Bankrupting the Common People

FICO and the Credit Card Financial Prison: How a Three Digit Credit Score Reflects Consumerism and Not Financial Independence

December 3, 2009

mybudget360 - ...The credit card industry is gouging the living daylights out of consumers as the unemployment and underemployment rate hits 17.5 percent. You would think that the banking sector that owes its life to the American taxpayer for bailing it out would have some sympathy. Instead, the new Wall Street oligarchy is running the show and we have new feudal lords running this country. The credit card is merely your key into the kingdom of serfdom.

The credit card industry with the mysterious FICO score would like you to believe that there is some enormous world of credit cards out in the market. In reality, it is simply rebranding. Five issuers make up over 60 percent of all credit card debt.

FICO stands for Fair Isaac Corporation and provides services to the world’s 10 largest banks. No shocker there. The FICO score is based on multiple factors and ranges from 300 to 850:

Fair Isaac Corporation doesn’t store the credit scores but provides the big three credit reporting agencies with the algorithm to compute the score. It is a very tiny and selective world. You would think that something as important as a credit score would be open to the public but it isn’t. In our current market with bail outs and hidden agendas on Wall Street, transparency is of paramount importance. But of course why would they give up the algorithm since so much money is based on this score?

...The bottom feeders of the credit card industry have taken it upon their shoulders to now put clamps around good paying customers. Since they can’t squeeze any more blood out of 27 million unemployed or underemployed Americans, many who were recruited from companies like Providian, credit card companies are now going after “good FICO score” customers...

Credit card debt is merely one factor in many bankruptcy cases. So you might say “well stay away from any form of credit then!” The problem is, even if you are looking to rent a home many people will simply run your credit score. Looking for a decent mortgage? Getting a good rate is largely based on your credit worthiness (at least now it is). Even some employers (the two that are hiring) will run your credit report.

To function in our society the financial sector has largely forced people to comply like sheep. Think of overdraft fees. Why doesn’t the banking sector simply setup an opt-in policy instead of having everyone by default taking overdraft charges of $39 for a $5 cup of coffee? Because they make billions from this:

“Nov. 24 (Bloomberg) — U.S. limits on overdraft fees may cost banks more than $15 billion in revenue and prompt lenders to impose charges to close the gap, said the head of consulting firm Oliver Wyman’s North American financial-services business.

“We’re talking about $15 billion of revenue that basically falls right to the bottom line, so to take that out of the banking system then that’s $15 billion of capital that is not being created,” Michael Poulos said in an interview yesterday. “For some of our clients, this is a very big deal and it’s not clear that regulators have thought everything through.”

You notice how they call this revenue? PBS had a special on Frontline showing a banking industry lobby front man saying that the public wants overdraft access. Really? Show us the data. I wonder how much the public can take from this industry. It is literally bank robbery. They hide behind phony data and a structure that traps many Americans. Now that they can’t trap the poor, they are going after middle class Americans that are merely trying to make ends meet.

Of course, recent legislation is merely a token gesture. It has been gutted and practically written by the industry. The system is flawed. Wall Street and the banking industry have become invalid just like the FICO credit score. In California, we are seeing thousands of people default on mortgages strategically that had “excellent” credit scores. Why? Many don’t want to be paying for decades on an asset that has collapsed by 30, 40, or even 50 percent.

Until we reign in the financial sector, the average American is going to see their financial future sucked into the Wall Street vortex. Wall Street wags their finger and says, “keep up your credit score you little consumer” while they gamble like ADHD maniacs funded by the U.S. taxpayer on the most speculative products on the planet. Do as I say, not as I do.

Fears of Credit Card Crisis as Bank Write-Offs Double

Fears that the banking system is facing a credit card timebomb were underlined as official figures showed that the amount of card debt banks have written off has unexpectedly doubled.

November 30, 2009

Telegraph - In a sign that Britons are facing increasing difficulties keeping their finances under control, bad debts from credit cards leapt from £812m to £1.6bn in the third quarter, said the Bank of England.

The rise meant that the total amount written off by UK banks in that quarter was, at £4.3bn, a record. In the first nine months of the year, banks have already written off more than they did in the whole of 2008 - itself a record year for write-downs.

The news came as a surprise to banking experts, since most of the UK banks have reported that the outlook improved marginally in the third quarter. Although banks have already provisioned for significant losses, some will view the statistics as a sign of a potential second wave of difficulties for the banking sector. While most of the losses faced in the financial crisis were associated with US sub-prime lending and the closure of securitisation markets, some suspect there may follow major "home-grown" losses as UK households face higher unemployment and falling real wages.

The International Monetary Fund warned earlier this year of a potential credit card crisis in Europe as families default on their debts, predicting that up to 7pc of Europe's £1.49 trillion consumer debt could be written off, with the UK hardest hit.

The Bank also reported that households repaid a record amount of unsecured credit in October as they faced up to unprecedented credit card bills. It said net unsecured debt contracted by £579m. Its statistics also showed that its key measure of underlying money growth dropped by 0.7pc in October. The fall is a concern, since the Bank has repeatedly said that this measure will help show the success or otherwise of quantitative easing. However, a household-focused measure of money growth is still rising.

U.S. Housing Market Crash Not Over Yet

December 2, 2009

Reuters - The meltdown of the U.S. housing market is not over yet, and home prices will soon start trekking downward again as a flood of foreclosures looms, a well-known economist said on Wednesday.

Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania, said in an interview with Reuters that home prices will resume their decline by early next year as foreclosure sales pick up again.

"The housing crash is not over," he said.

