Posted by Cheryl Costa September 22, 2008 08:49 AM

These days, if you miss even one payment on your credit card, you could be receiving a call from your bank instead of a letter. That is because more and more people are now defaulting on their credit card debt. A recent article in the Wall Street Journal stated that 4.5 percent of bank credit card accounts are now delinquent.

Banks are so anxious to see balances paid down that some are offering payment incentives. Citibank has been contacting some of its credit card holders and offering to match a percentage of the payments made over the minimum amount due if the cardholder agrees to pay off a percentage of their balances quickly. There is a cap on the match ($550) and the cardholder usually has to agree to at least temporarily stop using their card.

Another bank has realized that cardholders are using caller ID and answering machines to avoid collection calls so they are mailing phone and gift cards to late payers to get them to call back. The trick is that the gift cards are not activated until the account holder contacts the lender.

The point is that if you are struggling with credit card debt, you should contact the bank as soon as you can. Companies are definitely trying harder to work deals that will work for you. Some will offer temporarily lower payments until you catch up on your debt. At the end of the day, the credit card companies want the debt paid off just as quickly as you do.

Boston Globe

Have your ducks in a row before you apply for a home loan

FINANCING BY ELLEN JAMES MARTIN
September 19, 2008

By now, many economists had projected that the “credit crunch” would have eased. But prospective home buyers—including those with stable jobs and decent credit—still confront unusually high hurdles to gain approval on their home-loan applications.

“People in the mortgage industry are extremely hungry for business. But they’re also extremely picky who they lend to. The last thing they want are more foreclosures coming back to haunt them,” says Blaine Rickford, president of an independent mortgage firm.

Mortgage officers—those who take loan applications and deal with the public—prepare files on would-be borrowers. Yet no file is ever approved by a bank unless its underwriters give the green light.

“You never get to meet the underwriters—these loan supervisors are off-limits to borrowers. But mortgage officers talk to them directly and can plead your case if they think you’re a good bet,” says Rickford, who’s worked in the mortgage field since 1978.

Develop a positive rapport with you’re mortgage lender and you’re more likely to reach your home-buying goal, says Leo Berard, charter president of the National Association of Exclusive Buyer Agents (naeba.org).

“You don’t want to torpedo your chances of owning a home because of some financing glitch. Those who win in the mortgage process take a businesslike approach,” Berard says.

Here are pointers for home-loan applicants at a time of tight credit:

Educate yourself on the basics of mortgages before you apply. Many buyers, and particularly novices, are in the dark about mortgages and how lending works. Because they feel ignorant on the topic, they hesitate to pose important questions.

But as Berard says, the basic concepts of mortgage lending aren’t so complex that you can’t grasp them in a short period of time. Start with the Internet, taking a look at the “mortgage” entry in Wikipedia (wikipedia.org), the free online encyclopedia, and its related links. You can also go to the U.S. Department of Housing and Urban Development’s Web site at hud.gov.

Also, Berard encourages you to stop by your local library to check out a book or two on the topic, such as “Mortgages for Dummies,” co-authored by Ray Brown and Eric Tyson.

Knowing a bit about mortgages before you apply will help you be more adept at choosing the best possible home-loan product for your situation. You’ll also be less vulnerable to unscrupulous lenders, Berard says.

Arrange a face-to-face meeting with your mortgage lender. Many mortgage officers are happy to entertain applications from would-be borrowers they’ve never met. Technically, there’s no reason you can’t apply for a home loan over the phone.

“But for important business transactions, it’s always to your advantage to meet one-on-one,” says Berard, a veteran real estate broker.

A face-to-face meeting is especially important for those expecting to confront unusual barriers to loan approval, Rickford says. These include people who are self-employed, have credit scores below 720, or have limited assets—such as savings—on which to fall back if they can’t meet their mortgage payments.

“An in-person interview adds to your credibility as a borrower. You’ll be more believable when you attempt to explain your financial issues,” Rickford says.

Also remember to dress the part when you go to the lender’s office. You needn’t wear a business suit but you should look neat.

Have your documents ready when you reach the lender’s office. Mortgage officers are working harder than ever to assemble files that meet the exacting requirements of their underwriters. They’re very appreciative of borrowers who make their jobs easier by showing up well-prepared.

Rickford says ideal loan applicants arrive at their initial appointment with extra copies of the essential documents their lender will need. These include the most recent month’s worth of pay stubs and W-2s for the last two calendar years. You’re also likely to be asked for two years’ worth of tax returns, along with statements showing the present value of your holdings—such as savings accounts, stocks, bonds and retirement funds.

