Wednesday, March 28, 2012

Consumers Choose Credit Cards Over Mortgage Payments

Fox Business
By Gail Buckner
Based on recent headlines warning about a jump in consumers’ credit card use, you might think we have completely forgotten the painful lessons of the recession and have relapsed to our spending spree roots. Thankfully, you’d be wrong. In fact, according to Charlie Wise, research director at credit reporting firm TransUnion, there’s been a radical shift in our society’s credit priorities.

At the end of last year, TransUnion’s Credit Risk Index (CRI), which measures the amount of credit risk consumers have taken on, registered an uptick for the first time since peaking in 2009.

According to Wise, mortgage delinquencies were a key factor for the rise. The number of homeowners at least 60 days late in making their mortgage payment rose slightly in the second half of last year. In addition, he says credit card issuers have returned to reaching out to non-prime consumers, offering to open new accounts, albeit at premium interest rates. “That’s affecting the risk profile of the overall group.” And, of course, we were in “holiday” mode, a time when folks traditionally ramp up their credit card use.

But Wise cautions that three months don’t make a trend. What’s most significant is that when mortgage delinquencies began to skyrocket back in 2008, credit card delinquencies moved in the opposite direction. “That’s the reverse of the traditional payment hierarchy,” says Wise. In the past, consumers would first default on their credit cards, then their auto loans and lastly on their mortgages. “Now they’re paying their bank cards first and their mortgages last.”

The sharp decline in real estate prices has Americans less concerned about preserving their homes than preserving their lines of credit. This is especially true in states such as California, Florida, Arizona and Nevada, where home prices dropped the most, and may still be worth less than the outstanding mortgage.(1) In a lot of places, people now view their home as a liability as opposed to an asset.

On the other hand, stung by writedowns of bad accounts, banks froze or cancelled cards, raised their credit standards and virtually stopped extending credit to all but prime customers. The end result, according to Wise is that credit cards became “a scarce financial asset.”

“Consumers are doing everything they can to preserve access to this asset.” Not only are more people making their credit card payments on time, they’re also paying down their balances.And here’s a 180: Wise says consumers are acting more conservatively when it comes to using their credit cards. Faced with the current uncertain economy and high unemployment, most of us are making the rational decision to reduce what we owe on our credit cards so we have credit available to tap into if and when we need it.

For the time being, Wise is cautiously optimistic about credit card usage. “I don’t think we’re headed back” to where we were four years ago when both lenders and consumers were careless. He’s watching to see if the increase in credit card debt taken on during the fourth quarter of last year gets paid down this quarter when folks get their income tax refunds. And he expects that when housing prices begin to recover, we’ll return to the traditional pattern of paying the mortgage first.

1. These are by no means the only states where large numbers of residential properties are under water. According to Wise, “Twenty-five percent of the mortgages in Illinois have zero equity.”

Ms. Buckner is a Retirement and Financial Planning Specialist and an instructor in Franklin Templeton Investments' global Academy. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the contentRead more:

Friday, March 23, 2012

Student Loan Debt Tops $1 Trillion

From The Wall Street Journal...

The amount Americans owe on student loans is far higher than earlier
estimates and could lead some consumers to postpone buying homes, potentially slowing the housing recovery, U.S. officials said Wednesday.
Total student debt outstanding appears to have surpassed $1 trillion late
last year, said officials at the Consumer Financial Protection Bureau, a federal agency created in the wake of the financial crisis. That would be roughly 16% higher than an estimate earlier this year by the Federal Reserve Bank of New York.

Total student debt outstanding appears to have surpassed $1 trillion late last year, roughly 16% higher than an estimate earlier this year by the Federal Reserve Bank of New York. Joshua Mitchell has details on Markets Hub.

