Archive for the ‘Credit and Debt Advice’ Category

If Banks Can’t Do Subprime, They Won’t Lend At All

A full third of Americans cannot qualify for a mortgage these days, recent data from Zillow.com and MyFico reveals. Would-be homeowners with credit scores at 620 or below are not being approved for traditional 30 year mortgage, even when they come with a healthy down payment of 25% or more.

In the days of glory before the housing bubble burst, these folks would have been steered into dangerous subprime loans that we know today were doomed to fail. Despite the fact that in most cases, this same group of people would have done fine with a conventional loan,  the banks wanted to increase their profits to extreme proportions.

Today, with foreclosures at record numbers and some banks being left holding the bag, most banks do not want to risk lending to people with low credit scores, all other things being equal. This is particularly troubling since many Americans have seen their credit scores take a hit from the bad economy. The housing market is weak enough, and banks not lending is a major factor in the continuing sluggish growth of the economy.

Elizabeth Warren Appointed Interim Head Of CFPA and More!

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President Obama has finally done something that makes sense! He’s given Elizabeth Warren the job as interim head to establish the agency. He has also made her a special advisor answerable only to him to set this up properly. What this means is that ole Timmy Geithner, the bankers’ best buddy, won’t have too much say over the agency or Ms. Warren’s stewardship.

I’ve been hoping for this, as so many other Americans have across the United States. Ms. Warren is a tireless consumer advocate with a pragmatic no-nonsense approach to finance. The banks don’t like her because she wants to close the loopholes in the laws that allow them to take advantage of those least able to cope with financial difficulties.

To be sure, Ms. Warren does not advocate reckless spending and living above one’s means. All she wants to do is bring back the concept of fairness to consumer finance.  She also understands that what has happened to most Americans in the last thirty years is not that we’ve spent our way crazy, buying big screen TVs and McMansions. She understands that the average middle class family has slowly been leveraged out of the American dream by the fixed expenses, those expenses which cannot be budgeted away.

She wants to do away with credit card and mortgage contracts that are hundreds of pages long. She wants consumers to be educated about what they’re signing when they get a credit card or a home loan. She wants them to understand and truly be able to compare between financial products and make educated decisions for themselves. Right now, there is no way they can do that, because really, who is going to read through pages and pages of a credit card contract that even the credit card company representatives can’t understand let alone explain?

So, hurray to Elizabeth Warren!

Major Federal Court Ruling: Borrowers Are Third Party Beneficiaries Under HAMP

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As you know, one of the major hurdles for HAMP has been the lack of enforceability on the borrower’s side. I have said on this very blog many times that HAMP, well-intentioned as it may be, had no teeth.

Well, in a recent ruling, a Southern California Federal Court Judge, M. James Lorenz, may have just given HAMP some badly needed dentures.  The ruling was made on behalf of the plaintiff, Ademar Marques, who sued Wells Fargo for breach of contract under HAMP. There have been and are a number of lawsuits alleging the same thing and the big question has been, how will the courts rule. Now we have an answer from at least one Federal Court.

The judge ruled that borrowers are intended third party beneficiaries to the contract made between the servicers and the Federal government when the servicers agree to participate in HAMP.  What this means is that, according to this ruling, borrowers do have standing to sue for breach of contract under HAMP. 

While there is no guarantee that other judges will rule similarly, it does establish precedent in case law for other judges to follow. It certainly means that cases in California, one of the states hardest hit by the foreclosure crisis, that there is hope for homeowners struggling to get their loans modified.

American Credit Scores: Another Casualty of the Great Recession

A full quarter of American consumers, 25.5%, now have credit scores of 599 or below, according to a recent sampling by FICO Inc.  People with scores this low are unlikely to qualify for any sort of consumer lending. They will be unable to get a credit card, buy a car, or a home.

As unemployment and foreclosures continue to plague the economy, more and more people will lose ground on this important metric for consumer lending. FICO expects the percentage of people with low credit scores will continue to rise in the near term, since credit reporting often lags behind late payments and the economy has gotten no better.

On the flip side, the percentage of consumers with scores of 800 and above has also increased over historic levels to 17.9%.  This means that anyone who has managed to hold on to his job and is still doing relatively well is being very cautious and paying down what he owes.

The effects of plummeting credit scores will be felt for years since banks have tightened lending standards recently. Even people with scores in the medium range of 650 to 699 will find it harder to obtain financing at a decent interest rate. Those with scores below that will be unable to find financing at any rate, and it will take years for them to recover what they’ve lost.

Related articles:

How To Rebuild Your Credit Rating

See Your FICO Score

3 Debt Relief Options For Credit Card Debt

The following is a guest post written by financial consultant Neil Williams.

 

With the state of the economy, consumer credit card debt is mounting. Debt is spreading like an epidemic in the United States. More and more people are getting trapped in the vicious cycle of credit card debt. Only debtors know the problems of being overburdened with credit card debt. So, if you are a financially troubled debtor seeking for debt help, then have a look at the various debt relief options that can help you bring yourself out of the credit card debt hole.