Mortgage officers are also impressed by loan applicants who’ve scrutinized their credit reports in advance of a meeting. Under federal law, you’re entitled each year to one free credit report from each of the three large credit bureaus: Equifax, Experian and TransUnion. Just go to this Web site: annualcreditreport.com.

You’ll also want to access your credit scores. Such scores, which draw on data from the credit bureaus, provide lenders with a quantitative measure of a person’s credit risk. Most lenders use FICO scores, pioneered by the Fair Isaac Corp.

Stay in close touch with your lender until your mortgage is approved. Given the recent turmoil in the mortgage industry, buyers are less likely than before to get early approval for financing on a home they’ve picked out. More questions will probably arise as you go through the application process, and some will require a written response from you.

For instance, suppose your credit reports show that you were late in making a payment on a car loan or credit card. The processing of your mortgage could be held up until you draft a justification for such credit blemishes, such as a temporary lapse in employment when you were between jobs.

Lenders appreciate loan applicants who stay in close touch and are proactive about resolving issues that surface along the way, Berard says.

“Call your lender once or twice a week. Ask politely if you can do anything to help get your mortgage through. Like anyone in a service field, lenders much prefer dealing with folks who are cooperative,” he says.

Universal Press Syndicate
Source: Chicago Tribune

By Arlinda Smith Broady | MORRIS NEWS SERVICE
Friday, September 19, 2008
Story last updated at 9/19/2008 – 2:17 am

We’ve all seen the commercials. A guy mugging for the camera strums a guitar and sings about how he can’t get a good job or a loan for a car or a house because he’s a victim of identity theft. Or the one where the president of a fraud detection company gives out his Social Security number to prove that his company will keep your personal information safe.

These companies might deliver what they promise, but you can do much of what they do for yourself. And it won’t cost a dime.

As a matter of fact, the Federal Trade Commission dedicates a significant portion of its Web site to how you can deter, detect and defend yourself from identity theft.

I’ve condensed some of the information. But if you want to read it all, go to www.ftc.gov/bcp/edu/microsites/idtheft/.

Deter

While nothing can guarantee that you won’t become a victim of identity theft, you can minimize your risk and minimize the damage if a problem develops by making it more difficult for identity thieves to access your personal information.

• Don’t carry your Social Security card in your wallet or write your Social Security number on a check. Give it out only when absolutely necessary.

• Always shred your charge receipts, copies of credit applications, insurance forms, physician statements, checks and bank statements, expired charge cards that you’re discarding and credit offers you get in the mail. To opt out of receiving prescreened offers, call 1-888-5-OPT-OUT (1-888-567-8688).

• When choosing a password, avoid using easily available information such as your birth date, a series of consecutive numbers or a single word that would appear in a dictionary. Combine letters, numbers and special characters.

• Don’t give out personal information on the phone, through the mail or on the Internet unless you’ve initiated the contact and are sure you know who you’re dealing with.

• Protect your purse and wallet at all times. Carry only the identification information and the credit and debit cards that you’ll actually need when you go out.

• Keep your personal information in a secure place at home, especially if you have roommates, employ outside help or are having work done in your house.

Detect

Stay alert for the signs of identity theft, such as:

• Accounts you didn’t open and debts on your accounts that you can’t explain.

• Fraudulent or inaccurate information on your credit reports.

• Failing to receive bills or other mail.

• Receiving credit cards that you didn’t apply for.

• Being denied credit or being offered less favorable credit terms for no apparent reason.

• Getting calls or letters from debt collectors or businesses about merchandise or services you didn’t buy.

Many people don’t know that their identity has been stolen until they’re contacted by bill collection agencies for overdue debts they never incurred or until they’re denied credit.

Keep an eye out for any suspicious activity by routinely monitoring your financial statements and your credit reports.

To order your free annual report from one or all of the national consumer reporting companies, go to www.annual creditreport.com, call toll-free 877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service; P.O. Box 105281; Atlanta, GA 30348-5281. You can print the form from ftc.gov/credit.

Lubbock Online

Delaware Online

By ERIC RUTH • The News Journal • September 15, 2008

Once upon a time, in that bygone era when housing prices always rose and equity never vanished, the gentle gyrations of mortgage rates seemed like a soothing dance to watch.

Today that dance has turned into a more dangerous — and unpredictable — game, with high stakes for people staring at the prospect of a reset on an adjustable-rate loan.

Experts say financial turmoil and the sputtering economy have created a new kind of market dynamic for mortgage rates, keeping potential home buyers off balance, making investors more cautious, and possibly hindering a swift turnaround in the real estate marketplace.

The most recent shock to the byzantine and hypersensitive world of mortgage markets — the federal takeover of Fannie Mae and Freddie Mac — sent rates suddenly and substantially down last week. It was just the latest turn in a roller-coaster ride brokers have been enduring for the past year and a half.

