SmartCredit Blog

How Much Student Loan Debt Are We In?

John Ulzheimer — Wed, 16 May 2012 16:19:24 +0000

New Student Loans Increased by Four Percent in 2011

Student loans have been an increasing concern, since surpassed credit card debt and are not at $1 trillion. Because of the economy, some are going back to school to obtain new skills or attending graduate school, and some students are staying in college longer due to lack of work. According to Equifax’s National Consumer Credit Trends Report released in March 2012, both federal and private new student loans increased in 2011 by four percent.

Highlights

The breakdown of the borrowers is as follows: low risk borrowers with an Equifax risk score of 700 and above comprised 37 percent of new student loans; high-risk borrowers with Equifax risk scores below 620 were almost 35 percent; and those in the middle with Equifax risk scores between 620 and 699 represented 28 percent.

The average total new student loan debt per consumer increased from $9,322 to $9,558 from December 2010 to December 2011, which was a two percent increase.

The average amount per loan was $6,850 in 2010 and $6,333 in 2011, which was an eight percent decrease – the highest in four years.

Largest share of loans were from students 23 years and below. Those with the highest total dollar share of loans were from those 24 to 29 years old, which was due to higher costs of attending graduate school.

Amount of new student debt rose slightly in 2011 for both the” 23 year old and below” and the “24 to 29 years old” age groups Student debt remained level for the first time since 2008 for the 30 to 39 year old group.

Student loan delinquencies continue to increase. Student loans 90 days or more past due were $7.0 billion in February 2011, an increase of 14.6 percent over a year ago.

“One of the reasons why the unemployment rate has fallen so sharply is that more people are choosing to go back to school, investing in their human capital in the hopes the job market will improve by the time they are finished,” said Amy Crews Cutts, SVP and chief economist for Equifax. “The rising numbers of student loans over the past few years are consistent with this trend while, unfortunately, the rising delinquency rates are consistent with the weak job market many face when they graduate.”

Credit Expert Witness, 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.

Consumer Confidence Stabalizing

John Ulzheimer — Tue, 15 May 2012 17:51:49 +0000

Fannie Mae Housing Survey Shows Consumer Confidence is Stabilizing

Fannie Mae conducts a monthly “National Housing Survey” and the latest was conducted in February 2012 via telephone to 1,003 Americans. The purpose was to determine attitudes to owning and renting a home, mortgage rates, homeownership distress, the economy, household finances, and overall consumer confidence.

Consumers’ attitudes have stabilized in personal finances, housing, and employment compared to late summer and fall of 2011. Confidence in the economy changed the most with 35 percent responding that the economy is on the right track, compared to 16 percent in November 2011 or an 119 percent increase! Another 57 percent thought the economy was on the wrong track, compared to 5 percent in November 2011 or a 24 percent decrease.

Confidence about personal financial situations, household income, and household expenses, as well as attitudes about homeownership and renting remained at steady levels. Concern about job loss in the next 12 months stabilized since late fall of 2011. Approximately 76 percent were unconcerned in February 2012, compared to 70 percent in November 2011 or an 8.6 percent increase.

Economy and Household Finances

Confidence in the economy continued to rise in February 2012 compared to January 2012. Approximately 35 percent thought the economy was on the right track in February, compared to 30 percent in January – a 17 percent increase. While 57 percent said it was on the wrong track in February compared to 63 percent in January – an 11 percent decrease.

Only 12 percent thought their financial situation would get worse in the next 12 months compared to 15 percent in January – a 20 percent decrease. This was the lowest it has been in over a year.

Sixteen percent said their income is significantly lower than 12 months ago, compared to 17 percent in January – a six percent decrease. On the other hand, 63 percent said it stayed the same compared to 62 percent in January – a two percent increase.

Thirty-three percent said their expenses have increased significantly over the past 12 months, compared to 36 percent January 2012 – an eight percent decrease. This is the lowest level in the past 12 months.

Homeownership and Renting

On average, responders expected home prices to increase by 0.8 percent over the next 12 months, which was down slightly since January 2012.

Regarding home prices, 53 percent of the responders said the prices would stay the same. Those that expected the prices to increase over the next 12 months did not change from January, which was 28 percent. Another 15 percent expected them to decline, compared to 16 percent in January – a six percent decrease.

Ten percent thought mortgage rates would go down in the next 12 months, compared to eight percent in January – a 25 percentage increase.

Thirteen percent thought it was a good time to sell, compared to ten percent in January – a 30 percent increase. This was the highest level in over a year. Seventy percent thought it was a good time to buy, compared to 71 percent in January – a 1.4 percent decrease.

On average, responders expected home rental prices to increase by 3.5 percent over the next 12 months, which is a slight increase since January.

Forty-five percent thought home rental prices will go up, compared to 43 percent in January – a 4.7 percent increase. Three percent expected them to go down, compared to 5 percent in January – a 40 percent decrease. This was the lowest value in over a year.

Sixty-five percent said they would buy their next home if they were going to move, compared to 64 percent in January – a 1.6 percent increase. Another 29 percent would rent, compared to 30 percent in January – a three percent decrease.

“The pickup in the pace of hiring over the past few months has helped soothe consumer concerns, lifting their moods regarding their personal finances, the direction of the economy, and their views on the housing market,” said Doug Duncan, vice president and chief economist of Fannie Mae. “As a result, we’ve seen more potential for economic upside, creating a more balanced near-term outlook.”

Isn’t All Sensitive Data Encrypted?

John Ulzheimer — Mon, 14 May 2012 21:18:18 +0000

Data Breach Survey Reveals that a Majority did not Encrypt Data

In November and December 2011, Experian Data Breach Resolution, a division of Experian, and Ponemon Institute conducted an online survey of more than 500 information technology (IT) professionals who had experienced recent data breaches in their companies. The purpose was to determine the causes, reactions and solutions. A surprising 60 percent of the companies did not encrypt their customer data.

Responders

The responders had 10.5 years or more of information technology experience. Approximately 73 percent reported directly or indirectly to the chief information officer (CIO) or the chief information security officer (CISO). For this survey, the responders were asked to refer to only one data breach that had the greatest financial or reputational impact to their companies.

