New information has come to light in the past few days regarding HAMP, or the Home Affordable Modification Program. Aside from the fact that they need someone new in Washington to come up with better acronyms, the HAMP program was designed to assist homeowners in danger of foreclosure by reducing their mortgages and interest rates.

The HAMP website provides the following description of their mandate and the tools they’ve been given to achieve them:

The Home Affordable Modification Program is designed to help as many as 3 to 4 million financially struggling homeowners avoid foreclosure by modifying loans to a level that is affordable for borrowers now and sustainable over the long term. The program provides clear and consistent loan modification guidelines that the entire mortgage industry can use.

Borrower eligibility is based on meeting specific criteria including:

1) borrower is delinquent on their mortgage or faces imminent risk of default
2) property is occupied as borrower’s primary residence
3) mortgage was originated on or before Jan. 1, 2009 and unpaid principal balance must be no greater than $729,750 for one-unit properties.

After determining a borrower’s eligibility, a servicer will take a series of steps to adjust the monthly mortgage payment to 31% of a borrower’s total pretax monthly income:
• First, reduce the interest rate to as low as 2%,
• Next, if necessary, extend the loan term to 40 years,
• Finally, if necessary, forbear (defer) a portion of the principal until the loan is paid off and waive interest on the deferred amount.
It all sounds pretty good if you’re in danger of losing your home. There are even built in incentives for banks to extend these loan medications to buyers so they’re not just taking a huge hit in the bottom line. As I wrote about in the previous blog on loan modification banks don’t seem as keen to extend these modifications as one might hope. Only a fraction of the 3-4 million the program was supposed to assist have been granted modifications, and to make matters worse, the people still jumping through hoops to get their loan mods are now discovering that their credit has been ruined.

The way the program is supposed to work, on paper at least, is you contact the bank that holds your mortgage note and let them know you’re in a hardship situation and either in danger of defaulting on your mortgage, or are already late. They are then supposed to negotiate a lower payment and interest rate, which you and the bank agree to, for a trial period while they investigate the hardship and create a more permanent arrangement on your loan. This is where things are falling apart though. While the banks drag their feet for months, requiring obscene amounts of documentation on your hardship, many times more than once, the payments at the reduced rate are being reported as late because they are less than the original mortgage payments. Want to ruin your credit? Have your mortgage reported late for a few months. Trust me, that’ll do the trick.

So the obvious counter to this is, at least you have a reduced mortgage rate so you can keep your home and stay afloat, that’s a good trade off for a lower credit score. That reasoning ignores the ramifications of the damage done to your credit. The fallout from your lower credit score has the ability to actually raise your monthly bills. When your credit scores drop 100 points, which has been widely reported by consumers in the HAMP program, you’ll see your interest rates skyrocket on your credit cards, leading to higher monthly payments and credit limit reductions or freezing, eliminating what may be your last safety net. In addition, unless you had an 850 credit score to start with, a 100 point credit score drop is going to eliminate your ability to obtain a traditional loan modification, will ruin the chance of getting any other type of loan, for instance a debt consolidation loan to take care of the high interest credit cards, and greatly increased interest rates on new purchases, such as automobiles. The increased credit card payments alone have been enough to push some people over the edge that they had been teetering on before the loan modification.

So if you’re considering HAMP assistance, inform yourself of the downsides before you start down that road. If you’re already carrying a large about of credit card debt the increase in interest and fees resulting from the program’s impact on your credit scores may more than offset the reduction in your mortgage payment. With anything, it’s best to know what you’re getting into—and be sure you’re doing your own research because the banks certainly aren’t going out of their way to educate the home owners seeking assistance on the ramifications of them dragging their feet for months while they decide if they’ll provide the loan modification.

Twas the night before Christmas and the credit card companies were looking down on Whoville wondering what else they could do to rip off their customers before the credit card reform act goes into effect.  That’s a completely different story though, because this is supposed to be a joyous time of year.

So blogs about credit reports and mortgage lending, stories about credit cards and government action aside, I’d like to wish you all a very merry Christmas.  Huddled around your TV’s eating turkey while watching the big game, take a look around at your family, because that’s really what it’s all about.  Family, love, togetherness.  Everything else can wait for another day, but those special moments are all too fleeting and rare.

From our family to yours, National Credit Solutions wishes you and yours a happy holiday and a successful and fulfilling new year.

It’s sometimes hard to look for the positive in an economic climate like the one we’re currently experiencing. It’s all too easy to focus on the negatives and ignore the positives—positives like the low housing prices for those trying to buy, government assistance like the homebuyer’s tax credit, and the willingness of debt collectors to make unheard of deals.

