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How to Choose a Hospice

David Casarett, M.D.   |   June 23, 2014    5:31 PM ET

Ben Hallman's June 19 HuffPost blog paints a stark and scary picture of today's hospice industry. Hospice, he warns us, is big business. And it seems that business is booming. But his focus on for-profit hospices is not very helpful to patients and families who need hospice.

When people make a decisions about which hospice to enroll in, they don't need scare tactics. They don't need fear mongering about the evils of for-profit hospices. They need to choose a hospice that will deliver the best possible care for whatever time they have left. That is, they need advice. So here's my advice, based on 15 years as a hospice and palliative care physician.

(Full disclosure: I'm the chief medical officer for a not-for-profit hospice, and I sit on the board of a for-profit, so I'd like to think that I have a pretty balanced view.)

First, ask your doctor for advice. Which hospices deliver the best care? Which have the most skilled staff? Which are the most responsive?

But also ask your doctor if he or she has a financial relationship with that hospice. Some doctors are employed by hospices, and may have a financial incentive to refer. So beware.

Second, pick up the phone and ask questions. Here are a few:

"Do you provide all four levels of hospice care?" (That's routine home care, inpatient care, continuous care at home, and respite care). Medicare-certified hospices are required to provide all four, but many don't.

"Is your hospice certified by The Joint Commission or the Community Health Accreditation Program?" Abbreviated as TJC and CHAP, these are organizations that visit and inspect hospices regularly.

"Are your physicians board-certified in hospice and palliative care?" This is a good indication that a hospice takes its medical care very seriously.

"Do you measure and improve the quality of care that you provide to your patients? How?" Any hospice that doesn't have a quick and clear answer for this question probably isn't serious about patient care.

"How much charity care do you provide?" This may seem like an odd question to ask, but in my experience, it's a pretty good indicator of whether a hospice's heart is in the right place. There's no "right" answer, but beware of a hospice that doesn't offer any.

Third, interview a hospice. That's right, just as you'd interview a job applicant. (Because that hospice is applying for a job to work for you.) Ask the hospice representative to tell you what you can expect. What services will they provide? And when? Ask the representative to explain to you how they'll work around your needs and preferences.

Finally, some general advice. These aren't hard-and-fast rules. But they've served me well in finding hospices for friends and families in cities where I don't know the lay of the land.
Look for larger hospices. Larger hospices are often able to provide services, and to be flexible in ways that smaller ones can't. In my experience, larger hospices also typically have more of an investment in measuring and improving quality. ("Large" might mean a single large hospice, or a hospice with multiple offices across a region.)

Also look for hospices that are affiliated with medical centers and health systems. That's not a guarantee that the hospice will provide high-quality care, of course. But those affiliations mean that there are probably a lot of people keeping an eye on the care that the hospice delivers. That's particularly true of academic medical centers, where standards of care tend to be very high, and tolerance for shoddy care is limited.

Finally, ask around. If you have friends whose family members have used hospice, ask them what
their experience was. I wouldn't dismiss a hospice because of one negative story, but if you hear several, walk away.

If you go through these steps and ask these questions and decide on a for-profit hospice, don't be surprised. There are good for-profit hospices out there, just as there are bad not-for-profits. So above all, keep an open mind.

The facts about for-profit hospice care that Hallman and his team so painstakingly researched need to get public attention. People need to know that hospice has come a long way from the volunteer traditions of hospice care that began decades ago. It's a whole new world.

But we're doing a disservice to the public if we don't provide guidance about how to navigate that world. More people are using hospice every year, and that trend won't reverse. So we all need to know how to choose more widely.

Choosing a hospice solely based on its profit status isn't wise. There are good hospice and bad ones. There are those that are committed to patient care and those that are committed to making money. There are those that serve the community and those that serve themselves. Yes, there are for-profits and not-for-profits, but that's just one variable in a complex equation that will determine whether you or a loved one get the best possible care.

