"8 Signs You Should Not Buy a House" may be a tough list to absorb if you've been turning a blind eye to immediate financial issues like credit card debt and savings accounts, but following this advice will put you in a much safer position for a new home. Once you've made sure it's the right time to buy, "8 Home Buying Blunders" has some tips that should help protect you from unanticipated problems at closing or after you've moved in.

"8 Signs You Should Not Buy a House" [Morningstar]
"8 Home Buying Blunders" [Morningstar]
(Photo: Smath.)

Why are so many states going after debt relief companies? Because they insert themselves between consumers and creditors and suck up the money earmarked for creditors by promising that they're going to renegotiate payments—and then they don't keep that promise.

According to a lawsuit by the Illinois Attorney General, Credit Solutions of America does just that; it "continually fails to negotiate with consumers' creditors even though consumers cease to pay their creditors directly and, instead, make months of upfront payments to CSA."

So now the AGs are asking the FTC to tighten telemarketing rules, like prohibiting them from collecting fees before rendering services.

"In an ever-building wave of ploys and scams on consumers, debt settlement and debt negotiation companies promise to help consumers eliminate or reduce their debts, but often fail to deliver on these promises," said Ohio Attorney General Richard Cordray. "Tougher regulations will help to rein in some of the most deceptive and unfair practices in this industry."

"States Want Coordinated Crackdown On Debt Relief Firms" [Consumer Affairs]

If you have a disputed account on your credit report, both Fannie Mae and Freddie Mac will automatically kick your application back to your bank for manual underwriting. If your bank really wants that loan, they'll underwrite it themselves before sending it back upstream. But if they can't or don't want to do that, they'll just reject your application and blame it on Fannie or Freddie.

Before you buy or refinance a home, pull copies of your credit report and clean it up if necessary. If you see any disputes that were resolved in your favor but that you can't get the bureau(s) to remove, look for a lender that will offer in-house underwriting.

"Old credit disputes can scuttle loan" [Washington Post]
(Photo: me'nthedogs)

If you already knew the difference before reading the post, you're more savvy than I, who thought they were different names for the same thing. Not so, Sommers explains:

Home Equity Line of Credit, or HELOC, also allows a homeowner to borrow against the value of their home. The loan is essentially a form of revolving credit in which your home serves as collateral. There are two major differences between this type of loan and a standard HEL. First, a HELOC typically has a variable interest rate rather than a fixed one, meaning that the amount of your monthly interest changes just as it would for an adjustable rate mortgage. The second difference is that rather than receiving the entire amount as a lump sum at the start of the loan, the borrower is given a predetermined line of revolving credit that has a draw period of 5-25 years during which funds can be drawn whenever needed.

There is a maximum limit that can be taken out and a minimum payment that is due each month, with the borrower given the option to pay off as much of the line as he and/or she wants- much in the same way as you would with a credit card or other revolving line of credit. A big advantage that comes with a HELOC is that the borrower pays interest only on the money that they draw, rather than the entire sum as they would with a Home Equity Loan.

Sommers says HELs are better if you're using the money for set expenses, while HELOCs make more sense if the amount of extra money you'll be needing varies.

It's definitely best to avoid either unless absolutely necessary, because both can be gateway drugs to bankruptcy.

Home Equity Loan vs. Home Equity Line of Credit [Budgets Are Sexy]
(Photo: mortgagepaymentplan)

Here are the four critical goals this group says can't be accomplished with existing regulatory structures:

1. We need "a single place to concentrate federal rulemaking authority over consumer financial transactions joined with primary enforcement authority over them."
They argue that current agencies have proven they're not up to the job:

At critical moments of consumer confusion and vulnerability, regulators of financial institutions, including the Federal Reserve Bank, the Office of Thrift Supervision, and the Office of the Comptroller, have demonstrated unwillingness to expend resources to develop appropriate rules and guidelines and to police mortgage and credit instruments. The two-decades-long delay in effectively regulating credit card practices, despite many warnings from consumer groups, responsible lenders, and scholars, for example, is a well-documented and catastrophic lapse that continues to inflict serious financial injury.

2. We need "the power to restore banking federalism so as to better accommodate consumer interests."
The power of states to regulate financial companies has been undermined in the past 30 years and needs to be restored and protected:

State legislatures and courts need to be able to continue to develop consumer protection law. Many of the types of non-bank financial products that will be within the jurisdiction of the CFPA have been regulated up until now only by the states, and their good work should not be undermined. In addition, problems are much more likely to grow larger if they can be addressed only at the federal level and not also by states where they first appear.

3. We need "the authority to improve opportunities for consumers to enforce their rights."
Arbitration agreements rarely work fairly for the consumer; they're almost always more favorable to the financial company. These guys say that "existing agencies have not acted effectively to promote the availability, impartiality and quality of arbitration tribunals." They say we need the ability "to regulate consumer arbitration to insure that it is conducted fairly, or, if that proves impossible, to ban it altogether."

4. We need "the ability to establish standards for fairness and honesty in agreements for financial products and services."
Current disclosures don't adequately inform consumers of the real costs of a financial product. The legal scholars note that

If disclosures alone were adequate to enable consumers to obtain appropriate loans, it would not be possible for mortgage originators to "steer" borrowers who could qualify for prime loans to more expensive subprime loans, and yet such steering has been alleged repeatedly.