I spent a lot of time in the collection industry; long enough to see many ups and downs, although what I considered the ups and downs while in the industry were probably the exact opposite of what I see as the ups and downs now that I’m out of that industry. Right now would be firmly in the “down” category if I were still in the business, but from the outside looking in I can certainly say this is a very “up” time for the rest of America. Debt collectors are making unprecedented deals right now, scrambling to collect pretty much anything to stay afloat. That translates into real savings and realistic repayment plans for the people who owe those debts. Companies that once would not consider dipping below 50 or 60% on settlements are now considering all offers, even in the 30 or 40% range. Collectors who wanted nothing but payment in full are willing to enter payment plans for the first time ever in many cases.

The dramatic drop in home prices has been the strongest driving force behind this change. Collectors in most cases no longer have the option of demanding that people draw equity out of their homes or refinance to pay off their debts. Equity has evaporated and refinancing is all but impossible for anyone with less than stellar credit, which people in collections obviously don’t have. The other popular collection method was for debt collectors to demand people pay off their collections with other credit cards, but chances are if you have an account in collections you don’t have another card with an available balance because the credit card issuers have already lowered your credit limits to your account balances in anticipation of the enforcement of the Credit Card Reform Act.

With all this in mind you might be chomping at the bit waiting for the next collector to call, ready to make a deal. Okay, I doubt you’d be chomping at the bit to talk to a collector, but hopefully it gives you some hope. Don’t get carried away though, there are still things that you need to keep in mind so you get the best deal possible. Remember the collector calling you has extensive training; they’re professionals, even if they often don’t act like it. It’s best to arm yourself with some knowledge before plunging into negotiations.

First, make sure you don’t give a collector information. Your first phone contact with a collector should be a fact-finding call for you, not for them. They’re going to ask you all kinds of questions about your income, your employment, etc., things that they will use against you. Don’t arm them, arm yourself. Take advantage of the call to get information about who is calling you and why they’re calling you. Some key information you’ll want is the name of the collector, the name of the collection company, the original creditor, and how much they say you owe. Don’t acknowledge anything, just ask your questions. If they’re a legitimate collector following the rules set forth for debt collections in the FDCPA, the Fair Debt Collection Practices Act, they’ll answer these questions, if they’re reticent to provide the information though, be wary. Once you get the information simply tell them you’d like them to send you a validation letter, a letter they’re required to send you by the FDCPA, then end the conversation. Don’t get belligerent, don’t tell them to stop calling, and don’t send them a cease and desist letter at this point. These are actions that will leave the collector feeling cornered with no options left but a lawsuit. Be sure you take notes during the call, writing down the date and time of the call and all the information you ask for as well as their responses.

Once you’ve requested the letter and ended the call you have some time. They’re not supposed to contact you for 5 days, time to receive the letter and respond to it. If they call you during this time period you can let them know that according to the FDCPA they may not contact you until you have received the validation letter. When you receive the letter you have 30 days to respond, disputing anything that you feel may be in error, such as an incorrect balance, or if you feel the debt is legitimately not yours. At this time you should also request written verification of the debt, verification such as a copy of your bill from the original creditor or a signed contract between you and the creditor. Collection activities must cease until they provide you with this information if you request it. Examine whatever documentation, if any, that they send to you. Keep in mind a collection agency often doesn’t have any of this official documentation, they may just have a list of debts and names, which is insufficient proof for them to collect the debt. Be sure you send your dispute or verification request back to the collector via certified mail. It’s simply amazing how many letters sent to collection agencies get lost in the mail… If the collector contacts you before you receive the verification you have requested you once again have the right to remind them that collection activities must cease until they have provided the requested information. Document any contact from them at this point because they are breaking the law, which could give you grounds for a lawsuit if they persist.

Another thing that you’ll want to do when you receive the documentation from the collector is make sure the debt is still within the statute of limitations. You can find a state by state list of the statute of limitations by clicking here. If the debt is beyond the statute of limitation you can let it go. The collector has no recourse at this point but to sue you, but if they do all you have to do is show up at the hearing and point out that the debt is outside the statute of limitations. You must show up at the hearing though, if you ignore it they’ll get the judgment, the statute of limitations will renew, leaving you be no better off. Also keep in mind that you can often reset the statute of limitations by verifying the debt, which is why I said earlier that you should not provide any information to the collector lest you do this unknowingly.
If you’re still within the statute of limitations and the collector is able to verify the debt you have a few options. First off, if the debt is significant you might want to contact a bankruptcy attorney. They’ll be able to tell you if you qualify and the pros and cons. If that’s not an option for you though, you’re going to need to deal with the collector. When they call back you still want to be extremely careful what you say, making sure you don’t give them anything to use against you, but you also need to establish a bargaining position. Let them know as simply as possible why you cannot pay, or cannot pay the full amount. Don’t give them your life story; just give them the bare minimum of facts as though you’re on the witness stand. A simple “I’m out of work” or “I got divorced and lost part of my income” or whatever your situation happens to be is all you need. If you don’t have the ability to pay simply let them know that you will contact them when your situation changes, then end the conversation. This won’t stop the calls, but it’s all you’ll need to do when speaking to them. Repeat that your situation is the same, you do not currently have the ability to pay, and you’ll contact them as soon as you do.