Where those rates will head next depends not only on what is to come — a future that still could have much more turmoil in store — but also on all that has happened in these past two chaotic years.

Financial firms worldwide have reported $510 billion in credit-market losses and writedowns since the collapse of the subprime-mortgage market in the U.S. roiled credit markets last year. More of that damage may yet lie undiscovered in the ledgers of banks and securities firms.

“It just came to a head like everything was in perfect alignment, all the pieces were there and it created this shock wave that lasted two years,” said Joe Capaldi Jr., a mortgage broker and owner of Mortgage Plus Corp. in Middletown.

In Delaware, some in the real estate field believe the bottom seems near for plunging prices and slumping sales. It might not take much of a nudge to get things rolling again. Sometimes, it’s just a matter of rates hitting a “magic number” that buyers have waited for.

“We call it the ‘wait rate’” said Mario Glover Jr., director of sales and marketing and Christiana branch manager for Synergy Direct Mortgage. “They were waiting on the rate.”

Most real estate experts think dropping rates — now below 6 percent — may well get buyers off the fence and start to eat into a big backlog of unsold houses.

But it’s a hope that comes with caution, because now more than ever, mortgage rates move at the whim of many forces, all of them trying to tread carefully through a time of higher jobless rates, ongoing foreclosures and sagging confidence.

Once predictably linked to U.S. Treasury notes, mortgage rates have become decoupled by the subprime debacle, and are feeling the influence of everything from gas prices to the presidential election. The old “boilerplate” formula for staying ahead of mortgage rates hasn’t worked, insiders say.

“We’ve had such a dynamic thrust of crests and valleys this year alone,” Glover said.

On one single day in February, he said, the office experienced what he dubbed a “four-hour refi boom,” where quick-acting homeowners could refinance a 30-year fixed mortgage at just 4.8 percent.

“That was something we didn’t predict happening. But it didn’t stay,” Glover said. “Has it been more difficult to guess the rate? Absolutely.”

“There are no indicators anymore, where before you could kind of set your watch by,” Capaldi said. “Now, you might as well flip a coin.”

There was a time when interest-rate cuts by the Federal Reserve would inevitably be echoed in the mortgage market, but repeated rate cuts over recent months have failed to spur that movement. Still, it could be possible that rates would be even higher now if the Fed hadn’t acted, said mortgage banker Rob Grant, senior vice president at Gateway Funding in Centreville.

It’s also clear that rates would be even lower if the market hadn’t taken the subprime hit, he said.

“We should probably be, in a normal world, 5 1/4, 5 1/2,” he said.

For buyers, of course, lower is always better, but for the market-makers, it’s far more complex.

The driving engine of mortgage rates remains capital.

Without cash-holding investors who see a safe bet in buying well-vetted mortgages, the mortgage markets have no new money to lend. Fannie and Freddie provide a huge piece of that “secondary” market.

Without a lot of money to lend, banks are looking far more closely at potential borrowers’ financial health, making mortgages tougher to come by.

That’s why the Fannie/Freddie buyout did so much to help rates last week. With the security of government support again behind them, Fannie and Freddie’s mortgage-backed securities look far more attractive to investors. And that pours more money into the system for new lending.

Luckily for home buyers, mortgage securities that are considered “safe bets” end up lowering interest rates — less risk justifies less return for investors.

If demand for those mortgage-rate securities continues to increase, rates should continue to fall. Insiders are already predicting more cuts, possibly up to a full point.

“The faster and more energetically [Fannie and Freddie] are in the game, the faster the anticipated bottom of the housing market can be reached,” said Jerry Howard, chief executive of the National Association of Home Builders. “The more they squeeze, the more pain is felt through the entire industry.”

That “squeeze” consists of tighter lending requirements the two giants put in place earlier this year, trying to repair some of the damage done by the defaults and foreclosures that followed the subprime collapse.

In the heyday of subprime, “there was the anecdote, ‘If you have a pulse, you could get a mortgage,’ ” said Bob Weir, executive vice president of the New Castle County Board of Realtors. “Yes, it’s gotten tighter, absolutely. Subprime mortgages are no more. They’ve gone away.”

Fannie and Freddie, for example, have hiked fees for borrowers without sterling credit, while asking for bigger down payments. Home purchasers must put down at least 15 percent of the purchase price, up from 10 percent. And if the owner of a rental home wants to refinance it and cash out some equity, the mortgage can now be for no more than 75 percent of the home’s value, instead of 90 percent during the housing boom.

“No lender wants to make a 90 percent loan today, because we haven’t hit the bottom yet on prices. If they keep going down, it could be a 100 percent loan next month,” said Jeff Lazerson, president of Mortgage Grader, a Web-based loan shopping service.