"Consumer and Banking Scholars Show Support for the Consumer Financial Protection Act" [Hofstra University School of Law]
(Photo: swimparallel)

Research using a massive sample of 24 million individual credit files has found that homeowners with high scores when they apply for a loan are 50% more likely to "strategically default" — abruptly and intentionally pull the plug and abandon the mortgage — compared with lower-scoring borrowers.

These strategic defaulters tend to know the consequences of walking away, and they tend to live in "negative-equity markets where home values zoomed during the boom and have cratered since 2006." To them, it's a business decision and the best of a range of bad options. One consequence of the study, however, may be that lenders won't be as willing to offer loan modifications to borrowers who fit the profile, as they'll possibly still walk away at some later date.

"Homeowners who 'strategically default' on loans a growing problem" [LA Times]
(Photo: dingbat2005)

• No more requirement that banks offer "plain vanilla" loans for easy comparison shopping.
• There would be a governing panel where banks could appeal rulings they don't agree with.
• Non-financial companies like retailers, doctors, and auto dealers would be exempt from oversight.
• The agency will have to be funded without imposing any new fees on banks.

Will this be enough to get the bill passed, and if so, will the CFPA still be powerful enough to police the financial industry? The American Bankers Association seems a lot happier with it, which doesn't sound like a good thing:

Edward Yingling, president of the American Bankers Association, welcomed what he called "significant improvements" in the legislation.

Yingling still isn't happy with the consumer agency, part of a sweeping overhaul of financial regulation in the wake of Wall Street's meltdown last year. He notes that the plan still lets states impose stricter consumer regulations if they want to. And he wants traditional bank regulatory agencies to keep their authority to regulate consumer finance.

But Frank wouldn't budge, saying the FDIC, comptroller of the currency and Federal Reserve had an "abysmal" record on protecting consumers: "They never cared about consumer affairs. ... They regard consumer affairs as a kind of nuisance."

"Plans for consumer shield pared back" [CNN Money]
"Consumer watchdog's 'draconian' powers scaled back" [USA Today]
(Photo: Andrew Ciscel)

Collection ammounts where the original debt was under $100 will be totally disregarded, MarketWatch reports. Back in Feb we reported that they would still be taken into account but only matter less. Also, FICO'08 has been rolled out to all three credit bureaus since last month. Before it was only being tested at one and there was some disagreement over whether all the bureaus would accept it.

However, Freddie Mac and Fannie Mae haven't adopted FICO '08 yet. So if you're getting a traditional conforming mortgage backed by one of them, lenders are still going to judge you under the old FICO system.

No matter what flavor of FICO gets applied to you, you can do better at the credit score game by paying your bills on time, maintaining low debt to income ratios, high available credit to debt ratios, keeping old credit cards open, and disputing erroneous items from your credit report.

New credit scoring model may boost some borrowers' scores [MarketWatch]
PREVIOUSLY: 6 Ways Your Credit Score Changes Thursday

Here's something I came across today: a husband and wife bought a condo, moved in, spent $30K on renovations, and then found out that they didn't own that condo, but the one next door instead.

Update: It turns out this story is five months old, and I apologize for posting it without checking the timeliness of it. There had been an update to the story back in April of this year, and things didn't turn out well for the "owner":

Kyte fought hard to keep the condo, but in the end he was forced to move.

"Every part of me is sad right now," said Kyte.

Kyte lived in unit #4, but according the city he actually owned the deed to unit # 5, the run-down apartment next door.

"It looks terrible," said Kyte.

Kyte paid a little over 45k for the condo that wasn't his and sunk another $30k into the renovations. My Fox Atlanta reports that after the renovations it appraised for more than triple the purchase price.

"Colo. Man in Condo Mix-up Evicted" [My Fox Atlanta] (Thanks to Beth!)
"Condo owner finds out he's been living and renovating in the wrong unit" [Fox31] (Thanks to LadySiren!)
(Photo: 少佐)

Some experts warn that a sharp reduction in overdraft fees could put weakened financial institutions out of business.

Michael Moebs, an economist who advises banks and credit unions, said Ms. Maloney's legislation would effectively kill overdraft services, causing an estimated 1,000 banks and 2,000 credit unions to fold within two years. That is because 45 percent of the nation's banks and credit unions collect more from overdraft services than they make in profits, he said.

"Will they be able to replace it with another fee?" Mr. Moebs said. "Not immediately and not soon enough."

The funny thing about overdraft fees is that since they're not covered by the Truth in Lending Act, banks don't have to disclose their true cost to customers, or ask permission to sign them up:

According to the F.D.I.C. study, a $27 overdraft fee that a customer repays in two weeks on a $20 debit purchase would incur an annual percentage rate of 3,520 percent. By contrast, penalty interest rates on credit cards generally run about 30 percent.

"People would be shocked at how brutally high those fees are relative to the costs of a credit card," said Edmund Mierzwinski, the consumer program director for the United States Public Interest Research Group.

People may also be shocked by how strongly the banking industry will fight back against any overdraft legislation, the article implies, because many financial institutions will be fighting for their ability to remain in business.