If you do have the ability to pay though, this is the time to open negotiations. You’ll get the best deal if you can afford to pay a lump sum. I would suggest starting at 25 to 30 cents on the dollar, which still allows the collector to turn a profit since they’ve probably paid between 4 and 18 cents on the dollar for the debt. Let them know that due to your loss of income/job/disability/etc. that you cannot afford to pay anything more than that. They’re going to do everything in their power to negotiate you to a higher amount, but stand your ground and only give in if you can truly afford it. Don’t put yourself in a situation where you make an agreement that you cannot keep. A couple words of caution here. If the debt is outside the statute of limitation this will reaffirm the debt and allow the statute of limitation to renew. Also remember that this is the time to negotiate the deletion of any negative reporting they may have done on your credit report. Be absolutely sure you get this from them in writing before you pay them anything, otherwise the chances of it actually happening are pretty much zero. You can’t make them remove the reporting done by the original creditor, only the reporting the collection agency has done, but even that can help your credit score. Another word of caution, the money you save by settling an account can be considered taxable income, so don’t be surprised if you get a 1099 for the $700 you saved on the $1000 debt.

If a lump sum isn’t an option for you, try to work out a payment arrangement. The collector will probably try to tell you that if they do allow a payment arrangement it must be on the full balance, but don’t fall for it. Get them to make an opening offer then counter with less than what you can afford. It’s often said that the person who makes the first offer in a negotiation is the one who ultimately loses, so start the negotiations off on the right foot. If you can get them to agree to what you can truly afford as well as reducing the balance by at least 40%, you’ve done well, but if not you might want to just let them know that they’re asking for more than you can afford and let them know you’ll contact them when your situation changes, then end the call. Don’t give them information as I stated before, you don’t want to give them any ammunition. Once again, this won’t stop the collection calls, but if you stick to your guns chances are very good that they’ll eventually offer better terms. Also, as I said before, get any agreement in writing before you pay them. The agreement must state what you’ve agreed to pay, that the amount agreed upon will be considered payment in full for the debt, that the remainder cannot be sold to another collector, and that the negative reporting will be removed from your credit report if you were able to negotiate that.

This entire process will probably take at least a month, so keep your eyes and ears open for violations of the FDCPA. The debt collection industry is highly regulated, so if you are being harassed, or threatened, if you’re being denied basic or false information about the company calling you, if they’re misrepresenting themselves as attorneys, police, or other government agents, or if they’re frivolously threatening to sue you when they have no intention of doing so, you might want to contact an attorney. The government takes these suits seriously, and if you have a case you can easily see the debt wiped out and possible be awarded damages as well.

Good luck with your negotiations!

There’s been a lot of talk in the news today and over the weekend about Obama meeting with the heads of the largest banks today.  He’s having a little sit down in Washington with over a dozen bank heads from Bank of New York Mellon Corp., Bank of America Corp., U.S. Bancorp, JPMorgan Chase & Co., Morgan Stanley, Goldman Sachs, Citigroup, etc, to supposedly read them the riot act about lending to small and medium size businesses.

The main thrust, which he alluded to over the weekend on television when he called the heads of the banks (the people he called “fat cats” on national television), is that these banks largely created the current economic crisis, were bailed out with hundreds of billions of dollars in tax payer money, got back on their feet, paid out huge bonus to their executives, but now aren’t stepping up to the plate to lend money again, helping put the 10% of unemployed Americans back to work.  He’s also more than a little peeved that these banks aren’t jumping on the bandwagon to support the Consumer Financial Protection Agency that cleared the House last week, but are instead spending millions lobbying against it.  Banks on the other hand argue that Obama is greatly oversimplifying the issues at hand, that it’s more complicated than just saying “okay, we’re going to lend money again”, and that the tighter lending standards are necessary to keep the country from going into another economic whirlpool of defaulted loans.

