Consumers Union says many of the actions taken by the Bush Administration in its first 100 days on the job have favored business interests at the expense of consumers. But a Washington attorney who specializes in regulatory compliance issues says that's not the case when it comes to mortgage makers.

CU has voiced serious concerns about the President's decisions on several issues important to consumers, including energy and bankruptcy legislation. But Phillip Schulman of Kirkpatrick & Lockhart says anyone who believes the new regime at the Department of Housing and Urban Development will be more lenient with lenders than its predecessors are mistaken.

The new HUD may offer a "more receptive ear" and a "friendlier attitude," the Washington lawyer said. But it will be just as tough as it was under Andrew Cuomo. "The last Administration saw themselves as reformers," Schulman said. "They felt like if (lenders) are going to benefit from 100% insurance, then you'd better follow their rules."

During Sec. Cuomo's last two years, HUD operated under a zero tolerance policy, according to the attorney. "The watchword was accountability. Lenders were held accountable for every aspect of the lending process, including the actions of its employees, loan correspondents, appraisers, investors, even closers. And penalties were severe, swift, and sometimes unfair."

HUD's mortgage review board -- un-affectionately known as the "death squad" by many FHA lenders -- has been particularly tough to deal with. When lenders are called before the review board, "it's not to get a certificate of appreciation," Schulman says. "The MRB is on the warpath, and you are there to get whacked."

In the 1980s, the board, which is comprised of such high ranking agency officials as the FHA Commissioner, general counsel and chief financial officer, took on just 15-20 cases a year. But last year, it heard 30-45 cases every other month and doled out fines ranging from $100,000 to $500,000. Furthermore, it terminated 98 lenders and demanded some $22.5 million in indemnifications.

Meanwhile, Consumers Union says the White House -- among other steps harmful to consumers -- has refused to help families hurt by the Western electricity crisis, refused to provide adequate funding for low-income energy assistance, and endorsed a bankruptcy bill that excessively punishes honest consumers hit by unexpected debts.

When power blackouts and skyrocketing energy prices surfaced in California, CU charges, the President dismissed the crisis as a California problem the state would have to handle on its own. This "California problem" is now affecting 11 Western states. And other areas of the country face similar problems due to electricity deregulation.

In addition, the consumers' group points out, the President's budget would freeze the level of money for Low Income Home Energy Assistance Program, or LIHEAP, despite the fact that millions of consumers are paying record amounts for energy bills. The National Energy Assistance Directors Association estimated that 1.1 million families would be cut off from the program because of its failure to keep up with inflation.

Preventing abuse of the bankruptcy system is an idea that CU and many others support. But the organization says the real intent of this bill is to increase profits for the credit industry, which has spent millions on efforts to convince Congress to pass the bill.

This bill is too harsh on honest people hit unexpectedly by hard times who seek bankruptcy protection as a last resort. It would make it much tougher for a family in dire financial straits to put its finances in order at a time when the economy is already shaky.

CU says the President should reject the bill and ask Congress to come up with one that prevents bankruptcy abuse without punishing consumers unjustly.

For more articles by Lew Sichelman, please press here.

Published: May 2, 2001

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