My Way Credit

Question -- I've been worrying about an old friend who bought recently and was in a bind. He went with a mortgage broker early this year who "locked them in" at 5.25% fixed, but a month or more later told them the lender had been unwilling to actually fund the loan -- something about the broker not using a system that guarantees a commitment electronically but relying on an older paper system that isn't final until paperwork clears.

Answer -- There are still a few lenders to whom we FAX a lock request but those are usually small mortgage bankers. That means small, not necessarily bad. But everyone, including this broker, had to lock it in with his lender electronically.  As part of that process he would get a Lock Confirmation that shows the lock date, loan terms, and the lock expiration date. As a borrower, you ought to have a copy of that too. It's what you need to prove you have a commitment. Failure to do that creates a situation like you describe.

Then too, the truth could be something completely different, that this was just the story he was told that the loan rep hope he believed.  For example, I think that rates have not been as low as 5.25% this year for fixed rate loans.

The lender tells you the rate is 5.25%, but it really isn't, it's 5.625%.  He can't really lock you in because it would be at 5.625% and if he locked you in now, you would know that he had been lying to you.  So he tells you that you are locked but you really are in a floating status. The loan rep hopes that the market improves and THEN he can lock you in at 5.25% and not get caught. 

In summary, you only know you are locked when you have a copy of the Lock Commitment. This also gives you an opportunity to review the broker's compensation.  A number like "101" in the pricing field means that he is getting a 1 point rebate or Yield Spread Premium.  If he tells you that he's charging you 1 point, you now know that he is making a total of 2 points on your loan. That’s $6,000 on a $300,000.  In a tough market like we have today that's a little rich, I think that creates an opportunity for you to "renegotiate" his compensation.

Perhaps you remember a little thing called the $750 billion bank bailout. (After all, it’s difficult to keep track of every little $750 billion you spend these days!) Earlier this month, President George Bush and Treasury Secretary Henry Paulson convinced the nation that if taxpayers didn’t provide a massive infusion of cash to the nation’s banking industry, banks would stop lending, the credit markets would seize, and the entire world economy would sink into a depression.

“The reality is we are in an urgent situation and the consequences will grow worse each day if we do not act,” Bush said in September during his weekly radio address.

But that was three weeks ago. In private conversations and public pronouncements, bank executives have made clear that they have no intention of using the $250 billion they’ve received thus far from taxpayers to actually increase lending.

Instead, Pittsburgh-based PNC Bank announced this week that it will use $5.6 billion worth of bailout money to buy National City, a beleaguered but still solvent Cleveland bank. Jim Rohr, PNC’s chairman, refused to comment on the future of 2,000 jobs in National City’s corporate headquarters. That could mean that Cleveland stands to lose one of its last major employers. (However, this nightmare scenario might be offset somewhat by gains across town. Cleveland-based Key Bank announced this week that it, too, will use its taxpayer money to buy banks instead of help taxpayers.)

Or consider the words of an as-yet-unnamed executive at JP Morgan in a conference call secretly recorded by a New York Times reporter. Instead of using its $25 billion in taxpayer cash for its intended purpose, “What we do think it will help us do is perhaps be a little bit more active on the acquisition side,” the executive said, “and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.” (Read the devastating Times editorial about this boondoggle.)

So there you have it. Instead of using our money to prevent a depression of their own making, banking giants are using it to help themselves ride out said depression. And what happens to us citizens, the largest new shareholders in these banks? Expect a rash of layoffs at smaller banks that could have been saved. Expect requirements making it harder for qualified consumers to obtain mortgages or credit cards. As consumer spending continues to tank, therefore, expect the financial crisis to get worse.

Here’s what you can do:

• Call your Senator and Congressman. Demand a full investigation into the federal bank bailout.
• Call Treasury Secretary Henry Paulson. Demand that Treasury doesn’t give banks another dime until they sign contracts promising to use taxpayer money responsibly.

• Secretary Paulson’s Office: (202) 622-2000

• Call JP Morgan and Key Bank. Ask them why they’re misusing money that belongs to their newest shareholders.

• JP Morgan Investor Relations (Because YOU are an investor now!):
  • Julia Bates, (212) 270-7318
  • Key Bank Investor Relations: 216-689-4221

Given the tough times so many people are facing, the National Foundation for Credit Counseling (NFCC) is calling on credit card issuers to develop more affordable, realistic repayment terms (aka “concessions”) for people in credit counseling.

"Consumers want to repay their debts, and lenders want to be repaid,” explains Susan C. Keating, president of the NFCC. “But due to the current economic strain on their budgets, borrowers often cannot meet the lenders’ required monthly payments, even those that have been reduced through current workout repayment options.”

By the time 2008 comes to an end, NFCC projects that more than 2.5 million consumers will receive assistance from the 900 community-based credit counseling offices run by its member agencies. Keating fears that bankruptcy will be the only option available to many of these families – “unless the credit card industry provides relief through better concessions, so that a greater number of consumers can qualify for Debt Management Plans, or DMPs.” (These are the agreements that consumer credit counseling firms negotiate with creditors to help their clients pay off their debts.)

“Right now we are in a lose-lose situation,” as Keating puts it in her 2008 State of the Credit Counseling and Financial Education Sector Address. “Many consumers are damaging their credit because they have no better option than walking away from their debt or filing for bankruptcy. Creditors, in turn, are taking bigger losses than necessary.” When people choose debt settlement, lenders only receive pennies on the dollar, but they’re repaid in full via DMPs, Keating adds.

By March 31, 2009, NFCC wants all credit card issuers to:

• Offer more affordable monthly fixed payments.
• Set the Annual Percentage Rate (APR) to ensure that the balance will liquidate within 60 months.
• Waive late and over limit fees.

Under NFCC’s new proposal, clients would also face new challenges: to establish and maintain a $200 emergency cushion in a savings account. Deposits of $25 monthly would also be required.

These sound like very reasonable, timely changes to me, where everyone wins. I hope the industry agrees! What do you think?

Tip: If you’re wondering if you’d benefit from some credit counseling, don’t put it off! Debts are not like wine – they do not improve with age! You can get a free debt consultation from Credit.com, as well as some advice in finding quality credit counseling.

Nancy Castleman – Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 24 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com.