Credit Reporters Sue Equifax; Antitrust lawsuit Claims Foul Play!

It seems we consumers are not the only ones who think the credit bureaus are unfair and give little to no care for how their actions affect the little guy -which is usually us. But not in this case. Seems they are bullying their smaller competitors and trying to monopolize the mortgage credit reporting market to enhance their billions in profits. And now their competitors have had enough and are willing to take this Goliath to court.  

According to the Maryland Daily Record;

The National Credit Reporting Association Inc. and a Baltimore County member agency have filed an antitrust suit against Equifax Inc., alleging the Atlanta-based credit information giant has taken illegal steps to squeeze out smaller competitors and monopolize the mortgage credit reporting market.

The trade group and Lenders' Credit Services Inc. of Arbutus contend Equifax's recent purchase of a crucial "pipeline" to Freddie Mac's automated underwriting system has allowed it make impossible demands of users, which, if not met by this weekend, will result in a denial of access and, necessarily, the failure of their businesses.

"It's Freddie Mac's portal to their money, basically," said Jonathan L. Rubin, the plaintiffs' attorney. "If you don't have access to Freddie Mac, you're not going to last very long in the credit reporting business... It's indisputable."

According to the lawsuit filed Monday in U.S. District Court in Baltimore, the NCRA represents two-thirds of the mortgage credit reporting agencies that produce reports acceptable to Freddie Mac, Fannie Mae and the U.S. Department of Housing and Urban Development -- the major government housing players. MORE

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Speaking of Freddie & Fannie; -see my colleague Jim Malmberg's thoughts on whether or not someone will be held responsible for leaving the taxpayers holding the hefty bag of debt. See;

We Want to Know Who's Going to Jail over the Fannie Mae and Freddie Mac Bailouts?

The rumors have been floating around for a while now that the federal government was about to take over Fannie Mae and Freddie Mac. These two organizations insure more than $5 trillion in home mortgages in the US, and although they are private companies, they are actually government backed. Over the weekend, the rumors came true. The action by the Treasury Department, although greeted positively by Wall Street, is going to saddle taxpayers with billions of dollars of bad debt and represents what may be the largest financial fraud in recorded history. There is no doubt that tax payers and investors are victims in this takeover. What we would like to know is, "who's going to jail?"

You can't loan people money using terms that require them to make monthly payments in excess of their monthly income. Any second grader who get's an allowance can figure this out. But amazingly, the supposed greatest financial minds in this country were unable to figure this out. Hence, the current state of the home mortgage and lending industries in the United States.

ACCESS and other consumer groups were pointing this out years before the current lending crisis manifested itself. But nobody wanted to listen. And no wonder. American jobs were being shipped overseas. We have been involved in two very expensive wars overseas. Unemployment numbers were mixed. The one bright spot in the economy was the housing market. And it was the one area of the economy that allowed people to continue to spend. This is because homeowners were using their houses like ATMs.

Need a new car? Refinance your home. Want a new boat, or a TV, or to go on vacation? Get a home equity line of credit. No income? Don't worry about it. Just tell the lender that you are employed and they'll take your word for it. And the best part is that even if you have no equity in your home, we'll still finance you!

Unbelievable as may sound, the federal government knew about all of this and encouraged it. And it wasn't just one federal agency either. The Comptroller of the Currency, the FED, the FTC and the Treasury Department all have regulatory authority that could have put an end to these practices back in 2001 when they were really just getting started. But none of them lifted a finger. And Allen Greenspan, who was Chairman of the Federal Reserve Board (the FED), actually told Congress repeatedly that these practices were good for the country.

Congress was an active participant too. At any time, Congress could have passed legislation that would have reigned in lending standards. They didn't. The White House could have called for this type of legislation too. But the President actually bragged publicly about how home ownership rates had increased.

As it turns out, the economics of that second grader on an allowance were correct. It would be nice to say that the government regulators here were just unaware of the problem, but they were actually participants in it. If they were running a corporation, they would be personally liable for their losses and would face the very real possibility of time in prison. Why? Because they would have a fiduciary duty to the stock holder - in this case tax payers and actual stock holders. There is no doubt that they violated this duty, and there is little doubt that they were criminally negligent.

But what are the real damages to the American People here? How is this going to impact you personally? Well, let's take a look at the numbers.

There are estimates that as much as 8% of the money owed to Fannie Mae and Freddie Mac is actually bad debt. If that number is correct, it will cost tax payers more than $400 billion to bail these two companies out. That's about $1,300 per man woman and child in this country. If someone stole $1,300 from you - and in this case they did - wouldn't you want to put them in jail?

But that doesn't tell the entire story. Both Fannie Mae and Freddie Mac are publicly traded. If you have a retirement savings plan such as a 401K, there is a very good possibility that you own some of their stock. That stock price has dropped by 95% from its high. That's more money out of your pocket. In addition to this, these organizations have sold billions of dollars in bonds. While the bonds themselves are secure as long as the government continues to back these companies, because of the takeover, the debt secured by the bonds is now the responsibility of taxpayers.

As unpalatable as this takeover is for taxpayers, allowing these companies to fail could actually have collapsed the entire financial system. Getting a home loan would have become impossible for most people. In addition to this, the insurance derivatives market would have taken a huge hit, taking down many of the countries largest banks, had the federal government not stepped in.

So let's assume that the Treasury Department did the only thing that it could. It took over the companies - not as the government but as a stockholder. This is important because it allows the government to hide the fact that in this takeover it is increasing the national debt by 50%. It has prevented the failure of the financial system; at least for the time being. And its decision to saddle taxpayers with the bill was unavoidable. Let's just say that all of this is true.

The fact remains that there were a lot of people who made some very bad economic decisions and jeopardized the entire US economy. And those bad decisions are the sole reason that taxpayers now have to pick up the bill for this government bailout. So we ask again, who is going to jail?