Finally, one last word of advice. Choosing wisely takes time. So start thinking early about what hospice you'd want when the time comes. How early? Well, if you were interested enough in this topic to read this blog, then now would be a good time.

People typically enroll in hospice very late. More than half of patients in the U.S. enroll in the last three weeks of life, and about a third enroll in the last week. That's too late to make careful decisions. So start asking questions now. Think of it as insurance, so when the time comes -- as it will, for all of us -- you'll be ready to make a thoughtful choice that's consistent with your preferences.

Three Loopholes Obama Wants To Close To Avoid Sequester

Ben Hallman   |   February 19, 2013    5:46 PM ET

The outcome of the latest round of political brinkmanship over fiscal policy increasingly looks like it will hinge on whether Congress is ready to take on a subject it has studiously avoided for more than 25 years: corporate tax reform.

At his State of the Union address last week, and again on Tuesday, President Barack Obama said Congress must eliminate certain tax loopholes that benefit corporations and wealthy individuals in exchange for his support of a deal to avert $85 billion in mandatory budget cuts known as the "sequester."

The last time Congress overhauled the tax code was 1986. Since then, Congress has added in tax breaks and loopholes worth hundreds of billions of dollars to corporations that lobbied for them. Last week, The Huffington Post reported on the origins of one of those breaks, a "manufacturing" deduction that lobbyists stretched to encompass public utilities, oil companies and even coffee roasting.

So what perks, exactly, does Obama want to cut? The president has avoided going into much detail, but public statements and a recent White House policy paper suggest these likely priorities:

No More Amsterdam Sandwiches

Obama has called repeatedly for corporate reform that would stop multinationals from shipping profits overseas in order to avoid paying U.S. taxes. The policy paper, for example, proposed a minimum tax on offshore earnings to encourage domestic investment and "prevent a race to the bottom in corporate tax rates."

These aims hew closely to legislation recently introduced by Sen. Carl Levin, (D-Mich.) and Kent Conrad (D-N.D.) that would attempt to stop U.S. companies from shipping patents and other assets to offshore affiliates. One infamous technique, pioneered by Apple, is known as the "Double Irish With a Dutch Sandwich." The maneuver is complicated, but essentially it allows U.S. companies to move profits through Ireland, the Netherlands and then on to a tax haven in the Caribbean in order to lower the U.S. tax bill. Over the last three years, Apple, Google and Microsoft have used techniques like this to avoid paying taxes on $80 billion in profits over a three year period, a recent Senate subcommittee on investigations found.

Ending The "Facebook" Break

The U.S. tax code permits companies to deduct the cost stock options as an expense that reduces profits, just like cash compensation. According to Citizens for Tax Justice, in a report picked up by Bloomberg News, the stock options cashed in after the Facebook IPO will allow the company to claim a tax refund of $429 million.

So what's the problem? The tax code permits companies like Facebook to take stock option deductions in excess of expenses. So, for example, Facebook booked stock options given to founder Mark Zuckerberg at 6 cents per share, according to Levin. The company later claimed a deduction at about $40 per share. Moreover, Facebook can carry forward deductions -- and indeed, has an additional $2.17 billion that it can apply against future tax bills, Citizens for Tax Justice calculates.

This "excess" deduction, according to Levin's calculations, has cost the Treasury between $12 billion and $61 billion a year in lost revenue.

Make Mitt Pay More

As you no doubt have heard by now, former Republican presidential candidate Mitt Romney probably pays a lower effective tax rate than you. That's because of the "carried interest" rule, which allows private equity managers to to treat the fees they charge to manage a client's portfolio -- typically, a one-fifth share of any profits -- as investment income, subject to a lower 20 percent capital gains tax rate than the top 39.6 percent marginal rate.

Obama specifically mentioned the carried interest break on the campaign trail, and again in the run-up to the last fiscal cliff crisis, in December. Eliminating the perk, though, won't do much to ease the budget deficit. It costs Treasury about $1.3 billion a year.

