Banks are quietly changing the terms of millions of credit card accounts as they brace for a tough new law that will limit rate hikes, according to a recent commentary in the Los Angeles Times.

The Credit Card Accountability, Responsibility and Disclosure Act (P.L. 111-24), which President Obama signed in May, will be phased in between August and February. The law would restrict interest rate increases unless a credit card has a variable rate.

Two major lenders have already switched their cards with fixed rates to variable rates. Bank of America has notified some customers that "as a result of a change in our business practices, your annual percentage rate will use a variable rate formula based on the U.S. prime rate."

JPMorgan Chase is also swapping variable rates for cardholders’ fixed rates. Representatives of Wells Fargo, Citibank and American Express said that each company had no plans at the moment to change fixed-rate accounts to variable accounts, but didn’t rule it out down the road.

In response to the news about credit card companies changing their practices, Senate Banking Chairman Christopher Dodd (D-Conn.) wrote to federal banking regulators urging them to warn credit card issuers that they will be accountable for any unfair interest rate increases on consumers prior to new legislation going into effect Feb. 22.

Dodd asked Federal Reserve Chairman Bernanke and four other regulators to prevent issuers from raising interest rates on existing balances without justification. Dodd wrote that the new law requires that all interest rate increases that took place this year be subject to a mandatory six-month review by regulators. "I ask you to immediately notify all credit card companies under your respective jurisdictions that they will be held accountable for all interest rate increases during this time period and will be subject to the review requirement once it takes effect," Dodd wrote.

New rules for the credit card industry that are designed to protect consumers from surprise charges, such as over-the-limit fees and costs for paying a bill by phone, are part of a bill President Obama is set to sign into law today, the Associated Press reported today. 

Obama plans to sign an overhaul of credit card regulations that he blames in part for the economic downturn.

Despite opposition from financial companies, the bill cleared Congress with broad support.

The new rules, which would go into effect in nine months, would prohibit credit card companies from giving cards to people under 21 unless they can prove they have the means to pay the debt or a parent or guardian co-signs for the card.

Under the bill, a customer would have to be more than 60 days behind on a payment before seeing a rate increase on an existing balance. Even then, the lender would be required to restore the previous, lower rate if the cardholder pays the minimum balance on time for six months.

Consumers also would have to receive 45 days’ notice and an explanation before their interest rates increased.

Congress yesterday sent the president legislation that encourages banks to spare homeowners from foreclosure, after the industry helped scuttle a tougher measure that would have forced lenders to reduce monthly payments of owners in bankruptcy, the Associated Press reported yesterday.

The House voted 367-54 to pass the Helping Families Save Their Homes Act. The Senate had previously voted 91-5 in favor of the bill and approved the final version by unanimous consent.

The bill would expand an existing $300 billion program that encourages lenders to write down an individual’s mortgage if the homeowner agrees to pay an insurance premium.

The program, set to expire in 2011, would swap out a homeowner’s high-interest rate for a 30-year fixed loan backed by the Federal Housing Administration.

In addition, the bill extends through 2013 an increase in deposit insurance by the FDIC from $100,000 to $250,000.

by Matt Renner, Truthout:

Washington, DC – A fight on Capitol Hill rages over a tool called "cram down." Proponents say the proposal is essential to fixing the foreclosure crisis and empowering homeowners to negotiate with the banks that hold their mortgages. Opponents say it will make lending riskier and raise interest rates. The battle lines are drawn, pitting Democrats against Democrats.

At the heart of the meltdown on Wall Street are piles and piles of mortgage loans for houses, which have been losing value for years as the housing bubble deflates. Many of these mortgages are "underwater," meaning the house is worth less than the amount owed on the mortgage. Many of these loans are the notorious Adjustable Rate Mortgages, which began at a lower interest rate and has now increased, driving up monthly payments. At the same time, millions of people across the country have lost their jobs or had their wages cut as a result of the contracting economy.

The situation has led to record foreclosure rates – almost 700,000 this year, or one every 13 seconds, according to the consumer group Center for Responsible Lending (CRL).

Economists and consumer advocates say that the foreclosure crisis is the root of the banking crisis and must be fixed in order to save the economy. But there is a collective action problem – renegotiating mortgages posses risks to the banks that own them and the middlemen (known as loan servicers), who manage the loans. The borrowers are at the mercy of the lenders and have no leverage to force them to negotiate.

