Interest Free Credit Cards? Remember P.T. Barnum!

Credit Card companies have a new pitch - "0% Interest on Balance Purchases & Transfers Until XX/1/2012". The idea is to give you credit, with no interest on the outstanding balance for 12 months. And, as an added bonus, the offering company will even take your balance, on which you are being charged 20% from another card, and let you move it, AT NO INTEREST, for the same period. Sounds too good to be true? It is!!

First, all of these offers looked at closely, contain a "nominal" fee for making the balance transfer - like 5% of the amount of the transfer. That is a one time immediate capture fee, meaning they get paid by increasing your balance by that 5%. One could say that it's still a bargain because it's only 5% instead of 20%. However, if you pay the entire balance off in 3 months, you paid a rate of 20% annualized, versus paying the old card 20% balance off in 3 months which has the same effective rate. Well, same rate so you are no worse off than if you kept the old card. WRONG!

That 5% fee get added to your principal balance because it's a fee, not interest. So, instead of paying interest on $5,000 (which is the amount transferred in this example) you pay interest on $5,250. But you might retort and say, "Hey, I am not paying any interest on balance transfers so I was no worse off, and if I keep the money for the year, I am much better off - 0% on $5,250 versus 20% on $5000". Yes, that's true - well sort of true. You will be paying whatever the interest rate is on cash advances on the $250 "fee" which is a cash advance. However, like they say in the infomercials "BUT WAIT, THERE'S MORE!".

If by some chance you do not pay the entire balance, transfers from other cars and purchases made during the "introductory period" ending on XX/1/2012, the entire balance AND DEFERRED INTEREST, the amount of interest that the $5,000 would have earned the card issuer for the entire year, becomes part of the balance and you are subject to the regular interest rate which can be, SURPRISE, 20%! Even if you pay the $5,000 transfer amount back in full, if you don't also pay the $250 "fee" you will be charged an amount equal to the interest on all of the $5,000.

So if the regular rate is 20%, you will now have an additional bill of $1,000, which you will pay 20% for until that is paid in full. Actually, if there is $1.00 outstanding on your bill at the end of the introductory period, you will find your next bill has $1,000 added to the $1.00 that was missed in your previous payment.

Outrageous, but perfectly legal. When the Credit Card Act was passed last year, it took 5 seconds for the card issuers to find a way to keep there profits high. This is one way. Oh, and as an added treat, this scenario applies to most of the retailers, like electronics stores and appliance stores and any "big ticket item" stores - "Buy now and pay no interest for 1 full year!". When that "1 full year" is up, if you haven't paid the balance in full, expect all of that deferred interest to hit you on the bill you get in the 13th month.

The FDIC has a great website that will take you through this and a dozen other ways cards can haunt you now, even more than before.

http://www.fdic.gov/consumers/consumer/news/cnspr10/new_realities.html

Look, credit is fine; credit cards are useful and sometimes necessary, especially in emergencies. JUST KNOW THE RULES! Read ALL of the mail - even the stuff that looks like junk mail - there may be a hidden $1,000 charge in that envelope.

Author's Copyright by Richard I. Isacoff, Esq., May 2011

rii@isacofflaw.com

http://www.isacofflaw.com/

New Credit Card Regs Effective Today

(See entire posting on this issue at February 10, 2009)

New Credit CARD Act of 2009 rules went into effect TODAY, and the are actually some decent regulations

1. Card Issuers will have to check on the customers ability to repay before issuing cards. Sounds common sense doesn't it! It will be unreasonable, under the new regulation and always has been based on life, for a card issuer to give a card to someone without income or assets, and for a card issuer not to review such information.

2. Before you can be assessed an over-limit fee, you will have to AGREE to allow over your limit charges to be accepted. It is not like so many other programs where you have to say "no" or your in, here if you do not say "YES" you cannot be assessed a fee or penalized in any way if you are approved for an over-limit charge

3. If the Card Issuer is going to increase your rate, for any reason, you must receive at least 45 days notice, and then the increase can only apply to charges/cash advances AFTER the 45 day date. Old balances pay at the old rate of interest.