New FHA Rules Make Home Loans More Expensive For Most Borrowers

Ben Hallman   |   January 31, 2013   10:47 AM ET

Since the housing market collapsed more than five years ago, would-be homebuyers with low or moderate incomes, or with less-than-stellar credit scores have had really just one financing option: a mortgage backed by the Federal Housing Administration, or FHA.

Now, those mortgages are about to get a bit more expensive. As CNN Money reports, the FHA announced that it will raise the cost of insurance premiums by 0.1 percent.

Translation: A borrower opting for a 30-year, fixed-rate mortgage who puts 5% or more down will now pay an annual insurance premium of 1.3% of their outstanding balance. And someone who puts less than 5% down will pay a premium of 1.35%.

Of possibly even more consequence, most buyers will also now have to carry these premiums for the life of the loan. Previously, borrowers could cancel premiums once their debt -- what they owe -- fell below 78 percent of the principal balance.

Last year, the FHA raised premium prices and also increased the cost of mortgages. The moves come as the agency, which backs $1.1 trillion in mortgages, faces questions about the solvency of its insurance fund. As the New York Times reported in December, the value of that fund plunged from $1.2 billion to negative $13.48 billion in just a year -- suggesting that the agency was paying out far more in claims than it was taking in.

Unfortunately, the bill for more expensive loans will be paid by those least able to afford it. As I reported in September, even though mortgage interest rates are near all-time lows, many borrowers can't take advantage. That's because Fannie Mae and Freddie Mac, which dominate the secondary mortgage market, have largely shoved aside their traditional mandate to make home ownership affordable for middle-class and low-income Americans in favor of a strategy geared to making only the very safest possible loans.

The average Fannie Mae borrower credit score from 2001 to 2004 was 718, a few points less than the median credit score of all U.S. consumers. By 2011, the average score had soared to 762, which is at the very top end of the range, and is considered "excellent" by the rating services.

For everyone else, a more-costly FHA loan is pretty much the only option.

Had Foreclosure Reviews Continued, Bank Of America Would Have Owed At Least $10 Billion: Naked Capitalism

Ben Hallman   |   January 22, 2013    5:16 PM ET

Federal bank regulators and the mortgage companies claim the recent foreclosure abuse settlement is good news for homeowners who had applied to the review program it replaces.

Banks can now quickly channel $3.5 billion to homeowners, with nearly everyone who received a foreclosure notice in 2009 or 2010 getting a cut, they have said. But as we reported last week, the reviewers who were reviewing home loans until they were abruptly laid off at the beginning of the year say that
the original goal of the reviews as described by regulators -- to distribute "appropriate compensation to borrowers who suffered financial harm" -- is now impossible to meet.

People who wrongly lost their homes will get lumped in with applicants who claimed the same, but who actually simply stopped paying their mortgage and were correctly foreclosed on, they said. And no one will be checking the banks' work.

In a lengthy and detailed post on Tuesday, Yves Smith at Naked Capitalism writes that not only will the distribution of the settlement dollars be much less fair than originally intended, harmed borrowers will get much less money.

As we will demonstrate over our upcoming series of posts, conservative estimates of damages due to borrowers under the consent order who suffered improper foreclosures from Bank of America exceed $10 billion. That contrasts with the cash portion of the settlement amount for Bank of America of $1.2 billion. The amount owing for other abusive practices would have increased this total further.

Smith said she came to this calculation after "extensive debriefing of Bank of America whistleblowers."

No interviewee estimated harm as occurring in less than 30% of the files they reviewed; one put serious harm at 80%. The interviewees did not simply describe individual borrower suffering in graphic terms (as one put it, "I saw files that would make your stomach turn.") Multiple interviewees would describe widespread, sometimes pervasive patterns of impermissible conduct.

Presumably Smith will share her math in future posts. Until then, of course, it is impossible to say whether this calculation is accurate. Given, too, that the reviews were incomplete, and that the entire process was undermined by mistakes and errors, I'm not sure how any real determination of damage is possible. That said, I'm eager to see how she arrived at the $10 billion figure.