This is where Congress comes in. Under current law, bankruptcy judges do not have the power to change the terms of a mortgage on a consumer’s primary residence during bankruptcy proceedings. With the support of the Obama administration, Democrats in Congress have introduced the Helping Families Save Their Homes in Bankruptcy Act of 2009. One provision of the act would grant bankruptcy judges the power to alter troubled mortgages. This proposal has been a priority for powerful Democrats and has been near the top of their legislative agenda since the beginning of the year.

The CRL has been monitoring national foreclosure rates and policy plans to address the problem. In an interview with Truthout, CRL spokesperson Kathleen Day said the "cram down" provision is a vital piece of the overall solution and compliments the incentives offered to lenders, loan servicers and homeowners under the Obama administration’s homeowner rescue package.

A plan passed under the Bush administration meant to help people refinance, known as HOPE for Homeowners, did not include the threat of "cram down," and was also missing key incentives for the lenders and loan servicers. The program allocated $300 billion and was supposed to help up to 400,000 people avoid foreclosure, according to the Congressional Budget Office.

More than six months later, only one homeowner has successfully made it through the entire process and refinanced their mortgage under the program, according to the Federal Housing Administration.

"Bankruptcy is the stick. Bankruptcy is the only leverage consumers have. They would be able to say to the lender ‘look, either you work with me or a judge is going to do it down the line,’" Day said, adding "What the industry is going bananas over is giving bankruptcy judges the ability to modify a mortgage on a person’s primary residence the way they can currently modify every other kind of contract. It’s ridiculous, a judge can’t touch a mortgage on a person’s primary residence but they can modify [a loan] on a person’s vacation home or their yacht or anything else."

"Most Americans today, in trouble, are desperately trying to hold onto their primary residence," said a proponent of the "cram down" power, Senate Banking Committee Chairman Chris Dodd (D-Connecticut) in January, adding "The notion here is to create the environment for negotiation so that those who are holding the mortgages will not wait until bankruptcy, that they’ll sit down ahead of time with the prospects that they’re going to have this mortgage rewritten in bankruptcy and say, ‘Let’s see if we can do it before they go to bankruptcy court.’ It creates a more positive negotiating environment."

Not all Democrats agree with Senator Dodd. A handful of self-labeled "moderate" Democrats stand in the way of giving judges the power to reduce or "cram down" mortgages during bankruptcy.

According to multiple press reports, the Democratic opposition to the bankruptcy power know as "cram down," has been led by Sen. Evan Bayh (D-Indiana). Indiana has the 13th highest foreclosure rate in the country, according to Realty Trac.

Senator Bayh currently leads a group of 16 so-called "moderate" Democrats, who have become increasingly powerful as they represent the deciding votes in the Senate.

The 16-member coalition known as the Moderate Dems Working Group was announced in a press release on March 18.

At this time, it is unclear where the members of the Moderate Dems Working Group stand on the "cram down" legislation. Only three of the 16 senators returned calls inquiring about their stance on granting judges the power to adjust mortgages in bankruptcy.

The three responses were evenly split. A spokesperson for Sen. Ben Nelson said that he opposed the provision because it would raise interest rates on other borrowers and further destabilize the mortgage industry. A spokesperson for Sen. Kay Hagan (D-North Carolina) said that Senator Hagan "had reservations about the bill and is currently considering changes and discussing it with her colleagues." A spokesperson for Sen. Bill Nelson (D-Florida) said that Senator Nelson has supported "cram down" in the past and continues to support it in some form.

The senators from the Moderate Dems Working Group who failed to return multiple phone calls inquiring about their stance on the bankruptcy provision were: Evan Bayh (D-Indiana), Tom Carper (D-Delaware), Blanch Lincoln (D-Arkansas), Herb Kohl (D-Wisconsin), Mary Landrieu (D-Louisiana), Joe Lieberman (I-Connecticut), Claire McCaskill (D-Missouri), Mark Pryor (D-Arkansas), Jeanne Shaheen (D-New Hampshire), Mark Warner (D-Virginia), Mark Begich (D-Alaska), Mark Udall (D-Colorado) and Michael Bennet (D-Colorado).

Corporate special interest groups have been lobbying aggressively against the "cram down" legislation. The Mortgage Bankers Association and banks like JP Morgan Chase, Bank of America, and others have initiated an all-out effort to prevent it. Industry representatives argue that the bankruptcy reform legislation would further destabilize the already fragile mortgage market by adding unpredictable risks and making the value of mortgaged-backed securities harder to establish.

The lobbying effort succeeded in delaying consideration of the legislation and may have derailed it entirely. Jim Manley, Senate majority leader Harry Reid’s spokesman, originally said that the bill would be brought up for a vote before the April recess. After a handful of Democrats jumped ship in March, Manley revised his estimate, saying that the bill would be delayed until after the recess.

