Minnesota State Attorney General Lori Swanson filed lawsuits today alleging that two companies have violated a new state law that prohibits firms from requesting advance payment when offering to help consumers modify mortgage terms.

Swanson said the lawsuits are the first filed under the new law, which was passed last year.

"Homeowners who contact their lenders to modify their mortgages often face unreturned phone calls, lost paperwork and other red tape," Swanson said in a statement. "This and the bad economy have created an opening for mortgage modification companies to swoop in and take advantage of people."

The lawsuits were filed against: American Modification Consultants LLC of Philadelphia, which does business as American Mitigation Consultants; and INQB8 LLC of Scottsdale, Arizona, which does business as Discount Mortgage Relief.

Representatives with both companies could not immediately be reached for comment. One lawsuit was filed in Washington County, and the other in Anoka County.

The state law prohibits mortgage modification companies from charging fees to consumers before they deliver on the promised services of negotiating or modifying the terms or conditions of existing home loans. Such modifications have become a priority of the federal government and lenders in response to the growing number of bank foreclosures.

The lawsuits from Swanson allege that the companies violated Minnesota law by charging advance fees to homeowners and failing to deliver promised services.

During the subprime loan era, it's well documented that lenders took all kinds of shortcuts — such as failing to verify borrowers' employment or income — to sell mortgages.

Now Bank of America Corp., the nation's biggest mortgage lender, is saying the nation's second-largest title insurer did much the same thing and should be on the hook for more than $500 million in losses.

In a lawsuit filed earlier this month, BofA alleged that First American Corp. in Santa Ana relied on home buyers to tell them about liens on their properties and other matters, rather than conducting traditional title searches.

The shortcut was part of a program called QuickClose that BofA said in its suit did not require "title searches in connection with loans processed under the program."

The bank said in the suit that the insurer has not made good on more than 5,000 mortgages it was supposed to protect.

First American spokeswoman Carrie Gaska issued a statement Thursday saying the insurer regrets that its "valuable customer" has filed suit. "However, we are hopeful that we will be able to resolve this matter outside of court with continued discussions."

Home foreclosures and the resulting banking mess it can lead to has money homeowners facing what is known as mortgage debt forgiveness. While it may sound like a good thing, many homeowners do not realize that mortgages debts, which are forgiven or cancelled may be counted as income and subject to taxation. This is especially true in California where a battle between the Governor and state lawmakers is heating up.

Some homeowners caught in the subprime mortgage crisis were offered a helping hand, however, in the passage of The Mortgage Debt Forgiveness Debt Relief Act of 2007. The legislation allowed for a three year exception for debt forgiveness on home loans.

Debts that are forgiven in connection with home foreclosure, and mortgage restructuring qualify for the relief. The law varies by state, and some place stricter provisions for mortgage forgiveness.
In California, however, the laws on mortgage debt relief fall under state provision. Debt forgiveness occurring on or after January 01, 2009, no longer conforms to federal provision as non-taxable. Instead, the amount of debt released is considered taxable to the state of California.

Financial company bonds are beating industrial debt by the most this year after lagging behind in February, encouraging investors to snap up new issues from JPMorgan Chase & Co. and Credit Suisse Group AG.

Debt sold by banks, insurers and brokers returned 0.81 percent this month through yesterday, compared with 0.4 percent for the rest of the market, according to Bank of America Merrill Lynch index data. The cost to borrow for banks is the lowest since February 2008, with yields falling to within 1.93 percentage points of Treasuries on March 18.

Bond sales yesterday by JPMorgan, the second-largest U.S. bank by assets, and Zurich-based Credit Suisse drove global financial debt issuance this month to at least $121 billion, surpassing February’s total by 22 percent, according to data compiled by Bloomberg. Goldman Sachs Group Inc. began marketing debt today in a reopening. The MSCI World index of stocks shows financial company earnings exceeding economists’ estimates by an average 13 percent this year.

When Lisa Bogar and her husband Jim fell behind on their mortgage in the spring of 2008, they entered a bureaucratic labyrinth of lost paperwork, unreturned phone calls and frustration.

"We regret falling behind and take full responsibility for our default," she told lawmakers recently. "We're still trying desperately to save our home. I believe if I had just one person to talk to, ask questions, review my paperwork, this could have been solved a long time ago."

A bill passed by the Vermont House on Thursday seeks to address concerns like hers. It calls for mediation between lenders and homeowners before a home foreclosure goes forward.

Morningstar Inc., best known for its analysis of mutual funds, said it is acquiring privately held credit-rating firm Realpoint LLC for $52 million in cash and stock to build on its entry into corporate credit ratings.

Morningstar Chairman and Chief Executive Joe Mansueto cited strong demand for "unbiased ratings and research in the structured credit market" as a reason for the deal. "Together, we want to restore credibility to the credit-ratings business and be a positive force in rating structured products," he added.

Entrenched credit-ratings firms came under fire during the financial crisis for how they rated billions of dollars in mortgage-related securities, which turned toxic as the subprime loans that helped fuel the U.S. housing bubble started to default.

Horsham, Pa.-based Realpoint, which rates only commercial mortgage-backed securities, had been looking to expand into rating residential mortgage-backed and consumer loan-backed deals.

Suppose we agree that we would like our society to have widespread home ownership and a property-owning citizenry. Does it take government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac with implied taxpayer guarantees, tax advantages for the interest paid on home mortgages, and government pressure for "creative" mortgage lending to achieve this?

The Canadian experience shows that it doesn't.

Canada makes a useful comparison for the U.S. Both countries are rich, advanced, stable, have sophisticated financial systems and pioneer histories, and stretch from Atlantic to Pacific. But Canada has no housing GSEs. Mortgage interest is not tax deductible.