Thousands of people seek some sort of debt relief every year. Most commonly, debtors seek debt consolidation or refinancing which provides them with the benefit of lower monthly payments and interest rates. But there are some more options that can bring you out of debt. Read on to know about them.

  1. Consumer credit counseling
    Those debtors, who cannot manage their debts on their own, can seek professional help. Consumer credit counseling will provide you with professional credit counseling. The credit counselor will guide you to manage your finances and implement a personal budget for you. This budget will help you manage your finances well. They will identify the problems which have led to such poor financial condition. After detecting the problems, the credit counselor will advise you how to manage your finances well so that you again get a grip on your finances.
  2. Credit card debt settlement
    Debt settlement is a debt relief option which should be considered by debtors only if their last option is to file bankruptcy. Debt settlement is a good option for debtors who have a large amount of debt and they can’t find any way out to pay off their huge debts. Once you sign up with a debt settlement company, your debt consultant will negotiate with your creditors and attempt to reduce your total outstanding debt amount considerably. Creditors often forgive 40-50% of the outstanding balance amount. You have to pay some debt settlement fees to reap the benefits of these services.
  3. Credit card debt consolidation program
    Credit card debt consolidation is another way of paying off your debts in affordable monthly payments. If you enroll yourself in a debt consolidation program, then your debt consultant will negotiate with your creditors in order to lower the interest rates on all your credit card debts. The creditors often agree to lower the interest rates as they see that the debtor is paying through a debt consolidation program. This reduces the monthly payments of the debtor. Instead of making multiple payments to multiple creditors every month, you just have to make a single monthly payment to the debt consolidation company.

It is very important for consumers to know the truth about credit card debt. They should know that there are various debt relief options that help consumers to pay off debt easily and timely.

Renting After Foreclosure

Losing your home to foreclosure is a terrible event. Not only is it stressful and demeaning, it ruins your credit score, which can make it harder for you to rent an apartment. Here are some tips to help you find a rental:

Stay away from big corporate owned apartment complexes as these have strict guidelines and will most definitely do a credit check.  Instead, focus on smaller apartment buildings or homes owned by  private landlords as they are less likely to run your credit. You can find these listings most often on Craigslist or your local newspaper. Stay away from rental guides, as most of the apartments advertised there will be run by huge corporate owned property management firms.

Network with friends and family to see if they know anyone who has an apartment or house to rent and is willing to forego a credit check or who will be willing to rent to you despite your damaged credit

Stay in your home as long as possible and save as much money as you can during that time.  While the foreclosure process, from the formal filing of the “Notice of default” to the foreclosure sale can take four months, the average foreclosure today is taking more than 15 months from the date of the first missed payment to the date of the auction.  Use this time to your advantage to save as much cash as you can.

Be prepared to pay up to three months rent in advance, plus the typical security deposit and first and last month’s rent. Have this in cash. Most landlords will be happy to rent to you if you have cash in hand.

If  there is no way you can avoid a credit check, have someone available with good credit to be your co-signer. Family should be first and then friends. 

Get references. Ask your employer and the manager of your local bank branch to write you a reference letter. Keep this in reserve if a prospective landlord asks for it.

Don’t lie, but don’t volunteer information, either. If you’re asked about something, be honest, but never offer up unasked for information. For example, don’t walk into the rental manager’s office and present him or her with your reference letter or offer up any long explanations. Doing so will only raise unnecessary alarm bells with the landlord.

While renting after foreclosure may be a little harder, it is not impossible. With the number of foreclosures going into the millions by the end of this year and continuing apace for the next number of years, foreclosure is no longer the black mark it used to be. Most landlords are understanding, and if you can demonstrate your ability to pay, having a foreclosure on your record will not prevent them from renting to you.

Credit Card Companies Milking Consumers: The Number One Reason Why We Need Elizabeth Warren as Director of The Consumer Financial Protection Bureau

An article today in the Washington Post discussed how credit card companies are now charging customers with good credit, who manage their finances wisely by paying off their balances in full every month. Such customers are now finding that they’re having to pay an annual fee, where they didn’t before.

The reason for this is that credit card penalty fee income has been reduced by the new credit card regulations and the banks, not wanting to see sources of profit dry up, no matter how ill-gained those profits were, are now having to charge the only customers they have left: those with good credit who have traditionally never been a great source of profit. As Curtis Arnold, owner of CardRatings.com says “The only true deadbeat customer is someone who has a card and never uses it. Just having good credit alone in today’s market is not enough for that customer to be profitable."

The article goes on to say that this problem illustrates the “challenges” facing the credit card industry, as if the only choice credit card companies have in order to make money is to find new ways to screw people. Really? Why is interest income not enough? Why do they need fee income? They don’t…they’re just greedy, having been accustomed to years of being largely unregulated and able to do whatever they wanted without consequence.