The money is still out there, lenders say, but credit scores have regained critical importance.

“Back in the day — and by ‘back in the day,’ I mean a year and a half ago — you could get a premium interest rate with a 630 FICA score just like a guy with a 720 FICA score,” Glover said. Now, only the 720 customer has a chance.

“What was good credit a year ago is just decent credit today,” he said.

Tighter lending standards are wise, but can hamstring a market that’s trying to regain its footing, experts said.

“Their underwriting is so tight now, it’s going to stifle any demand that would normally be in the marketplace,” said Guy Cecala, publisher of Bethesda, Md.-based trade publication Inside Mortgage Finance.

On the other hand, at least in Delaware, there is obviously still pent-up demand in the markets, insiders say. Last weekend’s cut in rates brought a resurgence of sorts for Realtors and mortgage lenders, as fence-sitting buyers decided to take the leap.

“I think we’ve seen the worst of it, in my opinion,” Capaldi said. “It’s not going to be the absolute free-for-all that it was a couple of years ago, but people are going to be in a better position.”

Even as some areas of the country watch as millions of dollars in housing equity vanishes, Delaware has emerged bruised, but closer to feeling strong again, those in the business say.

On the down side, foreclosures and delinquencies in Delaware are growing — the state saw its percentage of loans 30 days past due hit 4 percent in August, nearly a full point above the United States average and the ninth-highest rate in the country.

Data from the Mortgage Bankers Association showed that 6.2 percent of Delaware’s 174,486 mortgages are past due to some extent, putting the state in the top 20 for delinquencies.

Sales volume also remains off the peak. New Castle County is on track to sell more than 5,000 homes this year, compared with 6,900 last year, Weir said.

But compared with some regions, home prices are holding on. The average New Castle County sale last year was $264,700 — so far this year, it’s $264,530.

“So we’re basically flat in our sales prices,” Weir said.

Prospects may be brightening, but any optimism is muted by the experiences of the last 18 months.

“I’ve spent a lot of time reading, watching CNBC, talking to everybody in the industry,” Grant said. “Everybody’s cautiously optimistic that this is a good thing, but there’s still a lot of uncertainty.”

And insiders realize that no matter how far mortgage rates fall, there will always be people waiting for them to fall just a hair more.

“Some people like to gamble,” Glover said. “There’s Vegas for a reason.”

This story contains information from the Los Angeles Times and Bloomberg News. Contact Eric Ruth at 324-2428 or eruth@delawareonline.com.

Cleveland.com

9/13/2008, 6:27 p.m. EDT
The Associated Press

COLUMBUS, Ohio (AP) — Supporters of a recently signed law that would restrict payday lenders will get another chance to boot from the November ballot an initiative that would overturn part of the law, Ohio’s elections chief said.

Secretary of State Jennifer Brunner said Friday that she’ll appoint a hearing officer to decide later this month whether consultants hired to collect signatures to place the measure on the ballot properly filed the petitions.

Gov. Ted Strickland in June signed a law that would restrict the annual percentage rate that lenders can charge to 28 percent, and limit the number of loans customers can take to four per year. It is one of the strictest payday lending laws in the nation.

Complete story…

Ann Arbor Business Review

by Janet Miller | for Ann Arbor Business Review
Thursday September 11, 2008, 4:50 AM

As leasing becomes more expensive and dealers shift attention to sales, buyers are taking on longer loan terms to get the car they want at the price they can afford.

“It used to be 48- or 60-month loans,” said Angela Butler, lease renewal coordinator with Naylor Chrysler Jeep in Ann Arbor. “Now there’s a lot for 72-month loans.”

With manufacturer incentives such as low interest rates, rebates and longer financing terms, drivers can continue to buy what they want.

“We can get a 60-month loans within a few dollars of a 36-month lease,” said Russ Baltazar, general manager of Jim Bradley Pontiac Buick GMC in Ann Arbor. Interest rates run between 2.9 and 6.9 percent, he said.

Officials at University of Michigan Credit Union have also seen the length of auto loans grow, but it’s been more of a gradual change over the past few years rather than a sudden lurch, said Jeff Schillag, vice president of marketing at the credit union. “We used to get a lot of 36- and 48-month requests. Now, 60- and 72-month loans are standard,” he said.

Dealerships are seeing strong interest in long-term loans. “A lot of people I never expected are going with 72-month loans,” Butler, of Naylor, said. “They see people losing their jobs, they see the rough economy, and they are now looking at their car as an investment. They want to pay for their car and keep driving it until the wheels fall off.”

However, George Davis, general manager of Howard Cooper Imports, said his dealership isn’t pushing longer auto loans. “This is just as bad as what was going on in the housing market two years ago,” Davis said. “People got buried by their home mortgages. Now they’ll get buried by a car loan that can go for 84 months.”