4. Your rate cannot be increased, in nearly all circumstances, for the first 12 months you have your card. The exceptions include if you get a variable rate card where the interest rate is supposed to go up and down; or if you are more than 60 days late in the first 12 months.

5. If you are under 21, you will have to show that you can afford the payments on your maximum credit limit, or have an over 21 co-signor.

6. Card issuers will not be able to make deals with colleges or high schools to come onto campus to offer cards if the card company offers the school an incentive to let it in.

7. Payment dates must be the same day (1st 4th 8th 27th etc) each month and if the payment date falls on a holiday or weekend, not late fee or penalty can be assessed

8. The new statements must contain information in bold type of the New Balance, Minimum Payment Due, and the Due Date. There must also be a warning of what will happen to the rate and when it will happen if a payment is late. The biggest change in statements is that each month it MUST show how long it will take to pay off the balance at the present interest rate if you make Only The Minimum Payment; AND HOW MUCH YOU WILL HAVE TO PAY, TO PAY OFF THE BALANCE IN 3 YEARS. It must also show how much in total you will pay in each case

9. Credit Card Issuers MUST post their agreements on their websites, have the agreements first approved by the Federal Reserve, and have the Federal Reserve Board post them on the Fed’s comprehensive and advertised Card Agreement Website. (WELCOME TO 2010!)

Note: The full 841 page bill with commentary before final adoption is available at the Federal Reserve’s website but a shortened version along with the long one is at: www.federalreserve.gov/consumerinfo/wyntk/creditcardrules.htm

Others At:

http://www.fdic.gov/regulations/laws/rules/6500-1400.html

http://abclocal.go.com/kgo/story?section=news/7_on_your_side&id=7252770

http://www.youtube.com/watch?v=EGY0jooXIsU&feature=player_embedded

Author's Copyright by Richard I. Isacoff, Esq, February 2010

rii@isacofflaw.com
http://www.isacofflaw.com/

One Bank's Lies, Another's Obfuscation?

The answer to the title question is a qualified MAYBE! (Obfuscate: to muddy the waters so no one has a clue about the real answer or even the question) Based on ever changing figures, the Wall Street Journal reported, in its December 11th edition, that there are nearly 5% of the homeowners in the Making Home Affordable Program ("MHAP")who have "permanent" mortgage modifications. If we go back to the beginning of the MHAP, it was estimated that there were 2,700,000 homeowners eligible. That figure did not include loans that did not fall within modification guidelines, even if they did come within the HARP (Home Affordable REFINANCE Program) structure.

The math on the 2.7 million figure equates to about 1.15% of those eligible have a permanent modification. That is substantially up from the numbers reported only 3 weeks ago but... The reality is that the Banks, including the biggest in the country (Bank of America, CitiBank, JPMorgan Chase) are not making loans or loan modifications without being forced to do so.

In my practice in western Western Massachusetts, I am dealing with a multitude of lenders, in every case, trying to save a home. While I have the occasional client who got into financial trouble of his/her own doing, the vast majority, 90-95%, find themselves facing foreclosure because of job loss, fewer hours available, ill health/death and the related medical bills, or family problems such as divorce, or some combination of these factors. ADDING TO THESE ISSUES IS THERE DEVASTATION OF BAD LOANS AND THE ECONOMIC COLLAPSE.

The only way I can get the attention of some of the lenders is to file suit. That is my last resort - whether the action is in a State court or in U S Bankruptcy Court. There is little interaction with loan workout specialists, now called Loss Mitigation Specialists, before documents, often obtained from the MHA.gov website, are sent to the lender. It is at this critical juncture that lenders or their servicing companies are lying or obfuscating.

All of the current articles quoting lenders as to the reason so few modifications are becoming permanent, cite the lenders as stating that only a small percentage complete all of the required paperwork, and of those, 1 out of 5 default on the "Trial Payment Period" payments. It is my personal experience that fully 50% of the submissions to the MHA program at any specific lender are LOST. I have sent 2,3 and sometimes 4 packages to the MHA department of a mortgagee/servicer before I get a set of documents that are not lost. Seldom will anyone in the servicing side say "I am sorry, we misplaced the documents we need." It is generally a form letter, received by me or my client, that states that the client did not qualify because inadequate information was provided, specifically that the package of forms was never received.

