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  • Financial reform almost caused rewrite of bankruptcy law

    Financial reform almost caused rewrite of bankruptcy law. A proposal backed by advocates for homeowners as well as many leading Democrats nearly force the country’s bankruptcy laws to be completely rewritten.

    A potential change to bankruptcy law, known as a “mortgagecramdown,” would have allowed judges to change the terms of mortgages for distressed homeowners who wound up in bankruptcy court, according to a Reuters report. The change was being opposed by the banking industry and Republicans. Under current law, bankruptcy courts can alter or reduce many kinds of debt for struggling borrowers – including loans on cars and boats, a vacation home or family farm – but not primary residences.

    Reuters said that proponents of the bill, a measure that was passed by the House in March 2009 but was killed in the Senate, said it would help stop home foreclosures in the U.S. Opponents argued that it would raise costs for all homeowners.

    A report from the financial news and advice website The Motley Fool said that several banks supported the bill as well, saying that if homeowners are able to modify their mortgages after filing for bankruptcy, the number of strategic defaults will dramatically decrease.

  • Steps to fixing credit problems

    There are several steps to fixing credit problems. Many consumers have had their credit hurt badly by the financial crisis, but some are now trying to climb out of the hole.

    Fortunately, there are a number of steps to ease the process, especially for those who have faced foreclosure. According to the Epoch Times, there are several steps tofixing their financial situation. The first step is to simply find professionals with great credentials to help them through the process, which can be confusing to almost anyone. The second step is to begin consolidating debt by negotiating monthly payments or lowering balances, with the professional’s help.

    The third step, the Times says, is for the consumer to seek credit counseling to help improve their score. Credit counselors help teach consumers how to properly budget so payments are made on time. The fourth step is loan modification, which can help lower rates, but will lower the consumer’s credit score.

    According to the Tampa Tribune, courts in Florida are even offering foreclosure mediation to help reduce a backlog of foreclosure cases. Mediations such as these will help homeowners avoid going to court with their lenders.

  • Two ways a credit report is affected by credit cards

    Some consumers may think they have a way to help them get out from under their credit card debt, but not every strategy is guaranteed to work, and in some cases, these moves can have an effect on their credit report.

    Some consumers, for example, might think it’s a good idea to call their lender and ask for a lower rate on their credit card. While this can be a perfectly good way to make life a little easier, a report from Bankrate says it can also backfire. Asking for a new rate will cause a card company to check a consumer’s credit report, so it helps if the consumer has done so first and knows that it is free of any harmful discrepancies.

    However, not every strategy has a negative effect. Some consumers may choose to close credit card accounts with perfect payment histories. Doing so won’t shorten their credit history immediately, though, as such accounts stay on a credit report for up to 10 years.

    According to a report from Scripps News, positive information will remain on a credit report indefinitely as long as the account is open. Negative information is deleted seven years after the last delinquency.

  • Consumer spending and credit retain low levels

    Consumer spending and credit retain low levels. Retailers across the country are feeling a bit of a pinch as national consumer spending and credit conditions remain tight.

    Despite the slowly-improving economic climate, consumers remain cautious with their money and that’s having a negative impact on retailers nationwide, Matthew Shay, president and CEO of the National Retail Federation, told CNBC.

    "I think what we are seeing … is continuing discomfort with the number of fundamental questions about our economy that remain unanswered, primarily among those is when are we going to see robust, and sustained job creation, and when are we going to see the restoration of the free flow of capital, and credit, to small businesses and investors," he told the network.

    Consumer spending makes up about 70 percent of all economic activity in the U.S. and the retail sector makes up about one in five jobs nationwide, Shay told CNBC. Retail stocks have been trending lower in May and June, trading 20 percent below highs set in April.

    However, a recent Thomson Reuters/University of Michigan study found that consumer confidence was 1.7 percent higher in May than April, and up 7.1 percent over the same month last year.

  • Study finds correlation between credit counseling and decrease in defaults

    Study finds correlation between credit counseling and decrease in defaults. Those that were a bit wary of credit counseling can now enter into the process with greater confidence.

    A new report – jointly published by the Federal Reserve Bank of Chicago, the Ohio State University and the office of the Indiana Comptroller of the Currency – found a direct correlation between credit counseling and a decrease in mortgage defaults.

    The study looked at 211 borrowers who worked with the Indianapolis Neighborhood Housing Partnership, a nonprofit company that assists borrowers with low incomes and questionable credit histories, from 2005 to 2007. The INHP taught these borrowers the basics of household budgeting, savings, repairing their credit and buying homes.

    The study compared the default rate for the INHP-counseled borrowers to 16,677 other low-income borrowers who got mortgage loans in the same county. INHP’s clients had an average annual income that was half that of the others studied, and an average credit score of 614. The INHP group also borrowed considerably less than the other subjects, an average of $69,900 compared to $108,000. Every one of those that received credit counseling also took a 30-year fixed-rate mortgage, compared to only 81 percent of the other group.

    Despite all those obstacles, the study found that only 3.8 percent of INHP-counseled borrowers defaulted on their loans, while the larger population defaulted at a rate of 6.3 percent.

    The study therefore concluded that the effects of credit counseling are strongest among those households that appear the least creditworthy judging by income and credit score. Further, the report also found that fraud is far less likely among those that go through credit counselors because of how long the borrowers have spent learning about the process, and as a result, may be more disciplined and frugal with their money.