That’s too long, Davis said. “The car will spend half its life out of warranty, with high miles and worth less than what is owed. They’ll be making two payments: The car loan and repair bills. It’s a bad direction for domestic auto companies to go.”

Rather, he said, car buyers should look at what they can afford with a shorter-term loan. “We try and keeps things under 48 months. We have some 60-month loans, but they are rare.”

Some buyers are shying away from any long-term commitment to a car. “The number one thing buyers are telling us is that they are completely turned off by 72- or even 96-month financing terms,” said John Sternal, spokesman for Leasetrader.com, which arranges secondary auto lease trades.

“They see it as another mortgage, putting them in a long-term negative equity position. My grandfather drove his car for 25 years. But most people today want a new car three years down the road.”

Janet Miller is a freelance writer.

Fox Business

By Alexis Glick

In the blog entitled “Bailout and the Taxpayer: Where do you Stand?” I asked you to tell me whether the Treasury made the right decision on FNM and FRE or whether there was any other option. Sheldon and Andy, I give you both tremendous props for what you said in the comment section of that blog. Sheldon, you hit the nail on the head. How is it that the percentage of foreclosures in this country is so low and yet it is causing one of the largest meltdowns in U.S. history? A lot of people complain that the press overdoes it and that we choose stories that prey upon others’ weakness. In this case, it is our fiduciary responsibility to ask difficult questions and demand answers. And the reality is no one has the answers. That right there is the problem.

Sheldon, I am no economist but I worked on Wall Street for almost a decade and I see fear. One managing director who I worked with said we are not working for this year; we are working today for next year and the year after. These executives know they will not get paid and that the only way to survive is to plan for the future. The problem is they don’t know what the future will look like in three months, six months or two years. The reason the financials are melting down in my opinion is because too many executives and board members were asleep at the switch. We allowed our capitalist society and our pursuit of the American Dream to overshadow due diligence. Wall Street let kids create debt instruments that even the management teams didn’t understand. For years, it worked. When it began to unwind, they assumed there would still be a market for these instruments. When even the buyers of distressed debt didn’t care or have the ability to raise the funds to buy those securities, all hell broke loose.

Here is the problem. No one knows how much bigger the losses will get, including the Federal Reserve Bank and the Treasury. Everyone blames the housing market for this mess. I hear them, but I don’t fully buy into the housing market theory. The homeownership rate in this country rose from 63.7% in 1990 to a high of 69.2% in 2004 before pulling back. Did a bubble occur in real estate? Sure. Did companies like Fannie Mae and Freddie Mac and commercial banks and broker dealers make money off that rise and create exotic instruments based on those loans? Yes. But, let’s not forget what fueled this: credit. Credit became too cheap and much too readily available. We can argue whether that was Greenspan’s fault or whether our penchant for more, more, more made us desire the unthinkable. The issue now is that everyone including insurers, health care companies, industrials, you name it, thought that if they invested their excess cash in these sexy instruments that they, too, would make money hand over fist. How many investment portfolios at Fortune 500 companies bought into this junk? How many knew what they were buying? How many listened to those advisers? What were the companies who worked in completely different industries doing investing in sub-prime mortgage backed securities? Were rates so cheap that investors were incentivized to borrow money and invest it in the market?

At 4:30pm today, the central bank will release the weekly report on direct loans given to commercial banks through the discount window. Last week, the number reported was the fifth highest in the past seven weeks. As you’ll recall the Federal Reserve Bank opened that window to broker dealers through term auction facilities in the wake of Bear Stearns and recently extended the expiration date on those funds into January. To date, $510 billion dollars have been written down and $360 billion dollars has been raised. I don’t know about you, but I think the loss of confidence in the markets is based on one thing and one thing only — the well is drying up. Almost every analyst who covers Lehman admits that they have a solid business, excellent employees and some strong assets. But, as I said to Dick Bove yesterday, why isn’t anyone showing up to buy them at this price? What does that tell you? It’s not just about the unknown risk of what is under the hood of the car, it’s more than that. Banks, investment banks, private equity, venture capitalists, insurers, and billionaire investors like Warren Buffet don’t know how bad this will get and how much longer this will take.

