Mortgage Defaults Overwhelming

Credit counselors overwhelmed by U.S. mortgage crisis

By Andrea Hopkins Thu Mar 22, 8:26 AM ET

CINCINNATI (Reuters) - Until last year, financial counselors at the Home Ownership Center of Greater Cincinnati spent most of their time teaching Americans how to buy a first home. Now, they’re deluged by broken and bereft homeowners facing foreclosure.

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“Oh Lord, there is no way we can keep up with these calls,” said Kaye Britton, a foreclosure counselor at the downtown nonprofit group that promotes home ownership to minority Americans, among others.

Britton has been helping clients reach the American dream of owning a home since 2002. Handmade wall signs urge would-be buyers to “sweat the small stuff” and note the lender’s golden rule: “They have the gold, they make the rules.”

Foreclosures were formerly rare, caused mostly by the loss of job, divorce or medical bills.

But when rising interest rates began driving up mortgage payments last year, homeowners started to feel the pain. Phones at credit counselors across the country are now ringing off the hook.

The industrial heartland has been particularly hard-hit. Ohio had the highest number of home foreclosures in 2006, while neighboring Michigan and Indiana — all sideswiped by the faltering U.S. auto industry — were close behind.

Housing analysts predict between 1 million and 3 million U.S. homes will be foreclosed upon in 2007. Already a wave of defaults on subprime mortgages held by those with poor credit have caused a crisis in parts of the industry, and some economists believe a recession could result.

“We knew it was going to be bad, but we didn’t think it would be this bad,” said Britton, echoing many who warned that increasingly exotic mortgage programs — including those that required no down payment on home purchases — would come back to haunt home buyers.

PREDATORY LENDING

Subprime loans allowed many Americans with spotty credit to buy into the housing boom, driving home ownership to nearly 69 percent nationwide in 2006, up from 65.4 percent a decade earlier. But teaser rates that kept interest payments low for two or three years have begun to expire, driving monthly payments through the roof.

Shanna Smith, chief executive of the National Fair Housing Alliance, said lenders often targeted the most vulnerable borrowers for subprime loans, even if they were eligible for loans with lower rates. More often than not, the borrowers had little understanding of mortgages.

“All the predatory lending that has gone on, all of the pushing of exotic loans on people of color, female-headed households, families with children, people with disabilities — it’s all coming home to roost,” Smith said.

Britton said borrowers and lenders share the blame for the crisis. She sees many borrowers who simply didn’t understand their interest rate was only fixed for two or three years, then could rise along with market rates.

“That’s all they hear — that it’s fixed, not that it’s only fixed for the first two years,” Britton said. “They don’t know their payment’s gone up until they get the notice in the mail. And then they don’t have the money.”

Not all of the problem is in the subprime market. Many Americans with good credit but low income or no savings signed up for adjustable rate mortgages or interest-only loans to get into the market. As rates rise, they too feel the pinch.

At the nonprofit Consumer Credit Counseling Service in suburban Cincinnati, counselor Darcy Blankenship sees a steady stream of people who knew their payments would be going up, but signed the loan anyway because they just wanted a house.

“People are so excited about wanting that house, they don’t look at the whole picture. They just want the keys,” she said.

CREDIT COUNSELING

Demand for counseling appointments at CCCS’s Cincinnati offices has risen 87 percent from a year earlier.

Blankenship said one client started out with a 3.9 percent interest rate on his 30-year mortgage. Now it’s rising to 11 percent — and he can’t meet the higher payments because once he bought the home he piled up debt furnishing the home.

“Now he can’t refinance either, because of the debt. He just said, ‘There’s no way,”‘ she recalled.

Once borrowers fall 90 days behind on payments, lenders can start the foreclosure process, which can take up to a year. Owners can try to sell the house, but with prices falling and foreclosed homes flooding the market, borrowers often end up still owing more than they can get for the house.

Britton said people should call a reputable credit counselor as soon as they’re in trouble. Loans can be restructured, and emergency funding may be available. But she admits the counseling industry is already overwhelmed.

“If I stop answering calls to actually talk to a client and help them, the messages pile up, and there’s no time to call them all back,” Britton said. “It’s only going to get worse.”

