In early December 2011, TransUnion, one of the three U.S. credit reporting agencies, released its annual forecast on consumer credit for 2012.  Its forecasts are based on economic assumptions, such as gross state product, consumer sentiment, unemployment rates and real estate values.

Mortgage delinquencies are expected to rise and then decrease by the end of 2012; credit card delinquencies are expected to continue to decline.

Mortgage delinquencies

TransUnion predicts that mortgage loan delinquency rates (ratio of borrowers 60 days or more past due) will decline to 5.95 percent at the end of 2011 and decrease to 5 percent by the end of 2012.  Mortgages have declined from fourth quarter 2009 to second quarter 2011 and are expected to rise through first quarter 2012 and decline the remaining three quarters of 2011. Mortgage delinquencies declined by 7 percent in 2011 and are projected to decline by the same amount in 2010, while the year-to-year increases from 2006 to 2009 were 50 percent. read more »

From my “when it gets dark outside, the rats will come out and play” collection…

Several government agencies have formed a task force to stop scams on homeowners applying for the Home Affordable Modification Program (HAMP).  The agencies include the U.S. Department of Treasury, the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), and the Consumer Financial Protection Bureau (CFPB). Their goal is to shutdown fraudulent illegal operations.  Home Affordable Modification Program is funded by Troubled Asset Relief Program to prevent foreclosure and is administered by the U.S. Department of Treasury. They investigate companies that charge fees and falsely promise to lower homeowners’ mortgage payments through the Home Affordable Modification Program. read more »

The U.S. Consumer Financial Protection Bureau (CFPB) has been in the news quite a lot lately.  It was created to police financial products marketed to consumers. It has written a credit card agreement that is simplified and written in plain English. It is designed to be understood by a seventh grader, compared to present agreements that are at an eleventh grade level.  The purpose is to make the credit card agreements easier to understand minus the legalese and clarify credit card costs, risks and terms.

New Agreement

The average credit card agreement contains 5,000 words compared to this new agreement which is approximately 1,000 words and two pages long. It is broken down in three sections – costs, changes, and additional information.  There will be an online glossary to explain terms such as billing disputes, privacy, rights, interest rate calculations and the consequences of late payments. read more »

CredAbility, one of the largest nonprofit credit counseling and education agencies in the U.S., issues a quarterly index called CredAbility Consumer Distress Index.  This index tracks five categories to determine the financial condition of the average U.S. household – employment, housing, credit, how families manage household budgets, and net worth. Proprietary data collected from more than 630,000 individuals that CredAbility serves annually is also used to determine this Index. The index looks at each category nationally and by state.  The latest index is from third quarter 2011.

The Consumer Distress Index for U.S. households in third quarter 2011 was 66.7, which was a decrease for 69.2 in second quarter 2011. This was the largest drop since third quarter 2008 and the first time the index didn’t increase in the past six quarters. U.S consumers have been in financial distress for 12 consecutive quarters. The Consumer Distress Index is based on a scale of 1 to 100, with a score below 70 indicates financial distress.  Overall the housing and budget categories were below 70, indicating financial distress.  The credit category is not in financial distress and the Consumer Distress Index increased to 84.95, which is the highest in 15 years. read more »

I have discussed strategic defaulters in previous blogs.  To refresh your memory, strategic defaulters stay current with their debts but default on their mortgage because they have negative equity or are “upside down.”  They can afford to pay their mortgage, but choose not to do so.

FICO study

FICO conducted research on strategic defaulters compared to those that go delinquent (90 days or more late).  They identified the following characteristics:

Strategic defaulters have a higher FICO score and have had good payment history.

They haven’t used much of their credit limit on their credit cards, so their utilization is low. read more »

I have discussed payday lenders in previous blogs and how much of a rip-off they are. Did you know that some banks and credit unions offer short-term loans to compete with payday loans?   These loans have many different names such as short-term, emergency, direct deposit advance and account advance loans.  They are usually for a short period of time and let you borrow up to $500.

Banks and credit unions don’t usually lend money to customers for emergency purposes.  Now there are more consumers without credit cards or savings accounts, who don’t have the funds to pay for an emergency. Banks and credit unions are offering these loans more than in the past. read more »

In what might win the award for most boneheaded public relations move of 2012, on Monday January 9^th the world woke up to the announcement that Suze Orman, host of the popular Suze Orman Show on CNBC, had partnered with The Bancorp Bank to introduce and endorse The Approved Card, a pre-paid debit MasterCard.  Pre-paid debit cards have very poor reputations and are generally believed to be among the worst financial services products.  They’ve also attracted marketing partnerships with other notable finance experts such as Russell Simmons, Kimora Lee Simmons, the Kardashian sisters, Lil Wayne and Alex Rodriguez (sic).

