Consumer Law

Times Reports on Housing Bill, Identity Theft, and Student Loans

By Jeff Sovern

Here is the Time's report in today's edition on the Senate passage of the housing bill; it now goes to the President for signature.  On Friday the Times ran "A Housing Bill That Has Something for Nearly Everyone" which summarized the features of the bill.  An excerpt from the part of the article about the foreclosure issues:

Part of the bill is devoted to the creation of a program that may allow some people to cancel their old mortgage loans and replace them with new fixed-rate loans lasting at least 30 years. The amount of the new loans would be no more than 90 percent of what their property is actually worth now.

So who is eligible? You need to have originated your troubled loan or loans on or before Jan. 1, 2008. The loans in question must be on your primary residence. Vacation homes and investment properties are ineligible. You will also need to verify your income, which many borrowers did not have to do in recent years.

Also, as of March 1, 2008, your monthly housing payment (including the principal on all your various mortgage payments, interest, taxes and insurance) has to have been at least 31 percent of your monthly household income. So if you were earning $5,000 a month and had housing payments of $3,000, you are eligible. But if you had payments of just $1,400, you would not be, presumably because that loan is affordable given the size of your income.

Lenders, however, are not required to give you a better deal under the new law, even if you do meet the qualifications. They may not be willing to negotiate unless they think you are truly on the cusp of foreclosure.

The bill contains other restrictions.  Some critics think that few borrowers will end up taking advantage of it.  Other aspects of the bill change the rules for reverse mortgages, redefine jumbo loans for purchases by Fannie Mae and Freddie Mac, and change tax rules.

Bob Tedeschi's Mortgages column in today's Times reports that "Thieves Tap Into Home Equity" about a report from the Identity Theft Assistance Center that identity thieves are targeting consumers with good credit records "because such people often have substantial untapped home equity."  The article also notes the effect of the subprime crisis on identity theft:

Now that lenders have vastly tightened their lending criteria, criminals who specialize in mortgage fraud have little choice but to move upstream and seek out victims with good credit.

A particularly troubling article yesterday titled "How Shopping Around Can Cost You" reports on how students shopping around for student loans can end up paying higher interest rates. That's because when student apply to different student loan companies, the companies obtain the students' credit reports, and the repeated inquiries can lower credit scores.  Fair Isaac does not drop credit scores when consumers shop around, and therefore trigger multiple inquiries, for mortgages and car loans, but Fair Isaac does not have the same arrangement for student loan applicants.   Fair Isaac doubts that the repeated inquiries actually damage credit scores.  Personally, I'm constantly amazed at how little regulation we have of credit scores.

Full post as published by CL&P Blog on July 27, 2008 (boomark / email).