shortly after allegedly killing two prostitutes (and stuffing one in a suitcase), called the cops on himself and effectively admitted to the crime having left a quite clear autoreply email message, namely “For urgent inquiries, or indeed any inquiries, please contact someone who is not an insane psychopath. For escalation please contact God, though suspect the devil will have custody. [Last line only really worked if I had followed through..]”
But while his attempt to imitate Patrick Bateman did not go unnoticed, even if it will be promptly forgotten until the next grotesquely insane banker shocks the world for another 15 minutes, the question that has remained unanswered is what did young Master Jutting do when not chopping women up.
The answer, as the WSJ has revealed, is just as unsavory: “he had been part of a Bank of America team that specialized in tax-minimization trades that are under scrutiny from prosecutors, regulators, tax collectors and the bank’s own compliance department, according to people familiar with the matter and documents reviewed by The Wall Street Journal.”
Basically, when not acting as a homicidal psychopath, Jutting was facilitating full-blown tax evasion, just the activity that every developed, and thus broke, government around the globe is desperately cracking down on, and why every single Swiss bank is non-grata in the US and may be arrested immediately upon arrival on US soil.
Mr. Jutting, a U.K. native and a competitive poker player, worked in Bank of America Merrill Lynch’s Structured Equity Finance and Trading group, first in London and then in Hong Kong, according to these people and regulatory filings. Mr. Jutting resigned from the bank sometime before Oct. 27, which police say was the date of the first murder, according to a person familiar with the matter.
The trading group, known as SEFT, employs about three dozen people globally, one of these people said. It helps hedge funds and other clients manage their stock portfolios, often through the use of derivatives, according to the people and internal bank documents.
Mr. Jutting joined Bank of America in 2010 and worked three years in its London office, the bank’s hub for dividend-arbitrage trades, the people familiar with the matter say. He moved to Bank of America’s Hong Kong office in July 2013.
As it turns out not only did a US-based bank – Bank of America – have an entire group dedicated to precisely the same type of hedge fund, and other Ultra High Net Worth, clients tax evasion advice, but it also housed a homicidal psychopath.
Perhaps if instead Levin had been grandstanding and seeking to punish foreign banks, he had cracked down on everyone who was providing this service, Jutting’s group would have been disbanded long ago, and two innocent lives could have been saved, instead allowing the alleged cocaine-snorting murderer to engage in far more wholesome, banker-approrpriate activities:
During his time in Asia, Mr. Jutting’s pastimes apparently included gambling. In a Sept. 14 Facebook post, he boasted of winning thousands of dollars playing poker at a tournament in the Philippines. He signed off the post: “God I love Manila.” The comment drew eight “likes.”
Alas one will never know “what if.”
But we are certain that with none other than America’s most prominent bank, the one carrying its name, has now been busted for aiding and abetting hedge fund tax evasion around the globe, it will get the same treatment as evil foreign banks Barclays and Deutsche Bank, right Carl Levin?
When it comes to Internet speeds, the U.S. lags behind much of the developed world.
That’s one of the conclusions from a new report by the Open Technology Institute at the New America Foundation, which looked at the cost and speed of Internet access in two dozen cities around the world.
Clocking in at the top of the list was Seoul, South Korea, where Internet users can get ultra-fast connections of roughly 1000 megabits per second for just $30 a month. The same speeds can be found in Hong Kong and Tokyo for $37 and $39 per month, respectively.
Residents of New York, Los Angeles and Washington, D.C. can get 500-megabit connections thanks to Verizon, though they come at a cost of $300 a month.
There are a few cities in the U.S. where you can find 1000-megabit connections. Chattanooga, Tenn., and Lafayette, La. have community-owned fiber networks, and Google has deployed a fiber network in Kansas City. High-speed Internet users in Chattanooga and Kansas City pay $70, while in Lafayette, it’s $110.
The problem with fiber networks is that they’re hugely expensive to install and maintain, requiring operators to lay new wiring underground and link it to individual homes. Many smaller countries with higher population density have faster average speeds than the United States.
“Especially in the U.S., many of the improved plans are at the higher speed tiers, which generally are the most expensive plans available,” the report says. “The lower speed packages—which are often more affordable for the average consumer—have not seen as much of an improvement.”