Michael Steele, the Chairman of the Republic Party, agreed with the bankers that returning to the loose lending practices of the past would be disastrous.  He instead suggested an alternative to irresponsible lending by saying “Let’s eliminate the capital gains tax, reduce the unemployment tax and give some incentives for small businesses.”

So who’s right?  Do the “fat cat bankers” need to open the floodgates of cash?  Do we need less regulation for the banking industry so they can make their own corrections?  Should we give small and medium size business owners a break on taxes and instead incentivize them?  In my opinion it’s a little of all of the above.  Let’s hope these talks bring some cooperation rather than the typical blame game, because that’s the only thing that’s going to benefit the common man.

So here’s my open letter to bank executives, Obama, and everyone else with a say in this:

To whom it may concern,

Please relax lending standards, but do it responsibly.  There is middle ground between the loose and fast practices of the early ‘90s and the almost complete lack of lending now, find that middle ground for the sake of the 10% of the country out of work, the hundreds of thousands of people who have applied for mortgage modifications and have been denied, the business owners working hard to turn a profit and create and maintain jobs who desperately need funds to grow, and everyone else who is just fine right now, but won’t be if the economy doesn’t turn around.  Obama, please stop playing the blame game and focus on responsible solutions to unemployment and practical banking regulation.  Congress, for the love of all that’s good and decent, fix the mess you created with the Credit Card Reform Act.  By giving in to lobbyists you’ve created a situation where the banks are killing us with fees and interest rate hikes while destroying our credit with lower credit limits before the new rules go into effect next year.

There’s a way out of this economic mess, work together to find it for the good of everyone rather than covering yourselves.  Be unselfish for once.  Turn this all around before it’s too late.

Regards,

Wil Chiera

By: Joe Taylor

Credit card rate hikes have become a popular strategy for lenders who want to purge their portfolios of less profitable accounts. New federal credit card regulations give consumers the power to reject a credit card rate increase, but only at the expense of an active credit line. “Freezing” a credit line to lock in favorable terms makes sense for consumers looking to cut their debt. However, this strategy can wreak havoc on credit scores by increasing your debt to credit limit ratio.

Plan A: Reverse Your Credit Card Rate Jack

According to CardRatings.com founder Curtis Arnold, an assertive request by telephone may be the only way to find a low interest rate credit card in today’s marketplace. “Playing hard ball with your issuer is an essential first step in getting more favorable card terms,” Arnold says. “Ask to speak to a manager if the customer service representative isn’t able to help.” Although banks have taken criticism for blanket credit card rate increases, customer retention specialists have the power to manually review accounts affected by repricing programs.

Plan B: Find a Low Interest Rate Credit Card Offer Elsewhere.

Some lenders may fail to offer you a better rate, regardless of your account history. Instead of tolerating your lender’s dismissal, you can leverage the growing market for credit cards offered by regional banks and credit unions. Smaller institutions often offer more attractive account terms and have many of the same account features and perks as larger lenders. CardRatings.com maintains a list of current offers from smaller lenders who have already lured big bank customers by delivering stronger customer service along with competitive credit terms.  Here are a few examples of credit cards with competitive balance tranfer offers and interest rates:

1. Capital One® No Hassle Miles^SM Rewards – Excellent Credit
2. Discover® American Flag Card
3. Iberiabank Visa® Classic

Preserving Your Financial Health After a Credit Card Rate Jack

Financial advisors recommend watching out for fees buried in the fine print of credit card balance transfer offers. A new card with an attractive introductory interest rate could carry a transfer fee as high as five percent. That kind of upfront cost may force you to endure a credit card rate increase from your current lender.

Closing your old credit card account can give you one less bill to open each month, but it can also hurt your credit score. Most financial advisors recommend that you do not close out such accounts. An older account with no annual fee and no monthly balance may even improve your credit profile. You should use your card once every six months or so to keep it active (inactive cards are increasingly being closed out by creditors). Simply buying a stick of gum will suffice.

According to Curtis Arnold, cardholders wield much more control over the banking industry than they might realize. “We do still have power as consumers and the way we exercise that power as it relates to credit cards is by using a card with decent terms,” Arnold says. “Simply put, if we do this in mass, then the bad apples out there will be forced out of business.”

I write a lot in this blog about credit reports and credit cards, but I haven’t written about something that’s just as important as a clean credit report before—a clean ChexSystems report.  ChexSystems is a consumer reporting agency, just like the credit bureaus, that tracks your deposit accounts, like checking and savings, with banks.  A ChexSystems report is to your checking history as a credit report is to your credit history.  They track all negative deposit account activity such as overdrafts, negative balances, and fraud for the past 5 years, as well as mundane activities like account freezes, checks that haven’t been cashed, and check orders.  So just like a bank will pull a credit report to see how you have done in the past managing other loans, they’ll pull your ChexSystems report before allowing you to open a checking account to make sure you don’t have a history of writing bad checks or committing fraud.  Banks take negative ChexSystems reports extremely seriously and will typically reject an applicant if they have even one negative mark on their report.  This creates a snowball effect—no checking account means you won’t be able to open most credit accounts, secure an auto loan, qualify for a mortgage, etc.

