As record numbers of homeowners default on their mortgages, questionable practices among lenders are coming to light in bankruptcy courts, leading some legal specialists to contend that companies instigating foreclosures may be taking advantage of imperiled borrowers, the New York Times reported recently. Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question.

In an analysis of foreclosures in chapter 13, Katherine M. Porter, associate professor of law at the University of Iowa, found that questionable fees had been added to almost half of the loans she examined, and many of the charges were identified only vaguely. Most of the fees were less than $200 each, but collectively they could raise millions of dollars for loan servicers at a time when mortgage originations have faltered.

The Office of the U.S. Trustee announced plans last month to move against mortgage servicing companies that file false or inaccurate claims, assess unreasonable fees or fail to account properly for loan payments after a bankruptcy has been discharged.

In a recent front-page story, The New York Times reported that as record numbers of homeowners default on their mortgages, questionable practices among lenders are coming to light in bankruptcy courts, leading some legal specialists to contend that companies instigating foreclosures may be taking advantage of imperiled borrowers.

Because there is little oversight of foreclosure practices and the fees that are charged, bankruptcy specialists fear that some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures.

Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question.

"Regulators need to look beyond their current, myopic focus on loan origination and consider how servicers’ calculation and collection practices leave families vulnerable to foreclosure," said Katherine M. Porter, associate professor of law at the University of Iowa.

In an analysis of foreclosures in Chapter 13 bankruptcy, the program intended to help troubled borrowers save their homes, Ms. Porter found that questionable fees had been added to almost half of the loans she examined, and many of the charges were identified only vaguely. Most of the fees were less than $200 each, but collectively they could raise millions of dollars for loan servicers at a time when the other side of the business, mortgage origination, has faltered.

In one example, Ms. Porter found that a lender had filed a claim stating that the borrower owed more than $1 million. But after the loan history was scrutinized, the balance turned out to be $60,000. And a judge in Louisiana is considering an award for sanctions against Wells Fargo in a case in which the bank assessed improper fees and charges that added more than $24,000 to a borrower’s loan.

Ms. Porter’s analysis comes as more homeowners face foreclosure. Testifying before Congress in November, Mark Zandi, the chief economist at Moody’s Economy.com, estimated that two million families would lose their homes by the end of the current mortgage crisis.

Questionable practices by loan servicers appear to be enough of a problem that the Office of the United States Trustee, a division of the Justice Department that monitors the bankruptcy system, is getting involved. In October, it announced plans to move against mortgage servicing companies that file false or inaccurate claims, assess unreasonable fees or fail to account properly for loan payments after a bankruptcy has been discharged.

On Oct. 9, the Chapter 13 trustee in Pittsburgh asked the court to sanction Countrywide, the nation’s largest loan servicer, saying that the company had lost or destroyed more than $500,000 in checks paid by homeowners in foreclosure from December 2005 to April 2007.

The Chapter 13 trustee, Ronda J. Winnecour, said in court filings that she was concerned that even as Countrywide misplaced or destroyed the checks, it levied charges on the borrowers, including late fees and legal costs.

Loan servicing is extremely lucrative. Servicers, which collect payments from borrowers and pass them on to investors who own the loans, generally receive a percentage of income from a loan, often 0.25 percent on a prime mortgage and 0.50 percent on a subprime loan. Servicers typically generate profit margins of about 20 percent.

Now that big lenders are originating fewer mortgages, servicing revenues make up a greater percentage of earnings. Because servicers typically keep late fees and certain other charges assessed on delinquent or defaulted loans, "a borrower’s default can present a servicer with an opportunity for additional profit," Ms. Porter said.

The amounts can be significant. Late fees accounted for 11.5 percent of servicing revenues in 2006 at Ocwen Financial, a big servicing company. At Countrywide, $285 million came from late fees last year, up 20 percent from 2005. Late fees accounted for 7.5 percent of Countrywide’s servicing revenue last year.

But these are not the only charges borrowers face. Others include $145 in something called "demand fees," $137 in overnight delivery fees, fax fees of $50 and payoff statement charges of $60. Property inspection fees can be levied every month or so, and fees can be imposed every two months to cover assessments of a home’s worth.

"We’re talking about millions and millions of dollars that mortgage servicers are extracting from debtors that I think are totally unlawful and illegal," said O. Max Gardner III, a lawyer in Shelby, N.C., specializing in consumer bankruptcies. "Somebody files a Chapter 13 bankruptcy, they make all their payments, get their discharge and then three months later, they get a statement from their servicer for $7,000 in fees and charges incurred in bankruptcy but that were never applied for in court and never approved."