Senator Jim Bunning on Neil Cavuto’s show the other night did what I think a lot of other senators would like to do — he took Bernanke and Paulson to task. Called for their resignations. One can argue whether or not they have done a good job and whether their earlier claims about liquidity and duration of this crisis were calculated or misdirected but the reason why more Senators are not saying what Senator Jim Bunning is saying is because they fear that there is no one else who can fix this problem. That the problem is so severe that even the brightest minds don’t have the best solutions. We will look back on this period and ask a lot of questions will be asked and fingers will be pointed. We will rise again as we always do but no one could have predicted that the 5th largest investment bank would crumble and that the 4th largest investment bank and the largest savings and loan company, which happens to be the 6th largest bank, would be on the brink of failure. Everyone says this is not as bad as the 80s when 3,000 banks failed and yet only 11 have failed this year, but how big were they? How much of an impact did those banks have? How much more leveraged are we this time around? How big did we allow these commercial and investment banks to get because of the repeal of Glass Steagall? The repeal in 1999 allowed commercial banks to own other financial companies like insurers and investment banks. It changed the face of banking but did the original establishment of this act by the FDIC and pursuant change to it in 1999; overlook the regulatory implications of owning these financial institutions that had never been regulated as effectively as commercial banks? This is a question we need to ask ourselves.

Inside HigherEd

Opinions on the impact of New York Attorney General Andrew Cuomo’s investigation into the student loan industry (which reared its head again Tuesday — see related article) vary widely. Supporters champion it as having shined a light on sleazy practices in which some lenders and colleges engaged, and as ultimately helping students. Critics say it destroyed the careers of several financial aid officers and besmirched thousands of financial aid officers and lenders without ever proving that any individual student paid a penny more than he or she should have.

But what Cuomo’s investigation undeniably did was put significant pressure on the federal government to step up its regulation of the student loan industry. That was particularly true of the private or “alternative” loan market that had expanded widely — virtually unfettered by federal oversight — during the early part of this decade. While Democrats pummeled the Bush administration for its perceived lack of interest in regulating lenders who have long contributed heavily to Republican politicians, Education Secretary Margaret Spellings argued that federal officials, and especially her agency, had far less authority to rein in potential abuses in the private student loan market than they did in the federal loan programs.

The effort to change that equation — a major section of the Higher Education Opportunity Act that Congress passed in July and President Bush signed last month — is widely seen as giving federal regulators additional tools and consumers much more information with which to try to tame what Cuomo and members of Congress had dubbed the “Wild West” of the student loan market.

The new law restricts the relationships between college officials and lenders in an effort to avoid potential conflicts of interest; restricts certain kinds of marketing seen as misleading; and requires loan providers to give prospective borrowers significantly more information about their loans and about students’ alternatives to private loans, among other things.

But Congress stopped short of embracing two major changes that advocates for students and many financial aid officers argued would truly protect students from being hamstrung by unnecessary private loan debt: (1) requiring college officials to “certify” that a student needs the money he or she is preparing to borrow from a private loan provider and (2) allowing borrowers to discharge private loan debt in bankruptcy. The first provision was strongly opposed by some lenders who provide loans directly to consumers, and the latter ran into significant opposition from senators who had little interest in reopening wholesale changes made to federal bankruptcy laws in 2005.

While the National Association of Student Financial Aid Administrators and its president, Philip R. Day Jr., favored the certification and bankruptcy changes that Congress shunned, “on the whole, the bill is a win for borrowers,” said Justin Draeger, a spokesman for the group.

Change in the Weather

The fact that there is reasonably widespread agreement on many of the new law’s loan provisions reflects just how much the revelations from Cuomo’s investigation (and its companion inquiries in Congress) changed the political equation on student loans. Some of the changes embraced in the legislation had been discussed and discarded in previous years, typically amid opposition from, or at least a lack of agreement among, lenders and many financial aid officials.

Even as many loan industry representatives have continued to assert that the Cuomo investigation greatly exaggerated the extent and degree of unethical and even questionable behavior by lenders, most came to see the inevitability, if not always the wisdom, of the changes.

Among the most significant changes made by the legislation are the following:
Prohibiting private lenders (as well as providers of federal loans) from offering gifts or other items of value to colleges or financial aid officers in exchange for advantages related to the lenders’ loan activities.
Prohibiting lenders from engaging in “co-branded” marketing with colleges, where a lender or marketer uses an institution’s name, logo or other mark to create the impression that the college has endorsed the lender.
Requiring private loan providers to inform borrowers that federal aid and loans are available, and to tell them about the (typically lower) interest rates available on federal loans.
Requiring private loan providers to provide information about the rates and other terms of their loans at several points during the lending process, helping borrowers better shop for the best deals.
Requiring lenders to sustain the terms of a loan for up to 30 days after they approve the loan, and giving borrowers three days to change their minds after signing up for a private loan.

“We’re happy about the disclosures to students that have to be made,” said Draeger of the financial aid officers’ group. “A lot of private student lenders were doing this already, but this puts everybody on the same page. And the opportunity for borrowers to opt out of the loans is also a good thing. All of those things offer more protections for borrowers, and anything that does that is good, from our members’ perspective.”

