According to a study conducted by a nonpartisan research & policy organization called Center for Responsible Lending, more than two million people who had taken subprime mortgages are facing foreclosure this year & about 20% of such mortgages drawn between 2005 & 2006 have been projected to fail!Other disconcerting news is that few subprime lenders have filed bankruptcy this year and many others closed last year. Some observers are putting the blame on predatory lending & ignorance on borrower’s part about terms & conditions of the mortgage they were taking.In this article we will try to look at the causes because of which this crisis developed and how it is affecting us.

Subprime mortgages are available for consumers with poor credit records or those who cannot prove their income which would be required for making monthly payments on the loan. This type of loan is considered risky for lender as well as borrower due to combination of bad credit profile, high interest rate on the mortgage and unclear financial position of loan applicant.It all started from late 2003 through early 2004. At that time Federal Reserve Board had started encouraging lending institutions to introduce new adjustable mortgage rate plans in the market.Meanwhile in this same time period Federal Reserve Board raised mortgage rates from 1% to 5.25%, making ARMs beyond the reach of borrowers. And those who had taken ARMs during that period are now having problems continuing their mortgages and are facing foreclosure.As many mortgages started going into default lenders were not able to recoup their losses. It resulted in severe credit crunch and threatened solvency position of numerous private banks & lending institutions.The subprime crisis has been a mix of:

• Predatory lending by subprime lenders.
• Low level of effective government oversight.
• Wall Street investors not verifying strength of portfolios before backing subprime mortgage securities.
• Borrowers over-stating income on mortgage applications to qualify for loans.

Major steps have been taken by world central banks to stabilize the current situation –

1. Central banks all over the world have started coordinated efforts to increase liquidity of their currencies. This liquidity would thus result in stabilization of foreign exchange rates & stem further fall in US dollar and it being sold off. These steps would help prevent significant global consequences a run on US dollar would cause.

2. Federal Reserve has injected 43 billion USD, while European Central Bank & Bank of Japan has injected 191 & 8.4 billion USD respectively to stabilize the situation.

3. To make sure that Federal Funds rate trades at the target rate Fed has injected $30 billion and a further $38 billion for lowering the effective Federal Funds rate.

4. Federal Reserve has cut the discount rate by half a percent (from 6.25% to 5.75%) & left federal funds rate unchanged to help stabilize financial markets.

5. Federal Reserve has added another $31.25 billion in temporary reserves to keep credit markets from drying up. These reserves are temporary loans for banks which use securities as collateral.

Apart from these steps taken by central banks, House & Congress are both considering bills to regulate lending practices. Regulators are also looking at rating agencies which may have played a role in rating securitization transactions containing these subprime mortgages.

Many economists think that this current situation can take the economy into recession as now lenders are starting to tighten their standards, thus making it difficult for consumers to get loans.

Contrary to belief of such economists, Ben Bernanke, Chairman, Federal Reserve has clearly told Congress that crisis in subprime mortgage sector has certainly caused severe financial trouble for numerous individuals & families, but it will not have an affect on overall economy.

Find about mortgage interest deduction in our next article here:
http://financenewspro.com/mortgage-interest-deduction/

How can you be healthy financially? Do you have any definite ideas? Here I am trying to share my thoughts with you.

1) Make a habit of saving – If you want to stay financially healthy then you must have this habit. How little and how much you can save it’s not matter too much but the important aspect is your saving habit. So try to save as much as you can from your total earning for future.

2) Know the difference between “need” and “want” – We must have the basic knowledge of the difference between the two word need and want. Food, water, cloth, shelter is your need whereas entertainment goods like a latest mobile or car are your want.

3) Live within your limit – You should know your limit of earning and expenses should also be within that range. If expense outgoes income then you are going to be in a downfall. So know your means of living in better ways to make your financial position healthy.

4) Make budget for new financial year – A better plan always make your goal successful. You must have a pre plan to be successful in your life. In the same way your financial healthiness depends on a better budget. So when a new financial year starts make a budget for the year and maintain your lifestyle according to that.

5) Be careful at the time of taking a loan – Most of us need to take loan sometime in our life. You must be careful about the repayment plan and the interest rate on that loan. Do some market survey about the interest rate before taking a loan. This kind of small but important decision can change your life.

