Times Reports on Responses to the Subprime Crisis, Student Loan Issues, Unauthorized Bank Account Transfers, and More

Bob Tedeschi's Mortgages column in today's Times, "Shying Away From N.Y. Loans," reports on a consequence of the new New York subprime law: making it even harder for subprime borrowers to obtain loans.  An excerpt:

Among other things, borrowers with high-cost loans can block being foreclosed on if they can prove they should not have been offered the loans in the first place.

Fannie Mae and Freddie Mac, the two government-sponsored companies that back most of the nation’s mortgages, have said that as of September they would not buy subprime loans from New York because the new law exposes them to too much risk and cost. “We’re simply not in position to monitor and enforce compliance with all these requirements,” said Brad German, a Freddie Mac spokesman.

Freddie Mac and Fannie Mae back few subprime loans anyway, mortgage industry executives and regulators said, but the announcement left mortgage brokers wondering whether any lenders would touch such mortgages — even community banks that tend to keep loans on their books, rather than sell them to Fannie or Freddie.

On the other hand, Ginnie Mae said it would continue to support such loans. 

Yesterday's Times included "Counseling Students on Loans," about the Education Department requirement for counseling of students when they first apply for a federal loan and what such counseling should entail.  It only we'd had a similar requirement for subprime lending.  It also contained an interview with Asheesh Advani, the president and CEO of Virgin Money, in "Making a Business of Family Loans."  Virgin has originated $350 million in loans since 2001--among family, friends, and business associates.  If a parent, say, wants to lend money to a child as a mortgage, Virgin, for a fee, sets up and administers the loan.  They do the same thing with reverse mortgages so that families can keep the home within the family and avoid paying bank fees.

Friday brought "New York Plans to Sue Student Loan Company."    An excerpt:

The attorney general of New York is preparing a lawsuit against a student loan company, Goal Financial, charging that the lender broke state and federal laws by luring borrowers with iPods, cash and other gifts and that it misled consumers about loan terms and benefits, The New York Times’s Jonathan D. Glater reported, citing a senior official in the office.

Last Saturday, August 30, the Times published "The Bank Account That Sprang a Leak," about $300,000 in unauthorized withdrawals from the JPMorgan Chase elite private banking operation account of Wall Street activist investor Guy Wyser-Pratte.  An accompanying article, "Making Automated Bill Payments is a Cinch (Wait, Not So Fast)," discusses the downside of such automated payments.  An excerpt about the frequency of errors in such payments:

* * * Nacha — the Electronic Payments Association, a nonprofit association that oversees the network that automated payments travel on, says the error rate is 38 for every 100,000 bill payments. This figure counts mistakes that banks report but doesn’t include problems that consumers solve directly through the billers.

And another excerpt about identity theft risks:

Are you risking identity theft or other problems by giving so many companies access to your credit card numbers or bank accounts each month? Some people still think so.

But Bruce Cundiff, director of payments research and consulting for Javelin Strategy and Research, says the nonautomated approach is more problematic. If you’re paying bills one by one each month via your bank’s Web site, you need to worry about whether anyone has installed software on your computer that would capture user names and passwords. And not having paper statements and checks floating around that could be stolen from the mail is a plus as well.

On August 26, the Times reported on another solution to the subprime crisis in "Hoping to Prevent Decay, Communities Are Becoming Home Buyers."  August 24 included a depressing article, Ruins of an American Dream," about Merced, California, which has one of the highest foreclosure rates in the country.  The article explores some of the consequences of the crisis:

In the three years since housing peaked here, the median sales price has fallen by 50 percent. There are thousands of foreclosures on the market. The asking prices on those properties are so low that competitive bidding, a hallmark of the boom, is back.

But almost no homeowner can afford to sell. If you cannot go as low as “the foreclosure price” — the cost of a comparable bank-owned house — real estate agents say you might as well not even bother listing your home.

* * *

Businesses in Merced are struggling. Downtown buildings are festooned with “for lease” signs. Unemployment, consistently high here, rose to 12.1 percent in July.

* * *

Another article published the same day, "That Student Loan, So Hard to Shake," covers some of the consequences of rules making it difficult to discharge student loans in bankruptcy.   Some excerpts:

Without a court order, lenders — or, more likely, collection agents — can garnish up to 15 percent of wages of borrowers who have defaulted on federally guaranteed loans, said Deanne Loonin, a lawyer at the National Consumer Law Center in Boston. Lenders and collection agents can also intercept tax refunds, Social Security payments and even this year’s stimulus checks from the government.

“It’s really unbelievable,” Ms. Loonin said.

DEBTORS can shed credit card debt and other unsecured obligations through bankruptcy but can get out of student loans only if they can show “undue hardship.” That term is not defined by the bankruptcy code and, lawyers said, judges often take a narrow view of its meaning.

* * *

There are some compelling reasons to make it difficult for student borrowers to get out of their debts. Lenders have no collateral, like a house or car, to seize. That makes them riskier.

* * *

“At the time that people graduate from school, almost everybody is technically eligible for bankruptcy because they have debts that exceed their assets,” said Shelly Repp, general counsel at the National Council for Higher Education Loan Programs, whose members include lenders, collection agencies and guarantors. “Why would anyone lend you money if you had the option to walk away?”

But even Sallie Mae, a major source of private loans, is not opposed to modifying the bankruptcy code’s treatment of them, said Mr. Joyce, perhaps by making it possible for students to dump debts in bankruptcy after trying for a specified number of years to pay them off.

Comments

[Jill Stewart]

Nice articles. Here in Canada subprime loans are definitely not so hot topic, it's interesting. Housing prices jumped very high during last years in Canada, especially in big towns, and still more and more people are looking for non-standard option, how to take a mortgage. Your crisis is at least an example for other countries. Even for that price...
Take care
Jill

[College Loan Debt]

Student loans are ridiculous. It would be one thing to have to pay of a couple of grand to get an education but these days the cost of going to school is outrageous. Both my wife and I have equal amount of student loan debt and we both have undergraduate degrees. Our student loan payment is more than our mortgage payment. Entry level positions don't let you pay down any debt at all if you don't live with your parents for 5 years after you're done school.

[Student Loans]

Hi Very good blog - thanks for the info David

[consolidsation loan]

Students need to be educated before going into any loans and about the options they have in this failing economy.