It has been reported that the Democrats do not have 60 votes in favor of the "cram down" provision. However, what is often left out is the fact that Democrats only need 60 votes to break a Republican filibuster. The Democrats need a simple majority to pass the bill and could bring the bill to the floor for a vote and challenge Republicans to stand and filibuster, a move that would be dangerous in the current political climate where republicans have been criticized for being the party of "no."

Congress is scheduled to reconvene on Monday, April 20.

http://www.truthout.org/041609J

Bankruptcy Mortgage Modifications

By O. Max Gardner III

Last Thursday, the U.S. House of Representatives passed by an overwhelming majority (234 to 191) the Helping Families Save Their Homes Act of 2009 (HR 1106). The Bill was co-sponsored by our own NC Representative Brad Miller and is strongly supported by the North Carolina Center for Responsible Lending and the North Carolina State Employees Credit Union. It is also supported by CitiGroup, the largest mortgage lender in America.

This Act will allow Bankruptcy Judges in limited cases to modify first mortgage loans down to the current value of the home, to change the terms of the note, and to adjust the interest rate so as to make the mortgage payment both affordable and sustainable. The Bill now goes to the Senate and is strongly supported by our President, Barack Obama.

President Obama is taking aggressive actions on many fronts to deal with the massive foreclosure crisis that threatens every single American family. In fact, the current financial crisis is so bad that we are only a few steps away from a Second Great Depression.

Every day, in America, more than 6,600 families are losing their homes to foreclosure. We will not get to the end of the current financial crisis until we solve the foreclosure problem. This Bill is the first step toward such a resolution.

And, the hundreds of thousands of vacant homes are lowering the values of every home in every county, creating new venues for crime and other illegal activities, and imposing severe financial burdens on every city, town and county in the land. The Bankruptcy Modification Act would allow at least 1 million Americans to save their homes in the next year. The current foreclosure crisis has already erased more than $2.4 trillion dollars in home equity for all American homeowners, not just those in foreclosure. This is you and me folks. This is our money. This was our equity. We must act to stop the bleeding before the patient dies!

The Mortgage Bankers of America, who have received Billions and Billions of dollars in Federal taxpayer assistance, are pulling out all stops to defeat this Bill in the Senate. It seems ironic that they are using our tax dollars to defeat legislation that would benefit us. But, that is exactly what they are doing.

You see, the Mortgage Bankers know that this legislation is essential to force them to implement the voluntary mortgage modification programs now being offered by the Obama Administration. As President Obama said, the Bankruptcy Bill is the “stick” to force the mortgage bankers and mortgage servicers to eat the carrots we have offered them. And, trust me, they will not eat the “carrots” unless we have the sticks to force feed them! The Congressional Budget Office has estimated that the Bill will not substantially increase the number of new bankruptcy cases but in fact will save the Government more than 26 million dollars.

I have been a consumer bankruptcy attorney in Shelby for 35 years and during this time I have sued virtually thousands of mortgage companies and mortgage servicers. I can state without any reservation or hesitation that the only thing these “Bankers” understand is “legal leverage.” We need this Bankruptcy Mortgage Modification Bill to give us that leverage to negotiate voluntary modifications without having to file for bankruptcy relief. This Bill will not impose any costs or fees on the U.S. Taxpayers but will make those pay that created this mess in the first place.

After taking Billions of our hard-earned tax dollars, it seems absurd that the Bankers are now “crying” to the Senate that this Bill should be defeated because it will help the consumer homeowners and might cost them a few bucks! Please, give me a break. As our late Bankruptcy Judge, Marvin R. Wooten, would say, I think the US Senate should tell the Mortgage Bankers: “Gentlemen, we are very sorry but we are not going to follow your wishes because you have come to the goat man for wool.”

This Bill is coming up for a vote in the Senate this week. So, act now. Call Senator Kay Hagan (202-224-6342) and Senator Richard Burr (202-224-3154) today and urge them to vote yes for Helping Families Save Their Homes Act of 2009. And, tell them that the Bankers have come to the Goat Man for Wool!

O. Max Gardner III

O. Max Gardner III is the grandson of former N.C. Governor, Undersecretary of the US Treasury, and Ambassador to Great Britain, O. Max Gardner. His Great Uncle, Clyde R. Hoey, was also Governor of N.C. and a member of the US Senate for almost 15 years. Max and his nephew, William S. Gardner, operate a consumer bankruptcy law practice in Shelby, North Carolina, under the name of the Law Offices of O. Max Gardner III, PLLC.

