Hantz suit on hold; class action mulled

Story originally appeared on Crain's Detroit Business.

A lawsuit against Southfield-based Hantz Financial Services Inc. and several of its senior executives is on hold until the Michigan Court of Appeals decides whether to certify it as a class action on behalf of 300 investors.

A three-judge appellate court panel late last month put a stay on the court case before Oakland County Circuit Judge Leo Bowman, who had denied a request to certify a class of investors who purchased promissory notes from Medical Capital Holdings Inc. through Hantz.

Bowman, in his Jan. 28 dismissal order, said he was "left with the distinct impression" that attorneys for plaintiff-investor Anne Hanton filed her lawsuit mainly to get around his ruling in their previous court case, where he already denied class certification for another client.

The appeals court agreed to review that decision and put a stay on the case until it could decide the certification question on its own. Attorneys for Hanton have told Crain's a class of claims would exceed $20 million in potential damages, while Hanton's case taken alone has less than a $250,000 value.

"We've gone two for two, since this is the second action against us where class certification was denied by the courts," said David Shea, attorney and general counsel for Hantz Financial. "Our position is the courts have gotten it right, and we were never attached to any allegations that were made against Medical Capital. This is purely a plaintiff attorney-driven action."

Med Cap, an Anaheim, Calif.-based medical receivables financing company, is in receivership after raising about $2.2 billion from among 20,000 investors through nine private placement offerings of promissory notes between 2001 and 2009.

Those sales stopped when the U.S. Securities and Exchange Commission brought a civil action alleging securities fraud and obtained a court injunction. The Financial Industry Regulatory Authority has sanctioned more than 10 brokerage firms and several individuals for selling interests in Med Cap through private placements without a reasonable investigation -- but Hantz Financial was not one of them.

The company did sell promissory notes in the fifth Med Cap securities offering to about 300 customers, but Shea said Hantz had done its due diligence and the notes were still performing at the time it sold them. It stopped selling Med Cap in 2008 after learning one of the previous sales had defaulted.

No date is set for the appellate court to decide about class certification.

Michigan lawmakers target Internet sales taxes

Story originally appeared on the Detroit News.

Lansing — Michigan lawmakers are pushing measures aimed at going after the hundreds of millions of dollars in outstanding taxes each year from sales over the Internet, but they may have to wait for a federal measure to pass for the dollars to really start rolling into the state.

Under bipartisan bills being debated in the state House, Internet retailers like Amazon or eBay would have to charge sales tax if they have distribution centers or warehouses in Michigan or are affiliated with in-state businesses whose websites steer customers to the larger retailer.

Supporters — like the Michigan Retailers Association — say the bills taken up by the House Tax Policy committee will bring in revenue and help level the playing field for local businesses that must collect sales taxes.

But Michigan's Treasury Department, while supporting the bills, estimates that the proposed law won't generate much revenue — unless the federal government takes action.

The U.S. Senate is expected to vote on legislation this week that would give states power to compel online retailers to collect state and local taxes for purchases made over the Internet.

States now can only require stores to collect taxes if the store has a physical presence in the state. Consumers are supposed to declare all remote sales — which includes items bought over the phone and on the Internet — when they complete tax returns and pay a 6 percent use tax. But since that isn't enforced, it rarely happens.

Tom Scott, spokesman for the Michigan Retailers Association, said the competitive advantage for online retailers hurts brick-and-mortar business' cash registers every week.

"This is a huge challenge for them," he said.

The Treasury Department estimates that $460 million in taxes from remote sales is due in Michigan this fiscal year and most of that will go uncollected.

While Michigan's proposed law would allow some of that to be collected, it doesn't apply to all Internet retailers and they can get around the law by breaking ties with their in-state partners or moving their warehouses to other states, House Fiscal Agency said in its analysis.

Scott said that while the bill won't bring in all of the uncollected revenue, it would require some of the largest online retailers, like Amazon, to start charging sales tax, which could have a huge impact on the state's small businesses.

Even if federal legislation gets through the U.S. Senate this week, it likely has a long road ahead of it in the House.

"Everybody would like a federal solution, but we can't sit around and wait. We have to start doing something as a state," said Republican Rep. Eileen Kowall of White Lake, who is sponsoring one of the bills.

