SUB-PRIME MORTGAGES REAPPER UNDER NEW NAME

Do you remember this dirty word from not so long ago: "sub-prime?" In hindsight, its usage and manipulation by lending institutions catapulted our economy into the toilet...a move we're still trying to recover from. With investors holding billions of dollars in properties they need to sell, two of the largest financial institutions, Wells Fargo and Citadel Servicing Corp., are back in the sub-prime game. Only this time they're operating under the guise of a “Second Chance Purchase Program.”
According to a recent article in Reuters:
"The bank is looking for opportunities to stem its revenue decline as overall mortgage lending volume plunges. It believes it has worked through enough of its crisis-era mortgage problems, particularly with U.S. home loan agencies, to be comfortable extending credit to some borrowers with higher credit risks."
So far few other big banks seem poised to follow Wells Fargo’s lead, but some smaller companies outside the banking system, such as Citadel Servicing Corp, are already ramping up their subprime lending. To avoid the taint associated with the word “subprime,” lenders are calling their loans “another chance mortgages” or “alternative mortgage programs.” If you're considering purchasing or refinancing a home be sure you understand all the ramifications of the loan programs you're using.

WHAT MAKES UP YOUR CREDIT SCORE?

Prospective clients often ask how their actions will impact their credit score, that three digit number between 300 and 850 that is supposed to reflect your credit worthiness. Much of what makes up the credit score is deliberately kept secret by the privately held corporation (Fair Isaac Corporation) that started developing credit scores in the 1950s. The three credit bureaus (Equifax, Experian, TransUnion) and individual creditors may also have different scores because they use a different credit score model or because not all creditors report to the same bureaus. But we know generally that the FICO score created by Fair Isaac is made up of the following factors; (1) 35% of the score is based on your payment history, e.g. late payments, the length of time since something negative occurred, the number of delinquencies and the number of negative public records regarding debt; (2) 30% of the score is based on the ratio of credit used to the credit available, e.g. how close are you to the maximums on credit cards and the number of open credit accounts; (3) 15% of the score is based on the length of your credit history including how long accounts have been opened; (4) 10% of the score is based on new credit, e.g. how many new accounts have been opened or applied for recently, possibly meaning an overextension of debt; and (5) 10% of the score is based on the mix of accounts, e.g. a variety of different accounts like a mortgage, car loan and revolving credit card accounts. Thankfully there are efforts underway to restrict how credit scores can be used. Evidence suggests that credit score models discriminate against minorities and the poor. Several states have also passed or are considering legislation prohibiting credit scores from being used in employment, insurance and other situations. And some people are rejecting America's credit score obsession altogether by eliminating all or most of their debt. By paying cash for everything they've ruined their credit score but freed themselves from the constant worry about how bills will be paid.

THE SALLIE MAE EMPIRE

With over $1 trillion in debt, federal student loan debt now exceeds credit card debt and over $120 billion of that student loan debt is delinquent. A January 2014 report from the National Consumer Law Center (NCLC) called “ The Sallie Mae Saga: A Government-Created, Student Debt Fueled Profit Machine,” details the extensive role Sallie Mae plays in the student loan industry. Sallie Mae was created in 1972 as a government sponsored enterprise that could use public money to purchase student loans from banks. In 2004 Sallie Mae became a private company but its connection with the U.S. government has allowed it to become very rich. In 2013 it had a net profit of $1.4 billion. But not all of that wealth came legitimately.  A Department of Education Inspector General Audit found that Sallie Mae received over $22 million in student loan subsidies between 2003 and 2006 that it should not have gotten. And Sallie Mae’s involvement in subprime private student loans with high origination and other fees also boosted its riches. According to the NCLC report, when the Obama Administration sought to switch to direct lending programs, Sallie Mae lobbied hard to keep the guaranteed student loan programs that were costing the government and students excessive amounts of money but benefiting private lenders. Although Sallie Mae lost that battle they still remain one of only four companies allowed to service the federal student loan programs.Sallie Mae also owns several of the debt management and student loan collection companies including General Revenue Corporation, Pioneer Credit Recovery and Arrow Financial Services. Photo Credit: AP Sallie Mae’s extensive role in student loan financing is coming under more scrutiny. The Department of Education says Sallie Mae has incorrectly calculated income for the income based repayment program and committed servicing errors. The NCLC report also raises concern that Sallie Mae steers student loan borrowers into forbearance programs rather than other options even though forbearances can be costly to borrowers but easy for collectors. If you have student loan problems contact us to discuss what solutions might help provide relief.