How it occurred and the cause

A majority of the responders (60 percent) said the breach occurred because the lost or stolen customer data was not encrypted. According to the responders, the types of data the companies lost were: email (70 percent), credit card or bank payment information (45 percent), and Social Security numbers (33 percent).

The key causes of the breaches:

34 percent said it was someone negligent inside the company.

19 percent said it was the outsourcing of data to a third party.

16 percent said a malicious insider was the main cause.

They were asked about response time and 50 percent of responders felt their company made the best possible effort to protect customer and consumer information. The top two reasons given to reduce the negative consequences of the data breaches were (1) retaining outside legal counsel (56 percent) and (2) carefully assessing the harm to victims (50 percent).

Assistance to customers

Assistance to customers was very limited and 64 percent of responders stated that their companies did not offer credit monitoring services. In addition, 73 percent of the companies represented don’t offer identity protection products or services, such as credit monitoring and other identity theft protection measures, including fraud resolution, scans and alerts.

Prevention and results

According to 66 percent of the responders, investigating the causes of the breach will help prevent it in the future. A majority of the responders (66 percent) said negligent insiders and third parties are the main reasons their companies could be subject to future breaches. Most (61 percent) of the responders said their organizations increased the security budget after the breach; and 28 percent hired additional information technology security staff.

The responders felt the four best solutions to avoid future threats were the following:

Educate employees including temporary and contractors about security policies and make them aware of the cause of breaches.
Receive support from senior leadership, so that security budgets can be increased.
Hire legal counsel to assess the harm to victims.
Learn from the data breach, limit the personal data collected and stored, and limit the data shared with third parties.

This survey shows that companies are not protecting consumer information. The top reasons for breaches were due to negligent or malicious insiders or outsourced third parties. Also, most of the companies did not offer credit monitoring services after the fact. Was the lack of regard for consumers, the key reason for the security breaches?

What Are The Rules For Mortgage Servicing?

John Ulzheimer — Fri, 11 May 2012 17:48:59 +0000

CFPB’s New Rules for Mortgage Servicing

The Consumer Financial Protection Bureau (CFPB) plans to propose eight rules regarding mortgage servicing and will finalize them by January 2013. The purpose is to address the lack of transparency and lack of accountability by mortgage servicers. Some of the rules being considered are: be more reasonable regarding proof of property insurance before charging for it , require additional disclosures for adjustable-rate mortgages and require mortgage servicers to provide clear monthly statements to borrowers.

Eight Rules

Here are the eight rules the Consumer Financial Protection Bureau plans to propose this summer:

1. Monthly mortgage statements: Mortgage Servicers would be required to provide statements that include a summary of the mortgage terms, a breakdown of payments by principal, interest, fees and escrow; the amount and due date of the next payment; recent transaction activity; late fee warnings and alerts about loss mitigation alternatives.

2. ARM Warnings: A new rule would require servicers to provide “earlier” disclosures before interest rate changes on Adjustable Rate Mortgages (ARM). The disclosure must include an explanation of how the rate will be determined and when it will take effect; a good-faith estimate of the new monthly payment amount; the date of future interest-rate adjustments; the amount of any pre-payment penalty; and alternatives and resources for borrowers who can’t afford the new payment.

3. Force-Placed Insurance: If a servicer believes a borrower has allowed their property insurance to lapse, it must ask the borrower to provide proof of insurance twice — at least 45 days and again 15 days before charging for the insurance — and must provide a good-faith estimate of the cost of the force-placed insurance. The servicer must accept any “reasonable form of communication” provided by the borrower to confirm the insurance, and cancel the force-placed insurance within 15 days of the confirmation. If the servicer has an escrow account to pay a borrower’s insurance premiums, it must continue the consumers’ homeowner insurance rather than purchasing fore-placed insurance, even if the borrower is delinquent.

4. Avoiding Foreclosure: The rule would require servicers to make good-faith efforts to contact delinquent borrowers about options to avoid foreclosure, as well as information about housing counseling and the foreclosure process.

5. Payment Credits: The regulation would require servicers to credit a consumer’s account the day a payment is received; allow them to retain any partial payment in a suspense account; and, once the amount in the account equals one full monthly payment, require servicers to apply it to the earliest delinquent payment.

6. Information Management: The rule would require servicers to establish “reasonable” information-management policies and procedures “designed to minimize errors and help with quick correction.” These include maintaining records of borrower contact, with possible exception for some small servicers; accept and organize documents submitted by borrowers in connection with loss mitigation requests; ensure reasonable and timely access to those documents.

7. Quick Error Correction: The regulation would require borrowers to acknowledge the notification of an error within five days and conclude an investigation within 30 days, with shorter time frames for errors related to foreclosures or payoffs.

8. Direct Access: The rule would require servicers to provide borrowers with direct and ongoing access to a dedicated foreclosure prevention staff, who would have easy access to delinquent borrowers’ records, as well as access to underwriters who could evaluate whether a borrower is eligible for a loan modification or other option to avoid foreclosure.

“The mortgage servicing rules we are considering reflect two basic, common-sense principles — no surprises and no runarounds,” CFPB Director Richard Corday said in a press release. “For too long, mortgage servicers have not been held accountable to their customers, and the result has been profoundly punishing to homeowners in distress. It’s time to put the ‘service’ back in mortgage servicing.”

How Often Does ID Theft Target Deceased Consumers?

John Ulzheimer — Thu, 10 May 2012 20:36:41 +0000

ID Theft on Deceased Averages 2,000 per Day

The end of April 2012, ID Analytics, a company that specializes in consumer identity behavior, released the results of a study they conducted of deceased individuals’ identity. The study was conducted from January through March 2011 and compared the names, dates of birth and Social Security numbers on 100 million credit applications against data in the Social Security Administration’s Death Master File.

Fraud on the deceased using real and made up Social Security Numbers
They found that 800,000 deceased Americans’ identities were intentionally used for identity theft purposes. This equates to over 2,000 per day! In addition, another 1.6 million Social Security numbers that thieves made up, actually belonged to deceased individuals. The two situations together totaled approximately 2.4 million annually.