New Study Reveals ID Theft on the Rise

“Gartner’s study, released Tuesday, shows that from mid-2005 until mid-2006, about 15 million Americans were victims of fraud that stemmed from identity theft, an increase of more than 50 percent from the estimated 9.9 million in 2003.

It should be noted that the 2003 statistics and the mid-2006 statistics came from two different sources–and hence, two different statistical methodologies. The original 9.9 million figure came from the Federal Trade Commission, whereas the 15 million statistic is Gartner’s own.

For its study, Gartner surveyed 5,000 U.S. adults who use the Internet. The research firm found that identity theft victims are losing more money and getting less of it back.

According to Gartner, identity theft victims are also recovering less of the lost cash. In 2005, an average of 87 percent of funds were recovered; in 2006, that had dropped to 61 percent.”

Heightened Regulations Required?

FDIC Federal Register Citations

---

May 21, 2006

Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington DC 20551

Submitted by e-mail:

Dear Secretary Johnson:

Introduction
Springboard Nonprofit Consumer Credit Management appreciates the opportunity to submit the following comments on the procedures to enhance the accuracy and integrity of Information furnished to consumer reporting agencies under Section 312 of the Fair and Accurate Credit Transactions Act.

Springboard offers assistance with financial literacy and credit life empowerment through confidential counseling and education programs for financially troubled individuals. Our experience with consumer credit reports confirms the results of prior studies that have found a high enough incidence of errors serious enough to cause consumers to be denied credit, a loan, an apartment or home loan or even a job.

We would urge regulators to formulate and enforce rules that strictly govern the practices of all data furnishers, and would encourage a special focus on junk debt buyers and any sellers of bad debts. They should be subject to strict standards of accuracy and integrity and onerous remedies for unlawful behavior. In general, we advocate that the Federal Reserve Board take the approach that direct dispute processes with all data furnishers need to be enhanced and not restricted.

Junk debt collecting is a settlement driven business model and the consumer is brought to the table by aggressive and often illegal credit reporting tactics. These tactics include failure to report the original creditor, the original open date and the date of last activity. These tactics can extend the reporting of the collection. Also, duplicative reporting of the same collection account after it has been sold to a 2nd or 3rd debt buyer is an issue. Recent years have seen the proliferation of junk debt buyers who prey upon consumers to collect expired debts or even debts that don’t belong to a consumer. Their method of collecting has as its primary strategy the tactic of immediately stinging the credit report in order to force a settlement, often mis-representing the debt as more recent than it really is and/or reporting the debt as revolving, which is inaccurate and which causes the score to further decrease since the “utilization factor” calculates higher than it should. If the consumer goes along and settles the debt this has the perverse impact of causing the credit score to plummet further (since activity has been updated to the current time period). Medical service providers, health clubs and other future service providers are also selling their charged-off accounts to junk debt buyers.

We are especially concerned about junk debt buyers as a particular class of data furnisher and user of credit reports because of the disproportionate impact we are seeing on disadvantaged consumers who lack understanding and resources for dealing with the U.S. credit reporting systems. These disadvantaged groups include minorities, our nation’s youth, low moderate income consumers, non-English speaking consumers, our military, and bankruptcy filers.

Youth are vulnerable to abusive credit reporting practices. For example, our nation’s youth has grown up with cell phones. Recent years have seen cell phone and other telecom providers become very active in the junk debt markets, selling off their charged off debt to this breed of collection agency who then subverts the credit bureau reporting systems for their own collection purposes. This has caused a lot of “pollution” to appear in the U.S. credit reporting system, which then proliferates for years beyond the reporting statutes of limitation. For example, a young person may cancel their cell phone service and be charged a “termination fee”. One could argue that this is not a true extension of credit and does not belong in the credit reporting system. The “service” is not being used anymore – thus there is no real non-payment for goods and services that have been used. There may have been a commitment to use future services, however, this is not an extension of credit in its true sense and youth are usually not fully cognizant of the impacts of contracts that cell phone providers deploy and deceptive sales practices are common in this industry.