The good news is ChexSystems is regulated by the FCRA, the Fair Credit Reporting Act, just like the credit bureaus are.  That means a bad ChexSystems report can be fixed.  ChexSystems allows a consumer to get a free report from them annually or after a consumer has been denied an account.  If you’d like to get a copy of yours, you can click here to order one directly from ChexSystems.  Just like a credit report, if you find items on your report that are inaccurate you can request that they be investigated.

Feel free to give us a call if you need help getting your ChexSystems file straightened out, we have extensive experience with them just like we do with the credit bureaus.  We can also put you in contact with several banks that we have relationships if you’re having trouble getting an account.

Everyone already knows that the mortgage crisis obliterated the mortgage market, but many aren’t aware of how this changed the face of a tiny government agency, the Federal Housing Administration.  Prior to the crash the FHA only guaranteed 3% of new home mortgages against default.  Today they guarantee about 30% of new home mortgages.  Why are they insuring 10 times as many mortgages today?  Because they haven’t changed their lending standards, but the banks have.  Gone are the days when you could get a mortgage from a bank with a sub 600 credit score, but that’s not true for FHA loans.

While this might be great for a first time home buyer, the FHA has a government mandate requiring the agency to maintain certain reserves to back defaulted mortgages, reserves they no longer have as the number of loans they back has exploded.  Because of this the FHA is under a lot of pressure to change their lending standards, increasing borrower requirements to limit the number of mortgages they back.

The HUD secretary yesterday outlined a series of steps the agency has planned to meet the reserve requirements, while still making sure FHA loans are accessible and safe.  The 5 steps outlined are below.

• More money down: The FHA’s low down-payment requirement—of just 3.5 percent—is one of the main reasons that agency-guaranteed loans have become so popular. Home loans without FHA backing can come with down payments anywhere from 10 to 20 percent, depending on the market, borrower, and other factors. But the FHA’s deteriorating balance sheet has triggered calls for the agency to force borrowers to put more cash down.  Legislation has been introduced by Rep. Scott Garrett, a New Jersey Republican, to boost the minimum down payment to 5 percent. The HUD secretary indicated that the agency is considering higher down-payment requirements. “We have made the decision to exercise our authority to increase the upfront cash that a borrower has to bring to the table in an FHA-backed loan—to make sure that FHA borrowers have more ‘skin in the game’ and a stronger equity position in their loans.”  No word though on how large the potential increase may be though, but details have been promised for January.  Experts estimate the 3.75 – 4% range.  So if you get an FHA loan for a $150k house after the changes go through, you’ll need at least $5,625 for a down payment instead of $4,500.

• Higher fees: The HUD secretary also suggested increasing the insurance premiums changed by the agency would inflate their dwindling cash reserves to the mandated levels.  This requires Congress to raise the premiums though, because they’re already at the maximum allowed by law.

• Better credit: The agency will, perhaps temporarily, increase the minimum credit score for new borrowers.  Right now it’s at 500, but it’s pretty irrelevant because they’re merely backing the loans, the actual lenders have much higher standards.  Experts seems to think we’ll see the requirements shoot up to at least 650 though.

So what does all this mean?  It means fewer FHA backed loans, and the ones they do back will be more stable than the ones they’re currently backing.  So if you’re on the edge with your credit and down payment savings, move fast before standards change, or else start working on getting that credit score  higher and saving up more money for a down payment.

The National Association of Credit Managers published the November results of their benchmark credit index today. For the second straight month the credit index surpassed the breakeven index number of 50. The index was at 34 a year ago, but increased to 51 in October and 55 in November.

What does this mean for the average consumer? It means the banks are loaning money again. Credit demand has been increasing as faith in the stability of the economy has increased, so a higher credit index score means more of those loans are getting funded. More demand for credit plus more credit getting granted equals a way out of the economic mire we’ve been in for the past 18 months or so.

It’s my strongly held personal opinion that this trend must, and will, continue as the New Year rolls around, based on personal observations of credit trends and industry reports. This is excellent news for all of us. But keep in mind, loan requirements, while relaxed compared to last year, are still much higher than before the economic downturn began, so it’s more important than ever to have your credit in shape.

If you’d like to view the report yourself, it can be found here.