Just because the individual is deceased, doesn’t stop claims by debtors against the deceased’s estate. Family members have to prove that the debt incurred after the individual died, by providing a copy of the death certificate.

According to Stephen Coggeshall, ID Analytics chief technology officer, “it is important for people to monitor not only their own identities, but also those of their deceased family members for at least one year after the death.”

Tips to avoid fraud

The following tips are recommended by ID Analytics to keep fraudsters from duping the dead:

Provide only limited personal information in the deceased’s obituary, and avoid printing the individual’s complete date of birth or address.

Promptly notify the Social Security Administration of a loved one’s death at 800-772-1213.

Cancel the deceased’s driver’s license with the state’s motor vehicles department.

Notify all entities with which the deceased had a financial relationship — including banks, credit card companies and brokerage firms — about his or her death.

Notify all three credit reporting bureaus of the death — Equifax, TransUnion and Experian — and mail them copies of the death certificate.

Fraud…Once Again the Number One Consumer Complaint Part 2 of 2

John Ulzheimer — Wed, 09 May 2012 21:05:48 +0000

Top 2011 Consumer Complaints Reported to CSN database – Part 2

Part 1 discussed the fraud consumer complaints on the Consumer Sentinel Network (CSN) and this covers the identity theft complaints. This secured online data base network contains consumer complaints from numerous sources such as the Federal Trade Commission, state organizations, Federal agencies, and Better Business Bureaus (BBB) and is available to law enforcement.

Consumer complaints totaled 1,813,080 in 2011 and 1,460,368 in 2010 or an increase of 24 percent. The complaints were broken down into three main categories: fraud (55 %), identity theft (15 %) and other (30%).

Part 1 discussed the fraud highlights and this article and Part 2 covers identity theft.

Identity Theft Highlights

Identity theft represented 279,156 or 15 percent of the complaints. The main identity theft categories were government documents/benefits fraud (27%), credit card fraud (14 percent), phone or utilities fraud (13 percent), bank fraud (9 percent), employment fraud (8 percent) and loan fraud (3 percent).

Of those reporting identity theft complaints, 45 percent reported whether they contacted law enforcement. Of these victims, 70 percent notified the police and 57 percent said a report was taken.

The identity theft complaint segmentation differed somewhat from the fraud complaint group, with more complaints from the 19 and below age group and the 20 to 29 age group. The 20 to 29 age group was top followed by the 30 to 39 age group.

Identity theft complaints by age;

19 years and below 8 %

20 to 29 years 23%

30 to 39 years 21%

40 to 59 years 18%

50 to 59 years 15%

60 to 69 years 9%

70 years and above 6%

The states with the highest per capita rate of reported identity theft complaints were Florida, Georgia and California.

Top Ten Complaint types

The top ten of the thirty types of complaints were:

Identity theft 15%

Debt Collection 10%

Prizes, Sweepstakes and Lotteries 6%

Shop-at-Home and Catalog Sales 5%

Banks and Lenders 5%

Internet Services 5%

Auto Related Complaints 4%

Impostor Scams 4%

Telephone and Mobile Services 4%

Advance-Fee Loans and Credit Protection/Repair 3%

ACA response

Identity theft continues to be the top complaint and debt collection is second. The Association of Credit and Collection Professionals International (ACA), the association representing collection and credit professionals, explained while they still ranked number two:

FTC complaints do not necessarily equal bad behavior.

More debt being collected = more contacts = more complaints.

New technology has made it easier for consumers to submit complaints.

There is a lack of consumer awareness about debt collection.

Consumers aren’t getting their complaints resolved.

Fraud…Once Again the Number One Consumer Complaint – Part 1 of 2

John Ulzheimer — Tue, 08 May 2012 18:49:23 +0000

Top 2011 Consumer Complaints Reported to CSN database – Part 1

Consumer complaints received by the Federal Trade Commission, state organizations, Federal agencies (including the U.S. Postal Inspection Service and the FBI’s Internet Crime Complaint Center), and Better Business Bureaus (BBB) are secured on an online data base only available to law enforcement called the Consumer Sentinel Network (CSN). This data has existed since 1997 and has a retention policy of five years; so there is data since 2007.

Consumer complaints totaled 1,813,080 in 2011, 1,460,368 in 2010 and 1,419,030 in 2009; which were increases of 24 and 29 percent respectively. The complaints were broken down into three main categories: fraud (55 percent), identity theft (15 percent) and other (30 percent).Part 1 discusses the fraud highlights and Part 2 will discuss identity theft.

Fraud Highlights

A total of 990,242 or 55 percent of complaints were related to fraud and consumers paid over $1.5 billion to fraudsters. The average amount paid was $2267 in 2011, compared to $2662 in 2010. Approximately 68 percent of those reporting a complaint also reported the amount paid, which was much lower than the 81 percent in 2010.

The largest proportion (51 percent) of fraud complaints were from those who didn’t pay anything to fraudsters. The next highest group represented 14 percent of fraud complaints paid between $1,001 and $5,000 to fraudsters. The third represented 8 percent and paid between $101 and 250.

Payments methods were broken down by wire transfer (50 percent), credit cards (16 percent), bank account debit (13 percent), cash and cash advance (7 percent), check (7 percent), money order (6 percent) and telephone bill (1 percent).

Sixty percent of fraud complaints gave the method of initial contact. Of this group, 43 percent were by email, 13 percent via an Internet website and 7 percent by mail.

The fraud complaints were segmented by age, and most were from ages 20 to 69, with fewer from the “19 and below” and the “70 and above” age groups. The group with the highest number of complaints was from the 50 to 59 age group (23 percent), followed by the 40 to 59 age group (20 percent); the lowest number was from the 19 year old and below age group.

Fraud complaints by age:

19 years and below 2 %

20 to 29 years 15%

30 to 39 years 17%

40 to 59 years 20%

50 to 59 years 23%

60 to 69 years 15%

70 years and above 7%

The states with the highest per capita rate of reported fraud and other complaints were Colorado, Delaware and Maryland.

Who Has The Most Debt?