This agency sees many students whose credit reports and credit scores have been damaged in a predatory fashion by these operators. In addition to the inappropriateness of having this type of account in the credit bureau reporting systems in the first place, many of these accounts are far beyond the statutes of limitations for either collecting or reporting.

When consumers dispute inaccurate, obsolete or erroneous information to the consumer reporting agencies, they must send proof of their identity, such as driver’s license, proof of address and copy of social security card. The response often received from the consumer reporting agency is a stalling tactic type of letter requesting the same information that was just provided - which delays the investigation process and requires the consumer to re-send their dispute letter with proof of identity at the consumer’s time and expense.

In 2005 two million households filed for bankruptcy. This was an astounding statistic and
inaccurate reporting of bankruptcy is rampant on the part of credit grantors, collection agencies, and other data furnishers. For example, oftentimes an account is shown as an open charge-off when it was included in a bankruptcy filing and discharged and thus should be shown at a zero balance. Junk debt buyers will exploiting the unprecedented bankruptcy wave that occurred in 2005. These filers will face severe credit report impacts from their bankruptcy for many years that will be compounded by duplicative reporting of discharged items that are still showing as open. In addition to negligent reporting, we predict that there will be more instances of deliberate and predatory practices by certain collection agencies and credit grantors who contact bankruptcy filers to try to get them to repay debts lawfully discharged through the U.S. bankruptcy system.

We applaud any efforts that will improve the accuracy of credit reports and that will improve and simplify how we handle inaccuracies and disputed items on our credit reports. Credit reports and the scores derived from them determine or at least greatly influence access to housing, unsecured credit lines, insurance, utility and cell phone services, and employment. It is imperative that the underlying data be correct for credit scores to have any meaning and for consumers to accept the validity of credit reporting and scoring.

Damage has been done to the integrity of credit reporting and scoring from all sides of the credit granting and receiving spectrum: 1) from the credit bureaus who are in control of these databases and responsible for their accuracy and integrity and accountable to consumers, 2) from the creditors, collection agencies, and junk debt buyers who have employed incomplete credit reporting methods as a defensive marketing tactic, or unethical and even predatory credit reporting tactics that serve to manipulate credit scores deliberately, and lastly, 3) from consumers themselves who resort to aggressive or even fraudulent methods of credit repair to create a falsely positive credit history for themselves, albeit many times out of necessity due to unresponsiveness and irresponsibility on the part of bureaus and data furnishers.

Enhancement of consumer protections and consumer empowerment through broadened direct disputing means and remedies will be a powerful tool for regulation. We urge you to use it. We also urge you to continue to seek the engagement of community based organizations and consumer and privacy advocates as rules are formulated. Thank you for your consideration of these comments.

Respectfully,

Dianne L. Wilkman
President
Springboard Nonprofit Consumer Credit Management
4351 Latham Street
Riverside, CA 92501
951-781-0114, ext. 702
951-781-9896 fax
dianne@credit.org

About Springboard Nonprofit Consumer Credit Management
Springboard, a nonprofit credit counseling and education organization founded in 1974, offers assistance with financial education through a variety of confidential counseling and education programs for consumers. Springboard is accredited by the Council on Accreditation of Services for Families and Children, signifying high standards for agency governance, fiscal integrity, counselor certification and service delivery policies that ensure low-cost confidential services performed in an ethical manner. Springboard is a member of the National Foundation for Credit Counseling, is a HUD approved housing counseling agency and is also approved by the Executive Office of the U.S. Trustees as a bankruptcy counseling and debtor education provider. Springboard has counseling locations throughout Southern California offering face-to-face, online and nationwide phone counseling and education services. For more information on Springboard visit their web site at www.credit.org.

Common Mistruth’s Told By Collectors

Debt Collectors May Say Anything To Get You To Pay!

Published by Linda J. Hamm, Attorney at Law March 15th, 2007 in General Bankruptcy Information, Texas and Debt Collector Abuses. Tags: bankruptcy attorney, collection, debt and bankruptcy, debt collectors, fair debt collection practices, garnishment.

