U of I law professor says financial crisis is a wakeup call

From the Des Moines Register.

Katherine Porter, a University of Iowa law professor on loan to Harvard University, has studied bankruptcy and foreclosure issues ranging from adding unjustified fees during foreclosure to the ineffectiveness of required bankruptcy counseling.

Both Iowa Attorney General Tom Miller and Porter have testified before congressional committees investigating foreclosure problems.

Q: Our nation’s foreclosure problems are difficult to understand, widespread and overwhelming. How do you describe what’s going on?

A: The financial crisis should be a real wake-up call to society about the importance of law and lawmaking.

Both the bad mortgages that were given to families and the bad mortgages that were sold to retirement funds are a failure of law to police and regulate what private actors were trying to do to profit.

The same is true about the foreclosure fraud. The legal system and systems of foreclosure simply aren’t where they need to be to catch that kind of wrongdoing.

We have a system in this country where people have to follow rules, big or small. And if a small consumer has to follow the rules, like if they don’t pay their mortgage they get foreclosed on, then a big bank has to follow the rules when they take a person’s house.

The problems we’re seeing on the back end are very much part and parcel of the mindset that gave rise to make loans on the front end. They’re different practices and they’re affecting a different set of people, but the mindset is still there, which is cut costs and efficiency at all costs – the law is just some bothersome thing that we can ignore in our march to achieve profits.

It costs money sometimes to comply with the law. Or if you comply with the law, sometimes you can’t do what you want as a business, you can’t make that loan on those terms with that family or you can’t take a homeowner’s house in that way because you don’t have the right documentation. …

Q: Do we know how widespread the problems are?

A: The problems that have been documented have been on the judicial side. One of the real black holes about this is that we don’t know how bad or good the processes might be in states where foreclosures happen outside the judicial system.

We’ve only been able to see and catch problems that happen inside the court system. Then we have public documents and judges issuing opinions and public record.

There’s a real debate here. What is the value of what some would say are technicalities in the law?

I believe these are not mere technicalities. We protect people’s rights, and they are part of a carefully drawn system that balances the rights of debtors and creditors.

The rule that you have the note or produce an affidavit to explain why you don’t and what the terms of loan are is there so people aren’t overcharged.

The fact that the industry now finds it cumbersome, or the fact that people want to focus on the big, big, big ultimate question of does the family owe the money and have they paid it really short-circuits why we have those procedural protections in the first place, which is to make sure we get it right as much of the time as we can.

Q: And the added fees makes it difficult for people to emerge from foreclosure with their home.

A: The reason why we need those rules to be followed is so families can figure out what those fees are, if they’re legitimate and then challenge them if they think they’re not. So the lack of paperwork – not complying with these procedural rules – can be a way to deprive families of their substantiative rights.

The rest of the Q&A can be found here.