Unfortunately the program had two limits.   Homes not involving Fannie or Freddie were not eligible, nor were homes with mortgages that exceeded 105% of total current appraised value.  As a result, only 20,000 mortgages have been rewritten under this program.

So, the government has just announced that homes where the mortgage is up to 125% of the current appraised value of the house will be eligible to refinance at lower rates.  They estimate that up to three million borrowers will be eligible under this new limit.

Under normal circumstances, if your house is under water (your mortgage exceeds current value) you cannot refinance.  This restriction will no longer apply if your mortgage is not more than 125% of the current value of your home.   The government says this will save money.  “While Fannie and Freddie will receive less money in payments, they will save from reduced foreclosures.”

Interest rates have been rising lately, so this program is not as attractive as it was when announced in February, but this program can still work for those people who feel totally gypped by the equity they have lost in their houses and the high interest rate they are stuck with.  If you do not know if Fannie or Freddie have anything to do with your mortgage check your monthly statement or ask the company that services your mortgage.

First they did not mention that they charge a fee and they gave only very limited information unless you give them details about your situation.

By digging around, I found this under a section that warns you about scams.  While warning you against “lawyers” that charge a percentage of what they save, they slip in that it’s OK to pay “one fee.”  Here is how they put it.

“Beware of cunning and unscrupulous attorneys that have hidden clauses buried in the fine print that require a certain % of savings, as high as 30% as an example, if they successfully modify your mortgage to a lower payment. You should only pay one fee–otherwise you could be forced to pay potentially hundreds of dollars a month for the life of the loan. Always read the whole contract in full or have a professional, family member or friend assist you if you are unable to.”

I would change the middle sentence to “There is no need to pay a fee of any kind.  There are literally hundreds of organizations that will do exactly the same work for you, free.  No percentage.  No single fee.  No charge.  Free.”
A list of local counselors who will help you with foreclosure prevention at no cost is available from HUD at www.HUD.gov/offices/hsg/sfh/hcc/hcs.cfm.
You can also get names of approved  counseling organizations from the Hope website at www.995HOPE.com or by calling the HOPE HOTLINE at 888-995-4673.
The Neighborhood Assistance Corporation does this work too.  They are at www.NACA.com.

The numbers are depressing. As reported in the Wall Street Journal, four million mortgages are now delinquent, the highest level recorded since Mortgage Bankers Asso. started keeping records in 1972. That is 9% of all mortgages outstanding.  Meanwhile, only 518,155 mortgages have been modified according to HOPE NOW a coalition of mortgage counselors.

Reasons for this include lack of staff at mortgage servicing companies and the complicated mess most of these mortgages have become.  The servicers probably do not own the mortgage as it was divided up and packaged into different “Collateralized Debt Obligations.”  Just finding the various owners can be difficult. And getting them to agree to lower their principle is often impossible. When a second mortgage (like a line of credit) is involved, everything becomes doubly complicated.

Since the mortgage servicing company gets small reward for modifying the mortgage but also gets paid if they foreclose, it is usually more profitable for them to proceed down that path rather than trying to get the various mortgage holders to agree.

All that said, there are some modifications going on and lots of FREE counseling organizations ready to help you try to get yours modified.  DO NOT waste your money on one of the companies that charge for this service.  Competent, free service is available.  These links are from our previous BLOG entry on Getting Help for Foreclosure Prevention.

A list of local counselors who will help you with foreclosure prevention is available at www.HUD.gov/offices/hsg/sfh/hcc/hcs.cfm.

You can also get names of approved  counseling organizations from the Hope website at www.995HOPE.com or by calling the HOPE HOTLINE at 888-995-4673.

The Neighborhood Assistance Corporation does this work too.  They are at www.NACA.com.

Up until recently, credit card companies have limited their negotiations to the elimination of late fees and some interest charges.  They would not touch the principle.  But times have changed, says the Times.

Credit card companies refuse to admit they have changed their collection practices, but the Times reports that many more debtors are being offered principle reductions as part of a deal to pay off their delinquent debt.   A common deal appears to be “pay now and we’ll cut the principle in half.”  But better deals than that are being reported.  Principle reductions down to one-third of the original amount are not uncommon, and credit card companies are often willing to extend the payments without charging further interest.

If you’re faced with credit card debt you cannot pay, your debt solution may be at hand.  You can call the credit card company yourself, or you can work with a credit counseling agency to negotiate the debt for you as part of a debt management plan.

Click Here for more information on debt management plans and the only credit counseling service we recommend.

This can happen before you know it, and it will cause your checks to bounce, setting you up for bank fees and late fees.  It will  put you into trouble with other creditors.  Usually you have to get a lawyer to get the social security money released.  This costs even more money.

Congress is thinking about passing legislation to to prevent this from happening, but until they do, the best thing you can do is take your money the old fashioned way, by check, whenever you are being hounded by debt collectors.  You can cash the check and use it for money orders to pay your bills.  This process can cost you money, but it will prevent any illegal attachments of needed funds.