"Overspending on Debit Cards Is a Boon for Banks" [New York Times] (Thanks to Steve!)
(Photo: Ciaran McGuiggan)

Justice Schack's take is straightforward, and sends a tremor through some bank suites: If a bank cannot prove ownership, it cannot foreclose. "If you are going to take away someone's house, everything should be legal and correct," he said. "I'm a strange guy - I don't want to put a family on the street unless it's legitimate."

As a result, he's become an example for other judges to follow, and a "dangerous" rogue in the eyes of lenders.

What's surprising, however, is Judge Schack isn't coming up with novel readings of the law. He's just forcing lenders to follow the rules.

"To the extent that judges examine these papers, they find exactly the same errors that Judge Schack does," said Katherine M. Porter, a visiting professor at the School of Law at the University of California, Berkeley, and a national expert in consumer credit law. "His rulings are hardly revolutionary; it's unusual only because we so rarely hold large corporations to the rules."

"A ‘Little Judge' Who Rejects Foreclosures, Brooklyn Style " [New York Times]
(Photo: steakpinball)

From Reuters:

"July marks the third time in the last five months where we've seen a new record set for foreclosure activity," James J. Saccacio, RealtyTrac's chief executive, said in a statement.

"Despite continued efforts by the federal government and state governments to patch together a safety net for distressed homeowners, we're seeing significant growth in both the initial notices of default and in the bank repossessions."

RealtyTrac says notices of default, auction or repossession have reached nearly 2.3 million in the first seven months of the year. There are now more than half a million bank repossessions currently on the books. Repossessions are particularly awful because they represent properties that the bank couldn't even sell at auction. These vacant properties lower the value of the surrounding real estate.

As unemployment rises and property values fall it makes it more difficult for people to sell their homes, which in turn increases the number of foreclosure filings.

The national unemployment rate is currently at 9.4%. I am sorry to have to tell you all of this. Here is a picture of a kitty playing XBOX.

U.S. home foreclosures set another record in July [Reuters]
(Photo:Seven_Null7)
(Photo:darabidduckie)

The big problem may be poor customer service.

From USAToday:

"We have been disappointed …about the variation in service performance in helping people in a timely fashion and with the respect they deserve," says Michael Barr, Treasury's assistant secretary for financial institutions. "We're going to be requiring ramped up efforts across the board."

For more information about the program and how to take advantage of it, click here.

Making Home Affordable Program on Pace to Offer Help to Millions of Homeowners [Department of the Treasury]
Just 9% of eligible homeowners have had mortgage modified [USAToday]
(Photo:wmliu)

Mortgage companies collect fees for appraisals, insurance, legal services and other administrative busywork when homes go into foreclosure, and many make more on delinquent loans than they do on those in good standing. So unless homeowners' loans are through businesses that values their ability to keep roofs over their heads above the bottom line, they're out of luck:

"It frustrates me when I see the government looking to the servicer for the solution, because it will never ever happen," said Margery Golant, a Florida lawyer who defends homeowners against foreclosure and who worked in the law department of a major mortgage company, Ocwen Financial. "I don't think they're motivated to do modifications at all. They keep hitting the loan all the way through for junk fees. It's a license to do whatever they want."

Until legislators give mortgage servicers a reason to help those in trouble, expect the foreclosures to keep piling up.

Lucrative Fees May Deter Efforts to Alter Troubled Loans [New York Times]
(Photo: loreshdw)

Many states have outlawed collecting upfront fees for loan modifications - talking people into forking these over are the heart of the scam - but there is an exception for attorneys. So what these places are doing is hire a few lawyers who just provide a storefront face while the loan mod ripoff continues in the boiler room.

Beware of any service that asks for a hefty upfront fee, it's often the sign of a con. And if your mortgage is in trouble, don't listen to some guy who cold calls you on your cellphone. Instead, phone a HUD-approved nonprof no-fee housing counselor.

Would you buy a mortgage from a car salesman? [Red Tape Chronicles] (Photo: travelator)

In the face of impending legislation that would limit their dealings, some check-cashing stores played nice with the University of Chicago, allowing researchers to interview borrowers and distribute material that explained just how expensive these payday loans really are. The goal was to promote the idea that payday lenders could still prosper even if they were legally obligated to explain their lending practices in layman's terms.

The result? Even when people fully understood quite how much these loans cost them, nine out of ten people still took the money.

400 Percent APR — Is That Good? [Slate]
(Photo:Orin Optiglot)

• 1/2 of repeat loans are opened at the borrower's first opportunity, immediately or after a 24-hour waiting period, depending on state rules.
• 87% of repeat loans are opened within two weeks, or generally before the next payday.
• Only 6% percent of subsequent payday loans are taken out longer than a month after a previous loan was paid off.

Phantom Demand: Payday Lenders Create Their Own Demand With Loan Terms That Generate Rapid Re-Borrowing [Center For Responsible Lending]
Complete report (PDF)
(Photo: Tim Norvell)

Mirosiichenko said his company would not employ debt collectors to get its money back if people refused to repay, and promised no physical violence. Signatories only have to give their first name and do not show any documents. "If they don't give it back, what can you do? They won't have a soul, that's all."