John Ulzheimer — Tue, 08 May 2012 00:12:07 +0000

Which Generation has the most debt?

In mid-February 2012, Experian, one of the three major U.S. consumer reporting agencies (CRAs), released their credit trends. The study was conducted on four generation groups: Greatest Generation (ages 66 and above), Baby Boomers (ages 47 to 65), Generation X (ages 30 to 46) and Generation Y (ages 19 to 29). The study looked at debt, the amount owed, and the VantageScore^®for these groups. Vantage Score is a credit score developed by the three major credit reporting agencies with scores ranging from 501 to 990.

According to the study, the average debt was $78,030 and the average VantageScore was 751. Average debt for this study was calculated using first and second mortgage loans, auto loan/lease, other types of installment loans, as well as revolving accounts, but not necessarily a combination of all for each consumer. The average proportion carrying debt for all groups was: 72.6 percent with first mortgage debt, 8.3 percent with second mortgage debt, 4.2 percent with bankcard debt, .5 percent with retail card debt, 5.8 percent with auto loan debt and 2.9 percent with student loan debt.

The groups with the lowest debt are Generation Y and the Greatest Generation. The Greatest Generation and the Baby Boomers had the highest average Vantage Scores as listed below:

Greatest Generation – average debt $38,043 – average VantageScore 829

Baby Boomers – average debt $101,951 – average VantageScore 782

Generation X – average debt – $111,121 – average VantageScore 718

Generation Y – average debt – $34,765 – average VantageScore 672

Highlights by Generation

The Greatest Generation is the oldest age group and has the highest average VantageScore of 829. They had the second lowest average debt, which was almost 40 percent of that of Baby Boomers and Generation X. Most of their debt was in first mortgages (66.6 percent), second mortgages (13.4 percent) and bankcards (6 percent). Bankcard debt was 43% more than the national average. They had the highest second mortgage debt with 13.4 percent carrying this debt compared to 10.2 percent for Baby Boomers. The Greatest Generation had the highest Vantage Score in 36 states; the highest score of 855 was in Minnesota and the lowest was 783 in Washington, D.C.

Baby Boomers were either average or below the national average in all categories except second mortgages, which was 23 percent higher than the national average. Most of their debt was in first mortgages (72.1 percent), second mortgages (10.2 percent) and auto loans (4.8 percent). This groups’ highest VantageScore of 826 was in North Dakota and the lowest was in Mississippi with 736.

Generation X had the highest average debt. The largest proportion of their debt in first mortgages (76.3 percent), second mortgages (5.9 percent) and auto loans (5.8 percent). Their highest VantageScore of 750 was in Minnesota and the lowest was in Mississippi with 667.

Generation Y is the youngest group and had the lowest debt and the lowest proportion of second mortgage debt. On the other hand, they had the highest proportion with auto and student loan debt. First mortgages represented 59.9 percent of their debt, student loans were 15.1 percent, auto loans were 13.7 percent and bankcards were 5.2 percent. Compared to the average, their mortgage debt was 17 percent lower, student loan debt was 421 percent higher, auto loan debt was 136 percent higher, and bankcard debt was 24 percent higher. Their highest score was 705 in Minnesota and the lowest was 634 in Mississippi.

“For all consumers, establishing and maintaining a positive credit history is an important step in achieving financial goals,” said Maxine Sweet, vice president Consumer Education, Experian. “At any age, paying bills on time is the single most important contributor to good credit.”

Are Credit Card Delinquencies Going Up, or Down?

John Ulzheimer — Fri, 04 May 2012 18:50:26 +0000

Credit Card Delinquencies Decreased and More Cards Opened

TransUnion, one of the three major credit bureaus, conducts a quarterly analysis of credit-active U.S. consumers and evaluates how they manage mortgages, credit cards and auto loans. This study covered the fourth quarter of 2011 and centered on credit cards. Credit card delinquencies decreased by almost 5 percent from one year ago, but average credit card debt increased by almost 5 percent.

Credit Card Delinquencies

Credit card delinquencies (those 90 days or more past due) were below historical norms at 0.78 percent in fourth quarter 2011 compared to 0.82 percent a year ago, which was a decrease of 4.88 percent. Even though average credit card debt remained near the record low, it increased from $4,965 in fourth quarter 2010 to $5,204 in fourth quarter 2011, or a 4.8 percent increase.

When comparing third quarter 2011 to fourth quarter 2011, credit card delinquencies and credit card debt per borrower increased due to seasonality. Credit card delinquencies were 0.78 percent in fourth quarter 2011 compared to .71 percent in third quarter 2011, a 9.9 percent increase. Average credit card debt per borrower was $5,204 in fourth quarter 2011 compared to $4,762 in third quarter 2011, a 9.27 percent increase.

“2011 closed out with the lowest year-end card delinquency rate nationwide since 1995,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit. “This is the net result of riskier loans having worked their way through the system, cautious risk management strategies on the part of lenders and consumers working to maintain the health and good status of their card relationships.”

New Credit Cards Opened

New credit card accounts opened increased by 14 percent over 2010, with more issued to those with lower scores. VantageScores, which range from 501 to 990, were used in the study. Credit cards issued to those with VantageScores below 700, increased by 15.6 percent over 2010. The proportions were 21.8 percent in 2010 and 25.2 percent in 2011. Some credit card issuers targeted those with lower scores, which are considered “non-prime”.

Data by State

Credit card delinquencies and debt were analyzed by state for the fourth quarter 2011. The four states with the highest credit card delinquencies were; Mississippi (1.25 percent), Georgia (1.04 percent), Arkansas (1.03 percent) and Alabama (1.02 percent). The four states with the lowest delinquencies were: Alaska (0.41 percent), North Dakota (0.42 percent), Wisconsin (0.55 percent), and South Dakota (0.55 percent).

The four states with highest average credit card debt per borrower were: Alaska ($7,024), Colorado ($6,110), Connecticut ($5,822), and North Carolina ($5,814). The four states with the lowest card debt were: Iowa ($4,120), North Dakota ($4,340), South Dakota ($4,422) and West Virginia ($4,455).