Other states like New York and Illinois have passed similar legislation. Kowall said that if more states follow, it will encourage Congress to finish the job.

Republican Gov. Rick Snyder has also called on Congress to take action. In a letter to the U.S. Senate last year, Snyder said "it's time for Congress to grant states the authority to enforce sales tax and use laws on all retailers in their state."

Others contend that the Michigan legislation could hurt the affiliate marketers, the small online-based businesses that have advertising agreements with larger Internet retailers, like Amazon.

Under the bills as introduced, online retailers would have to charge sales tax if they advertise on websites owned by these in-state businesses, said Rebecca Madigan, executive director of the Performance Marketing Association.

In states where similar legislation has passed, Internet retailers have cut advertising relationships with these businesses to avoid collecting the tax, which in-turn hurts those businesses, she said.

But James Hallan, president and CEO of the Michigan Retailers Association, said in his written testimony to the committee that "in other states where affiliates have been terminated by Internet-only retailers, like Amazon and Overstock, the companies have often reinstated those agreements."

The Michigan bill is likely to advance soon to the House floor.

Republican Rep. Jeff Farrington of Utica, chairman of the Tax Policy Committee, said it has broad support in the committee and members plan to vote on it in two weeks.

Majority Republicans in the House have suggested that they may want to see action on the issue this year. Their legislative agenda for this session includes closing the Internet tax loophole.

Scott said it is far from certain that the U.S. House will take up the measure once it passes the Senate and — if it does — it likely won't be for a while. In the meantime, Michigan must ease the burden on brick-and-mortar businesses, he said.

"It ends up costing them sales it ends up costing our state jobs and the problem keeps getting worse," Scott said, "which is why we are going to get action, it's just a matter of how soon."

House panel OKs $1M cap on medical benefits for auto victims

Story originally appeared on the Detroit News.

Lansing — A House committee Thursday approved sweeping changes to Michigan's generous medical benefits for auto accident victims in a move critics say will bankrupt severely injured drivers, shift costs to taxpayers and deny the injured long-term care.

In a party-line vote, the Republican-controlled House Insurance Committee approved capping lifetime medical benefits for auto victims at $1 million and $250,000 for injured motorcycle riders. The $1 million cap would remain the highest amount of any state in the nation.

The legislation, backed by Gov. Rick Snyder, faces political obstacles as it heads to the House floor.

The Democratic caucus passed a resolution Thursday opposed to the bill, and Oakland County Executive L. Brooks Patterson and at least 10 Republican House members said they don't want to change Michigan's personal injury protection law.

"I have major, major problems with this bill," said state Rep. Martin Howrylak, R-Troy. "Unfortunately, a million dollars doesn't get you anything in health care these days."

The committee heard two days of testimony from insurance industry executives who want medical expenses reined in and impassioned pleas from accident victims and their families worried about losing their care.

The legislation aims to give auto insurance companies the power to negotiate lower payments with doctors and hospitals.

"If the cost of delivering the MRI is $3,200, then everybody should have to pay $3,200," said Heather Drake, vice president of government relations for AAA Michigan.

The legislation will not affect drivers injured before Dec. 31 or those whose medical bills exceeding $500,000 are covered by the Michigan Catastrophic Claims Association, said the bill's sponsor, state Rep. Pete Lund, R-Shelby Township.

"The intent of this bill is, has been and will remain that people who are currently in the system will continue to receive the benefits that they receive," said Lund, the insurance committee chairman.

The legislation changes the definition of the type of medical care auto insurance companies will pay for from what is defined as "reasonably necessary" to "medically appropriate."

"We fear for many patients that's going to be a one-way ticket to the nursing home," said George Sinas, general counsel for the Coalition Protecting Auto No-Fault, a group opposed to the bill.

Sinas said most accident victims would likely go on the Medicaid health insurance rolls for the poor after breaking the $1 million cap.

The legislation contains some curbs on payments to family members who care for loved ones at home, though the committee restored 24-hour coverage for the severely disabled.

The committee's amended version of the bill eliminates a $50,000 cap on expenses insurers pay for accident victims to make their homes handicap accessible.