For a summary of what you can do to deal with your debt, check our article on Debt Relief in our archives

For more on dealing with debt collectors, see  our archive articles Debt Collection (< $1,000 in Unsecured Debt) and Debt Collection (> $1,000 in Unsecured Debt).

One banker estimates that a 1% increase in interest rates is equivalent to a 10% increase in the cost of a home, so this will make it harder for people to afford homes and may impact sales.  It will certainly put a damper on the refi market which has been enjoying a big rebound since rates went down.

At the same time, defaults and foreclosures have set new records.   The Mortgage Bankers Association reports that about 12% of first mortgages are overdue or in default, the highest number they have ever recorded.  Almost half of subprime adjustable rate loans are overdue or in default.

For more information on getting the best interest rate on your mortgage, check our archives.  This section was written before the bubble burst but the advice is still current.  Some things do not change.

For example “rewards cards” are likely to be far more stingy, and “zero interest” cards are likely to disappear.  It will probably not be possible to move balances from one zero interest card to another as the introductory rate runs out.

Also, fees are going to go up and new kinds of fees are going to be introduced — even fees for things like checking balances.  And annual fees are likely to reappear.

Instead of raising fees (or in addition to it) some cards will start to charge interest from the date of purchase on all purchases.  No longer will you be able to avoid interest by paying off your whole balance every month.

However, if you maintain credit balances, your worst problem may be increased interest rates.

ConsumerWorld.com quotes Robert McKinley of industry watcher www.cardweb.com:  “We’re going back to the kind of marketplace we had in the 1980s…..You’ll see interest rates go back to the 19% to 20% range for most people.”  The average variable-rate credit card today charges a 10.79% APR, according to Bankrate.com, says ConsumerWorld.

What to do:

Start by reading the fine print sent to you by your credit card company so you can see what they are doing to your terms.  If you do not like the changes, there are several sites on the web that let you look around for the best terms on credit cards.   You may have to browse them regularly to find a good card for you.

Or you could leave credit cards all together.  There are other types of cards out there.   A description of the different types of credit cards is in our archives.

Here are the most important new benefits.

• Although the bill will not restrict overall credit card rates (that amendment was defeated) credit card interest rates can no longer be changed at will by the issuers.  They cannot raise your rate unless you are delinquent for 60 days, and if you make payments on time for six months, they have to reduce the rate back to the original rate.
• Teaser credit card interest rates must last for at least six months. Interest rates cannot be raised during the first year of the account.
• Payments to your account must be applied to the balance with the highest interest rate, not the lowest as has been standard practice.
• If they follow the new restrictions, credit card issuers can still change your interest rate and other terms, but they must give you at least 45 days notice for any changes to significant terms on the card.

Changes not dealing with interest rates include:

• Bills must be sent at least 21 days before the due date.  You have until 5 PM on the due date to make your payment.  Credit card issuers can no longer charge you for telephone payments.
• Your bill must contain information showing the months it would take to pay off the balance if you make only the minimum payment, and the number of dollars of interest you will be paying.
• You cannot be charged an over-limit fee unless you agree to it.  If you do not agree, your card will be rejected if you try to make a charge that goes over the limit.

There are many different types of cards that we often call “credit cards” but this law applies only to those that actually involve credit.  A description of the different types of credit cards is in our archives.

The credit card bill is being fought out in Congress and it is not clear what provisions will survive the House/Senate conference committee, so I will wait until it comes out before commenting.    But that should not be long as the president has been putting public pressure on the Congress to get this done.

In the mortgage area, the administration has announced guidelines that should advance the housing-rescue program they initiated three months ago.  The new plans offer cash incentives to move the two parts of the program along.

Lenders can now get cash as an incentive to modify mortgages so borrowers can afford to stay in their homes.   The administration claims that lenders have offered 55,000 people mortgage modification terms since the plan started, but this is a drop in the bucket, and the number is expected to drop since the Senate has killed the bankruptcy modification  bill.  (See our other BLOG entries on this aspect of debt help.)  The new incentives are supposed to encourage lenders to modify instead of foreclose.  We shall see.

If loan modification won’t work, and your house is worth less than the mortgage, you have three options:

1.    Foreclosure – a difficult and painful process in which no one wins and you still owe the balance of your mortgage.

2.    A short sale, which is selling your house for less than the mortgage without being held responsible for the uncovered amount.  A short-sale requires the agreement of the lender, and they have been  notoriously slow in approving them.

3.     “Deed in lieu” of foreclosure allows you to hand over the deed to your house and move on with your life without owing the balance due on your mortgage.

The new part of the program would pay BOTH lenders and borrowers for successful short sales or “deeds in lieu” — up to $1,500 to borrowers and $1,000 for lenders.  It would also pay up to $1,000 to second mortgage holders to get them to release their liens on the house.

This looks like a good idea, but I remain a skeptic.  The administration says lenders representing 75% of mortgages outstanding have signed up for the program, but signing up is easy.  Doing something is much more complicated, and many voluntary programs have fallen down when it came to that step.