Google is exploring plans to bring high-speed fiber networks to a handful of other cities, and AT&T has also built them out in a few places, but it will be a long time before 1000-megabit speeds are an option for most Americans.
For the second straight month, Midland posted the third lowest unemployment rate in the nation, according to figures released Wednesday by the Bureau of Labor Statistics.
Bismarck, North Dakota, topped the list for the fourth straight month with a jobless rate of 2.1 percent. Fargo, North Dakota, was second at 2.3. Midland and Logan, Utah, tied for third at 2.6.
A total of 10 metropolitan statistical areas around the nation posted unemployment rates of 3.0 percent or lower. Midland was the lone MSA in Texas at or below 3.0.
Midland again ranked near the top of the list of MSAs in the nation when it came to percentage gain in employment. Midland’s 6.4 percent growth ranked second to Muncie, Indiana (8.9 percent). In September, Midland showed a work force 100,100, an increase of nearly 5,000 from September 2013.
The following are the lowest unemployment rates in the nation during the month of September, according to the Bureau of Labor Statistics.
Bismarck, North Dakota 2.1
Fargo, North Dakota 2.3
Logan, Utah 2.6
Sioux Falls, South Dakota 2.7
Grand Forks, North Dakota 2.8
Lincoln, Nebraska 2.8
Mankato, Minnesota 2.9
Rapid City, South Dakota 2.9
Billings, Montana 3.0
Lowest rates from August
Bismarck, North Dakota 2.2, Fargo North Dakota 2.4; Midland 2.8. Also: Odessa 3.4
Bismarck, North Dakota, 2.4; Sioux Falls, South Dakota, 2.7; Fargo, North Dakota, 2.8; Midland 2.9. Also: Odessa 3.6
Bismarck, North Dakota, 2.6, Midland 2.9, Fargo, North Dakota, 3.0. Also: Odessa 3.6
Bismarck, North Dakota, 2.2, Fargo, North Dakota, 2.5, Logan, Utah, 2.5, Midland 2.6. Also: Odessa 3.2
Can you still do a short-term house flip using federally insured, low-down payment mortgage money? That’s an important question for buyers, sellers, investors and realty agents who’ve taken part in a nationwide wave of renovations and quick resales using Federal Housing Administration-backed loans during the last four years.
The answer is yes: You can still flip and finance short term. But get your rehabs done soon. The federal agency whose policy change in 2010 made tens of thousands of quick flips possible — and helped large numbers of first-time and minority buyers with moderate incomes acquire a home — is about to shut down the program, FHA officials confirmed to me.
In an effort to stimulate repairs and sales in neighborhoods hard hit by the mortgage crisis and recession, the FHA waived its standard prohibition against financing short-term house flips. Before the policy change, if you were an investor or property rehab specialist, you had to own a house for at least 90 days before reselling — flipping it — to a new buyer at a higher price using FHA financing. Under the waiver of the rule, you could buy a house, fix it up and resell it as quickly as possible to a buyer using an FHA mortgage — provided that you followed guidelines designed to protect consumers from being ripped off with hyper-inflated prices and shoddy construction.
Since then, according to FHA estimates, about 102,000 homes have been renovated and resold using the waiver. The reason for the upcoming termination: The program has done its job, stimulated billions of dollars of investments, stabilized prices and provided homes for families who were often newcomers to ownership.
However, even though the waiver program has functioned well, officials say, inherent dangers exist when there are no minimum ownership periods for flippers. In the 1990s, the FHA witnessed this firsthand when teams of con artists began buying run-down houses, slapped a little paint on the exterior and resold them within days — using fraudulent appraisals — for hyper-inflated prices and profits. Their buyers, who obtained FHA-backed mortgages, often couldn’t afford the payments and defaulted. Sometimes the buyers were themselves part of the scam and never made any payments on their loans — leaving the FHA, a government-owned insurer, with steep losses.
For these reasons, officials say, it’s time to revert to the more restrictive anti-quick-flip rules that prevailed before the waiver: The 90-day standard will come back into effect after Dec. 31.
But not everybody thinks that’s a great idea. Clem Ziroli Jr., president of First Mortgage Corp., an FHA lender in Ontario, says reversion to the 90-day rule will hurt moderate-income buyers who found the program helpful in opening the door to home ownership.
“The sad part,” Ziroli said in an email, “is the majority of these properties were improved and [located] in underserved areas. Having a rehabilitated house available to these borrowers” helped them acquire houses that had been in poor physical shape but now were repaired, inspected and safe to occupy.