NACBA SUPPORTS PLAN FOR JUDICIAL MODIFICATIONS OF MORTGAGES, URGES SWIFT CONGRESSIONAL ACTION AND INDUSTRY FORECLOSURE FREEZE UNTIL NEW LAW IS IN PLACE

WASHINGTON, D.C. — The following statement was issued on behalf of the 3,500-member National Association of Consumer Bankruptcy Attorneys (NACBA) by bankruptcy attorney and NACBA president Carey Ebert of Fort Worth, TX:

“At a time when an estimated 6,600 American families are losing their homes to foreclosure every day, we welcome the Obama Administration’s support for changes to existing bankruptcy laws that will allow for judicial modification of home mortgages. The Obama Administration is the latest major player in this national debate to recognize the fact that judicial modification must be part of the solution to today’s worsening home mortgage foreclosure crisis.

It is painfully clear that the continuing, and indeed worsening, foreclosure crisis is perhaps the single largest impediment to this country’s economic recovery. We call on the banking industry to impose a moratorium on foreclosures until the Obama housing plan, including and in particular bankruptcy reform, has been fully implemented.

Just as important as forbearance by the banking industry is the need for action by Congress NOW. We agree with consumer advocates and others who say that Congress and the Administration should move with the same sense of urgency on curtailing this threat as they did with the economic recovery bill just signed into law.

Ever since the mortgage foreclosure crisis erupted into the public view in 2007, a broad array of consumer, civil rights, housing, community, labor and other organizations, as well as economists, have advocated judicial mortgage modification relief as an effective approach to stemming the growing tide of foreclosures – a solution that, unlike every other solution being considered in Washington, comes at absolutely NO cost to U.S. taxpayers. This is one solution we know will work. The infrastructure already is in place. It is something the bankruptcy courts do every day with other assets. And, estimates are that this solution alone could cut foreclosures by at least 20 percent.

Data released by NACBA and others make it very clear that the foreclosure crisis will not be resolved through top-down voluntary efforts on the part of the financial services industry alone, no matter how many carrots or incentives are given. Judicial mortgage modification cuts through the impediments to sustainable mortgages. Courts must be empowered to implement economically rational loan modifications where the parties are unwilling or unable to do so on their own.”

LET YOUR MEMBER OF CONGRESS KNOW THAT YOU SUPPORT THIS PROPOSED LAW TO HELP HOMEOWNERS AVOID LOSING THEIR HOME TO FORECLOSURE !!

To email your Congressional representatives (it only takes about 30 seconds):

www.nacba.org/TellCongress

To phone your Congressional representatives:

TOLL FREE LINE: 877.354.4958

ABOUT NACBA

The National Association of Consumer Bankruptcy Attorneys (http://www.nacba.org) is the only national organization dedicated to serving the needs of consumer bankruptcy attorneys and protecting the rights of consumer debtors in bankruptcy. Formed in 1992, NACBA now has more than 3,500 members located in all 50 states and Puerto Rico.

Near Half of Homeowners in “Loan Modification” Programs Face Higher Monthly Payments; Failure of Voluntary Industry Efforts Hikes Pressure on Incoming Obama Administration, New Congress to Clear Way for Court-Supervised Modifications.

WASHINGTON, D.C. — Much hyped “foreclosure prevention programs” relying on voluntary loan modifications are failing to reach a significant number of troubled homeowners and are often backfiring when they do so, according to newly updated research released by the National Association of Consumer Bankruptcy Attorneys (NACBA). The across-the-board failure of these much ballyhooed “fixes” for the foreclosure crisis are expected to result in the new President and Congress facing considerable new pressure to clear the way for court-supervised loan modifications that will prove more beneficial for homeowners.

The findings released by NACBA come on the heels of a dire new projection from Credit Suisse that “over 8 million foreclosures (are now) expected” over the next four years in the U.S.  That astounding level accounts for 16 percent of all mortgages –- including 59 percent of all subprime mortgages and more than 11 percent of all other mortgages, including Alt-A, options ARMS and even those in the prime category. This new forecast from Credit Suisse is up sharply from the two to six million foreclosure range cited in previous estimates from industry sources.

The new data presented today from Professor Alan White, Valparaiso University School of Law, Valparaiso, IN, is updated through November 2008 (http://www.hastingsgroup.com/Whiteupdate.pdf) and shows that:

• Less than 10 percent of the time do the voluntary programs result in a reduced principal loan balance with more than half of modifications capitalizing unpaid interest and fees into larger and more drawn out debt on the back end of the mortgage; and

• Only about a third (35 percent) of voluntary mortgage modifications reduce monthly payment burdens for homeowners, with nearly half (45 percent) actually saddling distressed homeowners with increased payments under the modifications.

