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Consumer Action Non-Profit Org. U.S. Postage PAID San Francisco, CA CONSUMER Permit # 10402 ACTION NEWS Change Service Requested 221 Main Street, Suite 480 • San Francisco, California 94105 • www.consumer-action.org • Winter 08-09 About 8,000 homeowners call the HOPE hotline Foreclosure prevention (888-995-HOPE or 4673) About this issue What’s working, what’s not and why everyday. "e Alliance says that it ince mid 2007, the U.S. has been reeling has succeeded in rework- Sfrom an economic crisis that has hit Wall By Ruth Susswein foreclosure crisis through voluntary ing 2.7 million home Street and Main Street with bad news and measures, with little success to date. loans since 2007. But more bad news. couple of hundred people Treasury Secretary Henry Paulson critics charge that more Predatory mortgages and ill-advised lending gathered at a Methodist church and Federal Reserve Chairman Ben than half of these loan have led to a foreclosure crisis, real estate has in Stockton, CA, in December Bernanke handed banks $350 bil- modifications are in fact lost substantial value, lay-offs are crippling Afor a town hall meeting on foreclo- lion in Troubled Asset Relief Program repayment plans that communities, and the stock market, where sure. One homeowner could not hold (TARP) funds with no strings at- simply extend the life of many people invest their retirement savings, back tears as she told of her struggle tached and no commitment for relief the mortgage to 40 years. shed 40% of its value in 2008. to save her home. from the burden of predatory loans According to MSNBC, "is issue focuses on our current state of She is not alone in her emotion. that some homeowners are stuck over one million of these indebtedness and how consumers can take More than eight million homeowners with. Instead Secretary Paulson has repayment plans actu- charge and avoid long-term financial damage. are expected to lose their homes to supported industry efforts to rework ally increase the monthly "e issue was created by our Managing Money foreclosure in the next four years. Mil- millions of mortgages on a voluntary mortgage bill to make up Project, funded with a cy pres award from the ! lions more are already in foreclosure. basis through the Hope Now Alliance. for missed payments. Griego v. Rent-A-Center settlement. Non-profit counseling groups, some "ese not-so-modified Hope Now lenders and loan servicers, many states mortgages may explain Hope Now is an alliance of lenders, and a few federal government agen- why the latest default rates show that pleted, and it anticipates being able to loan servicers and housing counselors cies have stepped in to help save these more than half of those with loan help modify two million home loans that provides free foreclosure preven- families from financial ruin. Some of modifications have re-defaulted on this year. tion counseling and arranges for loan the programs are working, but unfor- their loans. While hundreds of thousands of ho- modifications. A loan modification is tunately, more are not. Hope Now admits that not all meowners are being helped, estimates a change in the terms of your mort- Here’s a status report on efforts be- reworked loans have been successful are that millions more will lose their gage. It can include a rate cut, rate ing made to save families from fore- but it says publicly it is very proud of homes. Georgetown University Law freeze, extended repayment period, or closure. its achievements. In early in 2009, it professor Adam Levitan attributes "e federal government has repeat- forgiveness of part of the loan bal- plans to produce a breakdown of the See “Foreclosure,” page 6 edly opted to let banks solve the ance (temporarily or permanently). type of modifications it has com- Get rid of debt by yourself Why are we so indebted? By Linda Sherry debt. Consumers need to be careful in By Michelle De Mooy and the perception of immediate need taking on credit card debt, especially more important to you than accumu- eing in debt means that finance if they cannot pay the balance in full ompiling debt has replaced lating debt or remaining financially charges are eating up income over a short period of time. If you apple pie and baseball as secure. that could provide a buffer in can’t pay your credit card bills in full America’s pastime. Accord- Take the “exotic” interest-only, ad- Bthese uncertain times. With disci- within a few months or so, stop using Cing to the Federal Reserve, the total justable rate mortgages—they tempt- pline, many people can tackle debt your credit cards. Use your debit card amount of credit card debt in the U.S. ed many