The latest credit industry end-around? Sneaky ‘health-care’ credit cards, pitched by health providers right in their offices

September 16th, 2010 by Mike Hinshaw

What’s next from the banksters and their credit operations…special cards for funeral costs? credit schemes for veterinary emergencies? Next to personal health issues, these are two of the next most-likely emotionally-charged situations in which to take advantage of someone who’s scared, in pain or in grief.

60-year-old ‘duped at the dentist’s office’

Following up on credit-card loopholes and abuses we discussed here and here, today we begin with the case of  Maxine Veach, in this excerpt from an Aug. 31 piece in The Washington Post:

The 60-year-old retired postal worker has dental insurance through Excellus BlueCross BlueShield and MetLife. Suffering from a sore jaw, she visited a dentist near her Syracuse, N.Y., home who told her she needed three crowns and three extractions. She gave the office information about her insurance so they could bill for the charges. But Veach decided to sign up for the health-care credit card offered by the practice to cover any amounts not paid for by her plan.

After getting her teeth cleaned and a set of X-rays taken, Veach was surprised to receive a bill from the credit card company for $2,300.

Veach made numerous attempts to sort out the overcharge and get the office to bill her insurers for the work that had been done, but eventually she called Cuomo’s office, which negotiated an $1,850 reduction in the amount owed. Now she’s looking for a new dentist.

“I was very upset with them,” she says. “I told them they had a nice little scam going on.”

Circumventing the CARD act

So, yeah, now we have health-care credit cards. Here’s what a blogger at CreditLoan.com has to say: “Health care credit cards are the newest invention of credit card issuers determined to circumvent the CARD Act. These credit cards are designed to help consumers pay for medical expenses not covered by their insurance (e.g. cosmetic procedures, dental, infertility treatments, weight loss treatment, veterinary services) but can also be used to pay for health insurance deductibles.

“However, not unlike the newer business credit cards and professional credit cards, health care credit cards offer none of the protections afforded by the CARD Act, in addition several other factors that pose a serious risk to consumer financial health . . . .”

Cuomo: ‘hundreds of complaints”

New York Attorney General Andrew Cuomo has begun an investigation, says Bloomberg Businessweek, “after receiving hundreds of complaints from consumers who were convinced by doctors and dentists to sign up” for the deceptive programs.

“Investigators will look into financial incentives providers receive for promoting the cards that can leave patients struggling with overcharges and high interest rates, Cuomo said,” reports Businessweek.

In an Aug. 9 PR, Cuomo “announced the expansion of an industry-wide investigation into predatory health care lending where consumers, especially seniors and vulnerable patients, are misled about financing, causing them to be pushed into debt.

“An investigation by Attorney General Cuomo found that some health care providers use fast-talking sales pitches to pressure and deceive consumers into applying for health care credit cards such as Chase Health Advance, Citi Health, and GE Money’s CareCredit. The investigation also found that CareCredit pays kickbacks in the form of rebates to the providers based on how much business they charge consumers on CareCredit cards.

‘No interest’–yeah, right

“The investigation was based in part on hundreds of consumer complaints received by the Attorney General’s Office. Consumers reported that health care providers promised that the credit card had ‘no interest,’ when it often carried retroactive interest of over 25 percent if not paid in full during a promotional period. Consumers were also unknowingly charged up front for services they never received, and their attempts to obtain refunds were often thwarted or ignored. Meanwhile, the credit card companies typically paid the health care providers in full within 48 hours of the charge.”

Businessweek also quotes Cuomo’s recognition of the tie to filings for bankruptcy protection: ” ‘Health care debt is the number one cause of individual bankruptcy and this scheme is contributing to the economic burden being felt by consumers,’ Cuomo said.”

80-year-old declines credit, gets popped on credit report

Apparently, many folks who sign up do so under the impression that they’re agreeing to an extended-payment plan. Beyond the risks of retroactive interest on the full balance–regardless of any payments that have been made–consumers can also take a hickey on their credit report if they realize it’s not a payment plan and therefore cancel the contract. Says Businessweek, “Philip Palumbo, 80, of Rochester said he signed up for CareCredit to pay for an estimated $5,600 in dental work, not realizing he was agreeing to a credit card. After having the work done elsewhere, he continued to receive bills from CareCredit and wound up with a strike on his credit report.”

Get a real payment plan

An MSNBC article says a payment plan is exactly what consumers should be asking for:

Patient advocates are concerned that practitioners are taking advantage of patients’ trust at a time when they need help and may be in pain. “Some of the people we’ve worked with feel pressured to apply,” says Mark Rukavina, executive director of the Access Project, a Boston-based nonprofit that helps consumers solve medical-debt problems. “They need the services, and the provider is really encouraging them to use these medical credit cards.”

As health care costs continue to rise, more people are struggling to cover their medical bills. Using plastic may seem like a good—and sometimes the only—solution. According to a [2007] study by management consultants McKinsey & Co., credit cards accounted for less than 20 percent of consumers’ out-of-pocket medical spending in 2007, or $45 billion. However, with the “right” business models that make consumer-to-provider payments more efficient, the study predicted, credit card spending could more than triple, to $150 billion, by 2015.

There are better options than putting charges on a credit card, say patient advocates. The simplest: Ask for an extended payment plan.

Many providers will offer it and charge no interest, says Rukavina.

We gotta stay edumacated, folks. It’s pretty apparent the banksters have no shame–but roping health-care providers in to sell their squirmy products? Even if we could trust the lawmakers, they can’t write laws fast enough to stay ahead of the banksters’ “financial engineers.”

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The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

Plutonomy, Part Two: Wealth gap not new, but getting bigger

September 7th, 2010 by Mike Hinshaw

[EDITOR'S NOTE: This is the second of a two-part installment about the wealth-gap economy. Part One is here.]

An AOL Daily Finance article Aug. 14 proposes that the U.S. economy has already become a plutonomy.

“Two generations ago, ‘two Americas’ referred to the sharp divide between prospering Americans and those mired in poverty, stagnation and prejudice, a gulf addressed by Michael Harrington in his influential book, The Other America: Poverty in the United States,” writes Charles Hugh Smith in “Why Growth May Still Leave 95% of Americans Behind.”

“With the advent of social programs such as Medicare, Medicaid, food stamps and housing subsidies, much of the grinding rural and urban poverty described in the book has been alleviated.

“But the gap between the super-rich, the wealthy and ‘the rest of us’ has widened, forming what is in essence two Americas — the top 5% and the bottom 95%. And this is creating a situation where economic growth, as measured by GDP, may increasingly mean that 95% of Americans are still not doing better financially.”

Stocks rally even as unemployment ratchets up

For recent evidence look no further than the market’s reaction to the August jobs numbers. This from a Sept. 3 CNBC stock blog: “Stocks were sharply higher Friday after the government reported August non-farm payrolls fell much less than expected.”