Just how badly are the voluntary modification programs flopping? To answer that question NACBA reviewed the publicly available data about the reach to date of the much-hyped programs. In one prominent case – the Hope for Homeowners Act FHA refinancing program passed by Congress with much fanfare earlier this year on the strength of forecasts that 400,000 homeowners would be aided – there have been only 312 applications to date — and no mortgage modifications whatsoever have taken place. This is consistent with the most recent estimates from the National Association of Attorneys General that "nearly 8 out of 10 seriously delinquent homeowners are not on track for any loss mitigation outcome … up from 7 in 10 in previous reports.”

Henry Sommer, president, National Association of Consumer Bankruptcy Attorneys, Philadelphia PA., said: “Court-supervised loan modification is urgently needed to deal with this problem. We call on the incoming Obama administration and the new Congress to adopt this solution without delay. The American home mortgage foreclosure crisis has gone from the danger zone to the full-blown crisis stage. The number of foreclosures is growing rapidly and is reaching well beyond the subprime world to the American middle class. Despite a proliferation of voluntary programs, we are not seeing evidence of a meaningful number of sustainable loan modifications.”

Professor Alan White, Valparaiso University School of Law, Valparaiso, IN, said: “American homeowners are carrying 10.5 trillion dollars in mortgage debt, a number that has risen by 250 percent in the past decade. While banks have written down more than half a trillion in mortgages and mortgage-related securities, homeowners have gotten little or no relief. A broad range of economists from Nouriel Roubini to Ben Bernanke to Martin Feldstein have recognized the need to deleverage the American homeowner. The excess mortgage debt is depressing home prices and consumer spending, and acting as a drag on the broader economy. Empirical evidence from mortgage servicer reports to investors shows that for the most part, the necessary deleveraging of homeowners is not happening.”

Alys Cohen, staff attorney, National Consumer Law Center (NCLC), Washington, DC, said: “Sadly, the magnitude of the foreclosure crisis dwarfs the response to date from the financial services industry, regulators and lawmakers. The lack of aggressive and meaningful solutions from federal policymakers is baffling, particularly given that most economists, including the Chairman of the Federal Reserve Board and the Chair of the FDIC, have recognized that the financial crisis can be resolved by only by dealing with its root cause – the escalating millions of mortgage foreclosures … The foreclosure crisis will not be resolved through voluntary efforts on the part of the financial services industry alone. Despite widespread efforts to encourage voluntary loan modifications, it is clear that the financial services industry has failed to implement a loan modification strategy on a scale that matches the urgent crisis we are facing. Bankruptcy courts must be empowered to implement economically rational loan modifications where the parties are unwilling or unable to do so on their own. Loan modifications through the bankruptcy courts can help accomplish this on a sufficient scale and timeframe to have a meaningful impact. Congress should lift the ban on judicial modification of primary residence mortgages, as part of the solution to stemming the tide of avoidable foreclosures and stabilizing the housing market and the broader economy. The need is urgent. The time for action is now.”

When NACBA, NCLC, Consumer Federation of America (CFA) and the Center for Responsible Lending (CRL) called on Congress in April 2007 to move aggressively to stem the growing flood of home foreclosures, it was estimated that some 2 million homeowners were at risk of foreclosure. And, at the time, the financial services industry accused the organizations of being overly pessimistic about the likely toll of foreclosures. However, it turns out we were low-balling quite significantly the number of foreclosures.

As of September 2008, a full 1.2 million homeowners with subprime loans already had lost their homes to foreclosure. Another 1.7 million families with subprime loans are seriously delinquent and at risk of losing their homes in the very near future. Credit Suisse (“Foreclosure Update: Over 8 million foreclosures expected,” December 2008) now estimates that 8.1 million mortgages will be in foreclosure over the next four years, representing 16 percent of all mortgages. Disturbingly, Credit Suisse finds that the problem has spread from subprime loans to Alt-A, option ARMs, and even prime loans.

FAILURE OF “FORECLOSURE PREVENTION PROGRAMS”

Bowing to the demands of the financial services industry that created the foreclosure crisis in the first place, every program put in place to prevent foreclosures has relied on the voluntary cooperation of mortgage servicers who handle the mortgages that, in most cases, are owned by securitized trusts that have issued bonds to investors. It is painfully obvious that these voluntary programs have failed to stem the tide of foreclosures. The few successful attempts at mortgage modification, such as the FDIC efforts with IndyMac, have largely dealt with those rare mortgages that are still owned by a single lender, rather than securitized loans.