Most lenders agree. “All of this information will help parents and students make a more informed decision,” said Raza Khan, president and co-founder of MyRichUncle, a lender whose complaints about financial aid offices steering potential borrowers toward certain lenders (and hence away from his company) helped spur Cuomo’s investigation. “This bill was crafted to make sure customers are informed and able to secure loans in a fair and balanced way.”

MyRichUncle was among numerous lenders that opposed one other step that many financial aid officers and student advocates thought would go even further to protect prospective borrowers from unnecessary private loan debt. The proposal, which was offered by NASFAA and was favored by many lawmakers in the House of Representatives, would have required lenders to obtain “certification” from a borrower’s college about the student’s “cost of attendance” and the difference between that cost and the amount of federal financial aid for which he or she qualified. It also would have required the lender to let a college know how much it planned to lend to a borrower.

The proposal had widespread support from those who concerned about the growing private loan borrowing that students are engaging in. Advocates for the NASFAA plan sought to insert financial aid officers into the process in which many private loans are marketed directly to potential borrowers, who sometimes agree to take out private loans when they might qualify for lower-cost federal loans or even, in some cases, take on more debt than they need to.

“Some of the best prevention against unnecessary borrowing has come out of the advice that financial aid directors give to students,” said Luke Swarthout, whose last day as a higher education advocate for the U.S. Public Interest Research Group was Friday.

Robert Shireman, president of the Institute for College Access and Success, said his group supported the certification idea as a way to to help financial aid directors keep students out of financial difficulty. “Financial aid officers will sometimes discover three years later than a student they thought was doing fine had a direct to consumer loan and is having trouble paying it back,” Shireman said. “The FAO never had a chance to help that student make ends meet.”

Shireman, whose group was among those that pushed the idea, said supporters considered the proposal a “mild” one and had contemplated proposing legislation that would have required all students to go through financial counseling before taking out a private loan, as Barnard College has begun doing to try to limit private loan borrowing. But “that seemed like too much to ask for at this stage.”

Some lenders supported the certification proposal. “We thought that it was more responsible to have schools involved, and that it would prevent overborrowing,” said Tom Joyce, senior vice president at Sallie Mae, which provides private loans as well as being the biggest originator of federal loans. “Schools can help more than anyone in assuring that students are maxing out on federal loans before they turn to private loans.”

Political considerations clearly played a role in killing the certification proposal. The leaders of the Senate Banking Committee, Sen. Chris Dodd (D-Conn.) and Sen. Richard Shelby (R-Ala.), had painstakingly negotiated an agreement on a specific set of ideas for regulating private loans and could not be pushed further by House lawmakers who supported certification.

And the idea ran into strong opposition from a group of lenders who market their loans directly to student borrowers. MyRichUncle led the way. It made its reputation (infamously, in the eyes of many financial aid directors) by arguing that financial aid officers, rather than honest brokers working on students’ behalf, too often directed them to lenders with which they supported (or with which they were cozy, depending on one’s view).

So where supporters of certification saw colleges ensuring that students don’t borrow too much, Khan of MyRichUncle said, the danger is that institutions would end up “steering or attempting to limit consumer choice…. We still see examples of specific lenders who are packaged into financial aid letters from schools,” Khan said, and mandating their participation in the private loan process could make it easier for institutions to nudge students toward private loan providers that they favor.

In lieu of the proposal requiring college financial aid offices to certify private loans, the compromise Higher Education Act legislation signed into law by President Bush last month instead requires students themselves to obtain much of the same information (about their cost of attendance, the amount of federal aid they qualify for, etc.) that the NASFAA proposal would have mandated. Supporters of this approach said it would serve much the same purpose as requiring the college itself to certify the loan, since students presumably would have to turn to college officials to obtain much of the information needed to fill out the form.

But the fact that officials at a college might never see the information the student provides to the lender, and is not in any way required to sign off on the form, significantly undermines the value of the information as a potential deterrent to students’ taking on excessive loan debt, said Swarthout, the former PIRG official. “It would be a fundamental mistake to consider this an alternative, a stopgap, or even a partial effort at certification,” he said. “It does not accomplish the proposed goal of certification.”

The other policy sought by some college officials and advocates for students to protect private loan borrowers was a reversal of the change made to federal bankruptcy laws in 2005 that excluded private student loans from the assets that an individual could discharge during bankruptcy. Supporters, like Sen. Richard J. Durbin and Rep. Danny Davis, both Illinois Democrats, said the change was necessary to help protect borrowers from the crush of excessive debt burdens.

Opponents argued that the proposal could wind up increasing what students pay for loans, because lenders would have to increase their fees to cover the loans they’d have to write off. But the idea ultimately failed, most agree, because members of Congress were loathe to consider making one narrow change in the 2005 bankruptcy law that might reopen the intense battles over many other aspects of the law.