Even at that a new problem arises: after 45-60 days of waiting the documents sent are stale (outdated) or the foreclosure, which had been postponed due to the eligibility and contact under MHA, is re-scheduled. As for the default in payments - if someone receive a notice on Dec 4th that states the beginning payment under the trial period is due Dec. 1st, how can anyone comply? If I am lucky enough to get a lawyer for the lender involved, the process moves much more efficiently, as the lawyer knows the stakes for the lender.

In fairness (a phrase I am getting tired of having to use) to the mortgage folks, they are overwhelmed. No one could prepare for this number of "problem" mortgages. Okay, fine! Why then are modifications being refused by lenders? Has not the Treasury, FDIC, and the Federal Reserve, along with the "Administration" said they want the program to work, and NOW? Yes, but none of these folks tried to assist in getting a bill through the House of Representatives that would have put pressure on the Banks etc. to MAKE Homes affordable.

When the House debated a bill to allow Bankruptcy Judges to modify home mortgages, and it seemed like it would pass, but the Mortgage Backed Security holders and big investors said NO! and the spike in permanent modifications was announced to show that nothing else was needed.
On Monday the bill was defeated and I predict it will be back to business usual - just the endless loop of automated prompts from one department to another and the seemingly coordinated 45 minute wait for a representative.

Author's Copyright by Richard I. Isacoff, Esq, December 2009

http://www.isacofflaw.com/
rii@isacofflaw.com

Homeowners & Mortgages & Foreclosures & TARP?

FORECLOSURE - TARP - MORTGAGE - BAILOUT - SUBPRIME

(Note: This post refers to earlier writings. You are urged to read those submissions)

This is one of those times when a confession is necessary: I have a subscription to the Wall Street Journal, in fact both print and online! Now, in ordinary times, I would not have even mentioned my reading habits but, as I have stated before, these are not ordinary times.

The WSJ has published two editorial pieces opining that the FDIC proposal to get funds to homeowners by modifying mortgages would cost more than the $24 billion originally estimated. The Journal cited Treasury Department and White House critics that are purported to have shown the actual cost could be as high as $70 billion. This is to save houses; to end the cycle of foreclosures and stabilize the economy. This, it was deemed, was too much to pay for stability in the marketplace. Here, the marketplace does not refer only to the real estate market, but, to some extent, to the securities market as well, and, in reality, OUR ECONOMY.

Remember the Mortgage Backed Securities that are being called "toxic assets"? The toxicity is the inability to value these interest bearing bonds, derived from mortgages (hence called "derivatives"). The entire market for MBS was based on the sales pitch, by Lehman Bros, Goldman Sachs et al, that HOMEOWNERS WOULD ALWAYS PAY 100% of their debt. That may have been true when, if there was a problem, the homeowner/borrower could meet with the LENDER, discuss the problem and work out a solution. Mortgages have become rare - they have become securities. There is no owner, no banker, no lender to whom you can ask for help and advice.

The FDIC proposed refinancing borrowers and maybe even paying the loan servicers, the entities that collect monthly mortgage payments and sent them to the investors. The idea is that the servicers have no incentive to do more than send bills, collect money, and pay the investors. The PSAs (see earlier posts) define, in extreme detail, precisely what Servicers can do. The investors want the interest that they were "promised" and they will not accept anything less. That attitude will get them far less than if borrowers pay most of what is owned, or perhaps 100% of what is owed but at a lower interest rate.

If the FDIC has it wrong, and the investors are not thinking clearly due to a near panic, what is the solution? Solution? What is the issue? FORECLOSURES. Whether the reason a homeowner facing a loss of his/her home is "at fault" for reaching beyond his/her monthly income, or if the reason is that the borrower was sold a loan product that was affordable for the first two years and then had the monthly payment jump hundreds of dollars, is DOES NOT MATTER; it is irrelevant. We have to stop the accelerating the loss of homes by foreclosures.