The new figure—released Wednesday at a banking conference in Austin, Texas—is a preliminary finding from a study of student debt that the bureau plans to release this summer. Bureau officials said the estimate is based on a survey of private lenders, as opposed to other estimates that rely on a sampling of consumer credit reports. CFPB officials say student debt is rising for several reasons, including a surge in Americans going to college in recent years to escape the weak labor market. Also, tuition increases—which many colleges say are needed to offset big cuts in state funding—have many students taking out bigger loans.

In addition, the interest costs on older loans are climbing as borrowers fall behind on payments, reflecting mounting financial strains, bureau officials said. New York Fed data show that as many as one in four student borrowers who have begun repaying their education debts are behind on payments.

Economists say college is an increasingly good investment because of the
widening pay gap between jobs that require a degree and those that don't. Ultimately, the educational degrees and added skills are meant to help workers earn higher incomes that, in time, will more than offset the student debt. But as more people go to college and assume bigger loans for education, they may take longer than previous generations to hit key milestones such as buying a house or getting married, U.S. officials and economists say. It could take longer for heavily indebted graduates to save money for a down payment on a home, or it could be harder for them to qualify for mortgages. Rohit Chopra, student-loan ombudsman for the Consumer Financial Protection Bureau, said student debt could ultimately slow the recovery of the housing market.
"First-time home-buyers are a substantial part of the housing market,"
Mr. Chopra said in a speech at the banking conference in Austin. "Instead of saving for a down payment, these borrowers are sending big payments every month."

Student debt is a burden not just for recent college graduates in their 20s but also parents, who often co-sign their children's student loans, as well as midcareer professionals who opted to go back to school during the sluggish recovery. David Johnson, a 58-year-old groundskeeper from Milton, Wash., decided to leave gardening after more than two decades to become a nurse. Two years ago, he took out about $18,000 in private and federal loans to attend a local community college that had a nursing program. After completing prerequisite classes, he learned that the program had a waiting list. With no guarantee of getting into the nursing program, he is wondering whether to take out more debt to continue in school.

"It's an awkward place to be. I'm not yet a nurse but I've got all this debt
and interest compounding on me," he said. "I don't have a lot of working years left and I'm saddled with this debt."

Tuesday, March 13, 2012


Please Help CCCS Buffalo receive funding for Housing Counseling programs!

See below for info...the most important request we have is that you contact your Congressmembers to express your support. Call Scott Laughlin at 712-2067 for more info.

Rep. Luis Gutierrez is seeking co-signers to a letter in the U.S. House of Representatives in support of $87.5 million in funding for the HUD Housing Counseling Assistance Programs for FY 2013. His “Dear Colleague” letter that was circulated in the House is pasted below, as well as the text of the letter to the Transportation, Housing and Urban Development Subcommittee of the House Appropriations Committee.

It is important that the letter have as many signatories as possible to demonstrate strong support for housingcounseling. As soon as possible, please reach out to your contacts in your Representatives’ offices and urge them to sign Rep. Gutierrez’s letter.

Letter from Rep. Gutierrez
Support Funding for Housing Counseling

Dear Colleague:

Please join me in sending the enclosed letter to the T-HUD Appropriations Subcommittee in support of $87.5 million for the Housing Counseling Assistance Program in fiscal year 2013.

Housing counselors are a vitally important resource for homeowners trying to maintain safe and affordable housing. Housing counselors are intimately familiar with the complicated mortgage modification process and assist thousands of Americans by guiding them through this process. They help struggling homeowners fill out and submit complex financial forms, and also serve as strong advocates for homeowners, protecting them against widely documented abuses, like loan modification scams.

In FY 2010,housing counseling received $87.5 million in funding. In FY 2011, however, it received $0. In FY 2012, housing counseling funded at $45 million. We are requesting that FY 2013 funding for the Housing
Counseling Assistance Program be restored to $87.5 million.

If you have any questions or would like to sign on, please contact Nicole Dinis in my office at (202)225-8203 or The deadline to sign on to this letter is March 14th.


