When the New York Times recently published an article about debt collectors going after patients waiting to be seen in the emergency room, even I was shocked. I do this work day in, day out and have seen more headlines than I care to remember about unaffordable medical care, the damage it can do to…
Housing Regulator Nears Decision On Principal Forgiveness
Collections & Credit Risk | Thursday, April 5, 2012
A decision by the Federal Housing Finance Agency on whether it will allow principal reduction on loans owned by Fannie Mae and Freddie Mac is imminent, the agency’s leader said Wednesday.
Edward DeMarco, acting director of the agency, said FHFA would make a final determination later this month, a resolution that Treasury Secretary Tim Geithner hinted at during congressional hearings last month.
“We are currently evaluating the recent Treasury Department proposal to HAMP regarding principal forgiveness and expect a decision this month,” DeMarco said in a speech before the Boston Security Analysts Society.
Most observers suspect that Fannie and Freddie will wind up doing more principal write-downs, but it will likely be fairly modest in both size and scope.
“The handwriting is on the wall,” said Brian Gardner, a political analyst with Keefe, Bruyette & Woods. “In some ways, it will be consistent with everything else in housing and all the different policies and iterations of policies, it’ll be incremental. We’ve haven’t seen major shifts. We’ve seen modest steps along the way.”
Principal reductions have emerged as a crucial issue in efforts to work out troubled loans threatened by foreclosure. An array of experts and officials have cited research showing write-downs as perhaps the only broad-based way to resolve bad credits short of mass foreclosures. But the government-sponsored enterprises, as well as others in the industry, have resisted such reductions.
In a sign of growing dissent, 30 U.S. senators sent a letter to DeMarco on Wednesday urging him to provide Congress within 30 days with accurate analysis of the effects on taxpayers of using principal forgiveness compared to other modification programs.
“We believe that FHFA must be fully transparent with this new analysis and look at targeted solutions for borrowers in different situations, rather than the ‘all or nothing’ approach that was used in the previous analysis,” wrote Sen. Robert Menedez, D-N.J. chairman of the housing subcommittee and others.
In January, the agency, which regulates Fannie and Freddie, was asked by Treasury to reexamine its position on forgiving struggling borrowers’ mortgages based on a new set of incentives included under the Obama administration’s revamped Home Affordable Modification Program.
The White House is hoping that significant changes to the program will help extend its reach in the number of borrowers it can help refinance into cheaper loans.
But ultimately the final outcome will rest with DeMarco, a fact even Geithner acknowledged last month.
“The administration does not have any authority to compel the FHFA to undertake specific activities and under the conservatorship mandate they will have to make sure they meet a very tough test, appropriately so,” said Geithner at a recent hearing. “He’ll have to make these choices.”
Still, that hasn’t stopped the administration from trying to wield its influence on the final outcome.
A blog post by Michael Stegman, a counselor to Geithner on housing finance policy, sought to rebut recent claims that large banks will receive a windfall if the GSEs reduce the principal balance on first-lien mortgages they own. Taxpayers, he said, would be protected from this result, based on the alternative modification program Treasury has asked FHFA to examine.
Analysts said that Treasury has been pressuring DeMarco to change his position, even if slightly.
“Treasury absolutely wants this to happen and is in active conversation with FHFA,” said Edward Mills, a financial policy analyst at FBR Capital Markets. “They’re looking to try to figure out what gets DeMarco to yes.”
The trouble that may arise, however, is that under Treasury’s triple incentive program there will be some cases were principal reduction makes sense, but other cases where it doesn’t, depending on a borrowers’ loan-to-value ratio and length of delinquency. That could derail efforts to get DeMarco on board.
It will be a critical decision how policymakers discern whether it will be acceptable to apply principal reductions only to certain loans, the whole program, or none at all.
“At the end of the day, I think there is going to be some way of doing principal reduction,” said Mills. “I don’t think the program that Treasury has announced is going to do enough to meet what Ed DeMarco and what FHFA needed to see to sign on to it. I think there’s going to be some level of negotiations, back and forth, where they are going to be able to use principal reduction as a tool, but not as a requirement.”
DeMarco has been sharply criticized for his reluctance to forgive struggling borrowers’ mortgages as a tool to help put an end to the rising number of foreclosures impacting Americans.
I learned early in my adult life that when cash was short, pay the bills that keep the lights on and a roof over my head and of course wheels to get to work, all else— pay them when you can and of course suffer the consequences. Consumers have a completely different theory in today’s environment. Since the banks are not so quick to boot them out of their home, the strategy on paying creditors has changed. I never would have EVER guessed I would see this day. Unsecured Debt gets priority?? WOW. Check out this article, let me know what you think
The trend of U.S. credit cardholders putting credit card payments ahead of mortgage payments that began in early 2008 shows no sign of abating in the immediate future even as the economy gradually improves, a team of TransUnion LLC analysts contends.