That’s right–the private sector added 67,000 jobs, but overall we still lost more than were created, and the “official unemployment rate” ticked UP to 9.6 per cent. Total unemployment remains at nearly 17 per cent. Furthermore, as the Kansas City Business Journal says, “Idled workers who haven’t actively been seeking work aren’t counted among the unemployed.

“It’s estimated that 16.7 percent of Americans want to work but don’t have a job.

“The net gain of 67,000 on private business payrolls couldn’t make up for 114,000 temporary Census Bureau jobs that ended in August. Also, state and local governments cut about 10,000 workers. Manufacturing employment declined by 27,000 jobs.”

Nevertheless, the news wasn’t as bad as Wall Street feared, so the  “August numbers . . . pushed up stock gauges on Friday,” according to a Sept. 3 piece in The New York Times, which also reported that “Optimists were taking their good news where they could. By the end of the day, the Standard & Poor’s 500-stock index was up 1.32 percent, continuing a rally that began in the middle of the week. Market reaction to the jobs data on Friday was tempered somewhat by a report that said growth in the services sector had slowed in August.”

CEOs make out as layoffs increase

A recent report from the Institute for Policy Studies has been making headlines, too–this  from the Kansas City Star:

CEO compensation totaled $598 million at the 50 companies that laid off the most workers

“The nation’s biggest job-cutting companies paid their top executives an average of $12 million last year, according to a report released today.

“The 50 U.S. chief executives who laid off the most employees between November 2008 and April 2010 eliminated a total of 531,363 jobs, according to the Institute for Policy Studies, a research group that works for social justice and against wealth concentration.

“In ‘CEO Pay and the Great Recession,’ the institute said the $598 million in combined pay for the 50 executives would have paid one month’s worth of average-sized unemployment benefits for each of the laid-off workers.”

And for anyone confused by headlines about CEOs having it rough, too, this is from the institute, itself:

“Month after month, the headlines have pounded home a remarkably consistent message: Corporate executives, here in the Great Recession, are suffering, too.

“Corporate executives, in reality, are not suffering at all. Their pay, to be sure, dipped on average in 2009 from 2008 levels, just as their pay in 2008, the first Great Recession year, dipped somewhat from 2007. But executive pay overall remains far above inflationadjusted levels of years past. In fact, after adjusting for inflation, CEO pay in 2009 more than doubled the CEO pay average for the decade of the 1990s, more than quadrupled the CEO pay average for the 1980s, and ran approximately eight times the CEO average for all the decades of the mid-20th century.

“American workers, by contrast, are taking home less in real weekly wages than they took home in the 1970s. Back in those years, precious few top executives made over 30 times what their workers made. In 2009, we calculate in the 17th annual Executive Excess, CEOs of major U.S. corporations averaged 263 times the average compensation of American workers. CEOs are clearly not hurting.”

Reagan’s budget director chimes in

Moreover, anyone who thinks these data are some sort of liberal claptrap or anti-capitalist propaganda should take a gander at David Stockman’s op-ed piece in the July 31 NY Times. Yes, that Stockman, former director of President Reagan’s Office of Management and Budget. Here’s an excerpt:

“It is not surprising, then, that during the last bubble (from 2002 to 2006) the top 1 percent of Americans — paid mainly from the Wall Street casino — received two-thirds of the gain in national income, while the bottom 90 percent — mainly dependent on Main Street’s shrinking economy — got only 12 percent. This growing wealth gap is not the market’s fault. It’s the decaying fruit of bad economic policy.”

“Furthermore,” says the AOL Daily Finance article, “the very rich are pulling away from the merely wealthy. Those earning $10 million or more per year are increasingly wealthier than the 321,000 earning $1 million or more, and those top earners are pulling away from the rest of the top 5% of households by income.

“In the housing and stock market boom years of 2002 and 2007, the incomes of the bottom 99% of households by earnings grew by a meager 1.3% a year in inflation-adjusted terms, while the pockets of the top 1% grew 10% a year.

“Over the past 25 years since 1985, the top 1%’s share of national income has doubled — in 2007, it netted 23% of the nation’s total income. The income of the wealthiest Americans — the top 0.1% — has tripled in that 25 year period. This wafer-thin slice of Americans now earn as much as the bottom 120 million wage earners.”

Greenspan weighs in, too

A crucial factor in this equation concerns the difference between money and capital. Both the working poor and middle-class workers labor for wages, that is, money. The ultra wealthy have the advantage of the clout of capital, that is, the leverage of being able to use finance as a tool to make more money. Hence, the original Citigroup paper referenced Part One, which was aimed at investors aiming at joining in the upper ranks of the Plutonomists. Citing a recent Bloomberg piece on Alan Greenspan, the Daily Finance piece continues, “The extremely wealthy are pulling away because their earnings come from capital, not labor. While wages have stagnated, returns on capital investments and speculations have soared. None other than former Federal Reserve Chairman Alan Greenspan recently described this yawning divide between those in the top slice of the economy who are doing very well and the 95% below them who are struggling.”

(For more information and a terrific slide show, see this ongoing series at Slate.)

As the first two installments at Slate demonstrate, the causes of what Paul Krugman labels the “Great Divergence” are not readily apparent. We will monitor the Slate series and update here with more, if applicable.

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The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

Background and basics of a buzz word: ‘Plutonomy,’ Part One

August 31st, 2010 by Mike Hinshaw

People considering, already in, or emerging from bankruptcy protection should have the best information possible in order to plan for their financial futures.

Economy, foreclosures, lending, medical costs

Accordingly, as closely as we can, we monitor stories and studies about bankruptcy itself, of course–but also these core subjects: economy and unemployment; foreclosures and housing starts; lending (mortgages and credit-card); and the health-care system (including medical bankruptcies).

Our latest three posts are as follows:

Origins of ‘Plutonomy’

Today we’ll look at a relatively new term: plutonomy,apparently first used by Citigroup analyst Ajay Kapur in a 2005 paper for clients. An October paper, also crediting two other Citigroup analysts, refers to a September paper but then expounds on the term, although somewhat scattered in and among pitches to potential clients. Some of the paper reads like working notes, but following are selected, crucial excerpts, with some of our own reformatting for clarity’s sake :

  • The World is dividing into two blocs–the Plutonomy and the rest. The U.S., U.K. and Canada are the key Plutonomies–economies powered by the wealthy. Continental Europe (ex-Italy) and Japan are in the egalitarian bloc.
  • In plutonomies the rich absorb a disproportionate chunk of the economy and have a massive impact on reported aggregate numbers like savings rates, current account deficits, consumption levels, etc.
  • [T]he world is dividing into two blocs–the plutonomies, where economic growth is powered by and largely consumed by the wealthy few, and the rest. Plutonomies have occurred before in sixteenth century Spain, in seventeenth century Holland, the Gilded Age and the Roaring Twenties in the U.S.
  • What are the common drivers of Plutonomy?
    1. Disruptive technology-driven productivity gains,
    2. creative financial innovation,
    3. capitalist-friendly cooperative governments,
    4. an international dimension of immigrants and overseas conquests invigorating wealth creation,
    5. the rule of law,
    6. and patenting inventions.
  • Often these wealth waves involve great complexity, exploited best by the rich and educated of the time.