A class-action lawsuit filed in September in Federal District Court in Delaware accused the Mortgage Electronic Registration System, a home loan registration system owned by Fannie Mae, Countrywide Financial and other large lenders, of overcharging borrowers for legal services in foreclosures.

The system, known as MERS, oversees more than 20 million mortgage loans. The complaint was filed on behalf of Jose Trevino and Lorry S. Trevino of University City, Mo., whose Washington Mutual loan went into foreclosure in 2006 after the couple became ill and fell behind on payments.

Jeffrey M. Norton, a lawyer who represents the Trevinos, said that although MERS pays a flat rate of $400 or $500 to its lawyers during a foreclosure, the legal fees that it demands from borrowers are three or four times that.

Typically, consumers who are behind on their mortgages but hoping to stay in their homes invoke Chapter 13 bankruptcy because it puts creditors on hold, giving borrowers time to put together a repayment plan.

Given that a Chapter 13 bankruptcy involves the oversight of a court, the findings in Ms. Porter’s study are especially troubling. In July, she presented her paper to the United States trustee, and on Oct. 12 she outlined her data for the National Conference of Bankruptcy Judges in Orlando, Fla.

With Tara Twomey, who is a lecturer at Stanford Law School and a consultant for the National Association of Consumer Bankruptcy Attorneys, Ms. Porter analyzed 1,733 Chapter 13 filings made in April 2006. The data were drawn from public court records and include schedules filed under penalty of perjury by borrowers listing debts, assets and income. Though bankruptcy laws require documentation that a creditor has a claim on the property, 4 out of 10 claims in Ms. Porter’s study did not attach such a promissory note. And one in six claims was not supported by the itemization of charges required by law.

Another problem identified by her study: a discrepancy between what debtors think they owe and what creditors say they are owed. In 96 percent of the claims Ms. Porter studied, the borrower and the lender disagreed on the amount of the mortgage debt. In about a quarter of the cases, borrowers thought they owed more than the creditors claimed, but in about 70 percent, the creditors asserted that the debt owed was greater than the amounts specified by borrowers.

The median difference between the amounts the creditor and the borrower submitted was $1,366; the average was $3,533, Ms. Porter said. In 30 percent of the cases in which creditors’ claims were higher, the discrepancy was greater than 5 percent of the homeowners’ figure.

Based on the study, mortgage creditors in the 1,733 cases put in claims for almost $6 million more than the loan debts listed by borrowers in the bankruptcy filings. The discrepancies are too big, Ms. Porter said, to be simple record-keeping errors.

Michael L. Jones, a homeowner going through a Chapter 13 bankruptcy in Louisiana, experienced such a discrepancy with Wells Fargo Home Mortgage. After being told that he owed $231,463.97 on his mortgage, he disputed the amount and ultimately sued Wells Fargo.

In April, Elizabeth W. Magner, a federal bankruptcy judge in Louisiana, ruled that Wells Fargo overcharged Mr. Jones by $24,450.65, or 12 percent more than what the court said he actually owed. The court attributed some of that to arithmetic errors but found that Wells Fargo had improperly added charges, including $6,741.67 in commissions to the sheriff’s office that were not owed, almost $13,000 in additional interest and fees for 16 unnecessary inspections of the borrowers’ property in the 29 months the case was pending.

In Texas, a United States trustee has asked for sanctions against Barrett Burke Wilson Castle Daffin & Frappier, a Houston law firm that sues borrowers on behalf of the lenders, for providing inaccurate information to the court about mortgage payments made by homeowners who sought refuge in Chapter 13.

Subprime lending practices in recent years have left thousands of families with mortgages they can’t afford, on houses that have lost value. The Center for Responsible Lending, a nonprofit research and policy organization, has projected that 2.2 million homeowners will lose their homes to foreclosure nationwide. As selling and refinancing both become more difficult, many people are being forced to declare bankruptcy in order to avoid foreclosure.

"The people filing today are more educated and more sophisticated," said bankruptcy attorney Robert A. Higgins of Benbrook, TX. "Money has been so loose that people have bought houses they can’t afford."

Filing bankruptcy is one way to keep a roof over one’s head. When a homeowner files a Chapter 13 bankruptcy the mortgage lender must stop any pending foreclosure, if the bankruptcy is filed before the final foreclosure deadline.