"Would you pledge your soul as loan collateral?" [Reuters] (Photo: goldberg)

Here's how Obama described it on "The Tonight Show" in March (when he wasn't making fun of the retarded):

"When you buy a toaster, if it explodes in your face, there's a law that says, 'Your toasters need to be safe,' " Obama said. "When you get a credit card or you get a mortgage, there's no law on the books that says, 'If that explodes in your face, financially, somehow you're going to be protected.'"

In other words, it would be sort of a financial version of the Consumer Product Safety Commission—although hopefully if Congress takes the time to create it, they'll also take the time to fund and staff it adequately.

"Obama wants shield for consumers" [CNN] (Thanks to Ben and Neff!)
(Photo: DieselDemon)

Mayor and City Council of Baltimore v Wells Fargo Bank, N.A. and Wells Fargo Financial Leasing, Inc. (PDF)
PREVIOUSLY: Loan Officers Detail Wells Fargo's Blatantly Racist Subprime Loans

I run first thing in the morning. I get it done early so that I can spend the rest of my day on other things without the need to run hanging over my head. And having done this, I feel great. When I'm done with a 12-mile run on Saturday morning, I feel like the king of the world. I'm filled with confidence. In the same way, I felt empowered when I learned to pay myself first, to save and invest for my future before I paid my bills.

Other comparisons include forgiving yourself and getting back on track if you skip a day, and removing passive barriers (JD goes to bed with his running clothes on to make it easier for him to get into the mode of starting his run the next day). Even if you're not a runner, there's sure to be some debt-reducing concepts in his post that can help you out.

The Loneliness of the Long-Distance Debtor [Get Rich Slowly] (Photo: Paul Keleher)

Meet Beth Jacobsen and Tony Paschal, two of Wells Fargo's top subprime loan officers, who recently gave affidavits detailing the bank efforts to needlessly steer minority Baltimore families into subprime loans. The banks shady dealings include setting up a special unit to target "mud people" with outrageously expensive "ghetto loans;" targeting black churches leaders because they "had a lot of influence and could convince congregants to take out subprime loans;" and offering cash bounties to loan officers who issued subprime loans to minority communities. And it gets so much worse...

Loan officers employed other methods to steer clients into subprime loans, according to the affidavits. Some officers told the underwriting department that their clients, even those with good credit scores, had not wanted to provide income documentation.

"By doing this, the loan flipped from prime to subprime," Ms. Jacobson said. "But there was no need for that; many of these clients had W2 forms."

Other times, she said, loan officers cut and pasted credit reports from one applicant onto the application of another customer.

These practices took a great toll on customers. For a homeowner taking out a $165,000 mortgage, a difference of three percentage points in the loan rate - a typical spread between conventional and subprime loans - adds more than $100,000 in interest payments.

[...]

"They confirm our worst fears: that this is not just a case based on a review of numbers and a statistical analysis," said the city solicitor, George Nilson. "You don't have to scratch your head and wonder if maybe this was just an accident. The behavior is pretty explicit."

The affidavits come as part of a pending federal lawsuit from the NAACP, which has filed class action suits against over a dozen banks for racist lending practices.

Bank Accused of Pushing Subprime Deals on Blacks [The New York Times]

Sean writes:

In March, we (my girlfriend and I) made our normal monthly payment and never thought about it again (I know, our bad for not following our banking close enough). Turns out, Chrysler didn't want our money and it changed from "Pending" to "Returned" on their website. For whatever reason, again, my fault entirely, I did indeed forget to make a payment in April. I'm perfectly willing to pay any associated fees due to my inattention. May 1st, I get a letter stating that my payment is past due and that it can affect my credit rating. I go online to their website to see that I owe them for March and April, and it was still before the May due date. I paid the total amount for all three months, using the same stored checking account information that I had used the entire time for the last 12+ consecutive/on-time payments. It shows the submission as successful and the status as "Pending."

One week later, an email arrives stating that the payment didn't go through and that the checking account information was incorrect. I go back to the website, re-enter my information and submit the total payment again. Again, says it went through and changes to "Pending."

One week later, the same email comes back. I go back again, re-enter the information a third time, and submit just the May payment to see if it goes through at all. Again, status shows "Pending" after it submitted.

Strangely enough, it changes from "Pending" to "Submitted" during the week, meaning that they actually took their money this time. A week after we made the May payment, they repo'd the Jeep. No letters saying that it was coming, no phone calls, no messages-just the first letter on May 1st stating that I was past due.

Needless to say, I was a wreck, I had the first toothache (and the most painful at that, had an infected abscess…blech) that I've had since I was 12 all day, and then they took my Jeep away, catching me completely off-guard.
Friday morning, I call the repo center (Certified Auto Recovery Inc) since that's what I was told to do to ask about getting my car back. The guy I spoke to had no idea why I was calling him and instructed me to call the bank to clear it with them first. He then gave me the number to call Chrysler for their "Recovery" department. I put a call into Chrysler and spoke with Dawn, a fairly nice rep who explained the process and said that I owed the back payments and $370-$400 in recovery fees for the repo. I had to call off Friday (no way to get to work) so I was hoping I could have it resolved and pick up the Jeep that day. I also wanted to see a dentist ASAP as well as head to Ohio for a wedding on Saturday. She told me that no matter what, it would take 24-48 hours and the earliest I could pick it up would be today (Monday).