How to participate

The idea for the analyst team, of course, was to sell a method by which their clients could prosper–in other words, trading strategies to exploit the wealth-gap economy.  One way, they wrote, was to buy equities in general. But better yet, buy stocks of companies that cater to the really wealthy–hence, the “Plutonomy basket”: a mix of equities issued by companies that cater to the very rich. In the pre-recession era the team was writing, they offered a basket of “luxury stocks” that had returned an enviable “an annualized return of 17.8%, handsomely outperforming indices such as the S&P500.”

And why not? After all, the team reasons, “Perhaps one reason that societies allow plutonomy, is because enough of the electorate believe they have a chance of becoming a Pluto-participant. Why kill it off, if you can join it?”

In short, a plutonomy seems merely an embodiment of the old adage, “The rich get richer, and the poor get poorer.” To a certain, the adage holds true.

Of and by the wealthy

But the rich/richer, poor/poorer framework aphoristically glosses over the middle class. In that sense, plutonomy is a portmanteau, blending economy with plutocracy: an economy driven by the wealthy, of and by the wealthy.

It is in that sense that a Wall Street Journal blogger admonishes us in an Aug.5 “Wealth Report” to face the “surprising” recognition of “just how much or our consumer economy is now dependent on the rich, and how that share has increased as the U.S. emerges from recession.”

Blogger Robert Frank notes that, “According to new research from Moody’s Analytics, the top 5% of Americans by income account for 37% of all consumer outlays . . . .

“By contrast, the bottom 80% by income account for 39.5% of all consumer outlays.

“It is no surprise, of course, that the rich spend so much, since they earn a disproportionate share of income. According to economists Emmanuel Saez and Thomas Piketty, the top 10% of earners captured about half of all income as of 2007.”

A question of stability

To his credit, Frank also recognizes the inherent problem:

“The data may be a further sign that the U.S. is becoming a Plutonomy–an economy dependent on the spending and investing of the wealthy. And Plutonomies are far less stable than economies built on more evenly distributed income and mass consumption. ‘I don’t think it’s healthy for the economy to be so dependent on the top 2% of the income distribution, [Moody's chief economist Mark] Zandi said. He added that, ‘In the near term it highlights the fragility of the recovery.’ ”

However, Frank stops short on two fronts, the evolving recognition that:

  1. the economy already has become a Plutonomy, and
  2. some experts believe the parameters “of and by” have been transcended, such that what we have now is an economy “of, by, and for” the wealthy.

[EDITOR'S NOTE--Continued in Part Two.]

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The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

Despite new credit laws, young adults can still fall into traps: Don’t let them–know your options for them and for you

August 30th, 2010 by Mike Hinshaw

In our most recent post, we surveyed news of the economy and discussed the machinations of at least one company that already is egregiously flouting the new credit-card reform law.

One article we cited was from the St. Louis Post-Dispatch, which describes how  First Premier has concocted “pre-account fees” that somehow obligate consumer before opening an account.

Avoiding credit traps

Another aspect of that piece is worth mentioning, too: Whether you are considering bankruptcy protection or about to your bankruptcy finalized through discharge, you may feel you need at least some kind of credit card. Of course you don’t want to fall in the same trap described in the Post-Dispatch piece. But, as the article points out, diligent shopping may turn up a decent secured card.

“Consumer advocates say people with bad credit would be better off with ‘secured’ credit cards,” says the article, “which are common among major banks.

Secured credit cards

“Consumers place money, often $300 to $500, on deposit with the bank. The bank then gives them a credit card with a limit of the deposit amount, or somewhat more. Many such cards carry annual or monthly fees, although some don’t, and some carry application fees. There are bad deals among secured cards, but there’s enough competition that consumers can find a reasonable offer, advocates say.”

If you’re intent on rebuilding your credit score, using a decent secured card is a reasonable way to start. Through time, you may build up to having real credit extended–or qualify for a better card. Obviously, if misusing consumer credit was a problem in the past, you’ll need to be vigilant about not repeating past mistakes: a secured card can help make baby steps to staying in bounds.

Considerations for college kids

Some consumer advocates even recommend a secured card for college-age children–especially now, in light of the portion of new regs aimed at the under-21 crowd. With the fall semester kicking off, these are timely questions. Furthermore, weighing the risks and benefits of credit for young adults can also be a worthwhile exercise for recession-pressed households because some of the same questions apply to budgets and rebuilding credit.

As noted last February in the University of Iowa’s Daily Iowan, “Starting Feb. 22, students under 21 will be required to have a cosigner or show proof that they can independently take responsibility for any debt when applying for a credit card.” In other words, to get around having a co-signer, they’ll have to prove regular income or demonstrate a solid savings account.

Credit reform watered down

Well, that’s the idea behind the new regs. However, it may come as no surprise that despite the tougher-sounding regs of the new law, the intent is already getting creamed. In other words, the combination of determined youngsters and willing lenders can result in not much having changed. From a May 20 piece at CreditCardGuide.com:

“The student card segment of the new Credit CARD Act was designed specifically to protect young adults under age 21 from falling into the debt trap early on. With this in mind, Congress drafted provisions specifying that those under 21 can only receive credit cards if they can demonstrate sufficient income, or get a cosigner for the card. It was left to the Federal Reserve to specify what constituted ‘sufficient income,’ and how exactly it must be demonstrated.”

In other words, Congress punted. Oh, and guess what? The Fed punted, too. So the whole thing gets stair-stepped down to the credit-card companies setting policy.

“The Fed chose to apply vague standards for evaluating income, simply requiring card issuers to have ‘financial information indicating the consumer has an independent ability to make the required minimum periodic payments on the proposed extension of credit.’ The Fed explicitly declined to follow suggestions from consumer advocates that card issuers be obliged to only consider income earned from wages, as well as requiring a higher residual income or lower debt-to-income ratio for consumers less than 21 years old. The Fed also declined requests that card issuers be compelled to verify income or asset information stated on applications submitted by consumers under the age of 21.”

So what’s new?

Doesn’t off much hope for the new financial reform act, does it? We see the same stair-stepping in the regs, with the agencies left to promulgate the actual rules. Can we expect the regulated industries to wind up setting policy, there, too?

For young-adult credit cards, says CreditCardGuide.com, “The upshot is that getting a student credit card in the post-credit card reform era appears to remain as easy as ever—with little else required than going online to fill out a credit card application, no co-signer required. Credit limits on new student credit cards range anywhere from $300 to $2000 or higher, and credit limits increase over time for anyone paying their credit card bills on time.