    According to a report in the Indianapolis Business Journal, the fed will use the study to help it consider policy decisions regarding whether it will encourage credit counseling across the country, or to crack down on lenders who try to exploit low-income borrowers.

    "People who get in trouble are terrified of conflicts with their lender, so they don’t get in touch until it’s too late," Gene Amromin, a senior financial economist with the Fed, told the paper. "INHP knows exactly what happens to each low-income individual. They’re doing what any good portfolio lender should do."

  • Paying off old debt helps a credit report

    Paying off old debt helps a credit report. There may be some consumers that have outstanding debts of small amounts that are in collection, and some of them could be from several years ago. But just because these debts are small and old doesn’t mean they’re not doing damage to a consumer’s credit score.

    The question some consumers may have is whether paying them off will restart the seven-year period for which they will appear on a credit report. Fortunately, according to a report from television station WPTV in West Palm Beach, that is not the case. The Fair Credit Reporting Act says that most negative items must be removed from a person’s credit report seven years after the first date of uninterrupted delinquency. Therefore, making payments on the account, or paying it off entirely, does not affect the time the item can be reported on a credit report.

    A report from PBS said that paying off old debts almost always improves a person’s credit score. Of course, if the payments are made late, they have already had a considerable negative impact on the score.

  • Strategic defaults a bad plan for credit report

    Strategic defaults are a bad plan for credit reports. Some homeowners who have fallen on hard times may have considered defaulting on their mortgages on purpose, but many companies have vowed to prevent borrowers that do so from getting a new home loan.

    Fannie Mae recently announced that it will do the same, locking out borrowers from gettinga home loan for seven years after a strategic default, according to the Wall Street Journal. Strategic defaults often happen when a homeowner who has the ability to pay for the home or doesn’t complete a foreclosure-alternative in good faith. This is often because the value of their home has slipped below what they owe on it.

    The Journal says that 24 percent of homes across the country fall into this category. These "underwater homes" tend to be found in areas of high concentration. The report also cited a Morgan Stanley study that said 12 percent of defaults in February were strategic.

    Defaults and foreclosures can torpedo a credit score, and will stay on a credit report for up to seven years, the report said.

    In May, Freddie Mac expressed similar concerns over strategic defaults, saying that those who do it risk undermining their own neighborhoods by driving down property values.

  • How to keep a car when filing for bankruptcy

    How to keep a car when filing for bankruptcy. When many consumers file for bankruptcy, one of their primary concerns is whether or not they will be able to keep their car.

    The answer is a bit complicated, but one way for consumers who have filed for Chapter 7 bankruptcy to ensure that they get to keep their vehicle is to sign an agreement with their lender that states they will repay all or a portion of a loan that would have otherwise been discharged in the filing. The financial news website Bankrate said that most lenders require consumers who have filed for bankruptcy to sign such an agreement. They are also required for any other asset or possession the consumer would like to keep through their bankruptcy proceedings.

    Bankrate said that even if lenders accept monthly payments throughout bankruptcy proceedings without requiring such an agreement, any money put toward the loan after the filing is settled may not show up as positives on a credit report.

    New York bankruptcy attorney Jay Fleischman also advises consumers that their vehicle may actually be exempt from Chapter 7 bankruptcy proceedings. Any vehicle with a value lower than $2,400 above an outstanding loan does not have to be part of the bankruptcy.

  • What consumers can expect from financial reform

    What consumers can expect from financial reform. Because bad consumer loans in sectors such as mortgages and credit cards are what got the country into its current tenuous financial state, government officials have spent months trying to correct these mistakes.

    Many consumers may have questions about what mechanisms have been introduced and how they provide more protection against troublesome practices from lenders. Fortunately, the Associated Press published a report designed to answer some of them. Many, for example, may be wondering how the legislation protects consumers from. Federal regulators can now write and enforce rules for financial services and products, and will do so with the consumers’ best interests in mind.

    Financial institutions will be prevented from costly or dangerous practices by a new layer of oversight, the report said. All institutions will be monitored by a consumer agency in addition to the existing governmental oversight. Many financial companies were not previously monitored and may have caused some to run up excessive credit card debt.

    A Reuters report said that both the House and Senate will form watchdog groups to monitor all mortgage and credit card lenders and help regulate their actions, though there has been some debate over who will have authority over these groups.

  • Credit lenders hold all the cards when it comes to interest rate changes

    Credit lenders hold all the cards when it comes to interest rate changes. Many consumers are quickly learning that the old method of getting a lower interest rate – calling the lender and asking – no longer works.

    That is because the new Credit Card Accountability, Responsibility and Disclosure Act has clamped down on a number of other practices that have cut into the lenders’ bottom lines, says a new report in the Christian Science Monitor. As a result, credit card companies are going to continually raise interest rates to keep profits at their current level.

    The Monitor said that the difference between the prime lending rate and the average credit card rate is the highest it’s been in six years. Credit card debt rates are likely to increase in the coming months as companies scramble to make up profits lost by the prohibition of high fees.

    A recent report from Reuters said that the Federal Reserve is likely to raise its short-term interest rates, which will only result in a further increase in credit card limits, or at least lead to the re-introduction of annual fees that were not outlawed by the Credit CARD Act.