I proceeded on Friday to fax in all the information I needed to send in and Dawn let me know that when I call in Monday, I could pay with my debit card and it'd be about 45 minutes until they could release my Jeep to me. After faxing the info, a call to Dawn confirmed that they did indeed receive our faxed documents. Here the waiting starts for the mysterious "processing" portion.

That brings me to (Monday). At around noon (Dawn said that all paperwork should be processed by 1PM), I called in to make the payment. She takes our information and informs me that one of the pages didn't come through the fax properly and I'd have to resend it. Why I wasn't told Friday, I have no clue. She said I could email it to her to make it easier for me. An option I would've loved from the start since it cost me $6 to fax from the only local place that offers outgoing fax services. I called soon after I emailed the document and she confirmed that she had it and said it would take just a little bit longer for it to process and that she would call us back. From here, there were about 4 phone calls from me to Chrysler and to Certified Auto Recovery Inc. to see if the release was processed, being met repeatedly with "Not yet" and "Just a little longer." Finally, at about 3:25PM, Dawn let us know that I could wait 20 minutes before calling Certified Auto Recovery Inc. to get info on how to pick up the Jeep.

Upon calling Certified Auto Recovery Inc., I'm then informed that I need $210 in cash to pick up the Jeep (storage fees) and that I'd have to wait until tomorrow to pick it up since they stop releasing cars at 4PM.

I was livid at this bit of information. I did all I could to get this resolved as quickly as possible, hoping to get it all done Friday, only to be forced into dragging it until tomorrow, plus this new fee was a delightful surprise.

I called Dawn back and she insisted that during our first phone call, she let me know that there would be additional "agent fees." From what I recall and noted when we spoke, that was the $370-$400 added on to the past due balance. She said I could try to haggle with the garage to get them to lower it, but Chrysler wasn't going to do anything about it. I explained that I was very angry being essentially extorted into paying these extra fees because of the speed that they handled it and she said that it wasn't her fault and that I could take issues up with customer service. She also enlightened me and said that some of her friends in the customer service department have said that online payments don't work when accounts are past due, which forces you to call in to make a payment. This would be fine with me if it actually said that instead of appearing to work, only to fail a week after submission. Not to mention I hate paying the associated fee when paying over the phone as opposed to paying online.

So here's the breakdown:

2 Months of Owed Payments + Late Fees = I'm ok with this. While I still need answers from Chrysler as to why my March and May payments were returned, I know that I should've followed up with it more. BTW, I spoke to my bank (PNC) and they said that they have no record of Chrysler ever attempting to take the money during those submitted payments.

$370 in recovery fees = I'm assuming this goes to pay the repo guys

(Those 2 items were paid directly to Chrysler)

Now, $210 in cash only are due to Certified Auto Recovery Inc. upon pickup for "Storage Fees" thanks to this 24-48 hour period for processing, stalling all day today, and of course their inability to have anything done over the weekend.

You'd think a company that's gone bankrupt wouldn't have such a hard time taking someone's money.

UPDATE: Sean paid the fees and got his Jeep back.

(Photo: bucklava)

Unamused, Massachussetts U.S. District Court Judge William Young upheld $275,000 in sanctions against Ameriquest and its lawyers (PDF). This quote from the bankruptcy judge speaks volumes: "It is worth repeating as a warning to lenders and servicers that the rules of this Court apply to them."

Much of the financial services industry apparently forgot, in the heady years of a booming economy, that they had to play by the rules. But they do. Paperwork and proof matter, especially when it comes to taking a home. Just because Ameriquest and its ilk have been securitizing—essentially a convoluted sale supposed to allow investors to shoulder profit and loss—their loans for years, that does not mean their intentions will hold up in a federal court.

Judge Young resorted to an Oscar Wilde quotation and a Thomas Nast cartoon to express his disgust at the conduct of Ameriquest and its lawyers, who apparently thought otherwise. As it turned out, Ameriquests's law firm had already tried to foreclose the loan—for Wells Fargo, and Ameriquest had given away all its important right in the securitization.

This ought to be a forceful reminder to the lending industry of why it matters who can produce the note.

$275,000 Sanctions in Mortgage Shell Game [Consumer Law & Policy Blog]

Sam Glover is a consumer rights lawyer, enemy of shady debt collectors, previous Consumerist contributor, and writes the Caveat Emptor blog. His column appears the first Monday of every month on Consumerist.

LAT:

Hickey knew she would need loans to complete her degree, so she went to the campus financial aid office as a freshman. After she filled out paperwork, Brooks Institute set her up in a loan program administered by Sallie Mae, the nation's biggest student lender. Sallie Mae was chartered by the federal government in 1972, and most of its business is in issuing federally insured student loans. But while it may appear to be a quasi-government agency, it is in fact a for-profit company whose stock trades on the New York Stock Exchange. Hickey ended up with $20,000 in low-interest federally guaranteed loans issued by Sallie Mae, and $120,000 in higher-interest private loans issued by Sallie Mae.

Has this happened to you? Leave your thoughts, and monthly payments, in the comments.

Student loans turn into crushing burden for unwary borrowers [LAT]

We'll update the post with more information as it comes in.