CREDIT REPORT MISTAKES

The Fair Credit Reporting Act (FCRA) prohibits credit bureaus from reporting accounts that have been placed for collection or charged off for more than seven years. The creditor (known as a "furnisher" under the FCRA) is required to tell the credit bureau the date of the first delinquency because the seven years actually begins to run 180 days following that date. After the seven years expires, the debt's "trade line" is supposed to age off the credit report. Creditors, however, sometimes improperly cause the "re-aging" of the negative trade line so that the seven year clock starts again. For example, in one recent case, Temple University failed to report a debtor's loan status to the credit bureaus until after the loan was fully repaid, nineteen years following the date of the first delinquency. Besides "re-aging" accounts, creditors may violate the FCRA if they fail to report that a consumer has disputed the information contained in a trade line. Without the notation of a dispute, the credit report is inaccurate and incomplete. Other credit report mistakes may include (a) reporting the entire balance of a mortgage as unpaid even though the loan may have been partially repaid after a sheriff's sale, (b) reporting a mortgage as delinquent even though the consumer may be current on a new modified loan, and (c) incorrectly reporting a mortgage loan modification under the federal government's Home Affordable Modification Program (HAMP). Consumers can obtain actual (and sometimes punitive) damages, costs and attorney's fees in lawsuits proving violations of the FCRA. If your credit report contains errors, contact us to discuss your options and the procedure for enforcing the FCRA.

PRO ATHLETES IMMUNE TO FINANCIAL TROUBLE? THINK AGAIN

 

Photo Credit: www.mint.com

Now that the Super Bowl is over (let's not discuss the final score), high school and college athletes everywhere are dreaming of making it big in pro sports. Contracts worth millions of dollars are possible even for athletes not selected high in any pro draft. But, just like you and me and all of our clients, money problems aren't foreign to even some of the wealthiest of pro sports players. In fact, there's some evidence to suggest these wealthy players are even more prone to financial problems then the general public. A March 2009 Sports Illustrated story reported that within two years of retirement, 78% of NFL players file bankruptcy or otherwise face severe financial problems. Within five years of retirement, nearly 60% of former NBA players are broke. There are high profile bankruptcy filings like Kenny Anderson, former NBA player who filed bankruptcy in 2005, Michael Vick, former NFL quarterback, who filed Chapter 11 bankruptcy in 2008, and Vince Young, former NFL quarterback who filed Chapter 11 bankruptcy last year (Young reportedly earned over $34 million during his career). But the problems are far more widespread. Between 1999 and 2002 at least 78 players lost more than $42 million dollars because of bad investments according to the NFL Players Association. In general, the same problems that most people who need to file bankruptcy face also strike someone making millions. The Sports Illustrated article cited divorce as one of the primary causes of pro athlete financial problems, along with trusting the wrong people. The real lesson is that the fresh start found in bankruptcy may be necessary regardless of someone's wealth and position.

NATIONAL COLLEGIATE STUDENT LOAN TRUST DISMISSES LAWSUITS

Four lawsuits against two of my clients were dismissed last month after the National Collegiate Student Loan Trust (NCSLT) was unable to prove it was entitled to collect the private student loans my clients allegedly owed. After filing motions to dismiss in each of the lawsuits I argued NCSLT had failed to prove how it was the "real party in interest" when the original loans had been with JPMorgan Chase. The judges gave NCSLT three weeks to file documents showing how it had acquired the right to sue but it wasn't able to do so. NCSLT also failed to show how the debt it was alleging was due had been calculated. If you're facing collection from NCSLT or any other private student loan collector contact us immediately to discuss your defenses.

CHAPTER 13 MORE LIKELY TO SAVE HOMES

A recent study confirms what many of us have known for some time-- filing Chapter 13 bankruptcy is one of, if not the best way to keep people in their homes. Researchers from North Carolina looked at the cases of nearly 4,300 homeowners across the country, all of whom were more than 90 days late on their 30 year fixed rate mortgages. The study said that when homeowners filed bankruptcy, sales of their home were 70% less likely to occur than for borrowers who didn't file bankruptcy. Although this was true whether or not the homeowner filed Chapter 7 or 13 bankruptcy, homeowners who filed Chapter 13 were five times more likely to avoid foreclosure sales.  The researchers found that the unique features of Chapter 13 were good tools for preserving home ownership. These features include the ability to cure defaults at 0% interest, strip liens and pay an attorney over time. Another finding from the study showed that even for borrowers who aren't successful at keeping their house, filing Chapter 13 provides benefits. According to the study, nationally the median length of time from the start of foreclosure to a sale of the house was 8 months for borrowers who didn't file bankruptcy but 16 months for those filing Chapter 7 and 26 months for those filing Chapter 13. This additional time to stay in their home provides borrowers a significant boost. If you're struggling with mortgage issues and want to consider Chapter 13 contact us to talk about what options are available.