TransUnion forecasts that credit card borrower delinquency rates could continue to drift upward in the short term, but then begin to gradually drop towards the end of the year.

$26 Billion Settlement Agreement Clears Five Mortgage Servicers

John Ulzheimer — Thu, 03 May 2012 16:03:43 +0000

In February 2012, a $26 billion agreement was reached with the federal government and 49 state attorneys general and the nation’s five largest mortgage servicers – Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial Inc. (formerly GMAC). Oklahoma was the only state not included in the agreement, because they reached a separate agreement with the banks worth $18.6 million.

This agreement addressed mortgage loan servicing and foreclosure abuses, new mortgage servicing standards and how the $26 billion would be distributed. The abuse included banks using faulty documents to seize homes. To speed up the foreclosure process, some employees signed papers they hadn’t read or used fake signatures, which is also referred to as “robo-signing”.

Summary of terms

Bank of America will be responsible for $11.8 billion, Wells and JPMorgan Chase for $5.3 billion each, Citigroup for $2.2 billion, and Ally for $310 million.

Only customers of the five servicers are covered and had to be a customer from at least January 2, 2008 through December 31, 2011.

Borrowers whose mortgages are underwater (owe more on their mortgage than their home is worth) will be able to refinance, if they are current on their mortgage payment.

Approximately $1.5 billion of the settlement goes to those improperly foreclosed upon by these five servicers and will be issued checks between $1,800 and $2,000.

Those who need loan modification to remain in their homes will have their principal reduced by an average of $20,000 by the five servicers and will help them refinance their homes.

Together the five servicers are required to dedicate $21 billion toward forms of relief such as loan modification and $5 billion in cash to federal and state governments.

These obligations are to be fulfilled by the five mortgage servicers within three years. They are given incentives to provide relief sooner and those missing the deadline will large face cash penalties.

California and Florida will get the largest share of the money, followed by Arizona, Illinois and Nevada,

New standards

New standards were set up so that the abuse does not happen again. The key ones are listed below:

Servicers cannot complete a foreclosure sale of a home, if a modification is being considered.

Servicers must review homeowners for loan modifications before they begin the foreclosure process.

Borrowers are to be informed of the reasons they were denied a loan modification.

Homeowners in default can’t be charged more than once in 12 months for property valuations or appraisals.

Servicers are to make more attempts to keep up homeowner insurance policies on delinquent loans.

Parties that attempt to foreclose must show they have legal authority to do so, and do the foreclosures properly.

It will take the remainder of this year before the borrowers’ impacted will begin getting offers from the five servicers. Nine more mortgage servicers may be added, which will make the amount grow to $40 billion or possibly to $45 billion, if the banks participate fully. This is the largest settlement ever. Will this give the relief that is needed?

Credit Card Payment Protection Products Under Scrutiny By CFPB

John Ulzheimer — Wed, 02 May 2012 19:26:41 +0000

Have you received pre-approved credit card offers with an option to sign up for credit card payment protection plan? There is a high probability that you have, since almost 50 percent of the mail offers include this.

These plans charge you anywhere from $.80 to $1.10 per month on every $100 outstanding. For example, if your monthly balance is $500 and you are charged $1.00 per month for every $100 outstanding, you would pay an additional $5 each month or $60 per year; it would be double this for a $1,000 balance.

Protection plans waive or defer credit card payments for customers who are covered by situations such as illness, unemployment or death. These agreements win the prize in the fine print category. Some card issuers don’t send you the fine print until you sign up for the product, while some post it online. The fine print may require you to provide proof of injury monthly or some may freeze your credit line account if you are unemployed.

Both the Federal Deposit Insurance Corporation (FDIC) and Consumer Financial Protection Bureau (CFPB) are looking at Discover’s business practices. They are particularly focused on Discover with one million customers enrolled and may extend their review to other card issuers.

The Government Accountability Office (GAO) estimated that 24 million accounts or about 7 percent of credit cards, issued by the nine largest issuers, were enrolled in payment protection plans as of March 2011. According to the Government Accountability Office, the top nine card issuers made $1.3 billion in pre-tax profit on these payment protection products out of fee revenues of $2.4 billion in 2009. Approximately 25 percent of the fee goes to marketing and 21 percent ton benefit pay outs, which is deferred or canceled debt. Protection plans are considered a type of insurance; profit margins of 54 percent are not restricted by law for card issuers but are for insurance companies. With both the Federal Deposit Insurance Corporation) and Consumer Financial Protection Bureau involved, will there be some changes?

Two issuers have been faced with law suits regarding their card protection plans – JP Morgan Chase and Capital One. Chase has reduced marketing of the plan since March 2011. In December 2010, they paid $20 million to settle litigation. Capital One paid $13.5 million in a settlement over these plans covering the time frame 2001 to 2005.

Consumer advocates are not only concerned about the outrageous fees, but also signing up customers for the product without their permission. Don’t sign up for the protection plans, these plans are very profitable for the credit card issuers, but are not a good deal for consumers. It will be interesting to see what happens with Discover. The Consumer Financial Protection Bureau is beginning to take action to protect consumers.

Will There Be a Student Loan Bubble Burst Soon?

John Ulzheimer — Mon, 30 Apr 2012 16:18:25 +0000

Student Loan Debt Still Rising – Could it be the next crisis?

Pay it or die with it, you choose.

A report concerning student loans debt was released by the National Association of Consumer Bankruptcy Attorneys (NACBA) in early February 2012. More than 80 percent of the attorneys had seen an increase in the number of potential clients with student loan debt. Almost 25 percent of the attorneys said the number of potential student loan clients increased 50 to 100 percent; 39 percent of attorneys reported increases of 25 to 50 percent.

Student debt is increasing

Student debt is rising due to increased cost of college education, reduction in financial aid, depressed economic conditions, reduced parents’ incomes, fewer part time jobs for students, and finding jobs after graduation have become more difficult. Some parents are getting into debt to pay for college because they don’t have the money saved or are co-signing for these loans.