“It seemed to be the larger politics around bankruptcy in general” that killed that provision, said Shireman. To get that back on the table, he said, “will take some time and probably some grander strategy.”

— Doug Lederman

Phoenix Business Journal

Phoenix Business Journal – by Chris Casacchia

An organization trying cap interest payments levied by payday loan providers in Arizona will debut an ad on YouTube Thursday, mocking the industry’s hidden fees.

Arizonans for Responsible Lending, No on 200, also will send the online spot to at least 26 groups, including Arizona Ecumenical Council, AARP Arizona and the Greater Phoenix Chamber of Commerce. The industry’s initiative is scheduled for the November ballot.

In the 1-minute 36-second ad, Lenny the Loanshark, sporting a slicked-back hairdo, black leather jacket, shades and a bad East Coast accent, tells viewers the industry is introducing reforms to “facilitate the liquidation of your assets more effectively” which would legalize 400 percent interest rates forever.

Arizonans for Responsible Lending, which changed its name from Stop Payday Predators, has raised more than $100,000 and will rely on social networking, viral marketing and individual supporters to spread its message.

That fundraising total is dwarfed by the $8.7 million fronted by the Community Financial Services Association to push Proposition 200. Backers say the measure would lower caps on fees; set up flexible, no-cost repayment plans for those who can’t meet their original obligations; validate established lenders; and eliminate some payday loan operations because of new financial requirements. It also would require payday lenders to have a net worth of $1 million, far more than the current standard of $50,000.

Opponents argue that if the Payday Loan Reform Act passes, it will legalize 400 percent interest rates in the state forever. They want the annual percentage rate for a 14-day loan locked in at 36 percent.

In Arizona, 757 licensed payday lending locations provide cash advances of $50 to $500. In exchange for a two-week loan, a customer writes a check for the amount plus a $15 fee for every $100 transaction.

Industry lobbyists argue that payday loan outfits provide a needed service for consumers and say it’s cheaper to borrow from a payday lender than bounce a check, reconnect a utility or overdraft credit lines.

Last month, Arizona for Responsible Lenders filed a lawsuit in Maricopa County Superior Court asking Secretary of State Jan Brewer to clarify what it called wordy language in multi-pronged proposition. The group said voters may unknowingly vote for 400 percent interest rates.

Brewer had declined to change the language and Superior Court Judge Sam Myers on Aug. 27 said she was not required to do so.

If the measure fails, payday lenders will be regulated by the Consumer Loan Act and its 36 percent cap after July 1, 2010. That is the expiration date of a 10-year exemption signed by Gov. Jane Hull in 2000. Gov. Janet Napolitano has said she will not sign any future bill to extend the payday lenders’ exemption.

Last month, U.S. Senate Majority Whip Dick Durbin, D-Ill., introduced a 36 percent cap to extend protections Congress passed for U.S. military families to all consumers. Numerous states have referendums pending regarding the payday loan industry and its business practices.

Boston Herald

By Jerry Kronenberg
Wednesday, September 10, 2008

The Massachusetts mortgage crisis is going “prime time.”

Late-payment problems are moving beyond people with high-cost subprime loans to hit record numbers of homeowners with “prime” mortgages, too.

“We’re running into more and more people who don’t have subprime loans but who are falling behind anyway,” Len Raymond of Homeowner Options for Massachusetts Elders, a foreclosure-prevention group where prime borrowers make up about a third of clients.

Subprime mortgages, or loans given to people with bad credit, have created big headaches for consumers by charging double-digit interest rates.

But prime mortgages – lower-cost loans for those with good credit – are causing growing problems as well.

A record 3.73 percent of Massachusetts borrowers – or one in 27 – were at least 30 days behind on prime loans during the second quarter, the Mortgage Bankers Association says.

Worse, 7.19 percent – or one borrower in 14 – were delinquent on prime adjustable-rate mortgages, or ARMs.

Popular during the housing boom, ARMs typically offer low “teaser” rates at first, but interest levels can jump sharply later on.

The mortgage bankers group’s Jay Brinkmann blames many problems on “payment-option ARMs,” an especially risky type of loan.

Payment-option ARMs initially charge such low monthly payments that your mortgage balance often rises instead of falls.

That’s left many Massachusetts borrowers “underwater” – owing more on their loans than their homes are currently worth.

All it takes to send an under-water homeowner over the edge is a job loss or similar setback.

“Some of these loans were actually very good, A-1 prime mortgages when people took them out,” Raymond said. “But unfortunately, changing circumstances left many people falling behind.”
jkronenberg@bostonherald.com