I reached out to a Bank of America spokesman to ask about Smith's calculation but did not immediately hear back.

Three Reasons Why Non-Foreclosed People Should Care About The Foreclosure Crisis

Ben Hallman   |   January 18, 2013   10:12 AM ET

Look, I know what you are thinking. Every day, it seems, comes news of another mortgage lawsuit or settlement, including a foreclosure abuse deal between HSBC and federal regulators announced Friday. It's hard to keep them all straight. Frankly, if you didn't lose your home to foreclosure, or come close to doing so, you might not know what to think. Maybe you manage to muster some vague feeling of irritation about the behavior of U.S. financial institutions, but mentally you're already trying to place that overvalued "Z" in your Scrabulous game.

But what happened, and is happening now, might affect you more than you think. Here are three takeaways from the crisis that should matter to far more than the 8 million or so U.S. households that received a foreclosure notice.

1. Had the federal government acted decisively at the outset, your home would probably be worth more than it is now.

Rising home prices over the last year have finally revived the housing market, pulling millions of underwater borrowers up from the sea. This is fantastic news for some people who clung to their homes, and kept making mortgage payments, as prices collapsed. But millions more, who bought in places like San Bernardino, Calif. or Brockton, Mass., still owe more than twice what their homes are now actually worth.

These borrowers are far more likely to lose their homes to foreclosure, a process that damages neighborhoods and holds down home values across the board. Offering some form of principal reduction, or debt relief, to these borrowers from the outset would have saved homes and likely shortened the housing crisis. Yet in a recent interview with the Wall Street Journal, outgoing Treasury Secretary Timothy Geithner said government-sponsored debt relief wasn't possible, or fair.

And you know, I like explain to people that we didn't have $500 billion or three-quarters of a trillion dollars to provide principal reduction to the American homeowner, and doing so would have been a very inefficient way to help the economy, and really unfair in many ways.

But Congress did give Geithner a $45 billion check to help homeowners as part of the TARP bank-bailout fund. About 90 percent of that money went unspent. Housing groups, and analyses by both Treasury and the Federal Housing Finance Administration, determined that a principal reduction program targeted to those it was most likely to help would both limit foreclosures and save taxpayer money.

Geithner, though, was never really on board, falling back again and again on the "moral hazard" argument -- that bailing out some homeowners and not others wasn't just, and could encourage people to intentionally default. Geithner briefly changed his tune on principal reduction, and went so far as to chastise Edward DeMarco, the acting director of the FHFA, for refusing to allow Fannie Mae and Freddie Mac to write down loans as part of the $25 billion settlement between banks and the states last March. But his recent comments suggest his true position never wavered much.

2. Buying a new home loan is more difficult than it should be.

In the run-up to the housing crisis, millions of borrowers who had no business buying a home did so. Now, millions of would-be buyers who could afford a reasonably-priced home are locked out of favorable interest rates. There are lots of reasons for this, including a reticence by mortgage bankers to lend money without first securing a first-born child as collateral. But the most significant factor is the reluctance of Fannie Mae and Freddie Mac to buy any but the most gold-plated mortgage, a development that marks a significant retreat from the original purpose of the government-controlled mortgage behemoths, which was to provide middle America a broad path to the housing market.

DeMarco, who has run the agency as acting director for two years, has defended this position as looking out for the best interests of taxpayers who spent more than $180 billion to bail out the companies. Obama could put forward a nominee to replace DeMarco at the top of the FHFA, or potentially even fire him, but despite persistent rumors about his imminent departure, DeMarco has held onto his job.

3. The bank regulators have decided that helping homeowners is just too hard.

There's plenty to say about what the recently-announced $8.5 billion foreclosure abuse settlement means for homeowners who applied for relief to the review process that it replaces: good news for people who didn't deserve a dime and probably bad news for those who lost their home because of massive bank errors (and yes, Wall Street Journal editorial board, as dozens of reporters have documented, this definitely happened). The deal is also a boon to the banks, which are no longer on the hook for an open-ended liability and get a tax break on what they pay out, to boot.