“One major credit card issuer has set the ‘sufficient income’ level for those under age 21 at a mere $2,000 per year. Applicants are allowed to include scholarships, grants, and parental contributions in that total. Since these sources of income for most full-time students would exceed more than $2,000; effectively any student under the age of 21 could be approved under that guideline.”

Wise use of credit starts at home

Bottom line? Make sure your college-age kids understand that they have your support as long as they don’t skirt the intent of the law by signing up on their own with one of the rogue lenders.

Accordingly, you will need to consider: is it wise to co-sign on a card for a college student–especially one who is leaving home for the first time? Perhaps the child would be better off with a debit card–one that  is NOT tied to so-called “overdraft protection,” a misleading term for “more ways for the bank to charge fees.” (One suggestion: sit down with the child and read this Consumer Affairs discussion of debit cards vs credit cards.)

On the other hand, many parents also would like to be help their kids get their own credit ratings established. With that in mind, here’s some options from “Should you co-sign for your college-bound kid?”:

  • A low-limit, student card they can use as a starter card: “These cards typically have a credit limit of $1,000 or less and no annual fee. Some offer no interest on balances for the first 6 or 7 months.”
  • The aforementioned secured card, which also beings establishing credit history: You may have to shop around to avoid exorbitant fees, but the “spending limit is based on a deposit with the bank. Usually, there’s a minimum deposit of $300 to $500 required. If they can’t pay the bill, the bank uses that collateral.”
  • Let them piggyback on your card: Despite the changes in the law, you can still let children become “an authorized user on your credit card account. Since you get the bills, you can see how much they’re spending and what they’re buying. Because they have a real credit card, they are creating a credit history.”

Breaking the cycle

The article says one Virginia couple, Stephen and Cheryl Wiley of Glen Allen, Va., chose to piggyback for their two daughters. “The Wileys did not want the girls to have their own credit cards. But they wanted Kelly and Katherine to have a way to pay in an emergency and start establishing credit. The authorized user cards do both of those things.

“The girls know the rules. The cards are for emergency purchases only.  Any charges must be paid off by the due date. If not, their name will be taken off the account.

“The Wileys say there’s a reason they’re so strict. Back in 1990, they had to file for bankruptcy protection because of medical bills. They know how a bad credit report can hurt you and they don’t want that to happen to their daughters.”

[Next time: Perhaps an unfamiliar term, plutonomy has entered the lexicon to describe our wealth-gap economy.]

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The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

Against din of housing slump and unemployment, credit-card reform loophole exploited: subprime, pre-account fees

August 26th, 2010 by Mike Hinshaw

Let’s survey some ledes from around the country.

Housing, unemployment, bankruptcy

“Housing sales in July plunged to their lowest level in more than a decade, exceeding even the grimmest forecasts.”

That’s from The New York Times, Aug. 24.

Here’s another, also from the same edition of the Times: “The Dow Jones industrial average and the Standard & Poor’s 500-stock index ended lower Tuesday for a fourth consecutive day, unable to rebound from a disappointing report on existing-home sales.”

This one’s from the Wall Street Journal, Aug. 5: “More Americans filed for bankruptcy protection in July, reversing a trend of declining filings over the previous three months and highlighting the continuing financial struggles of many consumers.”

Highest rates since ‘reform act’ of ’05

“Long-term unemployment and small-business failures continue to propel personal bankruptcy filings,” reports an Aug. 22 article in the Tenneseean (our emphasis added), “with Tennessee in step with a national trend that shows the number of cases spiking in July for the first time after declining for three months.

From the Aug. 18 Economist, we get the following brief (and the following chart, as well, based on data from the Administrative Office of  the US Courts): “Bankruptcy filings rose 20% in the year to June 30th compared with the previous 12-month period, according to statistics released on August 17th by the Administrative Office of the US Courts. This takes quarterly filings to their highest point since tougher bankruptcy laws were introduced at the end of 2005. That change brought a spike of bankruptcies, as companies and individuals rushed to declare themselves broke under the more lenient old regime. The data suggest that an older trend is reasserting itself. This is could be more bad news for America—or it could just mean that creative destruction is alive and well.”

US-Bankruptcy historical chart

One recent blog mentions that the return to pre-2005 levels may “merely be” a statistical “reversion to mean.”

Election fodder?

That would be some mean-dang revertin’, all right, given that the credit-card lobby’s pure intent in getting the “reform act” of ’05  was to make it harder for people to file for Chapter 7 protection. They did, and it is–yet, Chapter 7 filings far outnumber Chapter 13 filings.

Perhaps cheekily, the blog ends with the admonition to watch for this chart as the election nears–with the rejoinder to see how many times it appears with the pre-2005 years left off the chart. But, really, that’s a good suggestion: Any candidate from any party who monkeys with the data should be immediately suspect.

Reform fail? Credit-card company hits loophole

Speaking of credit-card companies, it looks as though at least some are definitely reverting to mean. The credit-card reform legislation passed last year was supposed to rein in the heinous practices of the industry. But as this Aug. 21 piece in the St. Louis Post-Dispatch demonstrates, loopholes already are being exploited.

“When Congress passed the credit card reform act last year, it took aim at the sort of high-fee card that sat in Lynne Fischer’s purse until recently. There’s now some evidence that Congress missed.

“Lynne Fischer, 64, lives in St. Louis Hills on about $1,700 a month from a small pension and a disability check. She’s had problems paying some bills. ‘My credit history is not well,’ she says.

“Still, she wanted a credit card for emergencies: ‘What if my car breaks down?’ she asked. When the mail last fall brought an offer from First Premier Bank of South Dakota, she applied.

“It was a costly decision. . . .”

The article describes First Premier as using this business model: The company “offers cards for people with bad credit, and they charge significant up-front fees. They pitch the card as a way for customers to rebuild their credit by making on-time payments.”

The article also says that consumer advocates label such practitioners as predatory “fee harvesters,” a term we will probably see more often in the months to come. At any rate, and perhaps needless to belabor, she finally realized it was a stinky deal: “Fischer sometimes made only the minimum payment, and so she ended up paying interest on those fees. When she called to cancel the card this summer, she says the bank’s representative insisted that she pay $253 — an amount consisting mainly of the fees.”

Oh–but there’s more. The quote next at bat really, truly exhibits the depths of the ether-soaked depravity in which these companies are willing to traffic.

“As of last week, First Premier was offering a card with an annual fee of $75. That’s 25 percent of the $300 credit limit. But it also has a $95 ‘processing fee’ that must be paid before the customer gets the card.

“It’s perfectly legal, says First Premier. ‘The credit card act does not preclude fees charged prior to the account being opened,’ says Darrin Graham, the bank’s vice president for marketing. So, the $95 fee doesn’t count.”

Holy moly and Great Winged-Leaping Lizard-Bats! and whatever other mythical creatures that defy reason. Let’s look at that statement again, with emphasis added:

“The credit card act does not preclude fees charged prior to the account being opened.”