People who didn’t ask enough questions or read the fine print when they obtained their mortgages stand a better chance of getting on their feet if they approach bankruptcy better informed and better represented, according to Candy Marshall, president of Suite Solutions (www.suitesolutions.info).

"Choosing a good bankruptcy attorney is extremely important. This is one area where experience really counts," said Marshall, whose Los Alamitos, CA- based firm provides online credit reports and services to bankruptcy attorneys around the country.

"It’s not like finding a good doctor or a good decorator," she points out. "Most people who find themselves in this position are not going to be asking around at cocktail parties and kids’ soccer games for a referral. They don’t know where to look or what to look for in finding the professional guidance they really need at this point."

Bankruptcy practice has a bit of a stigma, according to attorney Higgins.

"People resort to looking in the phone book and watching late night TV commercials," he said. "People facing bankruptcy often find themselves up late at night."

From Marshall and some experienced bankruptcy practitioners, here are tips for not getting burned another time:

Don’t make assumptions. The bankruptcy reform law of 2005 has created confusion in the minds of consumers, said Jeffrey Tromberg of the Florida Debt Relief Center in Fort Lauderdale, FL. "Many people assume that they can’t file bankruptcy," he said. Some believe that they will not be able to keep their house or other possessions. Some are under the impression that if they file Chapter 13 they will have to pay all their creditors in full. And many others assume that bankruptcy is their only alternative, when they may have better options.

Do a little research. Consumer-oriented information about bankruptcy abounds on the web.

Don’t shop for the lowest price. "What matters more is finding an attorney that specializes in consumer bankruptcy law," Candy Marshall said. "Attorneys who handle high numbers of bankruptcies every year tend to be the best informed about the law, have the best advice to provide, and run the most efficient bankruptcy practices. These factors combine to give you the best value in the long run."

"If you only shop price, what you get is young and inexperienced, or else guys who hire the work out," Robert Higgins said. "When people go for the lowest price, they don’t get the results they want."

Don’t delay. If you’re finding yourself unable to make your mortgage payments, it’s time to take action. State laws vary, but in some states the lender can demand that the entire loan must be repaid if there is one missed payment.

"It’s better to get professional help before you really get in a bind," Higgins said. "An experienced bankruptcy attorney can help you protect your property and look at alternatives to bankruptcy."

Choose wisely. Once you have a short list – perhaps referrals from your family attorney, your CPA, your state’s bar association, or names you have gathered online — call for an appointment. Be prepared to give the attorney a concise picture of your financial situation. And don’t hesitate to ask questions of your own. How many bankruptcy cases does the attorney handle each year? How does the attorney keep him or herself informed about new developments in the industry and in the law? What measures does the firm take to keep costs down for clients? How will you be sure that bankruptcy really will wipe the slate clean, and give you a fresh start?"

"I’ve seen it so often, people finding out well after the bankruptcy has been discharged that there are still liens and liabilities outstanding," Marshall said. "The way they find out is when they try to buy a home or a car and their credit is checked. Then they can’t get the favorable interest rates they were counting on, or they may not be able to get the loan at all."

Marshall advises everyone who files bankruptcy to obtain their own free credit reports 60 days after the bankruptcy discharge. Consumers can obtain a free credit report once every 12 months. www.annualcreditreport.com.

The best way to be sure that all creditors are listed on the bankruptcy petition is for the debtor to authorize the bankruptcy attorney to get credit reports that include information from all three national credit bureaus – Experian, TransUnion Equifax, as well as public record information, she said.

"Credit reports are an important safety net," Tromberg said, "and getting the downloadable reports through Suite Solutions is something that allows us to keep our costs down because it eliminates the need to manually enter all that information on bankruptcy petitions."

"Prior to the law change if a debtor mistakenly left a creditor out they still had the opportunity to receive a discharge under most circumstances," Higgins said, adding that bankruptcy court judges have become much stricter since the 2005 reform law. "Now it’s very important that people run through all the traps and list all creditors. I would say that not obtaining credit reports for clients approaches malpractice."

Consider chemistry. Finally, as in engaging any professional, compatibility counts. If you feel uncomfortable with the first attorney you talk to, if the personality grates or the values expressed raise a red flag, keep looking. As Jeffrey Tromberg says, "When filing chapter 13, you’re going to be married to your attorney for up to five years."

Media Contact: Candy Marshall President of Suite Solutions 877-311-1234 candy@suitesolutions.info SOURCE Suite Solutions

As concern over student debt levels rises, lawmakers and campuses nationwide have turned their attention to credit card issuers and marketing practices aimed at students, Business Week reported. California, Oklahoma and Texas recently passed laws restricting credit card marketing on public campuses, joining 15 other states that already had such restrictions in place. In California, credit card marketers can’t lure students with free gifts; in Oklahoma, colleges can no longer sell student information for credit card marketing purposes; and in Texas, on-campus credit card marketing was curtailed, permitting marketing only on limited days and in certain locations. However, beyond the recent legislation, another type of state-sanctioned credit card marketing escapes serious scrutiny: affinity card contracts and marketing. Virtually every major university boasts a multimillion-dollar affinity relationship with a credit card company. Under these deals, the university can receive $10 million or more in exchange for offering credit card companies exclusive access to students, alumni and professors at school athletic events.

The Federal Trade Commission has charged four companies and their principals with deceptively marketing a “debt settlement” operation, according to CreditandCollectionsWorld.com. The operation allegedly failed to provide services it claimed would reduce consumers’ debt, resulting in even more debt for many of them. Since at least 2000, the companies sold debt settlement services through several Web sites, offering a “Debt Meltdown Program,” which they describe as “an aggressive method of helping consumers out of the debt trap and away from the bankruptcy path.” The companies allegedly promised to negotiate with creditors and begin making payments to them within several weeks after consumers join their program, and also promised to provide financial counseling. The companies allegedly often failed to contact each creditor as promised, and consumers often continued hearing from creditors about their debts, the complaint states. In some instances, the companies failed to negotiate settlements with all the consumers’ creditors and did not pay them either, resulting in wage garnishment or debt collection action for the consumers. The companies named in the complaint are Edge Solutions Inc. of Delaware, Edge Solutions Inc. of New York and Money Cares Inc., also called The Debt Settlement Company and The Debt Elimination Center; Pay Help Inc.; and Miriam Lovinger and Robert Lovinger, principals of these firms. The FTC requested an expedited hearing for a temporary restraining order.

New data from Equifax and Moody’s Economy.com revealed that mortgage delinquencies increased again in August, according to the Wall Street Journal. Nationwide, 3.56 percent of mortgages were at least 30 days past due last month, up 0.31 percentage points from July. The delinquency rate has increased about 1.5 points since bottoming out at the end of 2005, with fully half of that increase coming in the last three months. Delinquencies have climbed since August 2006 in all 50 states, and 10 states have posted an increase of more than one percentage point. The share of problem loans has increased most sharply over the past year in Florida, Arizona and Nevada. Those three states — plus California and New York — saw the highest increase in the rate of foreclosures.

The current credit crunch, which has spilled over from subprime mortgages into other types of lending, is putting a greater premium on high credit scores for borrowers looking to finance or refinance large purchases, the Wall Street Journal reported. Until this summer’s subprime crisis, a score of 720 or higher earned you some of the best interest rates, says John Ventura, director of the Texas Consumer Complaint Center at the University of Houston Law School. Borrowers now need a score in the high 700s to get the same benefits, he says. The benefits are dramatic for mortgages. Raising a score from a range of 580-619 to 660-699 could save someone with a 30-year, $300,000 fixed mortgage $5,148 in one year, according to Fair Isaac’s Web site.

Bankruptcy courts would be allowed to alter mortgages written by
"predatory lenders" in moves that could save 600,000 Americans from
foreclosure, according to the author of a bill recently introduced in the U.S.
Representatives.

The legislation would repeal a provision that prohibits a bankruptcy
court from modifying a home mortgage, according Representative Brad
Miller, a North Carolina Democrat, who sponsored the bill along with
Democrat Linda Sanchez of California.

The bill is co-sponsored by Barney Frank, a Massachusetts Democrat and
chairman of the House Financial Services Committee.

Delinquencies and foreclosures have soared in the past year in the
United States, putting the spotlight on ways to modify loans that are
resetting to higher interest rates. One problem is that most mortgages
made in recent years are contained in mortgage securities, many of which
hold covenants that do not allow a lender to change the terms of a loan.

Bankruptcy law bars mortgage restructuring even when a foreclosure is
near. Foreclosures are expected to rise as payments on some 5 million
adjustable-rate mortgages increase over the next 18 months.

"Responsible lenders who made loans on reasonable terms have nothing to worry about in bankruptcy court," Miller said in the statement. "Predatory lenders" may be saddled with the loans, he said.

Under loan modifications, the lender and loan-servicing company change
the mortgage terms to make them more affordable to the borrower. This
can include lower interest rates and forgiving a portion of the
principal.

Wall Street and bond rating companies have criticized loan modifications
since investors who bought the riskiest portion of the bonds may be
treated more favorably than owners of safer slices once a loan is
modified.

The bill may encourage lenders to do more modifications, which are now
"few and far between," Miller said in an interview. A report by Moody’s
Investors Service recently found that lenders eased borrowing terms on
just 1 percent of subprime mortgages with interest rates that reset
higher in January, April and July.

"Everyone will know what will happen in bankruptcy, so the fact that
bankruptcy is an option would lead to negotiations" ahead of that event,
he said.

Despite the hurdles, modifications are seen as still the best
alternative for the $7.2 trillion mortgage bond market, which is
credited for both raising money for the U.S. real estate boom and the
excesses that brought housing to its knees last year, according to the
American Securitization Forum, a lobbying group. Foreclosure is more
costly for lenders and investors, it argued.

The bill is also co-sponsored by Democrats Carolyn Maloney from New York and Mel Watt from North Carolina.

From: American Banker

Credit card companies have increased their targeting of customers with poor financial histories, many of whom may be defaulting on their subprime loans, according to the market research firm Mintel International Group.

Direct mail credit card offers to subprime customers in the United States rose 41% in the first half of this year compared with the first half of 2006, while direct mail to customers with the best credit dropped more than 13%, The Boston Globe reported, citing Mintel.

The crisis in the housing and mortgage markets has left many subprime borrowers unable to pay their bills or refinance their homes for cash, and many have been forced to use credit cards, according to Julie Lizer, Mintel’s manager of custom research.

Travis Plunkett, the legislative director of the Consumer Federation of America, said some card issuers "are engaging in risky, irresponsible lending to vulnerable consumers."

As the disastrous consequences of reckless subprime lending continue to mount, North Carolina lawmakers are standing up for homeowners by making it tougher to offer abusive home loans. This past month, the North Carolina Home Loan Protection Act (HB 1817) passed the State Senate 33-15 and the State House 113-0. Governor Mike Easley, a strong supporter of the bill, held a signing ceremony to usher in the new law, which offers stronger protections against dangerous subprime mortgages.

The new law directly addresses the current subprime crisis, weeding out questionable business practices on mortgage financing that are driving massive subprime foreclosures. A key provision in the law requires lenders to verify that their customers have the ability to repay the loans they are offered. This is particularly important for subprime mortgages with adjustable interest rates, since lenders must consider future rate increases before approving loans.

"North Carolina is simply saying that lenders must return to common-sense underwriting practices," said Michael Calhoun, President of the Center for Responsible Lending. "Until the subprime market veered out of control, all reputable lenders documented income and verified a home buyer’s ability to repay the mortgage."

The new law updates the definition of protected mortgages loans to make it consistent with a widely used federal definition, ensuring that most subprime mortgages will receive added protections.

These are among the key provisions in the law:
— Bans costly prepayment penalties that trap homeowners in high-cost
loans.
— Requires lenders to document income — a standard practice by
responsible lenders through most of the history of mortgage lending.
— Includes all broker compensation when determining whether a loan is
high cost.
— Strengthens brokers’ duties to serve the best interests of their
clients.
— Ensures that homeowners have the right to pursue legal actions when
violations occur.

Broad Support

The new law drew remarkably diverse support, including support from regulators and key industry leaders as well as consumer groups. North Carolina’s Attorney General was a strong and important ally in this fight, as was the Commissioner of Banks. Among the dozens of organizations behind the bill were the N.C. Bankers’ Association, the N.C. Credit Union League, the N.C. Justice Center, the N.C. Council of Churches, and the state chapters of the NAACP, AARP and the AFL-CIO. The broad support underscores the point that the new protections will be good for consumers, and they will be good for responsible businesses, too.

Building on Previous Protections

In 1999, North Carolina passed the first comprehensive law aimed at predatory lending on home loans. That law — which became a model for many other states — focused on equity-stripping practices, such as loan flipping and abusive single-premium credit insurance. This "first wave"
of state protections did not address ability-to-repay requirements, since, until recently, most lenders performed such assessments routinely. North Carolina joins Ohio, Maine and Minnesota in taking the lead in combating a second wave of predatory lending practices, one that has been dominated by dangerous loan products and loose standards for loan approvals.