Paul Skeens, president of Colonial Mortgage in Waldorf, Md., and an active rehab investor in the suburbs outside Washington, D.C., said the upcoming policy change will cost him money and inevitably raise the prices of the homes he sells after completing repairs and improvements. Efficient renovators, Skeens told me in an interview, can substantially improve a house within 45 days, at which point the property is ready to list and resell. By extending the mandatory ownership period to 90 days, the FHA will increase Skeens’ holding costs — financing expenses, taxes, maintenance and utilities — all of which will need to be added onto the price to a new buyer.
Paul Wylie, a member of an investor group in the Los Angeles area, says he sees “more harm than good by not extending the waiver. There are protections built into the program that have served [the FHA] well,” he said in an email. If the government reimposes the 90-day requirement, “it will harm those [buyers] that FHA intends to help” with its 3.5% minimum-down-payment loans. “Investors will adapt and sell to non-FHA-financed buyers. Entry-level consumers will be harmed unnecessarily.”
Bottom line: Whether fix-up investors like it or not, the FHA seems dead set on reverting to its pre-bust flipping restrictions. Financing will still be available, but selling prices of the end product — rehabbed houses for moderate-income buyers — are almost certain to be more expensive.
Last week the Consumer Financial Protection Bureau announced another enforcement action aimed at “kickbacks” prohibited by the Real Estate Settlement Procedures Act. This time, it was a title company that had received referrals of title business from independent sales agents. What is particularly interesting about the CFPB’s actions in this case, are that it recognized a distinction in terms of the treatment of persons working for a company based upon their classification as employees or contractors. Although it is clear that employees can receive referral payments under RESPA, there was a lack of clarity in the case of “independent contractors” who performed nearly the same services but were simply designated as stand-alone companies. Although some believed that this differentiated tax treatment would not necessarily matter as to kickbacks if the services were similar to those of employees, it appears from the CFPB’s actions, that the statute—which says “employees”—will be strictly construed.
Even more important, however, is that in the instant enforcement action, the CFPB set aside the tax designation of the parties, relying instead upon legal definitions, to determine the classification. In other words, although the parties designated the relationship as employment and issued W-2 tax forms (for employees), the CFPB applied a legal standard used to determine employment status and found that in reality these individuals did not meet the definition of employees and were in fact contractors. Specifically, because the CFPB found that the title company did not direct and control the means and manner of the work performed by the sales agents. This lack of control vitiated the employment classification turning the sales agents into contractors and thus evoking Section 8 of RESPA.
This action is not without precedent. The CFPB has shown a clear willingness to call it like it sees it, and disregard agreements and classifications between parties when it views the relationship as a sham. Moreover, courts have developed large bodies of law regarding employment misclassification. Lenders should pay careful attention to this case, however, as it could be used to impact not only RESPA, but also affiliated business disclosures and even QM status. Whereas the employment classification is beneficial for the purposes of RESPA, misclassified contractors who become reclassified as employees could potentially change the applicability of ABA disclosures and QM status. The bottom line is that lenders must pay attention to the designation of contractors (in both directions) and make sure they meet the legal definitions and standards for which they are classified. Otherwise, a potential misclassification could prove costly in a variety of ways.
“Florida Congressman Dan Webster slams CFPB for gathering sensitive information on 53 million Americans with Gestapo like techniques into a database that every Federal employee has access to.
Over here at the National Real Estate Post we’ve being barking about the fact that the CFPB has no one to answer to. To us they seem like a rogue agency going wild imposing fines on literally any company they want. Most companies don’t even try to fight the claims made by the CFPB as it’s simply cheaper to settle. And when we say cheaper, we mean often times to the tune of tens of thousands of dollars even for small companies.
Florida’s Dan Webster has made it known how he feels about them and it’s not much different than us. His gripe right now is how much sensitive personal data the CFPB has gathered on 53 million Americans. What gives the CFPB the right to obtain this data? How well protected is it? Well according to a hearing testimony the data on these 53 million Americans is in a database that every Federal employee has access to! We over here don’t think they have the right to collect this data, along with Mr. Webster. Problem is, there’s no one to look into the situation and see what’s going on. Great.”
Click here for Congressman Webster’s video testimony.
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