Headlines
- New Rules Limit Too-Low Estimates of Closing Costs
RISMedia 20 Aug 2010
Bankrate.com says closing costs have risen 36 percent in 2010, mainly due to new penalties on mortgage lenders and brokers who lowball good-faith estimates. New HUD rules mean that lenders who underestimate costs must pay the difference, which has translated into more accurate quotes. Additionally, Bankrate says requirements from regulators, Fannie Mae, and Freddie Mac that lenders do more fact-checking also played a role in boosting actual closing costs. Bankrate's survey of online good-faith estimates for $200,000 mortgages reveals a 23 percent year-over-year jump in estimates of closing costs charged by lenders and a 47 percent surge in estimates of closing costs charged by third parties. California, New York, Texas, and Utah had the highest closing fees; while Arkansas had the lowest.
- Home Front: California Bills Aim to Protect Home Refinancers From Banks
Sacramento Bee 20 Aug 2010
Legislation under consideration in the California Senate would make it more difficult for banks to recoup money from borrowers with refinanced mortgages on homes that are unloaded through short sales or lost through foreclosure. SB 931 aims to protect borrowers with refinanced first-lien loans after short sales, while SB 1178 would institute more protections for borrowers with refinanced first-lien loans after foreclosure. The first bill was introduced in response to the number of borrowers hesitant to proceed with short sales for fear debt collectors will contact them down the road. The California Association of Realtors is pushing the second bill, insisting that borrowers who refinanced were unaware that they no longer had the protections given to them under purchase loans. The measure would cover only borrowers who refinanced to take advantage of lower interest rates, as the banking industry successfully rallied against a provision protecting borrowers of cash-out refinances.
- Ankeny Residents Request Payday Lender Moratorium
Des Moines Register 20 Aug 2010
In Iowa, several Ankeny residents addressed city councilors during an open forum to urge them to enact a moratorium on payday lenders in the area -- which residents say could turn into a "mecca" for the high-interest loan companies. "Payday lending is predatory and needs to be limited," said Hilary Mitchell of Iowa Citizens for Community Improvement. "With interest rates as high as the ones they charge, they don't contribute to the community, and they only make financial situations worse for people who do business with them." Residents spoke up as well, saying the lenders bring blight to the community and harm its neediest members. Another resident said loan customers could be better served by other area businesses, and another called payday lenders "the worst of the worst" after witnessing several people being "preyed upon" by them. One asked the council to consider the city's many needy residents, and another told the council that payday lenders do harm to the whole community. Ankeny Mayor Steven Van Oort has educated himself about the practice and is looking for answers to his questions. He plans to work with the city attorney to determine what a moratorium could look like.
- Pipeline: Case for Cramdowns
American Banker 19 Aug 2010
Allowing bankruptcy judges to modify home loans may have helped stem farm foreclosures in the 1980s when farmers faced outstanding mortgage balances greater than the market value of their property and foreclosure moratoriums that proved to be ineffectual. In response, Congress passed legislation to allow stripdowns, now known as cramdowns, that would reduce the mortgage balance to the current market value of the farm and convert the remaining balance to an unsecured claim. Opponents then and now argue that such a change would flood the courts with bankruptcy petitions that could lead to higher mortgage interest rates. But according to economists at the Federal Reserve Bank of Cleveland, "the effects of that stripdown provision, in place for more than two decades, on the availability and terms of agricultural credit suggest that there has been little if any economically significant impact on the cost and availability of that credit." Data also suggests that the legislation "worked without working" because it led to an increase in private loan modifications. A similar bill has been introduced by Sen. Dick Durbin (D-Ill.) but has been held up since the beginning of the year, and his three prior attempts with similar bills have failed in the face of opposition from the mortgage industry and Republicans.
- Don't Get Taken By Car-Loan Scams
MarketWatch 19 Aug 2010
In addition to shady mortgage-modification companies, consumers must now be on the lookout for auto-loan scams. Edward Fox, who began making payments to a company that promised to lower his monthly car payment from $700 to $400, had to resort to a complaint with the Better Business Bureau before the scam could be resolved. After making two payments, the firm became nearly impossible to reach. Thanks to efforts by the BBB, Fox got his money back with an apology but he says he will never recover his sense of trust. "Some companies may make it look like they are tossing out a life preserver, but they end up pulling many borrowers deeper underwater," according to Steve Bernas, chief executive of the BBB serving Chicago and northern Illinois. Consumers need to be cautious and selective when seeking out help. Tips for consumers struggling with auto payments include talking to the lender, joining a credit union, doing the research, avoiding advance fees, getting terms in writing, and considering selling the car.