According to the Institute for College Access & Success’ Project on Student Debt, the average student loan debt for a college graduate in 2010 was $25,500 which was a five percent increase from the prior year. Having a sizeable debt isn’t a great way to start out looking for your first job. It is understandable why some feel overwhelmed with student debt and feel there is no way out.

Other debts can be discharged through bankruptcy but student loan debt cannot. Some bankruptcy attorneys want laws to change so that student loans can be discharged through bankruptcy. The Department of Education has authority to can take money from federal and state tax returns from those that have delinquent student loans. They can even take Social Security retirement benefits and Social Security disability benefits.

Next crisis?

Even more troubling are the similarities to mortgage finance problems seen right before the foreclosure crisis torpedoed the nation’s housing market and contributed to a global financial crisis. “Just as the housing bubble created a mortgage debt overhang that absorbs the incomes of consumers and renders them unable to engage in consumer spending that sustains the economy, so too are student loans beginning to have an effect, which will be a drag on the economy for the foreseeable future,” said John Rao, an attorney at the National Consumer Law Center and vice president of NACBA.

Is student loan debt heading in the same direction as the mortgage crisis in 2009? Student loan has surpassed credit card debit and totals $1 trillion. Currently there is no way out of a student loan except death.

Can I Buy a Car If I Have Bad Credit?

John Ulzheimer — Thu, 26 Apr 2012 15:47:38 +0000

Auto Loan Approvals Increased to Those with Lower Scores

Experian, one of the three credit reporting agencies, conducts an automotive credit analysis on a quarterly basis. The latest analysis was for third quarter 2011. Lenders are loosening their credit criteria and are lending to those with lower credit scores in the sub-prime and deep sub-prime categories. Experian’s analysis is based upon their Plus Score, which score ranges from 330 to 830. This score is developed by Experian and is not the FICO score.

Sub-prime scores range from 550 to 610 and deep sub-prime includes scores below 550. These two score categories are considered higher risk and consumers with these scores are charged much higher interest rates. Typically consumers in these categories have difficulty qualifying for loans. The next higher score category is non-prime with scores that range from 620 to 679 and prime is 680 and above.

More loans approved at lower scores

A higher proportion of higher risk consumers were approved for car loans – 21.87 percent of new vehicle loans went to customers in the nonprime, subprime and deep subprime categories. Deep subprime loans increased by 17.3 percent, subprime by 17.8 percent and nonprime by 12.5 percent.

The average Experian credit score for new vehicle loans dropped from 769 in third quarter 2010 to 763 in third quarter 2011. For used vehicle loans, the average Experian credit score dropped from 683 in third quarter 2010 to 676 in third quarter 2011.

Highlights

30-day delinquencies were 2.78 percent in third quarter 2011, compared to 2.99 percent in second quarter 2010, which is a 7.05 percent decrease.

60-day delinquencies were .71 percent in third quarter 2011, compared to .77 percent in second quarter 2010, which was a 7.4 percent decrease.

Total volume of dollars at risk also fell by $2.99 billion from third quarter 2010 to third quarter 2011.

Repossession rates were .62 percent in third quarter 2011, compared to .67 percent in third quarter 2010 or a decrease of 6.4 percent.

New vehicle average loan amount was $25,873 in third quarter 2011, compared to $25,273 in third quarter 2010 or a $600 increase.

Used vehicle average loan amount for was $17,359 in third quarter 2011, compared to $16,706 in third quarter 2010 or a $653 increase.

“Overall, our Q3 analysis shows very positive signs for the automotive lending industry,” said Scott Waldron, president of Experian Automotive. “With more loans being booked outside of prime, lenders are showing they are willing to be more flexible in their lending strategies. However, consumers may still have the impression that lending is extremely tight, so it is important for lenders and retailers to educate car shoppers that there are financing options available to a wider group of consumers.”

What Are The Real Numbers From Bank Transfer Day?

John Ulzheimer — Wed, 25 Apr 2012 16:21:34 +0000

Did you walk away from your bank and join a credit union last year?

More time has gone by since Bank Transfer Day – November 5, 2011. There were many estimates of the number that switched from big banks to credit unions and community banks. Javelin Strategy and Research conducts consumer surveys on financial services products. They pulled out information about Bank Transfer Day bank account closings from a December 2011 online survey of 5,878 consumers.

610,000 Switched in Q4 2011

According to Javelin Research, 610,000 moved their accounts from the big banks and switched to community banks or credit unions. This represented 11 percent of the 5.6 million that moved their bank accounts during fourth quarter 2011. Although, the number was only 11 percent, that still is a significant percentage. This was enough to make an impact on the banks to make a change and cancel the debit card fee. Bank of America experienced an increase of 20 percent accounts closed in fourth quarter 2011 compared to fourth quarter 2010.

Of those 610,000 that moved accounts, approximately 26 percent moved their bank accounts because of the fees their bank charged. Other reasons included customer service and moving their residence.

Having several accounts at the same bank can make it more difficult to switch. Some stay with larger banks, because smaller banks and credit unions don’t offer some services such as online banking and mobile phone paying.

214,000 Switched to Credit Unions in October 2011

“Credit unions may enjoy the public’s ’love’ but they sorely lack the full tech expertise to appeal to a younger clientele which many banks, particularly large ones, retain,” declared James Van Dyke, founder of Javelin Strategy & Research in Pleasanton. Based on interviews with Occupy and Bank Transfer Day participants, Van Dyke said “these young faces are avid users of the kinds of social, mobile and online technologies that are in shortest supply at credit unions but proliferate at banks.”

In December 2011, Credit Union National Association, (CUNA), trade association for credit unions, revised their numbers of new members that opened accounts during October 2011. The original number was 650,000, but was actually 214,000. The issue was due to confusion in the language in their credit unions survey in “new accounts” versus “new members.” Approximately half of credit union members have checking accounts and the others have savings accounts or loans. According to Credit Union National Association, 441,000 new members signed up in September and October, which as 75 percent increase over the entire year.

“Regardless of the impetus for credit union growth — either through new memberships, new checking accounts from existing members or a combination of both — it is clear that consumers made a significant movement to credit unions in the weeks leading up to ‘Bank Transfer Day,’” CUNA President Bill Cheney said in a statement.