6) Get relief from Debt – Some of us have already ruined up their financial position. Huge amount of debt already there with them. From this kind of position how can they come out? The answer is simple, pay out debt. But again the question may be asked that how can they pay when they don’t have enough amount to pay! In this position they can opt for the services of Debt Consolidation or Debt Settlement. But you need to take professional advice before taking any crucial decision.

7) Try to earn more – Before everything the most important advice may be earn as much as you can. Your huge earning can solve all of your problems. Never waste your time idly, try to invest your every moment in thinking of earning more and more.

If you do have further suggestions regarding financial healthiness please share with us as your comment. I will really appreciate your suggestions.

FCRA or Fair Credit Reporting Act was created to regulate collection, distribution & use of any consumer’s credit information. There are some responsibilities as well as guidelines that information furnishers & consumer reporting agencies have to follow regarding collection and distribution of consumer information.

In this article we will look at the responsibilities of consumer reporting agencies and information users, as well as the guidelines to be followed by information furnishers while reporting consumer information.

Consumer reporting agencies

CRA is an entity which collects & distributes information about consumer which is used in credit evaluation & some other specific purposes.

Under FCRA, they have the responsibility to:

1. Supply consumer information about concerning him in credit reporting agency’s files & take steps for verifying information accuracy if consumer disputes any information in his credit report.

2. Not re-insert any negative information that was removed because consumer had disputed that information as wrong. CRA can re-insert the information but only after consumer is notified in writing within 5 days.

3. Not retain negative information about consumer for an excessive period of time. The details of how long negative information can stay on consumer’s credit report have been clearly specified in FCRA. Typically, negative information can stay for 7 years from the date of first delinquency. But bankruptcy & tax liens are exceptions as bankruptcy stays for 10 years while tax liens stay for 7 years from the time they are paid.

Information furnishers

First let us know who is described as information furnisher. It is a company which provides information to credit reporting agencies. Normally, they are creditors with whom a consumer has any form of credit agreement.

According to FCRA, information about consumers can only be reported as per following guidelines:

1. The information provided to credit reporting agencies should be accurate & complete.

2. Information furnisher has the duty to investigate any information that is disputed by consumer.

3. They have to inform consumers within 30 days if any negative information has been or would be placed on consumer’s credit report.

Now let us look at the responsibilities of information users when such information is to be used for insurance, credit or employment purposes:

1. Such users should notify consumer if any adverse action will be taken based on consumer’s credit report.

2. Information users have to identify company which provides them the report so that completeness & accuracy of such report can be verified or contested by consumer.

Many will ask what if FCRA is violated.

Well in such situation, a consumer has rights to seek statutory damages, plus actual damages, attorney fees & cost and punitive damages up to a maximum of $1000 for willful noncompliance of the act. To enforce the act, any consumer can file a lawsuit in any state or federal court.

FCRA along with FDCPA forms the base of credit rights of consumers in the country. So it is very important for everyone to have some basic understanding of these two acts.

In this article we have covered some of the important sections that are necessary for every consumer to be aware of. Those interested to read more about this consumer credit rights protection act can go through the details provided at FTC website:

http://www.ftc.gov/os/statutes/031224fcra.pdf

Here are some good reasons why people file for personal bankruptcy:

1. Eliminating legal obligation of debt – It is one of the main reasons why people go for Bankruptcy. Main goal of bankruptcy filing is to get a rid of debt and to have a fresh start. Either Chapter 7 Bankruptcy or Chapter 13 Bankruptcy helps people clear many debts.

1. Loss of employment – It can be identified as the other very important reason for filing bankruptcy. It is very common reason that loss of job forces people to file for bankruptcy. Suppose in a family there are 4 members, out of which 2 are earning members. If one of them loss his job for some reason then the financial planning of that family tear down. This is the time when they are forced to file for bankruptcy.

3. Stop foreclosure – Foreclosure of house can be stopped at any time prior to the sale with the help of Chapter 13 Bankruptcy. Through Chapter 13 Bankruptcy mortgage on property will not be eliminated without payment. Chapter 13 will restructure a suitable plan to repay mortgage arrears.