But for the rest of us, the takeaway is this: bank regulators simply can't be trusted to clean up the mess from a banking crisis. They failed to make sure that the mortgage companies were dealing fairly with homeowners struggling to make payments and then failed to oversee a review process meant to determine what, exactly, had gone wrong. The upshot now is that we will never really know how many homes could have been saved from foreclosure had banks followed the rules.

The best hope, then, is to prevent future crises. Which is reason to pay close attention to whether the financial sector is able to curb the parts of the Dodd-Frank law most likely to stop all this from happening again.

How's that going? Two-and-a-half years, and $200 million in financial industry lobbying expenditures later, more than half of the required rules still haven't been written.

Gun Industry Executive Helps Pick NRA Leaders: Report

Ben Hallman   |   January 16, 2013   11:34 AM ET

Last week I wrote, with Peter Stone, about the growing personal and financial ties between the gun industry and the National Rifle Association. As we noted in our piece, those ties have coincided with a hardening of the NRA's anti-gun control stance, and have raised questions about whether the gun lobby represents its members, or the industry.

Those ties have also made many of the NRA's own members uncomfortable. On Wednesday, Mother Jones reported that George Kollitides of the Freedom Group, the company that made the Bushmaster military-style rifle used in the Newtown massacre and other mass shootings, holds a seat on the NRA board's nine-member nominating committee. He was appointed to this powerful spot after his bid to win a seat on the NRA's board of directors was derailed by by gun bloggers who oppose the industry's influence over the NRA. The nominating committee, Mother Jones reports, "closely controls who can be elected to the NRA board."

Elections for the NRA board, which oversees the organization's nearly 800 employees and more than $200 million in annual revenues, occur annually for 25 directors, who serve three-year terms. The vote typically involves less than 7 percent of NRA members, according to past NRA ballot results and pro-NRA bloggers. A low election turnout among members is not uncommon among nonprofit groups, but how a candidate gets his or her name on the ballot is key. According to an NRA supporter and self-proclaimed Second Amendment activist in Pennsylvania who blogs under the handle "Sebastian," this occurs one of two ways: It requires a grassroots petition by members, which rarely gets a candidate on the ballot, or a candidate must be included on the official slate endorsed by the Nominating Committee.

"Read the bios in your ballot and you'll see that almost all were nominated by the nominating committee," complained "Pecos Bill" from Illinois last January in one pro-gun-rights forum. "Seems the NRA, fine organization that it is, is being run like a modern corporation and the 'good ol' boys' are keeping themselves in power."

I reached out to the NRA for comment but did not immediately hear back.

In 2011, the New York Times reported that Kollitides lost his bid for a board seat after opposition from gun bloggers "who viewed him as an industry interloper."

Questions about who controls the NRA's agenda have increased over the past month in the wake of the Newtown shootings as the organization has staked out a hardline stance considered out-of-step with many the views of many gun owners.

The NRA has described the measures that President Obama announced today -- a renewal of the assault weapons ban along with background checks for all gun buyers -- as nothing less than an assault on liberty.

Yet a 2012 poll conducted by GOP pollster Frank Luntz for Mayors Against Illegal Guns, for example, found that 74 percent of NRA members support mandatory background checks for all gun purchases, a position that the NRA has stridently opposed.

A majority of self-described gun owners who responded to my own unscientific query about the NRA's priorities also suggested the organization was out of step with their interests.

UPDATE: Obama proposes sweeping new gun control measures.

REPORTER QUERY: Have you bought, or are you considering buying, additional firearms in response to new efforts to curb certain types of gun and high-capacity magazine sales? Send me a note if you want to discuss:

Does The NRA Represent Gunowner Interests?

Ben Hallman   |   January 11, 2013    9:59 AM ET

Read More: ben hallman, gunowners, nra

When I was 10, my grandfather left me in alone in a blind in the deep woods of eastern Alabama with a rifle, a bottle of water and instructions to shoot any deer or turkey foolish enough to cross my path. (None did so, though my live-acting scenes from "Star Wars" probably scared them off).