"Freddie Mac Official Dead in Apparent Suicide" [Washington Post]
"Freddie Mac CFO found dead " [CNN]

Update: Just to clarify a couple of points: Chrysler Financial and Chrysler are different companies, although both are primarily owned by the same private equity firm. Also, Chrysler Financial accepted a $1.5 billion loan earlier this year, making it a bit harder to explain away the most recent refusal as taking a principled stand against bailout money.

The Treasury Department previously had loaned Chrysler Financial $1.5 billion, when less stringent requirements on executive compensation were in place for recipients of federal bailout money. Since that first loan was announced on January 16, the Obama administration and Congress have toughened the rules.

[...]

During March, when it seemed that the first loan would run out, the Obama administration began working on a deal to lend the company another $750 million.

Quickly, most of the agreement fell into place. But on April 7, Treasury asked Chrysler Financial to have its top 25 executives sign waivers regarding their compensation, sources said.

Those waivers would have barred the executives from suing the Treasury or Chrysler Financial over new pay restrictions. As part of the economic stimulus package, Congress approved new executive compensation limits, and the Treasury is currently working on clarifying what the firms must do to comply with these rules.

Within a week, the company responded that some of the executives had refused to give their approval. By last week, Treasury had rescinded the loan offer, the sources said.

"Sources: Chrysler Financial Refused Government Loan Over Limits on Executive Pay" [Washington Post]

The Browns claim they were never told anything about this extortionate rate and are seeking legal action. "I ain't got no knowledge of spelling and writing, but the Lord gave me a good memory," says Kay Brown. "And I know they never said anything about 59 percent interest."

If you're wondering why they didn't read the fine print — well, it's because they can't read or use a computer, and were told by CashCall to have a friend help them apply for the loan on CashCall's website.

"I don't know how to operate one, because I can't read or spell," says Brown.

Thus began a series of unfortunate events. First, CashCall talked the Browns' nephew through the process — which they thought was only an application and not a binding agreement. Then, CashCall sent them more money than they requested. $3,000 more.

Finally, the Browns say that the interest rate was never disclosed.

"There's no way they would have accepted that loan with those terms," Ms. Brown's adult son told the local paper.

The couple has been making the payments faithfully all this time, and have paid back the principal of the loan — only to find out that they owe more than $15,000 in interest. They now have a lawyer and are suing CashCall. They're also hoping that the state will bring criminal charges against the company for using "straw man" lenders in South Dakota to skip around Tenneesee's 7.25 interest rate cap.

"They've attempted to circumvent Tennessee law," says Doug Rose, an attorney with the law firm of Stone and Hinds, which has filed a lawsuit on Brown's behalf in the General Sessions Court for Knox County.

East Knox couple claims internet loan company misled them, hid terms [Knoxville News Sentinel]

(Photo: miusam-ck)

(Thanks to Snarkysnake!)

"The people who are subsidizing the activities of the banks through their tax dollars are the same people who are furnishing the high profits through consumer lending," Ms. Warren told the WSJ. "In a sense, we're asking taxpayers to pay twice."

The article called out Bank of America for raising interest rates on their credit card customers, and Citibank for offering $5,000 loans — and not disclosing in the advertising that the interest rate was (brace yourselves for this) 30% .
Citibank said that the interest rates on the loan mentioned in the article "compare competitively to similar offers in the market," and Bank of America said that "To continue to offer competitive products and services and responsibly lend in this current environment, we must adjust our pricing."

Meanwhile, consumer advocates, including our own Consumers Union, have been keeping an eye on Pacific Capital Bancorp, a bank that accepted TARP funds and is issuing so-called tax-refund anticipation loans. These loans can come with an interest rate that exceeds 100%.

A spokesperson for that bank said that they were not using TARP funds specifically to issue RALs, but that the funds did allow the bank to be healthy enough to lend a "variety of loans."

Wells Fargo and U.S. Bancorp were called out for offering "checking account advance" loans that carry an interest rate of 120%. These loans allow customers to borrow against presumably forthcoming direct deposits.

Bailed-Out Banks Face Probe Over Fee Hikes [WSJ]
(Photo:frankieleon)

"AmTrust says, "We love you! Really!"" [JustShootMeNow]
(Photo: Caitlinator)

"While they may not be JP Morgan Chase or Bank of America, they're very powerful. Their influence should not be underestimated," Gutierrez, the top Democrat on the Financial Services subcommittee in charge of consumer credit issues, said in an interview this week.

Indeed, the payday lending industry is strenuously resisting Gutierrez's measure, which it says would devastate its business. The measure would cap the annual interest rate for a payday loan at 391 percent, ban so-called "rollovers" - where a borrower who can't afford to pay off the loan essentially renews it and pays large fees - and prevent lenders from suing borrowers or docking their wages to collect the debt.

A newer player representing Internet payday lenders - a growing segment of the market - also ramped up its lobbying and political giving efforts. The Online Lenders Alliance, formed in 2005, nearly quintupled, to $480,000, its lobbying expenditures from 2007 and 2008. It contributed $108,400 to candidates in advance of the 2008 elections compared to about $2,000 in the 2006 contests. Gutierrez was among the top House recipients, getting $4,600, while the top Senate recipient was Sen. Tim Johnson, D-S.D., a Banking Committee member who got $6,900.