 

1. Stop repossession – Your car and other property can be prevented from being repossessed. If you file bankruptcy quickly enough then after being repossessed your car by the creditor, he will be bound to return it. Chapter 13 plan will consolidate due payments of car if you missed payments in the past. And then on you don’t have to pay to your finance company, rather you will have to pay to your trustee of Chapter 13 Bankruptcy and he will pay to the finance company.

1. Relief from harassing behavior of creditors – It is really tough to bear with the harassing behavior of the creditors and collection agencies. All creditors don’t follow appropriate course of action in the time of collecting debt from debtors. Many a times it has been found that creditors call to the home of the debtors with harassing words. They don’t stop after calling in the home but also harass in the work place which is unbearable. Bankruptcy can stop these harassing calls and give relief from the hand of the creditors and collection agencies.

1. Relief from huge medical bills – Huge amount of medical bills is also a big problem for many people. Through Chapter 7 Bankruptcy medical bills can be reduced which is another good reasons of filing Bankruptcy by people.

1. Stop Wage garnishment – Wage garnishment is also very important reason for filing bankruptcy. But chapter 7 bankruptcy can spot wage garnishment. Basically what happens is that wage garnishment takes away your monthly income without leaving enough amounts for your basic necessities. Filing bankruptcy helps people to purchase necessary goods.

1. Student loan consolidation – Chapter 13 Bankruptcy allows consolidate student loan debt. It is true that student loan debts can’t be eliminated like many other types of unsecured loan debts. But through chapter 13 you can pay this loan in monthly payments.

I may have missed some other reasons, so if you know more valid reasons then please share them with us through the comment section.

FDCPA was enacted with the main purpose of eliminating abusive practices in debt collections, promote fair debt collection practices, provide avenue for disputing errors & obtain validation of debt information for ensuring accuracy of information.

Guidelines have been specified in the act under which debt collectors have to conduct their business, and it also defines the penalties & remedies if the act is violated.

Who are covered by FDCPA?

Debt collectors use different names such as factoring company, collection agency and other similar name to claim immunity from the Act. But debt collectors have been broadly defined as persons who make use of instrumentality of interstate commerce in any business, where the principal purpose is collection of debts. It is also applicable to persons who collects or attempts to collect, debts owed or due or which are asserted to be due or owed.

One important thing worth mentioning is that definition of “debt” and “consumers” is limited to cover personal & non-commercial transactions only. So those debts owed by businesses are not regulated by FDCPA.

According to FDCPA, certain type of “deceptive & abusive” conduct while attempting to collect debts is strictly prohibited. Let us now go through the specifics mentioned in the Act to this regard.

Prohibited conduct

1. Contact consumer where they are work/are employed – If consumer has told in writing or verbally, then it would be violation of the act to contact consumer at his place of employment.

2. Contact over phone – Debt collector can only contact between 8:00 a.m. and 9:00 p.m. local time and not outside this time frame.

3. Reporting incorrect information – Reporting incorrect information or threatening to do so, on consumer’s credit report in the process of collection is prohibited under FDCPA.

4. Misrepresentation – Using deception to collect debt or misrepresent debt including misrepresentation that debt collector is a law enforcement officer or attorney is against FDCPA norms.

5. Threatening legal action – To threaten arrest or legal action which is not permitted or which collector does not actually contemplate doing is prohibited according to the act.

6. Use of abusive language – In the course of communication with relation to the debt, a debt collector cannot use profane or abusive language.

7. Contacting third parties – Discussing or revealing consumer’s nature of debt with third parties or threaten to do so. But debt collector can discuss with consumer’s attorney or spouse.

In our next article on FDCPA we will look into how FTC enforces the regulations mentioned in this act as per the powers it has as per the Federal Trade Commission Act. Other important section that will be worth reading will be on the required conduct by debt collectors as per FDCPA.

Readers can enhance there knowledge about FDCPA by going through this following page which elaborately describes all the sections of this Act –

[http://www.ftc.gov/os/statutes/fdcpa/fdcpact.htm ]

Mortgage fraud has been declared as one of the rapidly growing crimes (named as white collar crimes) in the country.

