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Private student loans more burdensome than federal loans

2012-05-07T20:55:23Z

The Obama administration and Congress continue to look for ways to ease the debt burden for student loan borrowers nationwide. To give students in Georgia and across the country a break from growing loan interest rates, the president and fellow lawmakers want to extend the 3.4 percent student loan interest rate for those taking on new federal loans.

However, critics point out that this move does nothing to help those who are already drowning in student debt. In a tight job market, borrowers who cannot handle the payments may end up having wages garnished from their first "real" paychecks.

]]> Critics argue that private student loans are a big part of the college debt crisis. In a recent opinion piece, a former policy adviser for the U.S. Department of Education stated that private loans are almost always more expensive than federal loans and lack the protections that federal loans have.

She further claims that financing one's education with private loans is similar to financing it with credit cards, with one big difference: If credit card debt proves overwhelming, the borrower can declare bankruptcy and get a fresh start. If he finds himself burdened by $100,000 in private student loans, he is up a creek. Lenders want their money back; wage garnishment is certainly an option.

In order to keep the federal subsidized Stafford loan interest rate at 3.4 percent for an additional year, the president and Congress would have to spend $6 billion dollars. The op-ed author suggests that the debt relief plan include a change to the bankruptcy laws to allow private student loans to be discharged. It most likely wouldn't cost anything to do so, and it would greatly help those who are simply trying to better themselves but are struggling financially to do so.

Source: US News & World Report, "Private Loans Without Bankruptcy Option Are the Real Problem," Amy Laitinen, April 27, 2012

Fulton County hires debt collectors to go after deadbeat citizens

2012-05-03T19:06:03Z

A new trend is emerging across the U.S. Cities, counties and states are hiring collection agencies to collect unpaid fines and fees. Fulton County recently announced that it has hired four agencies to tackle the $7 million the county is owed. Local governments have been hard-pressed to maintain their budgets of late, and many have turned to non-traditional methods to collect from their debtors, the local residents.

The county's debt dates back to well before the recession. The agencies will try to collect the fines from 43,000 traffic tickets that started piling up 12 years ago. They will also try to go after unpaid code violation fines -- about 540 of them, dating as far back as 2001. The county's goal is to clear at least $2 million. The agencies are paid about 20 percent of the proceeds.

]]> The strategy isn't always successful, but success may depend on which fees and fines are being collected. A city outside of Georgia has had trouble figuring out how to collect past due utility bills, particularly for water. Collections efforts failed in part because of a large transient population -- renters or squatters would stay for a short while and move on, seldom leaving a forwarding address.

In yet another state, a city has hired an agency to identify residents and businesses that misreported city taxes. The agency compares city tax records to IRS filings. The city then pursues payment. In this case, the city has offered to waive penalties for those who underpaid their taxes if they pay their taxes and interest before June 30. After that, the city will begin to assess penalties and late fees -- and the city will begin its collection efforts.

What isn't clear in these plans is what the city or county will do with the accounts it cannot collect on. Neither is it clear if the local government will report its debtors -- the people and businesses that owe back taxes or that haven't paid a traffic ticket issued in 2002 -- to a credit reporting agency.

Sources:

Credit & Collections, "Georgia's Largest County Hires Four Collection Agencies," May 2, 2012

Cleveland.com, "Wickliffe announces amnesty period for back taxes," Chris M. Worrell, May 2, 2012

Got debt? FHA loans will play hard-to-get after July 1

2012-04-27T22:41:32Z

Atlanta residents looking to be homeowners may be surprised to learn that simply having an outstanding credit card or medical debt can block their efforts to obtain a mortgage loan backed by the Federal Housing Administration. The procedures for obtaining such a loan are getting harsher, particularly for consumers with over $1,000 of debt embroiled in the collection process.

Beginning July 1, applicants who have such outstanding debts will have to enter into payment arrangements before the FHA will allow them to qualify for a mortgage. The choices offered are not especially promising, either, as the only alternatives allowed are either paying off the entire debt all at once, in one lump sum, or making no more than three monthly payments large enough to retire the entire amount.