Because the credit card industry and Wall Street in general is so corrupt and so greedy, we need a strong watchdog to lead the newly created Consumer Financial Protection Bureau. Harvard Law Professor Elizabeth Warren is the best qualified person for that job, and if the Obama Administration allows Timothy Geithner and his cronies to place another industry sycophant in that position, then you can be sure that the agency will do nothing more than rubber stamp whatever fee scheme the credit card companies come up with next.

If you don’t want to be charged exorbitant fees, then I suggest you write to President Obama and to your senators and tell them you want Elizabeth Warren to head the CFPB.

Debt Collectors Using Facebook?

A recent story in the Arizona Daily Star revealed how one debt collection firm pressured a businessman into paying what he owed based on information gleaned from his Facebook page. The businessman had apparently claimed to be broke and filing for bankruptcy, yet he was stupid enough to post pictures of his new Corvette and pictures of a recent fishing trip to Florida. The debt collector was able to use this information to get the fellow to pay up.

The fellow in this story clearly had the funds to pay what he owed. However, he is not among the majority of people hounded by debt collectors day in and day out in this country. Especially with the economy being as bad as it is. The fact that debt collectors are now sniffing around the social media for information that they can use to put pressure on debtors is concerning.

For one, privacy is at issue. Clearly, the information that people put up on the social media is meant only for people who know them. The fact that debt collection companies have now joined in with prospective employers in sniffing around the Internet for information on people is more than a little creepy. Having said that, if you put your life-story on the Internet for anyone to read, how much privacy can you reasonably expect to have?

For another,  how credible is information that people reveal about themselves on the Internet? Anyone could post stock images of a nice car or home and say that they belong to them. It is called bragging and the relative anonymity of the online world allows for such liberties. Of course, using your real name online reduces this anonymity somewhat, but still, you can be a millionaire online even if your bank account is empty.

I suspect that if the debt collection industry makes searching the Internet for information they can use against debtors to pressure them to pay becomes more widespread, that more than a few court cases will come up about the issue. How the courts will decide is anyone’s guess.

For the time being, I strongly suggest that people who use social media like Facebook and Myspace to share details of their lives change their settings so that only people who know them can access their pages. You don’t need to share your information with the entire world…especially if you value your privacy.

Elizabeth Warren Predicted The Financial Collapse Back In 2004

 

Elizabeth Warren,  a Harvard Law Professor and the current chairwoman of the Congressional Oversight Committee in charge of overseeing usage of the TARP bailout funds, predicted the financial collapse long before anyone else was talking about it.

In this 2004 interview with Dean Lawrence R. Velvel where she discusses her book, The Two Income Trap,  she reveals the instability that pervades the lives of most middle class Americans and why so many end up in Bankruptcy court. She says that in order to keep up with the expenses, people with median incomes have been forced to borrow and borrow. Why? Because the median income in the United States is increasingly not enough to keep up with the cost of living. She talks about the fixed expenses that families have, such as the mortgage payment, health insurance, and educational expenses as having grown dramatically in the last generation. It is important to understand, here, that, these fixed expenses can’t be cut back.  That’s why they’re called “fixed expenses.”

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Financial Reform Passes: What Does It Mean For The Average Consumer?

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So the Senate voted today to pass financial reform, a bill aimed chiefly at reining in Wall Street from doing the kinds of things that lead to the financial collapse of 2008. There has been a lot of talk about derivatives  and credit default swaps, and while these are important parts of the reform bill, which ultimately affect each and every one of us, there are other aspects of this bill that will more directly affect average Americans.

The largest of these is the creation of a new consumer watchdog agency known as the Consumer Financial Protection Bureau. This agency will be located within the Federal Reserve but will be completely independent from it. It will have an independent director and will have the authority to make and enforce rules against unfair and deceptive consumer credit practices. This agency will regulate the practices any business that engages in consumer lending, from credit card companies and mortgage lenders to payday loan companies. The one group exempted from CFPB authority are auto dealers.

Basically, what the CFPB will do is make sure that when you sign a credit card agreement, you know exactly what you’re getting into. Even more importantly, it will ensure that if you borrow money, you can do it safely and with the knowledge that you can pay it back without going broke. Hopefully, the CFPB will put an end to the usurious practices of payday lenders, for example.

Finally, the reform bill contains new regulations with respect to mortgage lending.  Lenders will no longer be allowed to pay brokers additional fees for steering borrowers into riskier and more expensive loans if they qualify for cheaper safer ones. It also forces lenders to adopt stricter underwriting standards to ensure that no one receives a loan they can’t afford to repay and it reduces abusive repayment terms like huge prepayment penalties and other “junk” fees.

While the reform bill isn’t as strong as many would like, it does have some good aspects that will help consumers better manage their debt. I hope that Elizabeth Warren is appointed to be the director of the CFPB. 

I’m curious….what do YOU think about the financial reform bill?

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