After analysis it has been found that every fraud has some kind of material misrepresentation, misstatement or omission relied upon by a lender or underwriter to purchase, insure or fund a mortgage.

But the true level of this type of fraud is largely unknown as majority portion of mortgage industry is void of any kind of mandatory mortgage fraud reporting. And added to that, such frauds in the secondary market are often under reported.

 

Mortgage fraud can be broadly divided into two categories; fraud for profit & fraud for property.Fraud for property involves borrower as the perpetrator. Borrower makes misrepresentations about his income, value of the property or personal debts. But the borrower is interested in repaying the loan & keeps the property in such kind of frauds. Such kind of fraud comes to about 20% of all mortgage frauds.On the other hand fraud for profit is done by industry professionals. In such frauds there are multiple mortgage transactions & involves several financial institutions. Misrepresentations such as overstating income, assets and collateral, reporting fictitious employment, not fully disclosing borrower’s debts and credit history, borrower assuming identity of another person or stating residential use of property while actually using it as rental and disguising down payment borrowed with fraudulent gift letter.Let us now look at some of the most common fraud schemes:

 

Air loans: As the name suggests, these loans are non-existent and there is no collateral. An example would be like when a broker invents properties & borrowers, establishes accounts for payments & for escrows maintains custodial accounts.

Silent seconds: It relates to the down payment borrower is required to make. In this type of mortgage fraud, buyer borrows down payment amount from seller by way of a non-disclosed second mortgage. The actual lender believes that the down payment money has been invested by borrower from his own funds, which actually has been borrowed. To conceal its status, this type of second mortgage is not recorded also.

Nominee loans: Borrower’s identity is concealed in this type of fraud scheme by use of a nominee who allows his name & credit history to be used by actual borrower to apply for a mortgage.

Foreclosure schemes: Fraudster locates people who are facing risks of default on their mortgage or who already are in foreclosure. They mislead the homeowner to believe that he can help save their home in exchange for an up front fees and transfer of the deed for their house. Fraudster makes a profit by pocketing the fees paid by homeowner or refinancing the property.

Equity skimming: False income statement and credit reports are used by an investor to obtain mortgage in the name of a straw buyer. After loan closing, straw buyer transfer property ownership over to investor. The investor stops making monthly payments on the mortgage and rents the property until foreclosure starts after several months.

Property flips: In this scheme, property is purchased and is falsely appraised for a higher value purchased then sold within a few days. As the appraisal information is fraudulent such property flipping is considered illegal.

This is just a beginning of analysis of mortgage fraud schemes. This series will continue until we have covered all the necessary information borrowers and homeowners should have to prevent falling prey to any of these mortgage fraud schemes. In our next segment we will look into other type of predatory loan practices and provide useful tips on how borrowers can safeguard themselves against such predatory fraud schemes.

Information presented in this article is mainly based on the useful details provided on this following FBI website’s section on mortgage frauds:

http://www.fbi.gov/page2/dec05/operationquickflip121405.htm

Almost everyday we get to hear about companies offering to help consumers clean up their credit reports for a fee. They promise that by accepting their service, they would be able to repair their credit and easily qualify for loans & jobs.

But the truth is that they don’t do anything after taking hundreds and even thousand of dollars from the customer and simply vanish with the money. So how a person can save himself from falling prey to any such credit repair scam offer?

We have summarized some of the most common signs where it is likely that the offer is nothing but a scam:

1. A credit repair company does not tell you about your legal rights & what the customer can do by himself for free without taking their help.

2. Customer is asked to pay for the services upfront before they provide the service.

3. Any company which recommends customer not to directly contact any credit reporting company.

4. Customer is advised to create a new credit identity and then a new credit report by applying for EIN (Employer Identification Number).

5. Credit repair company which advises customer to dispute all information listed on his credit report even if the customer is aware that it is accurate.

As per laws, obtaining EIN from IRS under false pretense is a federal crime. Additionally, according to CROA (Credit Repair Organizations Act) companies cannot ask for payment which they haven’t yet provided.

What we would suggest is that don’t fall prey do any such scams and try to repair your credit on your own and save some money also. You can improve your credit only by putting in conscious effort, time, and a self managed personal debt repayment plan.