Just imagine if this becomes a trend: Utility companies guess where we’re going to move, then start billing us before we move in; Redbox and Netflix get predictive software, and charge us for movies before we select them. And on and on…

Perhaps First Premier is simply running interference for the rest of the industry, trying an end-around to see how much trouble such tactics will attract. Or perhaps they really are the junkies they appear to be, addicted to cash flow they pump from the least sophisticated, most vulnerable consumers they can bag. We’ll keep following and let you know what we find.

[Next time: Using credit cards under the new law and credit for college-age children.]

*************************************************************************

The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

Jumping the gap from Wall Street bonuses to cornbread mix

August 17th, 2010 by Mike Hinshaw

That recovery we keep hearing so much about?

Seems to be going be well–if you work in the neighborhood where the Great Recession was engineered.

According to an Aug. 13 article in MarketWatch, “Bonuses in the financial services industry will increase slightly this year as the sector outpaces the recovery of the broader economy, according to a forecast published by Johnson Associates Inc. Thursday.”

Supposedly, it’s a big deal among legislators, too. Apparently some of them see problems with bonuses for those in the sector that caused the problems that nearly drove the economy off the cliff.

“The increase in bonuses would come at a time when rising compensation in the sector has become a hot issue for lawmakers in the wake of the financial crisis.”

Of course, bonuses were off the charts during the boom leading up to the crisis. Trouble is, nothing changed during

Cuomo’s report

“But when the financial crisis hit in 2008, compensation stayed at these levels even as bank earnings plummeted. According to an investigation by Attorney General Andrew Cuomo’s office, at Bank of America net income fell to $4 billion from $14 billion, but total payouts still remained at $18 billion. Citigroup and Merrill Lynch, now owned by Bank of America, lost $54 billion in 2008, but still paid out about $9 billion in bonuses. Read more about Cuomo’s [2009] report here. [" According to the 2009 article, "Attorney General Andrew Cuomo's office analyzed 2008 bonuses and earnings at the nine financial institutions that were the first to receive government money from the Troubled Asset Relief Program, or TARP."

Another bailout beneficiary, GM is doing pretty well, although fellow bailee Chrysler is still struggling. Ford, not a bailee, is doing OK, too. Other big corps are reeling in the dough, like say, Disney (riding blockbusters Toy Story 2; Alice in Wonderland; and Iron Man 2).

The 'new abnormal'

And people aren't just buying downsized cars and going to the movies. Describing a "bifurcated market," this July 29 BusinessWeek article says bewildered-and-bewildering consumers are scrimping on soap and other basics in order to blow money on luxuries.

"The new abnormal has given rise to a nation of schizophrenic consumers. They splurge on high-end discretionary items and cut back on brand-name toothpaste and shampoo. Companies such as Cupertino, California-based Apple, whose net income jumped 94 percent in its last quarter, and Starbucks Corp., which saw a 61 percent increase in operating income over the same time frame, are thriving.

"Mercedes-Benz is having a record sales year; deliveries of new vehicles in the U.S. rose 25 percent in the first six months of 2010. Lexus and BMW were also up. Though luxury-goods manufacturers such as Hermes International SCA and Burberry Group Plc are looking primarily to Asia for growth, their recent earnings reports suggest stabilization and even modest improvement in the U.S."

Well, who can blame the American consumer for being at least a little crazy?

As the Aug. 17 Detroit Free-Press says, "The U.S. lost nearly 3 million jobs in the second half of 2008.

A 'deep hole'

"The hole was so deep that even with the 620,000 private-sector jobs that the Economic Policy Institute reports were added over the last seven months, it doesn't feel like a recovery to many.

"Charles Ballard, a Michigan State University economist, agrees that the recovery is very slow, but not ending.

" 'We're coming out of the worst economic downturn in our lifetimes,' Ballard said. 'Given that a sledge hammer was taken to the economy when Lehman Brothers failed, we're lucky the damage hasn't been worse.' "

Earlier in the year, some encouraging reports were noted, hinting that unemployment, foreclosures and bankruptcies had bottomed out. More recent reports say no.

Foreclosures still raging

From an Aug. 13 ABC News report: "In July, banks repossessed the second highest monthly number of homes ever, according to the California-based foreclosure listing firm RealtyTrac, Inc. There were 92,858 properties taken over by banks in July, an increase of nine percent in the month and six percent for the year.

"A sagging job market is the likely culprit. The silver lining: Overall foreclosure activity in July did drop about 10 percent from a year ago. But it was the 17th straight month of foreclosure actions on more than 300,000 properties, according to RealtyTrac."

Apple cakes and cornbread

That report also describes a consumer pushback of sorts, as people sick and tired of waiting for help are increasingly taking matters into their own hands--even if their plans are, let's say, fanciful. Efforts range from representing themselves in court--as more judges are  getting savvy to lender tricks--to having large-scale "bake sales."

One woman who lost her house after losing her job has been inspired by "Teaneck, N.J., homeowner Angela Logan [who] sold enough of her $40 apple cakes to qualify for a loan modification that allowed her to save her home. She dubbed her venture Mortgage Apple Cakes.”

Fueled by visions of Logan’s success, Beverly Davis decided to sell her grandmother’s cornbread recipe (10 bucks for the dry mix or the mix plus a cast-iron skillet for $40; see cornbreadmillionaire.com)–in hopes of raising  80 grand in order to buy her house back. On August 13, the ABC report said she had 21 days left. A quick check at her site shows an Aug. 4 post indicating that the bank told her the house will not be auctioned but instead will go on the market with a “firm price”–but (of course!) they can’t reveal to her any advance info…

No, that would make too much sense–to give out information to the most motivated buyer for the house, somebody who already thinks of it as home.

*************************************************************************

The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

Be wary of products promising to reveal ‘bankruptcy secrets’

July 26th, 2010 by Mike Hinshaw

We’ve alerted readers several times about shady companies in the “debt-settlement” industry (most recently here) who take advantage of consumers. The problem is so severe and widespread that Congress and the GAO had to get involved.

Well, now we’ve noticed a new angle, but no officials are warning about this, yet.

You’ve probably seen  those seemingly endless, “let-me-tell-you-a-story,” ad pitches (so-called “long-copy”  in Web marketing lingo that’s derived from the older, direct-mail industry) that seem to go on forever, usually presenting a personal story along the lines of “how I stumbled upon these secret methods.” Typically they have lurid, multi-deck headlines that scream (BECAUSE IT’S EXCITING!!!!!) and have key phrases highlighted (often in yellow) and “code word,” take-action-now phrases that are underlined or otherwise set off by some graphic device.

‘Secrets’

OK, now we’re not saying all such ads are for scams or for bogus products. However, we do read a variety of news and business publications and search the Net in order to stay abreast of bankruptcy-related topics. Lately, we’ve noticed such long-copy ads turning up in news searches (that is, not just Web sites, but copy that slips past the “news” filter of Yahoo! or Google, etc. ), and these ads are for books or reports that promise to deliver “secrets” of bankruptcy–yes, SECRETS!!! and, moreover, secrets that ATTORNEYS WON’T TELL YOU!!!