The primary criticism of pre-paid debit cards is the fee structure, which is usually extensive and complicated, regardless of the particular pre-paid card.  The fees are normally spread out over a large number of consumer actions, such as asking about your balance or requesting a paper statement.  The Approved Card, for example, has a fee attached to 20 different consumer actions and they vary from as low as $1.00 (Bill Payment Fee using a paper check) to as high as $30.00 (Bill Payment Fee – payment inquiry.)  There’s a $3 fee just to get the card and a $3 monthly “account maintenance fee” as well.   This sets up a virtual minefield of fees that consumers may not be able to avoid.

The Approved Card’s 20 “billable” consumer actions is on the high end when compared to other pre-paid cards.  The RushCard, Russell Simmons’ product line, has 17 consumer actions that generate a fee and Lil Wayne’s prepaid Discover card has 7.  The GreenDot card, another common pre-paid product, has 9.  American Express only charges one fee for their pre-paid card, which is a $2.00 ATM fee (the 1^st ATM use each month is free, according to Amex).  This is why the Amex pre-paid card is widely regarded as the best of breed in the pre-paid environment.

After The Approved Card was announced a flurry of media activity took place covering the new product and its pros and cons.  And with most online media articles, consumer comments were allowed.  As you can imagine, the consumer feedback hasn’t been great.  I’ve reviewed the consumer comments from 5 different online articles* about the new card; The New York Times, The Huffington Post, Yahoo Finance, The Consumerist, and CNNMoney.  Here’s what I came up with…

* I didn’t consider off topic comments

Another troubling aspect of prepaid debit card marketing is the suggestion that using them is going to somehow improve your credit reports and credit scores.  This is absolutely incorrect.  Prepaid debit cards, debit cards and stored value cards of any type are not reported to the credit bureaus because they’re not credit products.  They will do nothing at all the help your credit, period.  The marketing of this card is, unfortunately, no different.  What would you think if you saw this:

If you’re like several media outlets that have covered this new card then you might think that this is a suggestion that the use of the card is going to be reported to TransUnion and end up on your TransUnion credit report.  That’s a reasonable, if not the desired assumption.  The problem is you’d be wrong.

If you search around on the card’s website you’ll find this language, “This data will not appear on your TransUnion credit report at this time.”  And from an article written by Jeanine Skowronski with MainStreet.com, “It is important to understand that this data will not appear on any TransUnion credit report at this time” says Colleen Tunney-Ryan, a spokeswoman for TransUnion.  Hmmm.

The bottom line is this…if you are desperate to have a slice a plastic in your wallet and you simply can’t get any bank to give you a credit card, debit card or secured card then go for it and get yourself a prepaid debit card.  But be prepared to pay terribly high fees on most of the products and, at the same time, do nothing to get your credit back in shape so that you don’t have to pay to have access to your own hard earned after tax money.

Credit Damage Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

The Obama Administration’s phase 2 of the Home Affordable Refinance Program (HARP), or HARP Phase 2, is to assist homeowners whose mortgages are underwater and pay their mortgages on time.  This program lets them refinance their mortgage to take advantage of low rates, even though they have negative equity in their home. Approximately 20 million homeowners are eligible for this program, but their mortgages have to be backed by Fannie Mae or Freddie Mac. To find out if your loan is owned or guaranteed by Fannie Mae or Freddie Mac, go online to either http://www.fanniemae.com/loanlookup/ or https://ww3.freddiemac.com/corporate/.

Terms of HARP 2

Here are some of the highlights of HARP 2 and more information is still coming out: read more »

TransUnion, one of the three credit reporting agencies, analyzes their consumer database quarterly to determine how credit active consumers manage mortgages, credit cards and auto loans.  This analysis is called the “TransUnion Trend Data”; the latest study was from third quarter 2011 (Q3 2011).  Credit card delinquencies and the average credit card balance increased from the prior quarter, while delinquencies and debt decreased from a year ago.

Delinquency rate

The national credit card delinquency rate (more than 90 days past due) was .71 percent in Q3 2011, compared to .6 percent in Q2 2011 or an 18.3 percent increase. This was the first increase since fourth quarter 2009.  The Q3 2011 delinquency rate was a decrease of 14.46 percent from the .83 percent rate a year ago. read more »

Wells Fargo hired Harris Interactive Inc. (HPOL) to conduct a nationwide phone survey about retirement. During August and September 2011, they surveyed 1,500 consumers between 25 and 74 years old.  The responders’ household income or assets ranged from $25,000 to $100,000. They planned to work longer to have enough money in retirement.

Highlights

76 percent of responders said it is more important to reach a specific dollar amount before retiring, while 20 percent said it is more important to retire at a certain age regardless of savings. read more »