Voluntary programs are failing for a variety of reasons that cannot be changed without action by the Obama Administration and new Congress:

• Multiple owners make voluntary modification impossible. Many borrowers and even their servicers simply cannot locate the holders of the mortgage to negotiate with, or there are multiple owners all of whom would have to agree to modification; the loans have been sliced and diced so many times that all of the owners cannot be found and brought into the process.

• Fear of investor lawsuits blocks voluntary modifications. The servicer has obligations to the investors who have purchased the mortgage-backed securities through pooling and servicing contracts, and the interests of these investors conflict. Servicers are hesitant to modify the loans because they are concerned that it will impact different tranches of the security differently, and thereby raise the risk of investor lawsuits when one or more tranche loses potential income. At least one servicer has already been sued. Under the current system, the legally safest course for the servicer clearly is foreclosure.

• Piggyback seconds block voluntary modifications. Perhaps the most intractable problem is the fact that a third to a half of all 2006 subprime borrowers took out piggyback second mortgages on their homes at the same time they took out their first mortgages. In these cases, the holders of the first mortgages have no incentive to provide modifications that would free up borrower resources to make payments on the second mortgages. At the same time, the holders of the second mortgages have no incentive to support effective modifications by waiving their rights, which would likely cause them to face a 100 percent loss. The holders of the second mortgages are better off waiting to see if a borrower can make a few payments before foreclosure.

• Overwhelmed servicers are not set up to negotiate modifications. Hundreds of thousands of borrowers are asking for relief from organizations that traditionally have had a “collections” mentality of trying to foreclose as quickly as possible. They know how to foreclose, and the foreclosure process has been increasingly automated to maximize the fees the servicers receive. Many receive no extra compensation for working on modifications. These servicers are not disposed to postponing foreclosure or equipped to handle case-by-case negotiations. Many also have monetary incentives to foreclose rather than modify.

In practice, these roadblocks – all of which were warned of months ago by NACBA and other groups – have resulted in gridlock in the voluntary modification programs. Consider these examples:

• Hope for Homeowners Act — This law, passed with much fanfare last spring, provides an FHA refinancing if the servicer agrees to accept slightly less than the value of the home in satisfaction of the debt. The thought was that servicers would agree to accept less than 100% payment if that payment was guaranteed by the government. It was expected that the program would help 400,000 homeowners but since it opened in October, fewer than 312 people have applied for the program and no loans have been modified. The result? As Credit Suisse notes in its December 2008 report: “While loan modifications and similar interventions (such as the Hope for Homeowners FHA refinancing program) could help to reduce the march of foreclosures, the proliferation of generally timid loan mod programs with confusing loan features raises significant doubt as to whether the current loan mod momentum is sufficient to reduce foreclosures materially … modified loans remain a small percentage of delinquent loans and loans in foreclosure, even though servicers have ramped up their efforts in recent months.”

• Hope Now — This voluntary effort by the industry, promoted by the Administration, has produced more public relations than real results. Homeowners have great difficulties getting answers because the services do not have adequate staff to deal with requests. When some accommodation is reached, servicers virtually never reduce loan principal and often enter into repayment agreements that do not even reduce loan payments. Studies have shown that most of the workouts negotiated through Hope Now provide at best temporary short-term relief from foreclosure, and in a large percentage of cases, the homeowner cannot keep up with payments because the agreement does not adequately modify the loan. As of September 2008, Hope Now worked out loan modifications resulting in lower monthly payments for 266,087 homeowners; loan modifications with the same or HIGHER monthly payments for 226,667 families; and 780,000 short term repayment plans.

• FDIC/IndyMac – This effort covers 65,000 borrowers who are more than two months delinquent on their mortgage, but doesn’t reduce the outstanding debt in any meaningful way and therefore has not attracted much interest. So far, 7,200 homeowners have modified their loans under this program. And, after a two-month moratorium on foreclosures pending the modification program, IndyMac foreclosures in November skyrocketed 242 percent from October, according to Mark Hanson of the Field Check Group.

Most recently, FDIC Chairwoman Bair has proposed a program that would, like Hope for Homeowners, provide government guarantees as a carrot to entice servicers to make modifications of interest rates and defer principal payments under a formula based on the debtor’s ability to pay. If the payments are modified by at least 10 percent, (but only for five years) the government would guarantee 50 percent of the loan losses. The Treasury Department noted that this program could actually give servicers an incentive to make minimal modifications and then foreclose to collect the guarantees.