Under the proposal, rehabilitation services would be limited to "meaningful and measureable lasting improvement in the injured person's functional status."

Lund on Thursday said he doesn't know who would determine an auto accident victim's meaningful and measureable improvement.

Erica Coulston, 34, of Bloomfield Hills, who was paralyzed in a 2001 car accident, said the effort "is a mechanism for denial."

Coulston, co-founder of a spinal cord injury program in Southfield, testified her rehabilitative therapies paid for by her auto insurance have slowly improved her respiratory, digestive and mental health.

The legislation would require auto insurers cut premiums for all drivers next year by $125, though critics argue there's no guarantee premiums won't rise in 2015.

Fun plus hard work equals success for Quicken Loans

Story originally appeared on USA Today.

Quicken's residential mortgage business outshines its more buttoned-down competitors.

DETROIT -- Nerf gunfights and costume contests are generally not encouraged inside major mortgage banking companies. But at Quicken Loans' headquarters in downtown Detroit, high jinks and horseplay figure prominently in a corporate culture that is upending the industry's more buttoned-down players.

The latest statistics show the value of the firm's mortgage loans soaring to $70 billion last year from $12 billion in 2008. Quicken, which operates online with no brick-and-mortar storefronts, now ranks as the nation's third-largest residential mortgage lender, closing in on No. 2 JP Morgan Chase, based on 2012 fourth-quarter figures. In a highly fragmented industry, Quicken now writes nearly 5% of all residential mortgages in the U.S., and is still growing.

Record-low interest rates have helped, spurring a refinancing boom that has boosted profits. And despite a few charges of overly aggressive sales techniques and some questionable loans, analysts credit Quicken with prospering today because it mostly stayed away from the worst sort of mortgage practices that punctuated the nation's housing meltdown.

Perhaps most important to Quicken's growth was its ability to grab market share from lenders badly bruised by the 2007-08 housing market collapse.

"Dan Gilbert has been smartly seeing an opportunity and filling a void left in the industry," Paul Moulo, managing editor at Inside Mortgage Finance Publications, said last week. "While they were napping, so to speak, Quicken ate their lunch."

The benefits of this meteoric rise flow not just to billionaire founder and chairman Dan Gilbert and his partners in the privately held Quicken, but also to Quicken's headquarters in the city of Detroit. With Quicken the flagship of Gilbert's business, sports, casino and real estate empire, profits from mortgage lending underwrite his investments downtown, where he owns 17 buildings and controls others through leases, as well as his purchase this month of Greektown Casino-Hotel.

Gilbert's vision for a downtown revival featuring Parisian-like sidewalk cafés and other amenities would be unimaginable without profits from Quicken's 10,000 employees and their mortgage expertise. Gilbert's aides estimate his downtown investments exceed $100 million and likely will grow.

Relaxed environment

Gilbert, 51, received a real estate license and law degree early in life, but he was always more interested in running his own company. He started Rock Mortgage in 1985 with his brother and a friend.

By 1993, when now-CEO Bill Emerson joined as a loan officer, Rock was still a traditional paper-based lender in suburban Bingham Farms. Employees wore suits and ties.

It was a different environment and business model than today's Quicken, which sprawls through several of Gilbert's buildings downtown. The atmosphere is high-energy, the dress is casual and the decor colorful as youthful mortgage bankers compete on loan volume and mini-basketball hoops.

The company's loan process has been paperless for years. The transition began in early 1998, when Gilbert wrote a memo urging staff to explore an online format. The company eventually closed its 30 or so storefronts.

In May of that year, Gilbert took Rock public. Software maker Intuit bought the company in 1999 for more than $500 million and changed its name to Quicken Loans to match its popular software product. The two firms never quite meshed, and Gilbert and his partners bought it back in 2002 as a private company for a fraction of the earlier sale price, retaining the Quicken brand on a perpetual lease.

By going all-online, Quicken could digitally track every step — from taking the initial call from a potential customer to ordering closing documents. Quicken shrunk the mortgage approval time down to about 30 days from three to six months — a major selling point for marketing and advertising. Today at Quicken's headquarters, teams of data analysts sit in "mission control," tracking thousands of loan applications on banks of oversized computer screens.