home buyers, but left many reduction by themselves. instead. is a staggering $973 billion dollars or See “Indebted,” page 5 In deciding how to reduce your Here are some suggestions for re- about $10,678 per household. Even as indebtedness, it may help to think gaining control of your debts: credit card companies charge higher about “good debt” and “bad debt.” Assess what you owe. Gather all and higher interest rates and fees, this Not all debt is bad. Mortgage debt, your most current credit billing state- number has continued to climb. What’s inside for instance, is usually considered to ments. Include your credit cards, Are we just hamsters on the wheel be good debt. After all, how many overdraft loans, car loans, mortgage, of consumption? Or is something else 2 Credit counseling people can pull out their checkbooks home equity lines of credit, etc. In- going on? and pay hundreds of thousands of clude personal debts, too. Make a list "e answer includes both concepts. 3 When you can’t pay dollars for a house? In the case of by hand or create a computer docu- Each time you purchase a product, your credit card bill mortgage debt, homebuyers can use ment. you are at the mercy of an extremely credit to buy an asset (a home) that Get your credit report. Request cop- well researched and targeted market- 4 Debt management provides several benefits: a place to ies of your credit files for free from the ing machine. Many of today’s busi- plan or a scam? live, a tax deduction and an asset that three major credit reporting bureaus nesses have become experts in how may appreciate in value by the time at www.annualcreditreport.com. If consumers make purchasing decisions, 7 Student loan debt you sell it. you recently ordered your reports, you convening focus groups and consult- Long term and high-interest credit can use them or purchase new copies ing psychologists to understand the 8 Lenders reach out card debt and large credit card balanc- forces behind how we buy. es often are considered forms of bad See “Pay down debt,” page 5 "e goal is to make convenience Be aware that if you think you’re eli- Consumer Action Credit counseling can help gible for Medicaid benefits, based on www.consumer-action.org your medical debt, do not put these Consumer Action is a non-profit debts on a credit card. Medicaid does By Michelle De Mooy Opt for an in-person appointment 501(c)(3) advocacy and education not consider debt on a credit card to when possible. "e counselor will organization founded in 1971. We be medical debt. "is could disqualify publish surveys and distribute n a volatile and downward spiral- review your monthly income, your you from receiving Medicaid benefits. multilingual educational materials in ing economy, many Americans are bills and how current you are on your printed form and on the Internet. struggling just to make ends meet. payments. Based on this information Credit scores Consumer Action provides nonlegal IIf you are among the millions of and your input, your counselor will advice and referrals on consumer Creating and implementing a DMP problems. Chinese, English and households buried under a mountain create a repayment plan that locks you may or may not affect your credit Spanish are spoken. Call or write: of credit card balances and other debt, into fixed, monthly payments for a record. It depends on the lender and (415) 777-9635 • (213) 624-8327 it’s even harder to stay afloat. period of two to five years. Generally, how they report your account to [email protected] "ere are some ways to make a dent if it will take longer than five years to credit bureaus. Some lenders may in the mountain. For people consis- pay off your debts, most counselors report you as delinquent until a series San Francisco tently late paying their credit card will tell you that bankruptcy may be a of consecutive payments is made by 221 Main St., Suite 480 bills, who have trouble making the better option. the credit counseling service. "is San Francisco, CA 94105 minimum payment, who are hounded In fact, if it’s determined that you scenario would probably damage (415) 777-9648 Email: [email protected] by creditors and collection agencies, are too deeply in debt, you may not your credit score. Others note that or even considering bankruptcy, con- be able to create a DMP because the Ken McEldowney the consumer is enrolled in a credit Executive Director sumer credit counseling may be the credit counselor may not be able to counseling service, which is not likely next best step. Michael Heffer cut your payments enough to dig to affect your score. Business Manager Over nine million people in the U.S.
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