Luis V. Gutierrez
Member of

Monday, March 12, 2012

Decline in bankruptcy filings tied to less availability of credit

Consumers exercising other options to manage debt
From Jeffrey Freedman Attorneys

With less credit available and consumers continuing to demonstrate fiscal conservancy regarding the use of credit, bankruptcy filings continued their slow decline in February. Filings for the U.S. Bankruptcy Court Western District of New York, which covers the counties surrounding Buffalo and Rochester, were down 4.8 percent for the month of February 2012 compared to the same month in 2011.

"A look at the other statistics related to credit card behaviors shows how credit card use is connected to bankruptcy filings," said Jeffrey Freedman, owner, Jeffrey Freedman Attorneys, PLLC. "According to the Federal Reserve's data, credit card charge-offs were down 13.35 percent during the last quarter of 2011, and delinquencies on credit card payments declined 5.7 percent during that same period."

Credit card issuers have contributed significantly to the decline in credit card use. Since the Credit Card Reform Act of 2009 (CARD), which restricted the fees and interest rates charged by creditors, these lenders have tightened credit policies and are not extending as many credit offers, according to

"An additional factor to lower bankruptcy rates is that consumers have other options for managing debt," Freedman said. "Enforcement of debtor's rights legislation has stepped up, making it more difficult for collectors to harass debtors. Also, home foreclosures are taking longer to process."

Under the Fair Debt Collectio Practices Act (FDCPA), more debtors who have been harassed by abusive collectors are suing collection agencies. Settlements vary but often a minimum in statutory damages of $1,000 is awarded. In some cases the settlement covers the resolution of the entire debt. Additionally, home foreclosures now take two to three years, so families that can no longer make their mortgage payments can typically live in the house without having to pay the mortgage payment or taxes for almost 36 months before being evicted.

"We advise clients to pay bills such as the electric, heat, water, and home insurance while the foreclosure is being processed," said Kevin Bambury, an attorney with Jeffrey Freedman Attorneys, PLLC.

Debtors can also seek debt reduction outside of bankruptcy, offering to pay a small amount -- perhaps 10 or 20 cents -- on the dollar to satisfy the debt, Freedman said.

"We have always said that bankruptcy is a last resort for people who need a fresh start and have no other options. Now, other options have become more accessible, and since bankruptcy became more expensive after the Bankruptcy Reform Act of 2005, debtors are exercising these other options," he said.

Wednesday, March 7, 2012

Free Assistance--Independent Foreclosure Reviews

Consumer Credit Counseling Service of Buffalo (CCCS Buffalo) announced today that they will be offering assistance with Independent Foreclosure Reviews.

Specifically, they will help borrowers who went through home foreclosure in 2009 and 2010 and still have questions about the process. These borrowers may be eligible for a free review and possible compensation.

The focus of the independent foreclosure review is to determine if borrowers suffered financial injury and should receive compensation or other remedy because of errors or other problems during their home foreclosure process.
The review is a result of enforcement actions against 14 residential mortgage servicers and two third-party vendors. They have identified borrowers who were part of foreclosure actions during 2009 and 2010. Approximately 4.3 million letters were sent out explaining the review and a request for a review form.

Since letters may not reach their intended targets due to relocation, CCCS Buffalo is trying to spread the word in additional ways. CCCS Buffalo is ready to help any of those who have received letters.

Consumer Credit Counseling Service of Buffalo, Inc. can assist with completing and filing forms and respond to any questions or concerns about the process. Please call a Certified Financial Counselor at (716) 712-2060 Ext. 299 or visit our website, for further assistance. CCCS Buffalo is ready to help any of those who have received letters or feel that they may be eligible for a free review.

Requests for reviews must be received by the review administrator by July 31st.

Monday, March 5, 2012

Bankruptcy Rates Fall

New bankruptcy cases in Western New York continued to fall in February at a much more moderate pace than last year, as the level of filings approaches what may be a "new normal" in a continuing bad economy.