While NACBA applauds FDIC Chair Bair’s commitment to homeowners, it fears that, other than in cases where a planned foreclosure would be more lucrative for the servicer, this program also would have few takers. It is likely that, for all the same reasons plaguing existing programs, servicers would be unwilling to make meaningful modifications of most loans voluntarily. Moreover, the program does nothing to deal with the problem of piggyback second mortgages, often the riskiest loans given by the most irresponsible lenders. Holders of second mortgages can block the modification of the first mortgage, even though the second mortgage typically would be wiped out in a foreclosure sale. Absent reductions in principal, the program will neither sufficiently reduce payments nor prevent later foreclosures when homeowners need to move or cannot refinance to resolve a financial problem. As even Federal Reserve Board Chairman Bernanke has noted, “With low or negative equity … a stressed borrower has less ability (because there is no home equity to tap) and less financial incentive to try to remain in the home.” At best, the Bair proposal would help only a small number of homeowners and, in most cases, only postpone the foreclosure problem – at considerable expense to taxpayers.

ABOUT NACBA

The National Association of Consumer Bankruptcy Attorneys (http://www.nacba.org) is the only national organization dedicated to serving the needs of consumer bankruptcy attorneys and protecting the rights of consumer debtors in bankruptcy. Formed in 1992, NACBA now has more than 3200 members located in all 50 states and Puerto Rico.

Firms take struggling homeowners’ money, fail to save their homes

North Carolina Attorney General Roy Cooper is taking legal action to stop three Charlotte, NC area foreclosure rescue companies from charging high fees but failing to save consumers’ homes.
 
“So-called foreclosure rescue schemes prey on desperate homeowners, pushing them even closer to losing their homes,” said Cooper. “We’re pushing back by enforcing the law and giving consumers better options.”

Cooper announced that he has filed suit against the following companies and their agents: Robert E. Cassell, Jr., doing business as American Mortgage Assistance in Fort Mill, SC; Home Assure, LLC and its vice president Michael Grieco of Charlotte, NC; and Metrolina Mortgage Relief, LLC and its president Jeffery Mika of Charlotte, NC.
 
Cooper made the announcement at the Better Business Bureau (BBB) of the Southern Piedmont, which has assisted with the cases.
 
“Homeowners turn to foreclosure rescue services because it sounds like the solution to all of their problems,” said Tom Bartholomy, president and CEO of the BBB of Southern Piedmont. “We want homeowners to know that anyone who charges you an advance fee for foreclosure help is trying to scam you and is breaking the law.”

In 2005, Cooper worked with state legislators to make it illegal for any foreclosure assistance business to collect fees upfront.
 
In complaints filed in Wake County Superior Court, Cooper asked the court to bar the three companies and their employees from taking any money from North Carolina consumers for debt adjusting or foreclosure assistance services. The Attorney General is also seeking refunds for consumers, civil penalties and cancellation of all contracts.
 
As alleged in the complaints, American Mortgage Assistance, Home Assure and Metrolina Mortgage Relief solicit homeowners who are facing foreclosure through web sites and searches of court records. The companies deceive consumers with claims that they are experts who will be able to save them from foreclosure. They collect substantial fees from homeowners, typically equal to one month’s mortgage payment, and then promise to negotiate with their lenders. In fact, the defendants do not provide any meaningful help, or they fail to tell consumers that they cannot prevent foreclosure.
 
Homeowners’ stories, filed as affidavits with the complaints, illustrate how these companies operate:

• One Charlotte homeowner fell behind on her mortgage payments after losing her job. She paid Metrolina Mortgage Relief $762 for help after the company’s president, Jeff Mika, guaranteed she would not lose her house. The homeowner called Mika several times but got no help from him and eventually had to declare bankruptcy.

• Another homeowner was forced to move in with her daughter in Charlotte after Home Assure took $1,000 from her but failed to do anything to save her Anderson, SC home from foreclosure.
 
• A High Point couple paid $769.73 to American Mortgage Assistance for foreclosure relief. For three months, the company claimed it was negotiating with their lender. Ultimately, the couple was told they would have to pay $5,000 before the lender would agree to negotiate. Their home was foreclosed on in July.

“Homeowners who fall victim to foreclosure assistance scams lose critical time and precious money that could be better spent on real solutions,” Cooper said. “Many families are struggling to pay their mortgages, and it’s in all of our interest to help them avoid unnecessary foreclosures.”

Legitimate foreclosure assistance counseling is available at no cost from non-profit agencies throughout North Carolina, and nationally through the HOPE hotline (1-888-995-HOPE), which can connect North Carolinians with free resources in their own communities.
 