In short, pure bunkum.

What’s insidious, though, is such an ad that weaves in just enough facts to:

  1. sound somewhat credible, and
  2. pique the imagination.

By the way, no–we’re not going to supply any links–somebody might take that as an endorsement. But after reading this, you should be able to spot ‘em.

Look for careless, sloppy writing

One claim, for example, starts out like this:

The new bankruptcy law is very different from the old bankruptcy law. Unfortunately the new law was written by the credit card banks so it should come as no surprise that it’s loaded with clever traps each designed to punish consumers who seek debt relief through personal bankruptcy.

The good news is – you can still use the new bankruptcy law to wipe out your debts but the new bankruptcy process is much more complicated than before. Bankruptcy used be such a simple process but today it’s like tap dancing through a minefield! Make one small mistake and you’ll end up being forced into five long years of financial security!

One clue, perhaps too subtle in the Internet  extant, is the number of grammar and logic errors, especially in a relatively short passage. ( The word each is unnecessary, as punctuated; otherwise a comma should precede. Then, the word to is missing in “Bankruptcy used be . . .”). In an era in which almost all publications have cut back and therefore miss copy editors, we might overlook such errors.

But this one is a thought-killer: after warning us about “tap dancing through a minefield,” we learn that if we make one crucial mistake–which sounds DEADLY!!!–but, no, we arrive instead at “five long years of financial security.”

See what we mean? By the structure of the argument, the phrase five long years should result in something like financial slavery or indentured servitude. Or anything along those lines–but not “financial security.”

OK, we’ll quit parsing in just a another line or two…in recognition that too many editors have been laid off during the Panic, the Great Recession…

The next clue is the inflated language, the embroidery, the emotions-directed diction:

  • no surprise
  • loaded with
  • clever traps
  • designed to punish
  • tap dancing/minefield

etc.

Be wary of inflated claims

But the really big problem is out and out misinformation. Take this passage, for instance:

The first trap is the biggest one – the dreaded Chapter 13 bankruptcy trap. With a Straight Bankruptcy or Chapter 7 bankruptcy the judge in bankruptcy court bangs his gavel and all your debts instantly vanish – once and for all. Believe me, this is the kind of bankruptcy you want!

But under the new bankruptcy law it’s more difficult than ever to qualify for a Chapter 7 bankruptcy. Under the new bankruptcy law the bankruptcy court has a formula it must use to determine whether or not you can qualify. If you fail this important test, your debts remain and you’re forced into a very different kind of bankruptcy – the long and drawn-out Chapter 13 bankruptcy.

Under the Chapter 13 bankruptcy all your debts remain. You’re forced to repay each and every one right down to the last penny! All a Chapter 13 does for you is extend the terms of the loans giving you more time to pay. In most cases you get five long years to repay everything.


First, it’s true that Chapter 7 and Chapter 13 are very different; yes, Chapter 7 is basically a liquidation vehicle; yes, Chapter 13 is basically a re-payment plan. It’s also true that the Bankruptcy Reform Act of 2005 made it more difficult to qualify for Chapter 7, and yes, it’s true that the credit-card companies wanted Chapter 7 qualification to be more difficult.

However, the plan backfired on Wall Street when the products of its financial engineers cratered the economy. Since the crash, millions of consumers have qualified for Chapter 7 protection. But it’s not true that “all your debts instantly vanish.”  For example, Chapter 7 can not address child support or student loans (except in rare “hardship” cases); neither can it help with taxes, court fees, DWI-related costs, and a few others.

And this is just false: “Under the Chapter 13 bankruptcy all your debts remain.” We can’t emphasize this enough: that statement is not true.

What happens under Chapter 13 is that debts get restructured. The main thing is a certain amount of income is required because the court-appointed trustee takes monthly payments from the debtor and applies them  to the total debt, over time– first to secured debt (e.g., a mortgage) then to the most important unsecured debt (e.g., back taxes). By the time the trustee gets to unsecured credit cards, the creditors will likely be receiving only percentages of the original claim.

A very good, very thorough explanation can found in this July 24 article at CNNMoney.com.

So what’s the lesson, here? Easy–keep your money: there’s no “secrets” that a good, experienced attorney won’t share with clients. Ask if you can file bankruptcy yourself (you can); ask if you can hire an “advocate firm” to help with your filing (yep, you can do that, too); in fact, ask any and every thing you can think of.. Most experts agree that your safest route to a well prepared bankruptcy filing is by using a trained, experienced attorney.

*************************************************************************

The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

Balky Lenders: Part 2–What happened to Del Phillips?

July 14th, 2010 by Mike Hinshaw

[Editor's Note: This is the conclusion of a two-part look at the difference between home mortgage delinquencies of the wealthy--which are on a dramatic rise--and alternatives for the less well-to-do. Part 1 is here.]

Maybe ‘shrewdness’ is breaching class lines

One guy who doesn’t care about credit ratings and FICO scores–anymore–is a former public affairs worker named Del Phillips who tried to stay in his Chicago home by working out a loan modification, even after he had lost his job.

This is a from a June 25 piece in the Chicago Tribune, and, boy, talk about sneaky…check out this lender:

Phillips bought the one-bedroom condo, tucked into a Lakeview courtyard building, in May 2007 for $212,500, securing a first mortgage of $159,375 and a $53,125 second note, both from Chase Bank, according to county records. In January 2009, he lost his public affairs job, began drawing on his savings and, in April 2009, after the government began its Home Affordable Modification Program, applied for a mortgage loan modification from Chase.

Customer service representatives with Chase, he said, told him to keep paying the monthly mortgage of about $1,400 while he awaited a decision on his application. In September, the still-unemployed Phillips was turned down for a modification because, as the letter stated, his hardship “is not of a permanent nature.”

It’s a common, Catch-22 tactic that lenders commonly use: pressure the homeowner to maintain regular payments regardless of the personal hardship and sacrifice, only to later deny a loan mod because the homeowner has maintained payments–thereby demonstrating no financial hardship.

And the lender had yet more tactics at its disposal:

Phillips decided to stop paying the mortgage and try to sell his condo in a short sale, in which a homeowner sells the property, with the lender’s approval, for less than the amount owed on the mortgage. A short sale typically does not tarnish an individual’s credit history as much as a foreclosure.

Short sales and second notes

Short sales can indeed be an alternative, but not with a balky holder of a second note as explained here, in May 2009 FindLaw piece: “Going back to the issue at hand, what is a short-sale? We discussed the basics of a short-sale in a blog post last year. A short-sale is a foreclosure alternative for distressed homeowners, whereby a distressed homeowner can sell their home for less than they owe on their mortgage, if the lender agrees to the sale.

“A problem with short-sale solution, however, lies in the second mortgage, where it might not always be so easy to convince the holder of a lesser mortgage (for example, a home equity line of credit (HELOC)) to drop the loan. As a result, the short sale remedy isn’t used as much as it could be, to assist distressed homeowners.”