Applications for bankruptcy protection last month fell by 5 percent, to 534 cases, in the 17-county region that includes both Buffalo and Rochester. That's according to new figures from the U.S. Bankruptcy Court for the Western District of New York.More specifically, the court in Buffalo reported 351 cases, down by 4 percent from 364 a year ago, while the Rochester court recorded 183 cases, down by 7 percent from 197 a year ago. That's the second-lowest pace in at least 10 years.For the two months so far this year, overall filings are down by 4 percent, to 959, including a 3 percent drop in Buffalo, to 624, and a 4 percent drop in Rochester, to 335.By contrast, the pace of new filings last year fell by 20 percent in almost every month of the year, as far fewer consumers sought protection from bankruptcy.

"It looks like the downward trend in Western New York is stabilizing some. Cases were down more last year than this year locally," said Western New York bankruptcy attorney Jeffrey Freedman.

Attorneys and other experts say consumers can't afford the bankruptcy filing fees and legal costs, so many aren't bothering with the expense. Other consumers simply don't face an urgent need to file because they had fewer assets to protect and more legal protections to take advantage of, or they weren't getting in as much trouble in a world of tightening credit.

For example, Freedman said his firm won't file for clients who are "judgmentproof" or have less than $10,000 in debt."The economy is stagnant in Western New York. Clients aren't getting too much credit and, in turn, aren't spending, which, in turn, doesn't allow employers to hire," Freedman said. "It's still about the cost of filing a bankruptcy case."Filing fees are about $300, plus credit counseling costs of $70 to $100. Attorneys also have to bill clients for running tax lien, judgment and other document searches or requesting federal and state tax transcripts to verify information. In all, fees can range from $750 for the simplest filings to several thousand dollars for more complicated cases -- compared with a maximum of $750 for complicated cases 30 years ago. Also, attorneys have been finding alternative ways to help clients, especially since certain debts -- such as student loans -- can't be discharged in bankruptcy anyway. "We know people have a pile of student loan debt," Freedman said. So they're filing more lawsuits against debt collectors, alleging violations of federal or state collections laws, and then negotiating debt forgiveness as part of the settlement. Or they're using more debt arbitration or debt reduction outside of bankruptcy, in which they negotiate directly with creditors or debt buyers to accept pennies on the dollar in a lump sum payment."This practice area has been increasing monthly," Freedman said. "We would do this for a client who had other assets they might lose by filing bankruptcy."
However, the tide could turn, at least temporarily, as Freedman said there can be a "bump-up" in filings after tax refunds are issued, when struggling consumers are suddenly flush with cash. That surge can last for several weeks and has driven up filings by as much as 7 percent in 2008. And at least one national bankruptcy marketing service has begun aggressively advertising on the radio in Western New York to encourage debt-burdened consumers to consider bankruptcy. The service, Bankruptcy Central, is not a law firm itself, but rather provides the names of local attorneys to consumers who call its toll-free number. The lawyers pay an advertising fee to the service, which is run by attorney Kevin W. Chern of Chicago. Debtors can file for bankruptcy protection under one of several chapters of the federal code. Chapter 7 allows consumers or businesses to liquidate their assets to pay what they can, while writing off their remaining unsecured debts and starting fresh. Chapters 11 and 13 provide for businesses or consumers, respectively, to reorganize their debts and develop a long-term repayment plan. For February, there were 377 filings under Chapter 7 in the entire district, including 254 in Buffalo and 123 in Rochester. There were another 154 filings under Chapter 13, including 95 in Buffalo and 59 in Rochester, and there were three cases reported under Chapter 11, with two in Buffalo. So far this year, there have been 689 cases under Chapter 7, 264 under Chapter 13 and five under Chapter 11.Geographically, Erie County continues to have the most, with 224 cases in February and 392 so far this year. Niagara County is No. 2, with 57 cases last month and 91 since Jan. 1. Chautauqua County is third, with 29 cases in February, followed by Allegany and Cattaraugus counties, with 10 each. Rounding out the local counties are Genesee County with eight, Orleans County with seven and Wyoming County with five.