When I turned 21, I went to the courthouse in my hometown of Huntsville, Alabama, paid $10, and a week later received by mail a permit to carry a concealed weapon. By that point, I owned several firearms, including a .40 caliber handgun that I bought a gun shop, after the mandatory background check. I live in New York City now, but when I go back to visit I often pick up a shotgun and shoot skeet with family.

Nothing currently under discussion as part of gun control talks would have infringed on my right to do any of the above. Hunting, buying guns for personal protection and most kinds of sports shooting would continue unabated. And yet, the NRA, the nation's most powerful gun lobby, is arguing that gun control measures currently under consideration by the White House, such as increased background checks, represent an "attack" on the Second Amendement.

In our story today, Peter Stone and I wrote about the close financial and personal ties between the gun industry and the NRA. In our story, we note that the NRA's hardline positions on gun control seem increasingly out of step with the views of average gun owners, including even its own members.

According to a 2012 poll conducted by GOP pollster Frank Luntz for Mayors Against Illegal Guns, 74 percent of NRA members support mandatory background checks for all gun purchases, a position that the NRA has stridently opposed. "There's a big difference between the NRA's rank and file and the NRA's Washington lobbyists, who live and breathe for a different purpose," Mark Glaze, the executive director of the gun control group, said.

So I'm wondering, gun owners -- past and present -- what you think. Does the NRA represent your views on gun control?

No More Liar Loans Or Other Dreadful Mortgage Products, Regulators Say

Ben Hallman   |   January 10, 2013    9:45 AM ET

It took awhile, but more than five years after a wave of failing subprime loans wrecked the American economy, regulators have instituted new rules that prevent lenders from offering prospective buyers the worst types of mortgages.

The rules, imposed by the Consumer Financial Protection Bureau on Thursday, force lenders to do something they actively and intentionally avoided during the build up to the mortgage bubble: determine if the person they were loaning money to buy a house had the ability to repay that loan. So no more of the "no doc" or "liar's loans" that failed in epic numbers.

The rule also defines something called a "qualified mortgage." Essentially, if a lender follows a set of consumer-friendly rules when making loans, it can get legal protection from homeowner lawsuits. For example, the interest-only loans that blew up when the market started to tank are also not allowed. For the full run-down, the American Banker (subscription required) has a good analysis.

The early reaction from housing advocates is mostly positive. "The new rules generally strike a balanced, reasonable approach to mortgage lending and implement important consumer protections," the Center for Responsible Lending said.

Still, its not clear whether mortgages that include certain incentives paid to brokers would count as "qualified." One common practice, for example, was the offer of a "yield spread premium" bonus to brokers for bringing in higher interest rate loans. A few years ago I wrote about how one broker in Queens, New York got a $2,460 bonus for selling a refinance loan with an interest rate of nearly 12 percent.

UPDATE The Washington Post wonders whether the rules will restrict new lending.

“Credit is going to be restricted, at least a little,” said Cristian deRitis, a senior director at Moody’s Analytics. “The debt-to-income cap, for instance, is going to affect some folks at the lower end of the income scale.”

Seems possible, but as we've reported, lending is already extremely tight, especially for low-income borrowers. Banks have begged for clear guidelines for years, now they get them.

Wednesday Water Cooler: The Trillion Dollar Coin, The AIG Crocodiles, Mortgage Applications Up Big

Ben Hallman   |   January 9, 2013    9:36 AM ET

Wait, are we still talking about the Treasury Department minting a trillion-dollar coin to put off the debate on the debt ceiling for a little while longer? How likely is it that Republicans would make political hay out of such a maneuver for the next decade, castigating the Democrats as the party that simply invents money in order to solve serious fiscal problems? And if we are placing orders for novelty coins, might I request one that properly honors the contributions to American society of Clinton Riggs, the Tulsa, Oklahoma police officer who invented the yield sign? I think that coin should be worth 1.7 gazillion dollars and bestow on the bearer the right to ignore all traffic signals.