You are behind on some of your payments, and it seems like the phone won’t stop ringing with calls from debt collectors. You have been told many things by the debt collectors, and just don’t know how much of what you hear is true. Some of the things you’ve been told may be similar to the statements below:

• “The lawsuit is in the mail.”
• “I checked, and you don’t qualify for bankruptcy.”
• “They changed the laws so you can’t file bankruptcy now.”
• “We can take your house if you don’t pay your debt.”
• “We’ll garnish your pay if you don’t pay your debt”
• “We’ve sent the police over to your house to collect the debt.”

The truth:

• Lawsuits are generally brought to you in person
• A practicing bankruptcy attorney is the best person to tell you whether or not you qualify for bankruptcy.
• Bankruptcy is definitely still available.
• Most states have laws that protect your home and other essential assets from your creditors.
• Garnishment is not available to all creditors in all states. For example, in Texas only child support creditors and federal government creditors such as the IRS and student loans may garnish wages.
• And lastly, the police and the sheriff’s departments are not debt collectors, and would be unlikely to arrest someone for failing to pay debts which are not for court fines or criminal restitution.

According to the Fair Debt Collection Practices Act debt collectors are not supposed to say things which are not true in order to collect debts. See Stephen Otto’s blog entitled Debt Collectors Step up the Fight with War Training.

If you are receiving calls from debt collectors, you need to visit with a local bankruptcy attorney to find out what options are available to you.

CAMCO Settlement Reached

For Release: March 12, 2007

Debt Collector Settles With FTC for Abusive Practices

The final defendant in a case that brought a $1 million settlement with the Federal Trade Commission in December for illegal debt collection practices has agreed to settle FTC charges that he threatened and harassed consumers to get them to pay old, unenforceable debts or debts they did not owe.

Under the settlement, Joshua Rausch is prohibited from engaging in debt collection activities or assisting others engaged in debt collection activities. If he has misrepresented his financial condition, a $15 million judgment, representing the minimum amount of consumer injury, will be imposed against him.

Rausch was among several individual and corporate defendants, including Capital Acquisitions and Management Corp. (CAMCO), charged with violations of the Federal Trade Commission Act and the Fair Debt Collection Practices Act. The other individuals are subject to the same prohibitions under previous settlements reached with the FTC. In December 2006, pursuant to a settlement entered by the court involving the FTC, CAMCO, and CAMCO’s largest creditors, CAMCO agreed to pay $1 million in ill-gotten gains to the FTC.

CAMCO, which was permanently closed by the court-appointed receiver in December 2004, was a “debt buyer” – a company that buys and attempts to collect delinquent debts. Most of the debts that CAMCO attempted to collect were well past the statute of limitations, and therefore unenforceable in court. Many of the debts also were more than seven years old, and therefore beyond the credit reporting period allowed under the Fair Credit Reporting Act.

The other parties named in the FTC complaint are RM Financial Services Inc., Capital Properties Holding Inc., Caribbean Asset Management Ltd., Reese Waugh, Jerome Kuebler, Eric Woldoff, George Othon, Jeffrey Garrington, David Kapp, Michael Seng, and Billy Martin.

The Commission vote to authorize staff to file the stipulated final order for permanent injunction was 5-0. The order was filed in and entered by the U.S. District Court for the Northern District of Illinois, Eastern Division.

NOTE: This stipulated final order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.

Copies of the complaint and stipulated order are available from the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov/ftc/complaint.htm. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad.

MEDIA CONTACT:

Frank Dorman,
Office of Public Affairs
202-326-2674

Citibank Elects To Rise Above

Last week, Citigroup dropped two of the most criticized features of its credit cards: universal default and anytime interest rate changes. As Professor Elizabeth Warren notes, millions of customers will now get a better deal.

Universal default, a common practice among credit card issuers, is when the company increases a consumers’ interest rate when that consumer is late paying other creditors’ bills. The “anytime for any reason” rate increases, lets the company to raise interest rates and change terms at any time and for any reason.

The Citigroup shift is a reminder that the card companies can be forced to change their policies. Recent hearings in the U.S. Senate directed tough questions to the credit card issuers. The senators made it clear that they believed they had found an economic issue that matters to a lot of families.