The U.S. housing market has suffered the worst downturn since the Great Depression, and its impact has rippled through the recession-hit economy as well as the rest of the world.

A setback for the hard-hit housing market could portend problems for the U.S. economy.

Home prices, as measured by the Standard & Poor's/Case-Shiller U.S. National Home Price Index, will trough in the third quarter of 2010 after declining 38 percent, Zandi said.

The index peaked in the second quarter of 2006 and hit a trough in the first quarter of 2009, a drop of about 32 percent.

Home prices in many regions have been rising. That is because foreclosure sales fell over the summer and fall as mortgage servicers have tried to put stressed homeowners into the Home Affordable Modification Program and other modification plans, he said.

"This lull in foreclosures sales has resulted in the price gains in the past few months," he said.

"Foreclosure sales will increase, and home prices will resume their decline by early 2010 as mortgage servicers figure out who will not qualify for a modification," he said.

Zandi said 7.5 million foreclosure sales will have taken place between 2006 and 2011. The majority of these sales, however, have not emerged yet, with 4.8 million foreclosure sales expected between 2009 and 2011.

Attractive rates and high affordability have been positives for the U.S. housing market, which has been showing signs of stabilization. Sales have surged in recent months as buyers scrambled to take advantage of the government's first-time home buyer tax credit, which was originally set to end November 30.

Last month the Omaha administration extended the $8,000 first-time home buyer tax credit, added a $6,500 credit for home owners buying a new residence, and increased income limits. Eligible borrowers must sign contracts by April 30 and close loans by June 30.

Zandi said another significant obstacle to a housing market recovery is the number of mortgages that are "underwater," where borrowers owe more for the loan than the residence is worth. This negative equity disqualifies many homeowners from refinancing and prevents some from selling their homes.

Borrowers in negative equity are also more prone to defaults and foreclosures...

Treasury Claims It Will Get Tougher on Home Loan Relief

November 30, 2009

Reuters - The Obama administration threatened on Monday to punish mortgage lenders with fines unless they speed up efforts to give hard-pressed homeowners a permanent break on monthly payments.

With foreclosures still rising and roughly 375,000 borrowers seen as eligible for permanent loan modifications by year-end, the U.S. Treasury and Housing and Urban Development departments want to make sure that banks come through on the promise of lower payments.

"Banks should be moving more rapidly and more efficiently to decisions once documents are in and we will have more detailed metrics on that in coming months," Assistant Treasury Secretary Michael Barr said during a conference call.

Some 650,000 borrowers have completed trial modifications under the Home Affordable Modification Program that was initiated by the Obama administration earlier this year.

The $75 billion taxpayer-financed program is aimed at slowing the pace of foreclosures. But there are frequent complaints that loan servicers are slow and lose or misplace paperwork that people have sent in.

Rick Mullen, a Valencia, California, homeowner told Reuters he had delivered documents four times to three different addresses while seeking a modification from Chase Home Mortgage. His monthly payment was reduced more than $1,000 on a trial basis several months ago but the document requests continue.

"The bottom line is, I figure if I keep making my payments they are not going to throw me out of my house," he said.

Industry observers offered mixed praise for the Treasury's efforts, commenting that the administration seemed overwhelmed by the rising volume of troubled loans but at least it was trying to get the system performing better.

"It's good they are doing this," said Thomas Lawler, founder of Lawler Economic & Housing Consulting in Leesburg, Virginia. "It's hard to tell if the HAMP is delaying a horrible problem or is working."

A slumping housing sector was at the center of the financial crisis that struck in 2007, dragging the U.S. economy into a deep recession that has pushed jobless rates to their highest in nearly 30 years and piled pressure on homeowners.

The Treasury and HUD want lenders to step up now to make sure trial modifications are converted into permanent cuts in monthly payments. The federal agencies are setting performance standards to make sure banks do so or explain why not.

Mortgage servicers will have to submit plans saying how they would decide whether a loan will be permanently modified. If a bank fails to meet guidelines set in an agreement with the Treasury, it would face "consequences which could include monetary penalties and sanctions," the Treasury said.

But Barr refused to offer any details on how large fines might be or what potential sanctions banks might face.

According to a report from the congressional panel that oversees HAMP, only 1,711 permanent mortgage modifications had been offered by September 1, 2009, an indication of how reluctant banks seemed to move beyond trial offers.

"We now must refocus our efforts on the conversion phase to ensure that borrowers and servicers know what their responsibilities are in converting trial modifications to permanent ones," said Phyllis Caldwell, who will head Treasury's Homeownership Preservation Office.

Caldwell said the Treasury was sending "SWAT teams" into mortgage servicers' offices beginning this week to investigate the issues slowing down decision-making. Servicers will be reporting to the Treasury daily during December on progress in coming to decisions on permanent loan modifications.

The Treasury also said it was making more information available on a website (www.MakingHomeAffordable.gov) to tell would-be applicants for loan modifications how to gather and submit the documentation they need to apply to lenders for relief.

Until now, the Treasury has not published figures on how many trial loan modifications have been made permanent, but it said it will start doing so in December.

Loan servicers will have to report on the status of each modification so any situations in which borrowers are facing obstacles can be identified and handled.

The last report on the HAMP program on November 10 showed two servicers, Bank United and Franklin Credit Management Corp, had not extended any modification offers.

Bank of America Corp, JPMorgan Chase & Co, and Wells Fargo & Co were the top three servicers with 136,994, 133,988 and 93,652 active trial modifications, respectively. But Bank of America's percentage of eligible borrowers was the lowest of the big banks -- just 14 percent of eligible borrowers.