You could ponder this, or simply read this smart and funny analysis by my colleague Mark Gongloff, who as you will see is still trying to impress his 10th grade English literature teacher (Way too late to change that grade, Mark).

"Thank You America." That's the slogan from AIG's advertising campaign as it seeks to restore its reputation after . . . um, oh, right nearly destroying the world economy. The insurer, which took $182 billion in taxpayer money at the height of the financial crisis in 2008, is pondering joining a $25 billion shareholder lawsuit against the U.S. government that claims the terms of the bailout were too tough.

This is like loading a yacht with crocodiles -- because crocodiles are a great long-term investment, you know, in demand all over the world, especially for some reason in Germany -- sailing to the middle of the Atlantic Ocean, then abandoning ship after those crocodiles eat your crew and gnaw a hole in your hull (the hull is the bottom, right?). So anyway, there you are, adrift, with crocodile bites all over your legs, clinging to a deflating life raft, also filled with crocodiles (WHY WOULD YOU BRING CROCODILES WITH YOU IN THE RAFT?) -- when the entire U.S. Navy steams up, pulls you from the water, and deposits you on shore. You survive, are given money to revive your crocodile-export company (provided you take some minor steps to make it a little bit more safe), but then: well, you ponder joining a shareholder lawsuit against your savior.

The whole thing is being orchestrated by former AIG chief, and king of the crocodiles, Hank Greenberg, by the way.

It's been many years since we could say this, but the housing market is helping to drive the economy again. Mortgage applications for the week ending Jan. 4 shot up 11.7 percent according to the Mortgage Bankers Association, Housing Wire reports. Refinancings are also up, as are interest rates on mortgages, though by just a tad. The housing bubble is dead, long live the housing bubble.

New Foreclosure Settlement Replaces Henhouse Fox With Wolf, Advocates Say

Eleazar David Melendez   |   January 7, 2013   11:00 PM ET

For more than a year, housing advocates and their allies worried that a review of foreclosed loans managed by banking regulators was vulnerable to mortgage industry interference.

On Monday, the Office of the Comptroller of the Currency and the Federal Reserve Board -- the two regulatory bodies that had taken the lead in making the nation’s largest banks accountable for rampant foreclosure fraud -- announced that homeowners no longer need worry about the independence of the reviews. The regulators, essentially admitting that the reviews were too difficult to conduct, and that assigning appropriate compensation to those most harmed by the banks was no longer a priority, said the mortgage companies themselves will determine how to distribute $3.3 billion to more than 4 million homeowners forced into foreclosure in 2009 or 2010.

Housing advocates, while acknowledging that the foreclosure reviews were flawed, said they don't understand how turning the process over to mortgage companies improves a system already insufficiently independent.

"The regulators have decided to replace the fox in the henhouse with the wolf," said John Taylor, president of the National Community Reinvestment Coalition, a Washington-based housing nonprofit. "It is just incomprehensible to me that they could not find a third party that has the wherewithal and independence to fairly determine what the damage is to homeowners."

Regulators said the review process, which sought to determine if specific loans were unfairly foreclosed upon, was too costly and time-consuming. Under the new deal, 10 mortgage companies, including Bank of America, Wells Fargo and JPMorgan Chase, will pay $8.5 billion. Of that, $3.3 billion is earmarked for direct payments to "eligible borrowers" whose foreclosures were handled improperly. The remaining $5.2 billion will help struggling borrowers with programs such as loan modifications.

This new deal is separate from the $25 billion mortgage settlement involving five large banks and the state attorneys general earlier this year, though many allegations of misconduct are the same. Homeowners have complained for more than five years that mortgage companies made widespread errors in the management of home loans, and that in some cases those errors pushed them into foreclosure.