And how can this change make a difference in your life? If you have a Citibank credit card, pick up the phone and call them today. Tell them that you know they dropped their universal default charges, and you want them to lower your rate back to what it was before they jacked it up. Citigroup has indicated that the policy change will go into effect for current customers in April, but you may be able to get them to make the change for you a little earlier.

Debt Purchaser Increases Litigation

Encore Capital Group Inc. spent $63.6 million to buy $1.4 billion in face value of debt during the fourth quarter, for a blended price of about 4.5 cents.

The company purchased portfolios that included credit card accounts, auto deficiencies, healthcare receivables and consumer loans.

Encore’s facility in Phoenix is now focused on healthcare receivables and has agreements with four hospital groups, President and CEO J. Brandon Black said during today’s conference call with investors and analysts.
Black noted that because credit card issuers’ losses were low last year, they sold less debt even as the pool of buyers has increased, which continues to put upward pressure on prices. “We will not see pricing drop to levels seen earlier in the decade,” Black said, adding, “We have built our business around the assumption that pricing won’t come down.”

Legal placements and legal collections were at an all-time high during fourth-quarter 2006. Legal work represented 36% of total collections revenue last year.

During 2007, Encore expects to spend $20 million on court costs and anticipates investments in its legal strategy to yield almost $80 million in incremental collections and revenue over the life of the accounts. This compares to an original expectation of only $16 million, Black said.
Asked if there is an upper limit of accounts Encore would consider suitable for collections, Black replied, “We continue to expand the definition of what is eligible for our legal strategy,” so the litigation strategy will continue to grow.

© 2007 CreditandCollectionsWorld.com and SourceMedia, Inc. All rights reserved

Debt Purchaser On The Losing End

Asset to Close Offices, Revamp Purchasing Strategy

Last year was a tough one, admit executives at Warren-Mich.-based debt buyer Asset Acceptance.
After a year of declining profits, the company will close two of its offices and focus on purchasing “higher-quality” portfolios in 2007, said CEO Brad Bradley.

“2006 will be remembered as a period marked by intense competition, changing industry dynamics and declining profitability,” Bradley told analysts March 1. “For the last three or four years, prices continued to increase, partly due to the influx of well-funded institutional investors and private equity investors.”
But despite what Bradley termed “elevated, almost irrational” prices in 2006, Asset invested a record amount during its fourth quarter — spending $62.2 million to purchase bad debt portfolios with a face value of $2.5 billion. About 80% of the purchases were credit card portfolios, Bradley said.

“The supply of portfolios coming to the market has been strong,” Bradley said. “I’ve been talking about moving into better-quality, higher-priced portfolios and we have dabbled in that and we like the results.”
Like other debt buyers, Asset is increasingly focused on legal collections. Its legal collections grew 12.1% to $32.2 million for the fourth quarter from $28.7 million during the same period last year, and grew 16.8% for the year compared to 2005.

In contrast, traditional call center collections increased less than 1% to $38.1 million for the fourth quarter 2006 compared to $37.9 million during the same period last year, and declined 1% for the year compared to 2005.
Indeed as the company closes its White Marsh, Md. Office, it will retain its in-house legal counsel there, said Bradley. Some of the other employees will be offered jobs at other locations.

Asset is also closing its Wixom, Mich. Office, and it will offer all those employees the chance to relocate to its headquarters in Warren, Mich.
Asset’s turnover rate dropped to 69.5% in 2006 from 78.8% in 2005, according to its annual report.
Bradley says the company has a collection expectation of earning three times its purchase price over 10 years. The company expects to recover 2.4 times the purchase price during the first five years, and the remaining .6 during the next five years, he told analysts.

The company’s board and senior managers spent 2006 analyzing the company’s weaknesses and coming up with a strategy for increasing profits. Details are scant, but the plan includes more sophisticated data analysis, more legal collections and continuing to buy diverse asset classes like telecom.

“We have a very strong plan in place that’s going to give us the confidence and ensure that we’re going to be able to deliver the numbers we need to,” Bradley said.

© 2007 CreditandCollectionsWorld.com and SourceMedia, Inc. All rights reserved.