Elizabeth Warren, a noted Professor at Harvard School of Law, and the newly appointed head of the House Advisory Committee to Oversee TARP, has taken issue with the Treasury Department's cure-all of giving money to Banks as the magic pill. She is quite clear that, while that may be part of the answer, stopping foreclosures is the major step we need to take. Offering low interest rate mortgages for first-time homebuyers is great, but if the housing is continuing to drop in value because of the level of foreclosures, no one is going to buy now. Everyone will wait for the bottom which, as a result, gets lower and lower.

We need a balanced approach. Pass laws to allow Servicers to negotiate with mortgagor-homeowners who are in trouble. This means Congress has to take-on the very nature of the Securitization of mortgages and the resulting PSA contracts. Offer incentives for Servicers to do the extra work. Set up a new Federal Mortgage Corporation, similar to that from the 1930s to increase the accessibility to affordable refinancing for homeowners who can pay, but perhaps not at the higher rate that were sold.

There is no easy answer. There is no way for lawmakers to assure that they will be able to brag, at election time, that they "did the right thing". Congress cannot keep worrying about being re-elected and therefore afraid of offending the monied interests. It is time to help homeowners. Investors knew, or should have known the risks. Critics will argue that MBSs are in average workers 401K plans,and comprise a large portion of pension plans. Using an overused medical analogy, perhaps we had better not worry about the broken leg until we restart the patient's heart!

Author's Copyright by Richad I Isacoff, Esq -December, 2008

http://www.isacofflaw.com/

Homeowners Not To Get Bailout Money

F.D.I.C. - MORTGAGE CRISIS - BAILOUT - MORTGAGE BACKED SECURITIES

It comes as quite a surprise to many, like the 535 members of Congress, that the recommendation and plans put forth by the F.D.I.C. regarding the way in which to help homeowners and stabilize the housing market is being ignored by the Administration's Secretary of the Treasury, Henry Paulson.

Now, truth be told, Secretary Paulson is probably a good bit smarter and experienced than I am, but perhaps some of his advisers and employees are not. More to the point, I suggest that F.D.I.C., suggesting a direct to homeowner mortgage aid program, may have the correct perspective. If the complaint is accurate, that the problem started due to adjustable mortgages being sold to and "bought" by sub-prime borrowers leading to Mortgage Backed Securities ("MBS"), then fixing those mortgages should alleviate the worst of the problems.

The securities markets, those entities that buy and sell literally millions of mortgages after they are bundled into MBS, have determined that the assets, because the true Fair Market Value is unknown, are worthless. That is as absurd as stating that they are worth 100% of the principal and interest owed on each underlying mortgage. EXTREMES - both views. There will be losses, but if they can be quantified by F.D.I.C. or any other agency of the Federal government, the investors in MBS should be more secure, have a sense of balance restored, and allow the markets to return to a sense of normalcy.

The F.D.I.C. program, in its entirety is at, http://www.fdic.gov/loans/loanmod/index.html. The basics are to underwrite a portion of the outstanding mortgages where there is a default, so that the holders of the MBS know that the value is still there. The basics of the program, which the Treasury is fighting despite the rules for use of the Bailout funds, is to MODIFY EXISTING MORTGAGE LOANS

1. Pay servicers $1,000 to cover expenses for each loan modified
2. FDIC/bailout funds would share up to 50% of the losses if a modified loan re-defaults

FDIC projections state that 2.22 million loans could be modified, having a book value of $444 billion with a total program cost of only $24.4 billion. Assuming a 33% default rate 1.5 million foreclosures could be avoided

One might also believe that while the people working for Secretary Paulson are working around the clock and are very bright, some of them in key spots have no experience in this type if crisis. If you have never worked-out failed assets (loans) in real-life, not just through computer modeling, nor as estimated by economists, actuaries, financial analysts, and Goldman Sachs/Wall Street, you may miss critical details. Here, to fix the problem, the problem must be understood: it is not securities; it is the inability to pay mortgages and the resulting erosion of home values.

THERE IS NO EASY ANSWER! That does not mean that we should have had to panic, lose confidence in the system itself, and, by stampede, cause the securities market drop like a rock.

author's copyright by Richard I. Isacoff, Esq. - November 2008

http://www.isacofflaw.com/