]]> First-time homeowners often use FHA loans, especially in light of the relatively low minimum 3.5 percent down payments accepted. They'll have to think twice now. Both medical debt and credit card debt are covered by the strict new rule, so prospective homeowners are well advised not to get sick, lose a job, or experience any of the other circumstances of life that can quickly pile up to a large debt. It is easy to be glib about it, but consumers are bound to interpret the guidelines this way.

For those who previously lost their home in foreclosure, the process will get even harder. The FHA is prohibiting these families from qualifying for an FHA-insured mortgage for at least three years.

For those working families denied an FHA loan as a result of a prior home loss due to foreclosure, the imposition of the new rules will not be kind. While mortgage lenders devastated the economy with their reckless and often illegal lending patterns, their actions forced many consumers into foreclosure. As a result, they are barred from qualifying for FHA loans supposedly there to help consumers, while they continue to pay taxes for the bailout programs that critics say rewarded the bankers for their bad behavior.

Source: Wall Street Journal, "Pay Your Debt For FHA Loan," Rachel Louise Ensign, April 21, 2012

Foreclosures down, real estate market takes 'a breather'

2012-04-16T18:31:00Z

Few analysts are willing to admit to unguarded optimism, but most were pleased to see that the number of foreclosures in the Atlanta metropolitan area has continued to go down. According to local real estate data for April, almost 7,100 borrowers saw their homes go into foreclosure. That is the lowest number of foreclosures in Atlanta since December 2008.

The decline started in August 2010, when the region hit its high point of 13,130 foreclosure notices. Still, this month is no different from other months for real estate professionals' overall market outlooks. Default rates have not changed, according to one analyst. The market is just taking "a breather," he said.

]]> Foreclosures may be declining because banks are turning to short sales instead. A short sale is a sale for less than the amount owed on the mortgage. The lender agrees to take the loss. The process generally takes less time than a foreclosure, and it does keep lenders out of the business of being landlords. Unfortunately, a short sale will still depress sale prices and home values for nearby properties.

Homes approved for a short sale are just part of the real estate "shadow market," which also includes homes in any stage of foreclosure and abandoned homes. The shadow market is a major factor in depressed or, at best, slow-to-recover home values. A handful of analysts say that sales contracts are on the upswing, but the number of foreclosures in the area keep the prices low.

Of the nine metro Atlanta counties, Gwinnett County reported the most (1,531) foreclosures in April, down almost 20 percent from January's 1,868. Fulton County was next, reporting 1,274 for April compared to 1,754 in January, a 27 percent decline. DeKalb County also marked a 27 percent decline, from 1,483 to 1,073. Cobb, Clayton, Cherokee, Forsyth and Fayette counties followed, in that order.

Source: Atlanta Journal-Constitution, "Foreclosure notices drop to 3-year low," Christopher Quinn, April 11, 2012

HomeSafe Georgia can't help avoid foreclosure without rule changes

2012-04-13T19:37:02Z

For a year now, HomeSafe Georgia has been helping unemployed homeowners who are delinquent on their mortgage payments. Or, to be more accurate, HomeSafe has been helping a small proportion of homeowners who are unemployed and at risk of foreclosure. To date, statistics show that only a fraction of Georgia's distressed homeowners applies for help, and an even smaller fraction qualifies. About 18,000 foreclosure notices go out every month. Only 400 to 500 homeowners apply each month, and HomeSafe has helped fewer than 1,000 in the past year.

In our last post, we talked about the major barrier for applicants: To qualify for assistance, homeowners can be no more than six months delinquent with their mortgage payments. The Department of Community Affairs, which runs the program, is considering revising the time period to nine months.

]]> DCA hasn't discussed publicly any plans to change other elements of HomeSafe that applicants find daunting. The application process, for example, is internet-based, and not all homeowners have the knowledge or the equipment to handle it. Documentation requirements can put an applicant off, as well. And, while unemployment is a prerequisite, homeowners who have lost income through divorce, illness or death of the family's primary wage earner are not eligible.

For one successful applicant, though, the program has helped immensely. HomeSafe will cover 18 months of mortgage payments to give the homeowner an opportunity to find a new job or a better job.