But, lo and behold, Phillips got a decent short-sale offer and dang if the lender didn’t approve it.

Well, of course, with a catch: “Chase notified Phillips that it would still have the legal right to pursue him at a later date for the approximately $54,000 owed on the second mortgage.

” ‘A short sale may satisfy the first lien, but the customer could still be responsible for the second lien,’ said a spokesman for Chase, while declining to discuss Phillips specifically.”

‘He did everything right’

Finally Phillips sought help from a federally approved housing agency, where counselors brought up the alternatives of filing for protection under the bankruptcy code. He didn’t like the idea and resisted “but after consulting with an attorney, in late February he filed for Chapter 7 bankruptcy, not the Chapter 13 that would have negotiated his debts, including those with Chase.”

In other words, he chose not to try to save the house under Chapter 13 and enter a repayment plan to creditors. Instead, the lender will probably be forced to take whatever it can get for the condo–without any recourse to go after Phillips for the second note. He told the Times he couldn’t stand the thought of not only losing the home in a short sale but also then repaying the lender $54,000 on a home he no longer lived in.

” ‘My other option was to say I’ll roll the dice with the bank,’ Phillips said. ‘Will they really come after me? I wouldn’t put it past the bank industry to do that. It’s going to kill me to pay a bank for a house I no longer owned. I was, like, there’s no way I’m going to pay the bank another dime.’ ”

He now regrets paying in good faith “the more than $12,000 he paid toward his mortgage while he sought a loan modification that never materialized.” The lender sent notice of loan default in late May, but Phillips expects to stay in the condo for several months while the legal system works, using unemployment benefits to pay condo association fees and stay alive while job hunting and considering a move to another state.

” ‘ (Phillips) did everything right. He had good credit, and then he lost his job,’ said Michael van Zalingen, director of homeownership services for Neighborhood Housing Services. ‘If your lender isn’t interested in helping you, or the only thing you qualify for hurts your household, I don’t think you have any moral obligation to stay bound in that mortgage or paying to that company when it no longer makes economic sense for you.’ ”

*************************************************************************

The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

Balky lenders face results of consumer-grade bankruptcies even as rates of wealthy “walk-aways” go through the roof

July 13th, 2010 by Mike Hinshaw

[Editor's Note: This is the first of two parts looking at the difference between home mortgage delinquencies of the wealthy--which are on a dramatic rise--and alternatives for the less well-to-do.]

A recent headline in The New York Times:

Biggest Defaulters on Mortgages Are the Rich

If you’re thinking, yeah, well–what else do you expect from the Times? OK, here’s basically the same story from Fox:

Wealthy Walk Away From Mortgages

Reading both accounts, one will notice a  shared theme, namely the question  “what’s best for the community?”

Community and neighborhood interests are crucially important. Hence our posts about the nonsensical behavior of institutions that lets home after home slide into foreclosure, which affects property values like bombing a pond. Aanymore, this ain’t about ripples from a pebble. What really hurts a neighborhood more? Owner-driven bankruptcy–or bank-driven foreclosure?

Property-value loss cascades through neighborhoods

Foreclosed properties littered through a neighborhood affect property values throughout the entire community, not merely the adjacent homes.

On the other hand we’ve all seen major league bankruptcies, from big players such as The Donald to major automakers. Not to mention the current, wadded-up mess with the Texas Rangers baseball club…

How is it that when “the big boys” do it, it’s a business decision?

Yet, when consumers file for bankruptcy protection, they are somehow…sneaky?

Unemployment data say ‘no progress’

Let’s look at the numbers of the so-called recovery: Since June of last year the unemployment rate is virtually unchanged, whether you look at the so-called “official rate” (row U-3 in the labor department’s Table A-15) of 9.7 per cent in June 2009 versus 9.6 per cent last month. Ok, that’s not “seasonally adjusted.” The seasonally adjusted figures show a slightly better picture: 9.5 percent in June 2009 versus 9.5 per cent last month–which means even when we consider the lesser numbers of jobless people counted in the “official rate,” there’s no change in a year.

And the same holds true for row U-6, which is the actual “total unemployed” rate. The not-seasonally-adjusted rate in June 2009 was 16.8 per cent in June 2009 and 16.7 per cent last month. Again, a .1 per cent difference. The seasonally-adjusted rate was 16.5 per cent in June 2009 and 16.5 per cent last month. Same pattern.

On the bright side, last month’s rate is down in both columns from a peak in April, when the “official rate” was 9.9 per cent and the actual rate was 17.1 per cent.

So we’ve progressed to the point that we’re back to where we were a year ago–with total unemployment actually closer to 20 per cent than it is to the claimed “official rate” of nearly 10 per cent.

Wealthy ditch mansions as business decisions

And now even the wealthy are sending “jingle mail” to their mortgage servicers, sending in the keys to their mansions (some primary, some secondary homes–and some that were intended as investments) and heading off to, well, wherever the rich go. What’s sort of fascinating, though, is that they’re ditching these high-end properties in significantly higher measure than the less well-to-do have been.

According to the July 8 Times piece, “Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.”

The article cites data showing that “[m]ore than one in seven homeowners with loans in excess of a million dollars are seriously delinquent” while only “[a]bout one in 12 mortgages below the million-dollar mark is delinquent.”

So basically “homeowners with less lavish housing are much more likely to keep writing checks to their lender.”

Lends a new meaning to “there goes the neighborhood,” doesn’t it? Makes one wonder what the brainiacs behind credit ratings and FICO scores are going to do with these data.

The data were provided by analytics firm CoreLogic to the Times, who says, “Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

“ ‘The rich are different: they are more ruthless,’ said Sam Khater, CoreLogic’s senior economist.”

The Fox account shares a similar perspective concerning the data: “As for those investment or second homes, Corelogic says delinquents on those topping the million dollar mark sit at 23%, while it’s just 10% on the cheaper ones.”

But the Fox writer tries a reverse spin: now that the wealthy are acting like the plebe sub-primers, suddenly having mortgage problems isn’t a class sin. But it just goes to show how the salt-of-the-earth middle class endeavors to persevere, against all odds.

“So to me this isn’t just an excuse to bash the wealthy, ” writes Gerri Willis, “… but a testament to the middle class…”They understand the value of a dollar and the value of a contract.

“Many are just too proud to throw up their hands and wave the white flag — for better or for worse.”

In other words, Willis seems to be saying, C’mon guys, even if it makes no business sense and the banks refuse to work with you, keep making those payments and honoring those contracts!

(In Part 2, we’ll have a look at what happened to Del Phillips and his condo.)

*************************************************************************

The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13

Countrywide slips through with a $108 million settlement–about $500 per homeowner

June 30th, 2010 by Mike Hinshaw

A few weeks ago, one of the largest settlements involving the Federal Trade Commission (FTC) has resulted in $108 million being set aside for homeowners ripped-off by the mortgage giant, now a part of Bank of America.