- Store Credit Cards Boom
Wall Street Journal 19 Aug 2010
Delinquencies on store-brand or private-label credit cards are slowing, and the private-label portion of the U.S. credit card market is experiencing renewed life. Specialized store credit cards are considered riskier because those bills are lower in a consumer's payment priority. They also typically carry higher interest rates and lower credit lines because of their low-income, less creditworthy customer base. Balances on store cards totaled $94 billion last year, down 8 percent from 2008. The improving trends could slow the retreat of some private-label card issuers.
- Why APR Matters: Truth In Lending
Seattle Medium 18 Aug 2010
Payday and title lenders will do anything to keep their annual interest rates of up to 400 percent under wraps, including vehemently denying that annual percentage rate (APR) is important and that the loans may take months if not years to repay as a result of exorbitant fee charges. However, the Truth in Lending Act (TILA), enacted more than four decades ago, was intended to ensure that all lenders disclose the APR for all types of loans in order to allow consumers to shop competitive prices and enter into transactions they could understand and afford. Despite TILA’s federal mandate, unscrupulous lenders have promoted their products on a fee basis, rather than APR -- a practice that continues today and is especially rampant in communities of color, where payday and title lending stores are more highly concentrated. This practice became so common that the Federal Reserve Board clarified that APR disclosures were specifically required for payday loans, cash advances, deferred deposit checks, and other similar products. Charlene Crowell, a communications official with the Center for Responsible Lending, writes, "As an organization pledged to building family wealth and opposing predatory lending in all of its forms, the Center for Responsible Lending is encouraged that 16 states and the District of Columbia have effectively banned triple-digit interest on payday lending. CRL is further encouraged by the state attorney generals who are enforcing their rate caps by litigating against Internet payday lenders."
- Wharton Announces Campaign to Educate Memphians About Predatory Lending
Memphis Commercial Appeal 18 Aug 2010
A new program spearheaded by the Lawyers' Committee for Civil Rights Under Law, the U.S. Department of Housing and Urban Development, Neighborworks America, and Fannie Mae will seek to inform Memphis, Tenn., citizens about predatory lending practices that target homeowners requesting loan-modification and foreclosure-prevention services. Mayor AC Wharton announced the initiative on Aug. 18, explaining that the city's high poverty rate and low financial literacy of residents make it a target for foreclosure scammers. The educational campaign dovetails with a Memphis and Shelby County lawsuit against Wells Fargo alleging that the company targeted black residents with high consumer debt to refinance. The city is seeking to recoup damages from Wells Fargo, but education is the best way to protect homeowners, Wharton said.
- W.Va. Sues 8 Companies Over Illegal Payday Loans
BusinessWeek 18 Aug 2010
West Virginia Attorney General Darrell McGraw on Aug. 18 sued eight companies for offering Internet payday loans that are illegal in the state. The litigation asks a judge to order the companies to immediately cease all lending activity and turn over records of their accounts in West Virginia. State law prohibits interest rates of higher than 18 percent on all consumer loans, and McGraw called the payday loans "predatory traps for the many West Virginians facing difficult times." He noted that some of the companies involved in the suit have a track record of questionable practices.
- Montana Supreme Court OKs Payday Loan Initiative
Missoulian 18 Aug 2010
The Montana Supreme Court on Aug. 17 denied a request from the Montana Consumer Finance Association, thereby allowing an initiative to cap interest rates charged on payday and title loans to remain on the November ballot. If approved, Initiative 164 (I-164) would cap annual interest rates at 36 percent. Four justices ruled in favor of keeping I-164 on the ballot, determining that the attorney general had acted within his considerable discretion; and two justices dissented from the decision. The Montana Consumer Finance Association had argued that I-164's statement of purpose failed to mention some specific details. Still, I-164 supporters praised the decision. "Montana voters agree that 400 percent interest is too high and support capping the rate," said Matt Leow, field director for the I-164 sponsors. "We expect I-164 to pass in November, which is precisely why opponents attempted to knock it off of the ballot. Thankfully, the court's decision preserves for Montana voters the final decision on this important issue."