Still, she is just one of 900 homeowners enrolled in HomeSafe. The goal is to help 18,000 before the program sunsets in 2017.

Source: Atlanta Journal-Constitution, "Mortgage assistance program slow to start," Katie Leslie, April 4, 2012

Mortgage assistance program HomeSafe: Georgia's best-kept secret?

2012-04-11T18:59:28Z

We are continuing our discussion of Georgia's HomeSafe program, a mortgage relief program established last year. The state launched HomeSafe with a grant from the U.S. Department of the Treasury's Hardest Hit Fund. The federal government distributed a total of $7.6 billion to the states with the highest foreclosure rates so that those states could develop their own programs to help unemployed homeowners stay in their homes.

To date, though, very few homeowners have applied for assistance, and even fewer have qualified. While the state admits that its marketing program has been lacking, Department of Community Affairs officials are also looking at revising the eligibility requirements.

]]> To date, though, very few homeowners have applied for assistance, and even fewer have qualified. According to the Department of Community Affairs, about 12,000 foreclosure notices go out to Georgia homeowners each month. HomeSafe receives between 400 and 500 applications each month -- less than 5 percent of the program's target market. Of those 400 to 500 applicants, about 20 percent -- that's 100 or fewer -- are approved.

If fewer than 1 percent of all homeowners who need the help are actually getting it, it's no wonder the program has spent just $23 million of its $340 million grant.

While the state admits that its marketing program has been lacking, DCA officials are also looking at revising the eligibility requirements. The rule that a homeowner must be no more than six months behind on mortgage payments to qualify for assistance seems to be a major barrier. Officials with DCA have said they might broaden the six months to nine, although that won't help the homeowners who have been unemployed since before the program went live.

That's just one barrier, though. Applicants and critics say there are more, and we'll get into those in our next post.

Source: Atlanta Journal-Constitution, "Mortgage assistance program slow to start," Katie Leslie, April 4, 2012

You may not know this, but HomeSafe Georgia can help with mortgage

2012-04-06T15:10:21Z

The U.S. Department of the Treasury launched its Hardest Hit Fund in 2010. The program distributed $7.6 billion to the 18 states with the highest foreclosure rate; the states agreed to establish their own programs to help distressed homeowners stay in their homes. Georgia's fourth place ranking on the Hardest Hit list translated into almost $340 million from the Treasury Department.

The state program, HomeSafe Georgia, received its first homeowner applications in April 2011. A year later, the program has spent just $23 million assisting fewer than 1,000 homeowners. Yet lenders send foreclosure notices to 12,000 state residents every month. Critics -- including unemployed homeowners facing foreclosure -- want to know what's going on.

]]> For the state's Department of Community Affairs, which operates HomeSafe, the low utilization is the result of a flawed marketing plan. While officials have met with lenders and mortgage counselors, not to mention the Georgia Department of Labor, it seems that few at-risk homeowners have even heard of the program.

An informal poll conducted by the Atlanta Journal-Constitution revealed that lenders haven't been spreading the word. One woman said she and her husband had applied for refinancing and a loan modification when her husband's business closed. Her lender said no to both and never mentioned HomSafe -- and the lender is a HomeSafe participant. Another man echoed her complaint: His lender participates but never once suggested HomeSafe as an option to help him meet his mortgage payments.

HomeSafe's "problems" go beyond marketing, though. Applicants must meet some strict criteria before they can qualify for assistance. This is where critics say major adjustments are needed.

We'll discuss the criteria in our next post.

Source: Atlanta Journal-Constitution, "Mortgage assistance program slow to start," Katie Leslie, April 4, 2012

FTC aggressively pursues aggressive collection companies

2012-03-28T20:29:33Z

A Georgia company holds onto first place when it comes to collections-related settlement payments, but another company has come in a close second. The Federal Trade Commission has ordered one of the nation's largest debt collection companies to pay $2.5 million to settle an FTC complaint. The agency said the company had played tricks on consumers to convince them to pay. The ruling is part of a crackdown on abusive collections practices, which continue to prompt overwhelming numbers of consumer complaints nationwide.