Two-year probe into Countrywide abuses

The U.S. Trustee Program (USTP), a unit within the Justice Department, worked closely with the FTC in the two-year effort “to carry out parallel investigations relating to Countrywide’s improper conduct in servicing home loans,” according to a June 7 department press release. The USTP is charged with ensuring the efficiency and integrity of the federal bankruptcy system except for the six judicial districts in Alabama and North Carolina.

The investigation into Countrywide’s abusive practices apparently stemmed from federal bankruptcy officials’ interest in the case of a couple in Cherokee County, Georgia. Anyone who has tried to deal with an abusive lender or mortgage note servicer will recognize at least some of the scam-bully tactics that Countrywide employed to pound John and Robin Atchley, he a utility lineman and she a postal worker–until they gave up and sold the home even though they were under protection of a Chapter 13 bankruptcy filing.

Shameless, systemic bully tactics

That didn’t stop Countrywide, though–company officials lied to the bankruptcy court, then conjured up bogus escrow fees, and even levied more charges after the Atchleys had come up $2,000 just make the sale of the house go through.

To be sure, Countrywide didn’t start or stop with the Atchleys; the company got in trouble in courts around the country, including USTP complaints in Ohio and Florida, plus court sanctions in Pennsylvania, Texas and North Carolina.

One couple’s testimony

But what got the attention of federal officials was the Atchleys’ testimony before a Congressional committee.

According to a June 7 piece in The Atlanta Journal-Constitution, “The Atchley case got the attention of federal bankruptcy officials and later the Federal Trade Commission. Robin Atchley testified two years ago before a Senate committee.

“[FTC Chairman Jon] Leibowitz said the FTC listened to Atchley’s testimony and responded.

“ ‘Today the FTC is delivering a message of our own,’  he said. ‘Follow the law or face the consequences.’ ”

The problem is, even the FTC comes across as less than forthright. In beating its drum about the settlement, the agency seems to be overlooking basic math: the $108 million settlement is intended address abuses heaped on about 200,000 homeowners. If evenly applied, in round number that comes out to $540 per household.

In their case alone, the Atchleys figure Countrywide beat them out of more than $15,000.

FTC should not crow too loudly

At least one columnist gets this angle, too. Michelle Singletary writes “The Color of Money” for The Washington Post. Here’s her lede from the June 10 column: “It’s an all-too-familiar Washington story. Officials call a news conference to pat themselves on the back for righting a wrong they shouldn’t have allowed in the first place.

“Meanwhile, the hapless victims are left to ponder what might have been had those officials been more vigilant.”

Singletary also lists some examples of the kinds of made-up fees and inflated charges that Countrywide routinely inflicted.

“The FTC says Countrywide charged excessive fees for services such as property inspections, inflated the amount owed when borrowers filed for bankruptcy protection, and didn’t tell people when new fees or charges were being added to their loans.

“Some homeowners, for example, were charged as much as $2,500 for trustee fees, even though the going rate for such a service was in the range of $600. ‘Just mowing a lawn could result in a $300 bill to a homeowner,’ FTC Chairman Jon Leibowitz said.”

Countrywide not alone

And as a post at BNET.com points out with this headline, “Countrywide’s Foreclosure Scam: It’s Not the Only Lender Ripping Off Homeowners.” Indeed, this point should be in a memo tomorrow, on the desk of every US Representative and Senator: “Bank of America’s (BAC) move to settle federal charges that its Countrywide unit gouged homeowners facing foreclosure should mark the beginning, not the end, of a full-blown government crackdown on mortgage lenders. That’s because the practices Countrywide is accused of — which range from raising the cost of property inspections, to lying to borrowers about how much they owed, to charging $300 to mow the lawn — are endemic among loan servicers.”

Citing this page at MortgageLoan.com, the post lists these as chief  among “senseless practices” that are “cited by industry observers, or complained about by consumers”:

  1. Charging fees for services not performed, or fines not actually due. Sometimes, lenders make extra cash by charging imaginary fees that are totally unwarranted. Mortgage documents and mathematical calculations can be complicated, so many consumers are unable to figure out when they’re being bilked. At the mercy of mortgage companies, they often overpay, even while facing foreclosure and bankruptcy.
  2. Overstating the balance owed on a home loan. University research into recent foreclosure data found that almost half of the loans analyzed in the study included inflated balances or vague, unspecified charges. In more than 90 percent of the cases, homeowners disagreed with mortgage company calculations, believing that they were both inaccurate and too high.
  3. Accumulating various fees or charges that are intentionally erroneous. Most of the fees mentioned in the study were relatively small, but they added up to gigantic amounts of extra profit for those companies who collect them. If a lender has, for example, 200,000 customers across the U.S. and overcharges each of them by $100, it adds up to additional revenue of $20 million-for basically doing nothing.
  4. Failing to follow basic industry regulations. Investigators have found that some mortgage lenders are so negligent or sloppy, they don’t even comply with the most fundamental rules and regulations. A lender is required, for example, to show documented proof that they’re the actual mortgage holder before attempting to collect payments from a homeowner. But some companies don’t even verify this essential information.

Settlement bars further abuses

However, despite the relatively small monetary settlement, the consent order also bars Bank of America (who bought Countrywide after the investigations had begun and who conceded no guilt in the settlement) from using such tactics in the future. Again, from Singletary: “The settlement also requires that the Countrywide loan-servicing operation make significant changes in handling bankruptcy cases. For example, the servicer must send borrowers in Chapter 13 bankruptcy proceedings a monthly notice with information about what amounts are owed. The servicer also has to come up with a program that ensures the accuracy of loan information filed in those Chapter 13 cases.”

That is a good thing, necessary to restore confidence in power of the protection of a bankruptcy filing.

Two federal Web sites

Furthermore, the government has created two Web sites, one intended to help keep Countrywide victims informed, and another, says the USTP “for information on reporting mortgage and other financial fraud, as well as valuable tips on protecting themselves against mortgage and financial scams.”

If these measure do indeed help consumers going forward…well, let’s Singletary sign us out, first quoting Robin Atchley:

” ‘I’m hopeful the settlement will help other families avoid the nightmare we went through and save their homes,’  Atchley said.

“When Atchley’s words come true, then that’ll be something to crow about.”

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The bankruptcy reform act of 2005 increased the complexity of the law, but if you are overwhelmed by debt, filing for bankruptcy protection may be your most pragmatic alternative. If you are facing foreclosure of your home (sometimes referred to as your “primary residence,” as opposed to a second home, or “vacation home”), bankruptcy protection may be your best route to saving the home. If you are struggling with medical bills, you may be in a special category for setting debt aside, and if you have problems with credit-card debt, you should be aware that some of those laws have changed recently, too. Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. For bankruptcy basics, please see:

Principles of bankruptcy

Basics of bankruptcy

Introduction to Chapter 7

Introduction to Chapter 13