After watching members of the military fall prey to exorbitant payday loans, Congress in 2006 capped the interest rates for military payday loans at 36%. Fifteen states have similar caps or outright bans.

Congressman Gutierrez is competing with Congressman Joe Baca to see who can author the biggest giveaway. Baca's legislation would allow rollovers, higher fees for online banks, and would pre-empt state laws banning payday loans.

Someone—maybe Carolyn Maloney, who did an excellent job with the Credit Card Bill of Rights—needs to step up and punch the payday lending lobbyists in the face.

THE INFLUENCE GAME: Payday lenders thwart limits [AP]

Enjoy.

A Big Ass List Of Student Loan Resources

FinAid's calculators can help you figure out how much school will cost, how much you need to save and how much aid you'll need. FinAid also has basic information about different types of loans, scholarships and military aid.

Student Loan Borrower Assistance, a project of the National Consumer Law Center, provides resources for people who already have student loans and want to know more about their options and rights. This website provides good information for people who are having trouble playing their student loans, and want more information about federal student loan rehabilitation (PDF), student loans and bankruptcy, and collections. They also provide information on where to go for help, including legal assistance.

The US Department of Education has information for those of your preparing for college, including help choosing a school, and applying for financial aid. For in depth information, check out Funding Education Beyond High School: The Guide to Federal Student Aid.

If you are having serious problems with your federal student loans, the FSA Ombudsman is there to help. In addition to personalized assistance, they offer tips for dealing with your loan servicer. To find out who is servicing your loan, use the National Student Loan Data System.

If you're considering applying for a private loan, check out these questions that you'll want to ask your lender, from the Project On Student Debt.

The Project on Student Debt also provides a guide for people already repaying their student loans that covers what borrowers need to know about the changes that take place each July. Expect a new guide each year.

The Federal Trade Commission provides a guide to deceptive student lending offers and how to avoid them. (PDF)

Bankrate has some basic information about financing you education, including help comparing 529 plans if you're saving for your child.

If you're interested in consolidating your loans, check out the US Department of Education: Loan Consolidation site.

For those of you shopping for student loans, MyFICO has information about how it will affect your credit score.

Wondering about the deadline for turning in your FAFSA? Here's a list of the federal and state deadlines.

(Photo:foundphotoslj)

Grant Or Loan? There are arguments on both sides, but if you're going to give a gift, then make it an actual gift. Granting a debt-laden person another loan is only going to cause more anxiety.

Ask Or Act? Some people are too proud to accept help, even if it's needed. Offering assistance can be a gift by itself, even if your offer isn't accepted.

Act Alone Or With Others? It might seem strange to discuss a friend's financial situation with a third party, but consider if the situation is broadly known or doesn't have direct roots in unemployment.


In late January, Steven Roy lost his job, which provided health insurance for his family. A few weeks later, his infant son Isaac, who is known as Ike, was found to have a life-threatening illness. Within hours, friends of the family from the AustinMama Web community in Texas had erected ikeasaurus.com to coordinate help for the family. A few hours later, there was $4,000 in a PayPal account with the Roys' name on it.

Anonymous Gifts?: Giving through your local religious community may be easier than handing over a gift. You can also use the group Giving Anonymously as a middleman. Sue Barnet, who received a $200 check in the mail said: "I come from a family of extraordinarily independent women, very determined. Sometimes that's not such a good thing. I think I would have just been too embarrassed to accept a direct gift."

Cash Or Other Payments?: Cash is the most direct and flexible gift you can offer, but if you want slightly more control over the gift, you can help pay for things that the recipient's children need, like music lessons or camp. If you aren't in a position to offer cash, consider giving frequent flier miles, although redeeming them might be more of a hassle than a gift.

Helping Out With Cash: A Delicate Art [The New York Times]

Sam writes:

Please help me! I made the mistake of having my taxes done at H&R Block this year, and further made the even bigger mistake of getting a Refund Anticipation Loan on their Emerald Card.

The woman who did my taxes initially made several mistakes on my taxes, including my home address. Somehow H&R Block has, after repeated phone calls, been unable to even change my address to the correct one.

Currently, most of the money I have left on my "Emerald Card" is being held in my pending transactions. This is mostly for purchases that were denied - due to lack of funds - because I was unaware they were holding large sums of money for a company I have NEVER made a purchase from!!! Upon contacting H&R Block, they tell me I must contact the companies who are supposedly holding the money. Unfortunately, none of these companies - there are four - were able to help me. Why? They aren't holding anything!

Calling the 866 number provided on the back of the card proves useless. I have been hung up on (and still charged two dollars PER CALL) three times; I have been told that the customer rep in one case "didn't know what the problem was" and asked me to call back in an hour. One gentleman was actually able to help me and reverse about forty dollars worth of charges. Another lady later explained to me that he was able to do this because they were "duplicate charges". Which does not in any way explain why:

• 1. one of the charges he reversed was in fact the only charge from the company anywhere on my statement. and
• 2. why three exactly identical charges from another company entirely cannot be reversed.

She claimed that company was holding the money. This is in fact one of the companies that has said they cannot do anything because they are not withholding anything.