Scrapping the reviews means dismissing the consultants who had already spent hundreds of thousands of man-hours (and more than $1.5 billion) poring through loan files. Regulators will still oversee the new framework by reviewing a sample of the decisions made by the banks, OCC officials said, but will not actively evaluate every case. Instead, the companies -- known as mortgage servicers -- will make broad determinations about who is compensated for lenders' own malfeasance.

Ernie Dobson is one of the 495,000 homeowners who applied for a review. Dobson lost his San Diego home in 2009 to foreclosure while in the midst of a mortgage modification by JPMorgan Chase. He estimated he spent at least 10 hours applying to the foreclosure review. When reached by phone with the news, he said was afraid to tell his wife what he had learned. "I feel fear," he said. "Fear that the person who committed the injustice is now going to be the judge and jury about that injustice."

Many other homeowners -- an additional 3.9 million, according to regulators -- were eligible to apply for the foreclosure review, but never bothered. Some did not know about it, and others may have trashed the confusing application forms by mistake. Still others simply lacked faith that it would be worth their while to apply.

"Most of my clients did not apply because they thought the process was rigged," said Roy Oppenheim, a housing lawyer in Ft. Lauderdale, Fla.

On Capitol Hill, congressional leaders who had asked federal regulators for a briefing on the settlement when rumors started swirling last week, reacted negatively to the announcement.

Rep. Elijah E. Cummings (D-Md.), ranking member of the House Committee on Oversight and Government, said in a statement he was “deeply disappointed” the regulators decided to proceed “before providing Congress answers to serious questions about how this settlement amount was determined, who these funds will go to, and what will happen to other families who were abused by these mortgage servicing companies.”

“I believe that borrowers deserve more answers and transparency than the Federal Reserve and the OCC are currently willing to provide,” Cummings said.

The lack of disclosure -- unusual for such a high-profile agreement shepherded by a bank regulator -- extended to members of the media. OCC officials said they would not provide more than a sketch of the deal Monday, telling reporters the specifics of the settlement may take at least 15 days to be revealed.

Under the new process, OCC officials explained, banks would take the 4.4 million foreclosed mortgages involved in the original review and broadly classify them into 11 “buckets” corresponding to the level of fraud during the foreclosure process. Borrowers with foreclosed loans that fall into the highest-priority bucket, such as foreclosures illegally conducted on U.S. troops while they were fighting overseas, will qualify for a payout of as much as $125,000. Those in the lowest-level group, such as loans with a clerical error, will qualify for at least $250.

Banks will be making all the “slotting” decisions, something OCC officials said was needed to speed the process. Payouts to some borrowers could begin as early as March, OCC officials said. All the aggrieved borrowers will likely get something, if only at the expense of specific determinations of harm being made for those exposed to egregious fraud.

In spite of admitting the new process will not determine “whether or not there was harm” in specific cases, OCC officials contended the latest settlement keeps the Obama administration's promise to discover and correct the wrongs of foreclosure fraud.

“When we began the Independent Foreclosure Review, the OCC pledged to fix what was broken, identify who was harmed, and compensate them for that injury," Comptroller of the Currency Thomas Curry said in a statement. "While today’s announcement represents a significant change in direction, it meets those original objectives by ensuring that consumers are the ones who will benefit.”

The settlement replaces a review criticized as insufficiently independent from the start. ProPublica, an investigative news nonprofit, found that supposedly independent third-party reviewers looking over Bank of America loan files were given the "correct" answers in advance by the bank. These reviewers could override the answers, but they weren't starting from a blank slate.

It was also expensive. Reviews were taking more than 20 hours a loan to file at a cost of up to $250 an hour, according to The New York Times. All told, the banks spent an estimated $1.5 billion on the reviews.

As HuffPost reported last week, the settlement came as the Government Accountability Office, a nonpartisan investigative arm of Congress, was preparing a report critical of the program.

The settlement agreement ncludes Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo.

The original deal included four additional mortgage companies: Ally Financial, EverBank, HSBC and OneWest Bank. The reviews on those loans will continue and are not affected by the settlement.