"The only way that works is with technology," Emerson said. "The only way that works is if you've got a paperless system, so you can literally have 25 people touching the same loan at the same time doing different functions."

'Engineered to amaze'

When the national housing market collapsed, Gilbert, Emerson and other Quicken executives decided to ramp up efforts to grab mortgage lending market share. They launched the "Engineered to Amaze" marketing campaign and started hiring at a time when competitors were still laying off.

"(Other) lenders had pulled back," said Kenneth Fears, senior economist with the National Association of Realtors. "They weren't expecting this boom — they weren't expecting rates to go lower, so they were trying to cut costs. Well, they cut a lot of staff. And these aren't the kind of (employees) you can pull off the street and train right away."

Moulo, the managing editor at the financial services publication, recalled his own visit to Quicken's website earlier this year when he considered refinancing a home loan. He filled out the online questionnaire, and — bang! — his phone rang about 15 seconds later. It was a Quicken salesperson. "That's how aggressive they are," he said.

Shayla Miller, 24, an elementary school teacher from Bartlesville, Okla., turned to Quicken when she and her husband bought their first house. Miller's parents had used Quicken earlier and referred her. "I like that they were available all the time to me," she recalled last week. "I can always call after 5 (p.m.). I can always call on Saturday."

It took 27 days from her and her husband's offer on the house to closing on the mortgage, she said.

Such feedback from consumers has helped Quicken win the coveted J.D. Power award for quality three years running.

Pressure and rewards

For employees who adapt to Quicken's high-energy culture, where the mantra is "Every client, every time, no exceptions, no excuses," rewards can be high. Quicken is routinely atop local and national Best Places to Work lists.

For those who don't thrive, work can seem a high-pressure chamber where leaders extol workers to sell, sell, sell.

In recent years, some former employees filed lawsuits seeking unpaid overtime. The claims turn on a facet of federal law requiring overtime for salespeople but not "mortgage bankers" who function as broader financial advisers, as Quicken defines its sales staff.

In early 2011, a federal jury found in Quicken's favor. CEO Emerson felt so vindicated, he framed and mounted a blowup of the case document on his office wall.

Quicken also has been accused occasionally of engaging in overly aggressive and improper sales tactics. That includes a lawsuit in West Virginia brought by Lourie Brown, a nurse who made just more than $14 an hour. She said she was sold a 30-year, $144,800 adjustable rate mortgage in 2006 with a $107,000 balloon payment. Brown defaulted on the loan less than a year later.

The total amount due on the 30-year loan would have been $550,000, despite her house's fair market value determined by the court to be about $46,000, according to court records and attorneys involved with the case.

A state circuit court found Quicken committed fraud and violated various provisions of the state's Consumer Credit and Protection Act and awarded nearly $2.8 million in punitive damages and attorney fees. In late 2012, the West Virginia Supreme Court largely upheld the decision but sent the case back to the lower circuit court for it to explain how it arrived at the award and the amount. The case remains in the lower court awaiting further action.

In a statement Friday, Quicken said, "We fully expect the circuit court's continued review of the case to find that the irrational award to this plaintiff is out of line with any near reasonable review of the facts and the law surrounding this case."

Despite such incidents, several industry analysts contacted by the Free Press said Quicken largely steered clear of the types of business practices that contributed to the subprime loan market meltdown that drove some banks and other lenders out of business. "They were smart enough in their previous lives to stay out of hard-core subprime," Moulo said. "So that allowed them to live to play another day."

Emerson said last week that Quicken has never written inappropriate loans: "Our industry forgot what responsible lending was, and fortunately for us, we didn't," he said. "A good chunk of the reason we're still here is that we didn't do that stuff."

Building for the future

The looming question for Quicken: What happens as historically low interest rates inch up? That could curtail the refinancing boom, a major part of Quicken's current business success.

Emerson said Quicken has enough partnerships and strategies to generate strong revenue. Among other steps, Quicken has partnered for the past 18 months with investment firm Charles Schwab to offer cross-branded mortgages.

Quicken also has started servicing mortgages, handling the payments and paperwork during the life of the loan for fees. In late March, Quicken purchased about $34 billion in mortgage servicing rights from Ally Bank. The purchase will boost Quicken's servicing portfolio to about $120 billion, Emerson said. The pool of loans can be mined for refinancing opportunities.