At this point, I am frustrated and angry and ready to just walk away from my money. H&R Block has completely failed me at every opportunity with their customer service.

A hint of irony in all of this - my roommate also has an H&R Block Emerald Card. She went to a different location then I did to have her taxes done originally... and she has had no problems whatsoever with her card. None. Even though she has shopped at all the same retailers I have.

Yeesh, there's no easy way to clear up this mess. The mystery hold may eventually dissolve, but unless H&R Block is willing to act, there's really very little you can do.

This is one of the many reasons we call refund anticipation loans the worst tax product ever. Stay away from them!

THEN | NOW
Best credit score: 680 | 720
Down payment: 0-10% | 10-20%
Debt-income ratio: 55-60% | < 41%

[via USAA Magazine (PDF)] (Photo: me and the sysop)

CoarseLive writes:

Last week after learning about President Obama's mortgage assistance programs, the news said to go to mortgage company websites to learn more about how each company was handling these proposals. Last week, I visited CitiMortgage.com. Attached is a picture of their website prompting the visitor to learn about the new programs they have available for homeowners. I followed the links, and inserted my information. After that was completed, their service prompted me to schedule an appointment with a representative. The screen capture of that prompt is also attached. I schedule an appointment for today for between 9:30 and 10:00. I took off work to wait for the call, that way I would be here with all of my information and papers.

After I received no call, I began calling Citi. I was transferred to 4 agents, all of whom had no idea what I was talking about and told me, unequivocally, that Citi doesn't schedule calls with customers online. I walked the final agent in the Loss Mitigation center through their website, and the agent Jeremy Mirchal in the Missouri office told me that the option doesn't exist. That "I'm being told that no one here is aware of that, and that it doesn't exist." He repeated that "we don't call customers."

I asked Jeremy to transfer me to his supervisor. He said he would. Then he transferred me back to India, and I was promptly disconnected.

After being hung up on, I called back and found my way back to CitiMortgage's Loss Mitigation office. I spoke with another person named "Jeremy." I explained my situation, and he put me on hold. He told me I had to talk with customer service. I told him that all of my calls began with Customer Service, and that I would like to speak with a supervisor. He said yes, and then transferred me to Customer Service.

Once Customer Service was on the line, I explained that I was "accidentally" transferred from Loss Mitigation. They then hung up on me.

(Photo: Panorama of the City of New York)

Rocky writes:

I am writing this letter to state unequivocally the damage that is being inflicted upon not only this citizen, not only this economy, but every honest and hardworking individual in this country that has, for the past months, and continues to be, held hostage by the Banking Industry of this country.

I like many who have been impacted have had all credit lines blocked, or closed. Not because I have ever overdrawn the accounts (I haven't), not because I have ever been late for any payment (I haven't), not because I have ever incurred NSF charges in any account in any bank (I haven't).

I am being held hostage, and have effectively had all of my accounts frozen or locked. I have (or the better word would be had), overdraft protection on my primary checking account, which is with Bank of America. This overdraft line is used as a lifeline by me to balance out obligations when I need to use it. It is routinely flat lined (zeroed out), every 60 to 90 days max. With no warning whatsoever, this account along with three other lines of credit with Bank of America has been locked. I have called Bank of America, and spoken with numerous account managers, all to no avail. Just to get this line unfrozen. On my last call, I was advised to contact a credit counselor.

I always have, and continue, to handle all of my credit responsibly, and the fact they (BOA) could find no late payments, and all payments were substantially over the minimum required, and all accounts have been continuously reduced, was of none of their concern.

I now state something that is an undeniable fact that is presently going on in this country as I sit composing this letter. The Banks in this country are not part of the problem, they are the problem. There are undoubtedly millions of small business men and women such as myself, who have worked hard to build up good credit records so they may have access to credit when they need it, but have had credit lines, and financing needed for their business frozen, locked or terminated.

The Banks in this country, particularly Bank of America are forcing millions of Americans into involuntary bankruptcy. I write this letter, not for myself, as I am not there yet, but I see the pain on the faces of many of my fellow citizens who I know are.

To add insult to injury, one line that I have used that did have a 5% rate, has jumped to 24.99% while simultaneously being locked. When I called Bank of America to see about reducing this rate for the remaining balance, I was read their standard script that there was nothing less available. Again, as I have stated previously, the Banks in this country (Bank of America) in particular are contributing in a large way to forced involuntary bankruptcy and default of millions of American citizens.

When credit will loosen up, is no longer the question. I fear the real question we must now come to grips with is IF credit will loosen up. The brutal truth is I can see no hope if Banks are allowed to punish responsible productive individuals and businesses with financial strangulation. They have clearly become so fearful of giving bad credit out, they now give NO CREDIT out. These Banks need to watch "It's a Wonderful Life" until THEY get it.

I am employed in Engineering by a major aerospace company, and I will very soon have my third Masters Degree and my second MBA. You don't have to be a rocket scientist to be able to figure this out, but if it was required, I qualify. In addition I have a second business and am a Licensed Real Estate Broker. In spite of the downturn in the Real Estate market in Arizona, I would be able to weather this economic storm if only the banking industry would be reasonable, but along with credit these are two commodities that are in short supply these days.

Respectfully,

Rocky W.

(Photo: jurvetson)