Despite a recent uptick in credit card delinquency rates, the proportion of consumers falling behind on monthly credit card payments remains at near-record lows across the U.S., according to credit bureau data TransUnion analyzed.
TransUnion’s analysis stands in contrast to a recent report from Auriemma Consulting Group, which suggested consumers are starting to put a higher priority on making mortgage payments over credit card payments.
Auriemma conducted a survey in September of 509 U.S. credit cardholders. The findings suggested that 77% of consumers were giving mortgage payments the highest priority, followed by 52% who cited utility payments and 38% who cited credit cards. The study illuminated a reversal of consumer sentiment compared with a similar study the firm conducted in 2009.
TransUnion declined to comment on Auriemma’s study.
Citing its data from recent years, TransUnion says before 2008, consumers for decades tended to pay their mortgage first “because it was their greatest asset,” Steve Chaouki, group vice president for TransUnion’s financial services unit, tells PaymentsSource.
But the crash in home values that began in 2008, coupled with rising unemployment, caused consumers for the first time to begin putting a higher priority on making credit card payments over mortgages and auto loans.
“Consumers see that as their home values declined, credit cards represented liquidity, which is a more valuable commodity during an economic crisis,” Chaouki says.
The economy may be improving, but the underlying factors that put credit cards at the top of the bill-payment hierarchy persist, he says.
“We may see the payment hierarchy revert to the more- traditional setup where people pay their mortgages first when there is some real home equity to protect, or when credit becomes so freely available that it won’t be seen as a rare commodity to preserve,” Chaouki says.
It “will probably be a long time” before consumer credit lines, which many lenders cut during the crisis, become so abundant that consumers feel they can put credit card bills lower on the priority list, he adds.
Published by Credit and Collections Dec 7, 2011.
If you’ve finished college within the last few years, chances are you’re paying off your student loans. What happens with your student loans now that they’ve entered repayment status will have a significant impact–positive or negative–on your credit history and credit score.
When you left school, you enjoyed a grace period of six to nine months before you had to begin repaying your student loans. But they were there all along, sleeping like an 800-pound gorilla in the corner of the room. Once the grace period was over, the gorilla woke up. How is he now affecting your ability to get other credit?
One way to find out is to pull a copy of your credit report. There are three major credit reporting agencies, or credit bureaus–Experian, Equifax, and Trans Union–and you should get a copy of your credit report from each one. Keep in mind, though, that while institutions making student loans are required to report the date of disbursement, balance due, and current status of your loans to a credit bureau, they’re not currently required to report the information to all three, although many do.
If you’re repaying your student loans on time, then the gorilla is behaving nicely, and is actually helping you establish a good credit history. But if you’re seriously delinquent or in default on your loans, the gorilla will turn into King Kong, terrorizing the neighborhood and seriously undermining your efforts to get other credit.
Your credit report contains information about any credit you have, including credit cards, car loans, and student loans. The credit bureau (or any prospective creditor) may use this information to generate a credit score, which statistically compares information about you to the credit performance of a base sample of consumers with similar profiles. The higher your credit score, the more likely you are to be a good credit risk, and the better your chances of obtaining credit at a favorable interest rate.
Many different factors are used to determine your credit score. Some of these factors carry more weight than others. Significant weight is given to factors describing:
Always make your student loan payments on time. Otherwise, your credit score will be negatively affected. To improve your credit score, it’s also important to make sure that any positive repayment history is correctly reported by all three credit bureaus, especially if your credit history is sparse. If you find that your student loans aren’t being reported correctly to all three major credit bureaus, ask your lender to do so.
But even when it’s there for all to see, a large student loan debt may impact a factor prospective creditors scrutinize closely: your debt-to-income ratio. A large student loan debt may especially hurt your chances of getting new credit if you’re in a low-paying job, and a prospective creditor feels your budget is stretched too thin to make room for the payments any new credit will require.
Moreover, if your principal balances haven’t changed much (and they don’t in the early years of loans with long repayment terms) or if they’re getting larger (because you’ve taken a forbearance on your student loans and the accruing interest is adding to your outstanding balance), it may look to a prospective lender like you’re not making much progress on paying down the debt you already have.
Like many people, you may have put off buying a house or a car because you’re overburdened with student loan debt. So what can you do to improve your situation? Here are some suggestions to consider: