Credit Repair Blog

Though credit availability is expected to pick up this year, it will be a slow improvement, according to a new report released by a group of senior bank economists. At the unveiling of their 2010 economic outlook, members of the American Bankers Association’s Economic Advisory Committee said consumer and business lending will recover when other economic factors also show more strength. Debt relief companies continue to look for better credit options for their clients.  Bad credit debt consolidation loans have nearly disappeared as the subprime market challenges continue.  “Consumers are still retrenching to some extent consolidating debts and small businesses as well are very conservative and reluctant to take on more debt at this point,” said Scott Anderson, a senior economist at Wells Fargo & Co., Mr. Anderson said he expects improvement, “but it’s just going to take some time for that to happen.”

The group predicted 3.1% growth in the gross domestic product. That would be an improvement of 3.4 %age points over 2009 but much more modest growth than the 6% that has followed previous recessions. “I refer to it or characterize it on my own as a ‘half-speed’ economic recovery,” said Stuart Hoffman, the committee’s chairman and the chief economist at PNC Financial Services. He referred to “constraining factors,” such as continued problems in commercial real estate and a lack of confidence in consumer spending, as holding back growth.

Credit Agencies, Credit Score Articles, Debt Relief, Financial News

The First Amendment may the flashiest tool at the disposal of lawyers defending credit-rating agencies sued by angry investors, but sometimes a good old hammer gets the job done just as well. On Tuesday, Manhattan federal district court judge Lewis Kaplan dismissed a case against Moody’s and McGraw-Hill’s Standard & Poor simply because the ratings agencies didn’t have anything to do with the offering documents at issue. The litigation began in the summer of 2008 in New York state court. A purported class of investors in mortgage-backed securities underwritten by Lehman Brothers sued Lehman and several Lehman executives, including former CEO Dick Fuld.

The litigation was eventually removed to federal court. After Lehman entered bankruptcy, the plaintiffs amended their complaint to target the ratings agencies, alleging that they were underwriters and sellers of the securities.  The amended complaint cited the Securities Act of 1933, which imposes strict liability for making false or misleading statements in securities offerings. But in their motions to dismiss, both Moody’s and S&P claimed that they weren’t responsible for the offering documents–an argument Judge Kaplan apparently found persuasive. “The judge has obviously agreed with the arguments that we made that the ratings agencies have never been held to be potential defendants under these provisions and it was a distortion of the statute to try to bring claims against the ratings agencies, said Moody’s counsel Joshua Rubins of Satterlee Stephens Burke & Burke, according to Reuters.

Will the dismissal help the ratings agencies in two similar cases pending in Manhattan federal district court before Judge Jed Rakoff and Judge Harold Baer? “Hope so,” said S&P counsel Floyd Abrams of Cahill Gordon & Reindel, when we asked him.  Lead plaintiffs counsel was Cohen Milstein Sellers & Toll. We e-mailed Steven Toll but didn’t hear back.  Investors incensed over the good ratings the agencies gave to bad securities may have to pin their hopes on a case involving the collapse of a structured investment vehicle, which is being litigated before Manhattan federal district court judge Shira Scheindlin. As we reported last year, Judge Scheindlin allowed one of 11 common law fraud claims to proceed against S&P, which had hoped to be completely shielded by the First Amendment.

Credit Agencies, Financial News

A recent Washington Post article reported about some of the new risk based lending option happening with conventional and FHA loans.  Unfortunately very few borrowers are qualifying for home refinancing or bad credit debt consolidation loans.  Many debt loan applicants are migrating towards to bankruptcy and credit card debt settlement, because traditional home equity loans and consolidation mortgages are no longer available. 

According to US Debt Settlement Firm’s Jeff Morris said, “Thousands of Americans need to eliminate their debt and mortgage loans are no longer an option for consolidating debt unless the borrower has a ton of equity in their home.”  Morris suggests discussing your financial state with a trusted debt settlement company. After debt negotiations, credit repair becomes a viable option.

Credit Repair Articles, Credit Repair Tips, Debt Releif, Debt Relief, Debt Settlement, Financial News

A recent Bloomberg article considered the credit crunch and FICO scoring for credit reports from a different perspective.  They considered the credit cards of Wayne Brown and how if he reduced his credit card debt, American Express would cut his credit limit to the amount of the new balance. If he doesn’t make a big payment, his interest rate may skyrocket.  The credit limits on Brown’s cards have been lowered, which has raised his debt relative to his available credit. This so-called utilization rate is a key factor in determining credit scores  Brown, a 58-year-old construction-company owner in San Diego, has seen his score drop to 650 from 760 the past 13 months.  “Interest rates on all of my cards are going up now, and my minimum payments are almost doubling because it looks like I’ve maxed out my cards,” said Brown, who uses credit cards to fund his home-building company.

About 45 % of U.S. banks reduced credit limits for new or existing credit-card customers in the fourth quarter of 2008, according to a Federal Reserve January survey of senior loan officers. Financial institutions may slash $2 trillion in credit-card lines in the next 18 months, Meredith Whitney, a former Oppenheimer analyst, wrote in a Nov. 30 report.  “You’re no longer immune if you have good credit,” said Curtis Arnold, the founder of CardRatings.com, a Web site that reviews credit cards. “The issuers hold the cards, literally.”  Debt settlement and bankruptcy rates continue to soar as credit card defaults are rising like home loan foreclosures.

Credit-card issuers such as American Express, Citigroup and JPMorgan Chase have cut credit limits to guard against risk and prevent delinquency and charge-off rates from increasing, said Arnold.  The average charge-off rate, reflecting loans the banks don’t expect to be repaid, was 7.1% in January, compared with 4.6 % a year earlier, according to data compiled by Bloomberg.

If credit-card limits are decreased, consumers should pay off balances as quickly as possible  consider making online payments before the monthly statement arrives to reduce debt, and weigh transferring balances to a card with a lower rate, said Jeff Blyskal, a senior editor of Consumer Reports.  He said consumers should beware of low-intro rates and high fees when transferring balances.

Cardholders will damage their credit history if they cancel an older account and lose the available credit on that card, said Emily Peters, personal-finance expert at consumer Web site credit.com. Credit-score companies look at the total amount of debt relative to credit limits on all credit cards when evaluating scores.

American Express, the largest U.S. credit-card company by purchases, is offering $300 to some customers if they pay their balances in full by April 30 to reduce the risk of credit card defaults.  Chase increased the minimum payment to 5% from 2% for certain borrowers with large amounts of revolving debt. According to Bill Hardekopf, chief executive of LowCards.com, a Web site that compares the rates of almost 1,100 credit cards, Capital One increased the interest rates for new customers on 15 cards.

In 2008, Chase decreased credit lines or closed accounts totaling $129 billion, Gordon Smith, JPMorgan’s chief executive of card services, said last month. Home equity credit lines to new and existing customers were increased by $107 billion, Smith said.  Critz George, a retired nuclear engineer and physicist in Albuquerque, N.M., said he had three Chase cards and one Citibank card closed because of inactivity, without advance notice. George, 71, said he fears having four lines of credit closed will lower his credit score.  “I feel like it was an arbitrary and capricious decision because I have paid in full and on-time for the last 20 years,” he said.

Brown, who is also a mortgage broker, said he was always careful to keep his balance at one-third of the limit. He said the reduced credit limits on his American Express and Bank of America cards have made that impossible.  “I’m angry because I’ve always been proud of my credit history and now it’s gone to hell, not because of something I’ve done.”  Read complete credit crunch article >

Credit Repair Tips, Financial News American Express, charge-off rates, credit card debt, credit limits, delinquency, revolving debt

The original credit score company, FICO recently released an interesting report regarding credit lines and how cutting the limits can significant affect credit scores.  11% of the U.S. population, or 22 million consumers, lost some of their credit limits for a reason other than risky credit activity such as making payments late, having accounts go to collections, or having a negative public record added to their credit report during the study time frame. Credit card inactivity or low balances likely caused the lowered credit limits for this group. The median FICO score in this group is 770, so the adverse changes to their credit limits are not a result of poor credit risk.

5 % of the population, or 10 million consumers, saw their limits reduced because of some sort of risky credit activity including late payments, accounts in collections, or a negative public record added on their credit reports. Credit scores remained relatively stable during the April–October time frame, although there was significant score movement in 10% of the general population that received a credit limit decrease. A score decrease of at least 40 points occurred in 4% of that group and a score increase of at least 40 points occurred in 6% of that group. The score decrease is likely due in part to an increased credit utilization percentage, while the score increase is likely due to the reduction of credit card balances.

According to FICO credit card utilization remains a vital component in calculating your credit scores. FICO also stated in their recent report, that accessing credit may have “proven to be extremely predictive of potential repayment risk, so it is often an important factor in a person’s score… Consumers who use a heavy proportion of credit available to them are substantially more likely to default on credit obligations”, compared to people whose credit lines have hardly been used.

Also read credit line article > Thousands of Credit Card Consumers Report Credit Line Reductions in 2008.

As always, consumers will earn better scores if they make all of their payments on time; avoid other negative occurrences such as collections; keep their credit card balances low in proportion to their credit limits; and shop for credit only when necessary. The target utilization percentage is, and has been for some time, less than 10%.  Recent debt relief articles published highlighted the fact that the foreclosure crisis and credit card defaults have caused the credit repair business to experience considerable growth as a result.

Credit Repair Articles, Financial News credit card utilization, credit line, Credit repair, Credit scores, FICO score

Modifying mortgages to make them more affordable for struggling borrowers is a cornerstone of the Obama administration’s housing rescue plan. It allocates $75 billion for an initiative that would reward loan servicers for lowering mortgage payments for five years, after which they would rise to today’s current mortgage interest rates which, fortuitously, are in the low 5% range.

By now, most homeowners understand that a foreclosure judgment is a “significant ding” that will reflect in the credit score and perception of manual underwriting for many years to come.  Being late on your mortgage payments is a serious issue, but if you or your loan modification company are already negotiating with your lender, it certainly doesn’t hurt to attempt to get the lender to remove the delinquencies. It’s amazing how powerful a letter from the creditor says that they “made an error in reporting.”  But several readers recently wrote to Lisa Sitkin, in an effort to get clarification on the impact of loan modification and the long standing credit implications.  If the lender doesn’t agree, consider credit repair. 

Lisa Sitkin, a staff attorney with Housing & Economic Rights Advocates in Oakland, was kind enough to take a crack at answering that question. Here’s what she wrote:  Our view is that a loan modification that included a principal reduction might be reported as a write-off of some sort. Home loan modifications without a principal reduction (which will be the case in most borrower’s loan workouts) should not be reportable, but that is not a guarantee it won’t be. Credit reporting is something borrowers should be asking servicers about as they discuss lower mortgage rates. They should also request that prior past-due derogatory comments on the credit reports be changed to reflect new current status after the mortgage loan modification.

Sitkin suggests checking with an attorney with debt collection and/or fair credit reporting expertise for more insight on this issue; there is an attorney directory on Naca.net.  See the full article >

Credit Repair Tips, Financial News, Mortgage Tips

 The economy is tough, and there are crooks out there looking to make things a whole lot tougher.  In a recent article, the Chicago Tribune highlights the number of financial scams circulating is on the rise, some experts say, as criminals seize every opportunity to take advantage of the desperation many are feeling because of the economic downturn.  Credit repair is a huge business and with the good companies come the shams.  Debt settlement is another rising industry where you will find good and bad companies.

Stop Foreclosure

How it works: According to the FTC, you may get a personalized letter from a firm that found you by looking through foreclosure notices. Or maybe you saw an ad saying, “We guarantee to stop your foreclosure.” 

Once you’re on the hook, the firm uses various schemes to steal your money. One method is by phony negotiations on your behalf. They tell you that they can work a deal with your lender to stop foreclosure if you pay an upfront fee. They also may tell you to stop contacting your lender and to make your mortgage payments to them.  There are real foreclosure prevention companies that are attorney backed organizations who offer loan modification plans and there are companies that look good on paper but perform no backend fulfillment that is required to modify mortgage loans with revised interest rate and amortization schedules.  Make sure you get everything in writing.  Check with the FTC if you are unclear about shopping for a foreclosure prevention company.

“The attorney general says (consumers) should avoid these rescue schemes that ask for money upfront, because they’re just looking to swindle your cash,” said Natalie Bauer, spokeswoman for Illinois Attorney General Lisa Madigan. Another method is the bait-and-switch rescue loan. You are told you are signing papers for a new loan to get your mortgage up to date. But you’re really signing over the title of your home in exchange for the loan. Then there’s the rent-to-buy con, in which you surrender your title in a deal to stay in your home as a renter, with the goal of buying it back later. Tactics vary, but the result is the same: You lose your home.  How to avoid it: The FTC advises that you not use any firm that guarantees to stop foreclosures, tells you to stop talking to your mortgage lender, collects a fee before services or accepts payment only by cashier’s check or wire transfer. You also should see red flags if the firm persuades you to lease your home and buy it back later, or tells you to make your home loan payments to them instead of your lender.

Make Bad Credit Go Away

How it works: The companies claim to be able to erase your bad credit or, in some cases, create a new credit identity. You pay them and, you guessed it, you get nothing.

How to avoid it: The FTC warns not to use any company that wants you to pay upfront for credit repair. Under the Credit Repair Organizations Act, companies can’t require you to pay until they have performed the promised services. Other red flags: If a company doesn’t tell you what your free options are, recommends that you not contact the three major credit reporting agencies, tells you they can eliminate bad information on your report or suggests you create a new identity by applying for an employer identification number to use instead of your Social Security number.  Check with the FTC or visit the Credit Repair Blog for the latest news and insight.

Bottom line, there’s no quick fix to repairing your credit. It takes time and requires repayment of debts. Anything a credit repair company can do legally, you can do by yourself, the FTC says.

Read the complete article >

Credit Repair Articles, Credit Repair Tips, Debt Settlement, Financial News, Mortgage Tips Bad Credit, Credit repair, Debt Settlement, loan modification