Shah Tehrany, managing director with Franklin First Financial, a mortgage company based in Melville, N.Y., said he believes Quicken will continue to thrive even as the market pivots.

"Dan Gilbert is a smart guy," he said. "It will be interesting to see how he maneuvers the company if the industry shifts, but I think they'll do just fine. They have a good brand, and they're spending money in the right spots."

Editorial: Gov. Snyder's auto insurance reform offers little savings to drivers

Story originally appeared on Freep.

Michigan needs insurance reform badly: Statewide, rates are among the highest in the nation, and in Detroit, where as many as 50% of drivers are believed to be without insurance, rates are outrageous.

But Gov. Rick Snyder’s proposition to change Micigan’s no-fault insurance system can’t really be called reform.

Snyder’s proposal, announced Thursday, would save each Michigan driver $125 a year. That’s $10 a month. And in exchange for these paltry savings, Snyder would dismantle a safety net that is the best in the nation.

Snyder is proposing changes to a unique component of Michigan auto insurance: personal injury protection. In our state, insurers cover claims for auto-related injuries up to $500,000; costs exceeding $500,000 are paid — with no cap — by the Michigan Catastrophic Claims Association. Drivers fund the MCCA with a $175 annual fee, set to increase to $186 on July 1.

The MCCA has said its system is unsustainable and has justified its rate increases by saying the system can’t afford to pay the claims made. Yet it has refused to publicly release financial information to prove its assertions. A group called the Coalition Protecting Auto No-Fault has sued the MCCA to make that information public; a judge ordered the MCCA to release the records, but the association is appealing that decision.

Snyder’s plan would phase out the association, replacing it with a nonprofit, and would cap benefits at $1 million. Further costs would be paid by Medicaid, which is facing its own shortfall; that budget hole would be filled by an insurance premium and the extension of a 1% tax on some medical insurance claims. The governor says that even with the changes he’s proposing, Michigan’s system is still the most generous in the nation.

But Snyder offers no evidence to suggest that this reform would result in any significant reduction in costs for Michigan drivers.

And there is evidence aplenty to suggest that eliminating unlimited care for catastrophic injuries could have a devastating impact on Michiganders.

A 2011 study by Public Sector Consultants — coincidentally, the firm once helmed by Bill Rustem, Snyder’s director of strategy — found that 94% of personal-injury claims were less than $50,000. The average cost of the .5% of claims exceeding $400,000, the study found, was $1.4 million.

Capping benefits at $1 million would affect a small number of people. But those dollars could mean the difference between a lifetime of invalidism and rehabilitation and a return to functionality.

Moreover, the data that would justify such changes haven’t been made public.

That’s where this needs to start.

If the MCCA is unsustainable, if that system truly needs reform, if Snyder’s proposed changes could bring the cost of auto insurance down by more than $10 a month, show us the numbers.

Then we’ll talk.

Metro Detroit job sprawl worst in U.S.; many jobs beyond reach of poor

Story originally appeared on Freep.

If it seems like it’s taking longer than ever to get to your job in metro Detroit, there’s a good reason.

A new study finds that metro Detroit is the nation’s most sprawled job market, with 77% of jobs located at least 10 miles from the downtown core.

Combined with an earlier Brookings Institution study on access to public transit, a portrait emerges of a metro area where many jobs are beyond the reach of low-income residents who lack transportation options and often live inside the city.

Besides potentially adding to commute times, a decentralized job market adds to pollution levels.

The Brookings Institution released its new report today showing that only 7.3% of metro Detroit’s roughly 1.4 million jobs lie within three miles of the city’s central business district. Another 15% lie within a 3-to-10-mile band from the downtown core.

The 77% of jobs that are found from 10 miles to 35 miles out are the highest percentage of decentralized jobs in any of the nation’s top 100 metro areas.

The earlier study found that only 22% of jobs in metro Detroit were within even a 90-minute ride on public transit. That ranked metro Detroit 73rd out of 100 top metro areas in the ability of residents to get to work via bus or light rail.