Do I Qualify for Mortgage Forbearance?

John Ulzheimer — Tue, 24 Apr 2012 16:02:24 +0000

Fannie Mae and Freddie Mac have made changes to their forbearance policies, for borrowers who are unemployed and can’t pay their home loans. Fannie Mae’s policy was effective March 1, 2012 and Freddie Mac’s was effective February 1, 2012.

First what is mortgage forbearance? The lender or mortgage servicing company will defer or reduce the monthly mortgage payments for a specific period of time, if the reason for the inability to pay is based upon job loss. They will not have their home foreclosed on during that time. After that time frame has passed, they will have to pay the former monthly payment, and also make up the difference that was on deferred. The principal balance of the loan is not reduced.

For example: your monthly payments are $1,000 and are reduced to $0 for six months. You found a job after 6 months. You owe $6,000 in payments (6 months x $1,000). You begin paying the $1,000 monthly payment plus an additional amount agreed upon each month. If the amount is $250 a month, it will take 24 months to repay the $6,000. For 24 months you pay $1,250 per month instead of $1,000.

Previously, loans secured by Fannie Mae or Freddie Mac required lenders and services to get their permission to reduce or suspend the payments. Now the lenders don’t have to get permission to provide forbearance for six months due to unemployment. An additional six months extension requires their permission.

How do you qualify?

The house must be your principal residence and not a second home or investment property.

The house has to be financed by Freddie Mac or Fannie Mae.

Financial hardship caused by job loss has to be documented and there must be a reasonable chance that without the forbearance, the borrower would not be able to pay and eventually lose the house.

Fannie Mae requires that monthly housing expenses must be more than 31 percent of monthly gross income, excluding unemployment benefits.

Borrowers can’t quality for an extension of the forbearance, if they have cash in bank accounts that exceed 12 months of monthly housing expenses.

This may be something to consider if you are unemployed. Hopefully you will be able to find a job within 6 to 12 months, so you can begin paying the loan again. Unfortunately, it has taken many longer than six months to find another job. This is a much better alternative than foreclosure.

Are Pin and Chip Cards in Our Near Future?

John Ulzheimer — Mon, 23 Apr 2012 19:27:39 +0000

A “Chip-and-Pin” card is also known as Europay, MasterCard and Visa. The card was named after the developers of the card, hence it is called EMV. The card includes a microprocessor chip that encrypts transactions differently for each purchase. This makes it difficult for thieves to duplicate. To make a purchase requires both your card and a PIN number.

MasterCard and Visa’s push

Both MasterCard and Visa are trying to encourage upgrades to accept the cards. MasterCard is trying to convince ATM owners to upgrade their machines by April 2013. Visa will require U.S. acquirer processors and sub-processor service providers to support merchant acceptance of chip transactions by April 1, 2013.

Here are the advantages and disadvantages of the Chip-and-Pin card compared to the traditional magnetic strip card.

Advantages

Chip-and-Pin card helps prevent fraud at the Point of Sale (POS).

It is accepted in 130 countries worldwide.

It is more secure because it requires both a PIN number and a card to complete transaction.

The transaction data changes every time it is used, so can’t be duplicated by thieves.

Disadvantages

Chip-and-Pin card conversion is expensive for merchants.

It costs card issuers ten times as much as a magnetic strip card to produce and distribute.

Consumers have to remember their PIN number.

It does not eliminate on-line fraud that does not require the card to be present.

Offered by some credit issuers

Some card issuers have already issued the Chip-and-Pin card to customers who travel abroad frequently. The list includes American Express, Citi Bank, Chase, Wells Fargo and Bank of America. The card includes both the chip and magnetic strip, so the card can be used in the U.S. and abroad.

Adoption is slow because of the cost to merchants and most consumers haven’t demanded this card. Those most aware are travel internationally and have had difficulty using their credit cards for purchases or getting cash at ATMs abroad.

Retailers File Anti-trust lawsuit against Visa and MasterCard

John Ulzheimer — Fri, 20 Apr 2012 20:10:48 +0000

Now that debit card swipe fees retailers pay to the debit card issuers have been reduced from $.44 to $.21 (plus.05 percent of the transaction), retailers also want to pay a lower interchange fee on Visa and MasterCard credit cards. They claim that the Visa and MasterCard have set prices that are unfair and would be lower in a competitive market. The average interchange fees are two percent for credit card transactions. The retailers are trying to get them down to .5 percent.

Retailers Involved

Approximately five million retailers are suing Visa, MasterCard, and major banks. The retailers include The National Association of Convenience Stores (NACS) and The National Restaurant Association. Ten larger retailers including Kroger and Walgreen have opted out of the class. Some of the banks being sued include: Bank of America, Barclays, Capone, Chase, Citigroup, 5th Third Bancorp, HSBC, JP Morgan, PNC Bank, Sun Trust, US Bancorp and Wells Fargo. The suit won’t go before the U.S. Eastern District court until September12, 2012.

The loss would be billions of dollars annually to the Master Card, Visa and the banks. In addition, the law suit alone could cost billions.

Walmart class action suit

A similar class action anti-trust law suit led by Walmart and Limited Brands sued MasterCard in 1996 and was settled in 2003. They claimed MasterCard required them to accept both debit and credit cards issued by MasterCard. The interchange fees were higher for debit cards. The retailers won the suit and were paid $3 billion by MasterCard and the issuing banks in damages and had to change some business practices costing another $25 billion.

It will be interesting to see how this plays out. This would be the largest class action suit in U.S. history. If the plaintiffs win, we could expect more and higher bank fees to make up the loss. Since retailers would pay a lower fee, would they pass that on to consumers? Have any of your retailers passed along discounts based on the debit card swipe fee reduction? I personally haven’t noticed any savings from my retailers.

Is Cash Making a Comeback?

John Ulzheimer — Thu, 19 Apr 2012 16:00:42 +0000

Javelin Strategy & Research conducted research to determine consumer attitudes toward payment options such as – cash, debit cards and credit cards. They surveyed more than 3,200 consumers in October 2011. The title of the report was “Evolution in Consumer Payments Behavior: How the Durbin Amendment and the Economy Are Driving Payment Change”.