The government determined that the company had failed to inform borrowers that some of their debts were too old to enforce legally. After a certain period of time, lenders can still attempt to collect debts, but they may not use the legal system to do so. The company also withheld information that could have allowed borrowers to make partial payments.

]]> Experts say that consumers are grossly uneducated about their rights regarding collection of old debts. These rights, however, are often difficult to understand because they vary between jurisdictions. The statute of limitations related to debt collection can range from two to 15 years, depending upon the nature of the loan. The FTC recommends that borrowers ask their lender whether their debt is time-barred; the institution is legally required to be honest.

More than 180,000 complaints were filed with the FTC during 2011 alleging that debt collectors had used inappropriate methods, including harassing clients with repeated calls and threatening violence. That number is nearly 30 percent more than the complaints filed during 2010. More consumer complaints are filed because of lending practices than almost any other problem; only identity theft is more commonly reported.

Source: LoanSafe.org, "Debt Company Asset Acceptance Settles FTC Charges it Harassed Consumers, Flouted Rules," Alex Ferreras, Feb. 27, 2012

The next debt crisis: One in ten student loan accounts is overdue

2012-03-25T21:30:00Z

Student loan debt has become an increasing economic burden for U.S. residents, according to a report from the Federal Reserve Bank. More than $85 billion, or about 10 percent of the outstanding balance, of student loan debt was overdue at the end of 2011. These numbers include borrowers in Georgia.

About 14 percent of borrowers have at least one past-due student loan account, which may make them eligible for debt relief programs. Nearly 50 percent of borrowers have deferred their loans or requested forbearance because they can't make payments.

]]> Student loan debt is currently higher than credit card debt, weighing in at about $870 billion. That amount includes both federally backed and private loan amounts. (Sometimes parents will take out loans to help pay for their children's education; those loans were included in this figure.) Experts say that even this amount of debt may be underestimated because of special accounting procedures that are used to address student loans. For example, some borrowers may be temporarily exempt from paying; those people were excluded from the analysis.

Students who use federally funded loans receive a six-month grace period after graduation during which payments are not due. Unsubsidized federal loans can also be deferred during school, though interest continues to accrue during that time.

The average student borrower owes $23,300, according to information found in the report. Many of those borrowers are younger than 30.

Initial reports in August 2011 had indicated that the outstanding student loan debt was about $550 billion, but the agency revised its estimate after reviewing data collection procedures. The data used to calculate the debt came from a random sampling of individuals older than 19 who have a credit score reported to the Equifax, Inc. credit bureau.

Source: Bloomberg, "Student Loan Delinquency Hit $85B in Q3," Janet Lorin, March 5, 2012

Taxes: One debt unemployed can ignore ... kind of, part 2

2012-03-21T20:30:21Z

As we discussed in our last post, the IRS has extended its Fresh Start program this year. Targeted at the unemployed -- almost a quarter of a million workers in Georgia -- the program offers a little relief from the threat of tax liens. It often happens that an unemployed individual cannot come up with the cash to pay his tax bill. The government won't forgive the bill, but they will delay their collection activities.

The filing deadline has not changed. Taxes are due April 17. If the taxpayer cannot pay, however, he may apply for a grace period on (a separate form). The grace period only covers the penalties. Interest will continue to accrue on taxes owed.

]]> To qualify, a taxpayer must have been unemployed for 30 consecutive days or more during 2011 or 2012. If the taxpayer is self-employed, he must have had at least a 25 percent reduction in income in 2011.

In addition to the grace period, the IRS has modified Fresh Start's streamlined installment program. Now, the program is open to taxpayers owing back taxes of up to $50,000 (it had been $25,000), and the repayment term may be as long as 72 months (six years, up from five). The installment program also gives taxpayers a break on penalties, but the interest terms will not change.

Finally, the IRS says the forms are easier to fill out than they have been in the past. The new approach makes sense for taxpayers and the IRS, according to the agency's commissioner.

