In case you haven’t heard, the House of Representatives passed a bill in December 2009 calling for the creation of a Consumer Financial Protection Agency, an independent federal agency solely devoted to protecting Americans from unfair and abusive financial products and services.  Now the Senate is kicking around proposals of their own, as discussed in this Huffington Post article. 

In the article,  Elizabeth Warren (a leading consumer advocate and Harvard Law professor) argues that a toothless consumer protection agency would be worse than none at all.  To be effective, says Warren, the new CFPA must include 4 key elements:

Warren isn’t the only one who understands the necessity of a strong, independent consumer protection agency.  In a recent column, economist and NY Times writer Paul Krugman opined that an important factor in the stability of Canada’s economy, as opposed to our volatile one, is the existence of an independent Financial Consumer Agency.

For the sake of America’s future, let’s hope the Senate takes their responsibility seriously and does not create, as Warren put it, “some mouthful of mush that doesn’t get the job done.”

It’s a lot like waiting in line for a ride at Disneyland: you wait for 45 minutes, turn a corner, and find yourself at the end of another long line. Just when we thought we finally hit the bottom of the housing market, there appears to be an entirely new level on the horizon: a massive re-setting of option ARMs. 

Many of you are probably familiar with option ARMs—loans popular during the housing boom because they gave borrowers the option of paying very low monthly payments (less than the interest) for the first five years.  The Seattle Times reported that between 2004 and 2008, more than $750 billion of option ARMs were originated in the U.S. (58% of which were in California!).  As many as a million of those loans are estimated to reset higher in the next four years. 

Most option ARM borrowers assumed the value of their house would steadily increase, allowing them to refinance or sell before the reset date.  Instead, the values have dropped dramatically, meaning many borrowers will be stuck with the reset loan payments, which may be double the initial amount (or even more in some cases).

What does this mean for the economy at large? It’s not a pretty picture, according to real-estate finance professor Susan Wachter, as reported in the Seattle Times article:

“Owners may surrender properties to the bank rather than make higher payments for homes that have plummeted in value…The option ARMs will drive up the foreclosure supply, undermining the recovery in the housing market…The option ARMs will be part of the reason that the path to recovery will be long and slow.”

For more information, take a look at this New York Times article  published last week.

Welcome to the Seattle Debt Law Blog! With the mortgage and credit crisis coming to dominate news headlines, I’ve decided to start this blog to help educate consumers in the Seattle area and around the nation about the fundamentals of bankruptcy and debt law and how it affects us all.

My name is Christina Latta. I am an attorney specializing in bankruptcy and consumer law practicing in Seattle, Washington. I have a BA from Dartmouth College and a JD from Boston College Law School, and I spent 2 years as a law clerk for a bankruptcy judge in Fresno, California before going into private practice. I spent another 2 years representing mortgage lenders in bankruptcy court before “switching sides” and working for debtors exclusively, which I’ve done since 2004. My experience on both sides of the aisle has given me a useful understanding of the bankruptcy system and the way creditors and debtors resolve their differences under the law.

In the coming weeks and months I hope to use this platform to discuss current topics, legal trends and issues of interest, new legislation affecting mortgages and other debt, cases of interest coming before the court, and other important developments. The legal system can be a bit intimidating and scary to people who’ve never had to deal with it before, so I’d also like to help demystify it a bit by explaining how it works, and about the options that are open to debtors facing foreclosure, harassment by creditors, mortgage troubles, and so on. Stick around and see how it develops.