Debit card fees

The Durbin Amendment set the debit card swipe fees merchants are charged by the issuers from $.44 to $.21 for the large banks. This reduced their revenue by half for this category and is now projected to be $12 billion annually. Then several mega banks announced that they were going to charge debit card fees beginning in October 2011. Because of the backlash from consumers and politicians, these fees were canceled. Some consumers closed their bank accounts and switched to credit unions.

It is no wonder, that 70 percent of those surveyed felt that the debit card regulations benefited the banks, while only 30 percent felt the regulations benefited the merchants. A majority (73 percent) liked having debit cards as a purchase option.

Highlights

If the banks started charging a fee for debit cards 32 percent would use cash, 26 percent would switch banks, 25 percent would use credit cards, and 13 percent would use checks.

A majority of the responders used cash – 79 percent had made cash purchases within the past seven days.

90 percent would require a discount of 3% or more to switch to another payment option.

72 percent of the underbanked consumers most frequently use cash for any type of purchase; and only 6 percent of these consumers use prepaid cards most frequently.

“The full effects of Durbin remain to be seen,” said James Van Dyke, President of Javelin. “The recession led many people to turn away from credit cards in favor of debit and prepaid cards as ways to control debt, but this trend seems to be slowing as the economy stabilizes. Today, there are more conflicting pressures on payment choice than ever before. Stakeholders should monitor payment trends and identify profitable ways to influence the payments mix.”

This survey shows the more consumers were using cash and debit cards for purchases. They were not loyal to the banks and would switch if they were charged fees. It is important to review your statement to determine what fees you are paying.

Survey Shows Improvement in Consumer Attitudes

John Ulzheimer — Wed, 18 Apr 2012 15:53:11 +0000

Fannie Mae conducts a monthly survey on consumer attitudes called National Housing Survey; the latest was conducted in December 2011. It was a phone survey of 1,000 Americans to assess their attitudes toward owning and renting a home, mortgage rates, homeownership distress, the economy, household finances, and overall consumer confidence. Attitudes on some issues have improved somewhat since November 2011.

There was a 38 percent increase in those who said the economy is on the right track, but that was only 22 percent of the responders, compared to 69 percent who felt we were on the wrong track. This is the first time, since February 2011, that more thought their personal financial situation would improve over the next 12 months. More said their income was higher than 12 months ago. They expected home prices to increase by 0.8% over the next 12 months, which is an increase of 0.2% from November 2011.

“December attitudes have rebounded from the lows seen during the debt ceiling debate and economic deterioration of Europe this past summer,” Doug Duncan, vice president and chief economist of Fannie Mae, said in a press release. “However, while December results show that more Americans think the economy is on the right track, consumer attitudes are still at depressed levels, with more than two-thirds saying that the economy is on the wrong track.”

Economy and Household Finances Highlights

22 percent said the economy is on the right track, a 38 percent increase from November 2011; 69 percent said the economy was on the wrong track, a decrease of 8 percent from the prior month.

40 percent said their personal financial situation will get better over the next 12 months; 39 percent said it will be the same. This was the first time since February 2011 that more thought it would get better.

21 percent said their income is significantly higher than it was 12 months ago, a 31 percent increase from the prior month; 59 percent said it stayed the same, an 11 percent decrease from the prior month.

11 percent said their household expenses have decreased over the past 12 months, a 38 percent increase from November 2011; 39 percent said their expenses have increased significantly. 49% said their expenses are about the same compared to 12 months ago, a decrease of 9 percent from prior month.

Homeownership and Renting Highlights

On the average, they expected home prices to increase by 0.8% over the next 12 months, an increase of 0.2% from November 2011.

26 percent expected home prices to increase over the next 12 months, an increase of 18 percent from the prior month; 18% expected home prices to decline, a decrease of 18 percent. 52% expected prices to stay the same.

36 percent expected mortgage rates to increase over the next 12 months, an increase of 9 percent from November and even with October.

71 percent said it is a good time to buy a home, a 4 percent increase from the prior month; 11% said it is a good time to sell.

On the average, they expected home rental prices to increase by 3.5% over the next 12 months, a 3 percent increase from November 2011.

5 percent expected home rental prices to decrease over the next 12 months (tying May 2011 as the lowest point in the past 12 months); 43% believe home rental prices will increase.

31 percent would rent their next home; 64 percent would buy, a 2 percent increase from the prior month.

There was some improvement in overall attitude about the economy, but the majority still felt that the economy is on the wrong track. How would you respond to this survey?

How Can I Reduce My Credit Card Debt?

John Ulzheimer — Tue, 17 Apr 2012 15:30:10 +0000

…other than not pay your taxes today on your credit card!!

There are tools that can help you determine which bill to pay off and there are many different opinions from industry experts on which card you should pay off first. Some consumers want to pay off the card with the lowest balance, so they can feel accomplishment in paying off the bill. Others want to pay off the one with the highest interest rate and others the one with highest balance. I have addressed paying those with the highest interest rate and those with the highest balance.

Pay off those with highest interest rate first

The fastest way to pay off your debt is pay at least the minimums and put any extra toward the cards with the highest interest rates first. Take all of your credit cards, list them on an excel spread sheet, rank by interest rate and then attack the most expensive debt first. You don’t have to use a fancy tool developed by a company to do this. You still have to use the same information in your spread sheet such as the interest rate and balance, as you do for the fancy tool. Either way you have to provide this data, because you are the only one that has this data. When you pay off one card, take that payment and put it toward the next highest interest rate card along with the minimum payment and so on until everything’s paid off.

Pay off account with highest balance to reduce your credit score

If your top goal is to increase your credit score, you may want to take a different approach. Pay off the cards that are closest to their limits first. If you leave balances relatively high to their limit then you are lowering your credit score. The amount you owe contributes 30 percent to your credit score and how much you use of your available credit is included in this. Having a low score will cost you more in the future in the form of higher interest rates.

You should also call your credit card companies every once in a while and ask them to lower your interest rate. Stay away from for profit companies that offer to negotiate for you. It could cost you even more.