Source: USA Today, "IRS offers relief for unemployed taxpayers who can't pay," Sandra Block, March 7, 2012

Taxes: One debt unemployed can ignore ... kind of

2012-03-17T21:02:04Z

The unemployment rate in Atlanta was 9.2 percent in January. That 9.2 percent represents more than 240,000 workers, according to the Georgia Department of Labor -- and it represents only the workers who have filed for unemployment benefits. Add in the people whose benefits have run out, and you have a large pool of people at risk of losing their homes, if they haven't lost them already. They are at risk of getting deeper and deeper in debt every day.

And then tax time comes around, and Murphy's Law of Income Tax comes into play. While you may believe you aren't familiar with MLIT, you will realize that it's something you've always known: namely, that those who made barely enough to live on last year will be the ones with the big tax bills this year. Apparently the IRS is familiar with the phenomenon, because the agency recently announced the expansion of its "Fresh Start" program.

]]> The IRS launched Fresh Start a few years ago as a way to help individuals and small businesses "meet their tax obligations, without adding unnecessary burden to taxpayers," according to the press release. The initiative adjusts the tax lien filing practices, including the dollar threshold that triggers a lien and the process to withdraw a lien after the taxes have been paid.

Qualifying taxpayers must still file a return by the deadline (April 17). If the taxpayer is unable to pay the amount owed, a six-month grace period will begin. During that grace period, there is no penalty, but interest will still accrue.

When the grace period is over, the IRS will assess the penalty. The penalty for non-payment is usually one-half of 1 percent per month. While that may not sound like much, it adds up. The penalty is capped at 25 percent of the amount owed. The interest rate is about 3 percent annually.

Not every unemployed individual will qualify. We'll discuss the requirements in our next post.

Source: USA Today, "IRS offers relief for unemployed taxpayers who can't pay," Sandra Block, March 7, 2012

Sovereign citizens wreaking havoc; Georgia lawmakers respond, p2

2012-03-14T20:44:47Z

We are continuing our discussion of sovereign citizens and the trouble they have caused state employees and law enforcement officers. While police, judges and prosecutors are usually the targets of their actions, sovereign citizens took on financial institutions last year when they attempted to take over unoccupied houses by falsifying deeds. The houses were in foreclosure, so they escaped discovery for a time.

Officers caught up with the squatters, though, only to find themselves the targets of liens and lawsuits as a result. Prosecutors eventually charged the group with racketeering. And while their activities seem smaller-scale recently, the harassment and "paper terrorism" of public officials has not stopped.

]]> In the wake of five known cases of sovereign citizens filing false liens against law enforcement officers or other state officials, Georgia lawmakers are moving forward with House Bill 997. The new law would make it a felony "to knowingly file a false lien or encumbrance" against a public officer or employee for performing his or her official duties. The law would apply to liens filed in both public and private records.

Offenders could be sentenced to anywhere between one and 10 years in prison, fined as much as $10,000 or both. By making the penalties so serious, the General Assembly hopes to remove one tool from sovereign citizens' toolbox, according to one police chief who has been the victim of this kind of harassment.

Georgia is one of the only states to consider a law targeting the "paper terrorism." Federal agencies are keeping track of sovereign citizens, but less because of the liens. Sovereign citizens have also been involved in violent crimes.

Source: TPMMuckraker, "States Get Serious In Confronting Sovereign Citizen Movement," Jillian Rayfield, Feb. 28, 2012

Sovereign citizens wreaking havoc; Georgia lawmakers respond

2012-03-08T18:50:25Z

Imagine a homeowner who has been struggling to meet his mortgage payments. This person was a police officer, and budget cuts forced the city to lay him and 10 others off. While he was able to find a new position quickly, he took a considerable cut in pay. He wants to avoid defaulting on his mortgage, and he has very little unsecured debt, so he decides to refinance the loan.

He and his attorney pull up his credit report and are shocked to see lien after lien after lien filed against him. A little digging and they realize the liens were all filed by one man. As a police officer, the homeowner had pulled the guy over for speeding, and the guy claimed he was immune to the laws of Georgia -- the laws of the United States, for that matter. He was a "sovereign citizen."