The Attorney General’s Consumer Protection Division received three complaints against American Mortgage Assistance, eight against Home Assure, and seven against Metrolina Mortgage Relief. Many of those complaints were shared with the Cooper’s office by the BBB. Consumers can file complaints with Cooper’s office by calling 1-877-5-NO-SCAM toll-free within North Carolina or visiting www.ncdoj.gov.

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For North Carolina homeowners who are facing foreclosure, Chapter 13 bankruptcy may be an option. To find out how Chapter 13 bankruptcy might help you protect your home from foreclosure, call our Hickory office at (828) 327-2240 or our Boone office at (828) 262-0500.

Tough new laws don’t prevent rich or poor from filing

When Congress passed bankruptcy law reform in 2005, it was supposed to provide greater protection for the poor, while forcing the more well-off to pay their debts. It has done neither, according to a new study co-authored by University of Iowa Law School professor Katherine Porter.

Porter and her co-researchers documented that the incomes of bankruptcy debtors in 2007 were statistically indistinguishable from those who filed bankruptcy before the change in the laws in October 2005, in part because there were so few high-income debtors to begin with.

The findings are the result of a study by Porter and six co-authors from the Consumer Bankruptcy Project, who collected and compared nationwide data on families who filed bankruptcy in 2007 with similar data collected from families filing before the laws were changed. Their newly released study suggests that bankruptcy reform did not deliver its intended effect.

The new bankruptcy law used an income-based screen called a "means test" to push alleged "abusers" out of bankruptcy altogether or to force them to repay their debts in chapter 13 repayment bankruptcy cases. But the researchers suggest that the complications and costs associated with the means test may have discouraged hundreds of thousands of people from bankruptcy even when they needed help.

At the same time, the researchers found little evidence that people who could afford to pay their bills – a group specifically targeted by the reforms in an effort to combat abuse of the protection – actually filed for bankruptcy.

The researchers also discovered that families filing for bankruptcy were much more deeply in debt than their counterparts who filed before the laws changed. In 1981, the typical household in bankruptcy owed debts that equaled about 17 months of their income. By 2001, that figure had risen to more than 30 months of income.

By 2007, the typical bankrupt household faced debt obligations that would require them to use all their income for 39 months to pay their creditors. Much of this growth has been in credit card debt.

"Over the past 25 years, household debt loads have been rising, but families now wait until they are in much more trouble before they file bankruptcy," Porter said.

Researchers also found that debt collectors may not be providing accurate information, and debt collectors appear to be falsely telling people that bankruptcy may not be available as an option when in fact it still is. Nearly a quarter of those who filed said that debt collectors discussed bankruptcy with consumers and warned the debtor that they would not qualify, or that the IRS would audit them if they declared bankruptcy.  These claims by debt collectors are simply scare tactics and blatant lies.

The study, "Did Bankruptcy Reform Fail?" will be published in a forthcoming issue of the American Bankruptcy Law Journal. It’s the first major paper from Phase IV of the Consumer Bankruptcy Project, a joint effort of legal scholars, sociologists and medical school professors. It reports on the first nationwide random sample of people filing for bankruptcy, collecting data from interviews, surveys, and court records of people who filed bankruptcy in the first part of 2007.

Get the truth.  Don’t believe the lies from debt collectors or misinformation about bankruptcy from well-intentioned friends.  To find out how bankruptcy really works and how you can save your home from foreclosure and protect your family’s possessions from creditor threats and harassment, call our Hickory office at (828) 327-2240 or our Boone office at (828) 262-0500.

While the Federal Reserve has slashed its benchmark rate to 1 percent, many consumers are still getting hit with higher rates and fees on their credit cards, according to the Wall Street Journal. Though average credit card rates have fallen slightly as the Fed has cut interest rates, banks and retailers are trying to offset rising losses in their credit card operations by raising rates and fees across a broader spectrum of their existing customers.

Chase is raising its rates on credit card cash advances and overdraft protection, as well as its default rate, which is triggered when cardholders exceed their credit limit or are late on their payments. The bank will also start charging a new $10 monthly service fee to some cardholders who have been carrying large balances for at least two years, while raising their monthly minimum payments to 5 percent of their outstanding balance, from 2 percent.

Citibank and American Express have been notifying groups of cardholders that they will be raising their regular interest rates by two to three percentage points. In addition, American Express is raising its rates on cash advances, late payments and defaults, increasing its foreign-exchange fees to 2.7 percent from 2 percent on its consumer and small-business cards and eliminating ways to earn rewards on one of its popular cards.