“One of the issues we’re constantly hearing about is there may be jobs out there, but people can’t get to them. The fact that we’re so sprawled out does make it extremely difficult,” said Megan Owens, director of the nonprofit group Transportation Riders United, which lobbies for more public transit options in metro Detroit.

Elizabeth Kneebone, one of the authors of the new Brookings study, said the problem of access to work in metro Detroit limits the ability of poor people to move up the economic ladder.

“If they can’t use transit to get where the job opportunities are and they don’t have a reliable car, that can make it that much harder for them to connect with the kinds of opportunities to improve their economic condition,” she said.

Besides limiting economic opportunity for low-income residents, a sprawled-out job market leads to environmental damage, Kneebone said. “That means more traffic, congestion, a bigger carbon footprint.”

The data in the newest Brookings study came from the 2010 Census, so it did not capture the recent influx of jobs downtown as Quicken Loans, Blue Cross Blue Shield of Michigan and other employers shifted jobs from the suburbs to the city. But even the estimated 10,000 new jobs downtown over the past two years would not have changed Detroit’s ranking significently.

With nearly 1.4 million jobs in the region, a shift of 10,000 from the suburbs to downtown would amount to less than 1% of the total.

Among specific findings in the Brookings study:

• Between 2007 and 2010, the years of the Great Recession and its aftermath, 97 of the nation’s 100 largest metro areas lost employment within 35 miles of downtown. Metro Detroit lost 25% of its jobs during that period because of the recession.
• Jobs sprawl continues nationwide. Of the top 100 metro areas, 91 ended the decade with a lower share of jobs within three miles of downtown than in 2000.
• In general, the more jobs a metro area has, the more decentralized those jobs tend to be.
• Beyond employment size, political fragmentation — the number of jurisdictions within a region — plays a big role in where jobs are found. Jobs tend to locate farther from the city center in places like metro Detroit that have more political units, possibly because employers are taking advantage of competition among communities for lower tax rates.
• Cities that adopted urban growth boundaries to hem in suburban sprawl, like Honolulu and Salt Lake City, tend to see jobs more concentrated near the urban core.

State warns workers of potential layoffs as massive federal cuts trickle down

Story originally appeared on Freep.

LANSING -- Much has been reported about federal employees, including up to 8,000 defense industry workers, whose jobs are likely to be affected -- perhaps even lost -- because of the federal sequester.

But the impact of the deep, across-the-board spending cuts mandated by the sequester is beginning to trickle down to state employees, too.

To prepare for the inevitable cuts in federal money coming in to Michigan, estimated to be up to $150 million, state officials are developing plans on how to cut their budgets, including potential layoffs of state employees.

The Office of the State Employer sent notices earlier this month to all department and agency directors, and the unions representing state employees, letting them know that layoffs may be a consequence of the $85-billion in federal budget cuts.

"Plans are being developed to quickly bring spending in line with anticipated revenues ... which may include indefinite layoff of employees due to lack of funds, reduction in spending authorization," the letter to unions said. "These plans may also include temporary layoffs due to unanticipated loss of funding."

The layoffs, if they happen, would begin sometime after April 8, the letter said.

The state is required to send such notices to union leadership 30 days before any layoff occurs. No layoff letters will be sent to individual employees until the departments develop their plans by the end of this month, said Lauren Leeds of the state Department of Technology, Management and Budget.

Employees are required to get at least 14 days' notice of an impending layoff.

"As required by the contracts with the unions, we had to notify them that layoffs may occur, but it may not necessarily happen," Leeds said. "It's all still up in the air. Information is coming in very slowly from the federal government."

Some departments could be hit harder than others. Federal dollars represent 65% of the Department of Community Health's budget. The Department of Transportation gets about $1 billion a year from Washington. And a big chunk of the Department of Human Services' budget comes from the federal coffers.

"But we don't know yet which, if any, employees will get layoff notices," said Kurt Weiss, spokesman for Gov. Rick Snyder.

Phil Patrick, executive vice president for Service Employees International Union Local 517M, which represents about 4,000 state employees, said the letter is a bit unsettling. But he also said he realizes it was an obligation of the state to provide notice to the unions.

"Obviously, they have to look at all their operating costs," he said. "But we hope it won't affect many employees."