]]> The homeowner has a mess on his hands. The sovereign citizen, in retaliation for the traffic stop, has waged a campaign of what law enforcement calls "paper terrorism" against the homeowner by filing false liens against him -- an act that could soon be a felony in Georgia.

According to the Southern Poverty Law Center, about 100,000 sovereign citizens live in the U.S. They believe the U.S. government, including the court system, is illegitimate. Typically, their sovereignty consists of not paying taxes or refusing to get a driver's license or license plates. At times, though, their actions go much farther. Two grabbed headlines in 2010 when they shot a police officer to death during a routine traffic stop.

We'll continue this in our next post.

Source: TPMMuckraker, "States Get Serious In Confronting Sovereign Citizen Movement," Jillian Rayfield, Feb. 28, 2012

T-Boz bankruptcy tossed

2012-03-04T20:50:15Z

A Georgia bankruptcy trustee has tossed award-winning performer T-Boz's Chapter 13 filing. The rapper has filed for bankruptcy three times. The court dismissed her last filing last March.

Court documents indicate that Tionne Watkins, also known as T-Boz, has not met many of the legal requirements of the Chapter 13 filing. The trustee said he is basing his decision on a host of factors, including the following:

]]>

Failure to make payments on time or at all

Failure to file paperwork as required by law

Failure to attend a meeting with creditors

Failure to include a creditor in her repayment plan

Failure to show proof of mortgage payments and income

Failure to pursue $250,000 in delinquent child support

Unlike a Chapter 7 bankruptcy, a Chapter 13 bankruptcy does not wipe out debt. Instead, the person filing for protection must restructure his or her debts and create a repayment plan. The plan is based on ability to pay and is in place for up to five years.

Watkins filed this most recent petition in late 2011. She reportedly owed more than $750,000 but had only $1,200 a month in income. Her largest obligation is the mortgage on her $1.2 million home. Sources close to the singer say the bankruptcy is not the result of mismanagement. Watkins suffers from sickle cell anemia, as we discussed in our Dec. 10, 2011 post. The condition limits her ability to keep up with a rigorous performance schedule, and personal appearances are the main source of income for singers.

The dismissal is not permanent. Watkins may file again in 180 days. However, during that period her creditors are free to go after her assets.

Source: Wall Street Journal, "Judge Scrubs T-Boz's Bankruptcy," Jacqueline Palank, Feb. 13, 2012

Atlanta included in federal foreclosure investment program

2012-02-29T18:32:14Z

Atlanta's place on the list of cities hardest-hit by the foreclosure crisis has earned us a spot in a federal pilot program. The Federal Housing Finance Agency launched the Real Estate-Owned Initiative this week by offering investors a chance to purchase packages of foreclosed homes to convert them to rental properties. Atlanta residents should not expect to see every distressed property converted, though; the initiative covers only Fannie Mae-owned foreclosures.

The FHFA isn't looking for just any investor. Earlier this month, the agency solicited applications from investors who have experience in property management and who have the financial wherewithal to purchase and to support the homes they purchase. The FHFA will notify the prequalified investors of the sale.

]]> Only investors who express an interest in the sale and post a security deposit will receive detailed information about the property packages. Once that's taken care of, an interested investor must complete a comprehensive application that will be evaluated by an independent firm. If that application is accepted, the investor may submit a bid. If the bid is accepted, the investor agrees to hold on to the property for a defined number of years.

The housing market is still slow, but there is a genuine shortage of rental properties across the country. The objective of the REO Initiative is to move properties from the foreclosure list, where they depress home values, to the rental list, where they can solve a few headaches for everyone and get back on the tax rolls.

Atlanta is one of six markets chosen for the pilot program. Of the 2,490 properties included in this sale, 572 (23 percent) are in Atlanta. If all of them sell, more than 600 rental units will be back on the market.

Sources:

Bloomberg, "FHFA Home Sales, EU Trade Rules, 'Gekko' Returns," Carla Main, Feb. 28, 2012

Federal Housing Finance Agency, "FHFA Announces Pilot REO Property Sales in Hardest-Hit Areas," Feb. 27, 2012