Author: Charlene Crowell,

Don’t let tempting predatory loans spoil the holidays

(NNPA) — From Christmas carols to decorations that celebrate the season, the holidays mark the time of year when families and loved ones anticipate joyous celebrations and gift giving. It’s a season when excesses can easily go beyond over-eating to over-spending, bringing debts that can last well into the New Year.

The holidays are also a time when predatory lenders actively use tempting dvertisements of extra cash to seek potential victims. If your holiday list calls for more money than available, don’t make the mistake of falling into a trap that may take most of next year to escape.

Car title lenders cannot only put your household budget at risk, but your car as well. With promises of 50 percent interest off the first month or $25 cash payment for referring new customers, these financial predators will take a title to a borrower’s vehicle in exchange for several hundred or even a few thousand dollars.

Like payday loans, these enticements are designed to trap consumers into predatory loans that are certified debt traps that few consumers can fully repay in just a single payment. The typical car title loan carries a 300 percent annual percentage rate. While borrowers are only loaned a fraction of their vehicle’s value, if vehicles are repossessed, car-title lenders have the right to sell the vehicle at fair market prices, pocketing the profit from its sale— despite borrowers still being stuck with paying debt.

According to research by the Center for Responsible Lending (CRL), each year one particular predatory loan product drains $4.3 billion in fees on loans valued at $1.9 billion. Nationwide, car title lenders operate in 21 states through more than 8,100 retail outlets. States with annual loan volumes surpassing $100 million per year include: Alabama, Arizona, Tennessee, Texas and Virginia.

The road of predatory car title loans leads most often to one of two dead-ends: refinancing the loans in exchange for paying another hefty fee or losing the car to repossession. The typical car title borrower refinances their original loan eight times. As a result, CRL research finds that the typical borrow pays twice as much in interest and fees ($2,349) as the amount of credit extended ($1,042).

Repossession will not be the end of fated consumers’ financial obligations. The loan payments and all applicable fees must still be repaid despite the loss of the vehicle. Adding to this misery, repossessions usually lead to a new series of increasingly difficult lifestyle adjustments: reliably arriving at work on time, managing personal business or even accessing medical care.

The Federal Deposit Insurance Corporation (FDIC) found that the typical car-title borrower earns $25,000 or less and often comes from unbanked households, those lacking a relationship with mainstream financial institutions. For communities of color, one in five black and Latino households is unbanked.

Military members are similarly targeted by these financial predators. Earlier this year, both the U.S. Department of Defense and the Consumer Financial Protection Bureau publicly addressed how consumer loan terms circumvented the Military Lending Act (MLA) intended to remove financial stress from active duty members. Since MLA’s

enactment some lenders have extended loan terms to more than the 180-day period cited in the law. Some extensions are as little as one day or 181 days.

When financial challenges already haunt most low-to-moderate-income consumers, those considering these loans should ask themselves: “Is this the way I want to begin my New Year?”

“Car title loans, like payday loans, are designed to create a long-term cycle of debt,” said Diane Standaert, CRL’s

director of state policy. “Whether big or small, car title loans lead borrowers down a road of financial disaster. State and federal lawmakers have the ability to enforce against the car-title debt trap and should do so.”

This year, keep your holiday safe from predatory lending. There’s nothing ‘merry’ about debt traps.

Charlene Crowell is a Communications manager with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.

U.S. Senators sponsor Student Loan Bill of Rights

In the aftermath of a recent report that found the lack of student loan servicing standards and information on monies owed, two United States senators will work as a team to create a Student Loan Borrower Bill of Rights.

Sponsored by Illinois Senator Richard Durban and co-sponsored by Senator Elizabeth Warren of Massachusetts, the measure is intended to ensure that all student loan borrowers fully understand the range of repayment options and resources available to them. For service members and veterans, the measure would require loan servicers to provide each borrower with a liaison specifically trained in the benefits available to military borrowers. Thirdly, the bill calls for fair treatment of borrowers by the financial institutions servicing their loans.

“With student loan debt far outpacing the rise in starting salaries, many of these borrowers find they are unable to make their monthly payments,” said Durbin. “When lenders refuse to work with them on a repayment plan, they begin a downward spiral that is difficult to turn around. That debt keeps them from being able to purchase homes, cars or other goods, which fuel our economy. Every borrower should have basic protections when it comes to their student loans.”

The bill proposes six basic rights for borrowers of both federal and private student loans. Those rights are:

*Options such as alternative payment plans to avoid default.

*Information about key terms and conditions of the loan and any repayment options to ensure changing plans will not cost more.

*Knowledge of whom the loan servicer is and how to reach them.

*Consistent practices on how monthly payments are applied, with a specific requirement for lenders and servicers to honor promotions and promises that are were either advertised or offered.

*Fairness, such as grace periods when loans are transferred, or debt cancellation when the borrower dies or becomes disabled.

*Accountability accompanied by timely resolution of any errors and or certification of private loans.

Last October, the Consumer Financial Protection Bureau (CFPB) released a report revealing that a growing number of private student loan borrowers are burdened with debt that has no limits on interest rates and few, if any, options for alternative repayment plans.

CFPB’s analysis of 3,800 student loan complaints received from October 1, 2012 through September 30, 2013 found that 87 percent were directed at one of eight companies. Sallie Mae, a financial services firm specializing in educational loans for more than 40 years, topped the complaint list with nearly half— 49 percent. In other cases, according to CFPB, federal student loan borrowers were unaware of their available repayment options such as income-based repayment.

Both types of borrowers experienced problems with payment misallocation. This specific problem was a challenge to resolving account errors in a timely manner.

In a more recent and related report, the Institute for College Access and Success’ (TICAS) Project on Student Debt found that seven in 10 of 2012 college graduates had student loan debt. Additionally, the Class of 2012 had an average debt of $29,400.

Each year from 2008 to 2012, this report found that the average debt of federal and private loans combined increased six percent each year. These figures were drawn from data voluntarily provided by 1,075 public four-year and four-year private nonprofit institutions.

Although TICAS contacted for-profit colleges, which accounted for seven percent of 2012 bachelor’s recipients, none chose to share their data. The lack of this additional data may have contributed to understating the scope and volume of the nation’s student loan debt, now estimated to be $1.1 trillion.

“Borrowers are already struggling to make ends meet as they graduate with debt that surpasses their annual wages,” noted Sen. Durbin. “These borrowers and their families should not have to face additional costs because they cannot resolve errors quickly or gain access to programs meant to help them. My bill will ensure that all borrowers will have access to these basic rights and protections.”

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at: Charlene.crowell@responsiblelending.org.

Economic mobility linked to strong middle class communities

Since the onset of the foreclosure crisis, research reports from esteemed universities and policy institutes have documented what went wrong. A new report offers us a different perspective, one that views the creation of a strong middle class as the solution for strong economic growth.

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Charlene Crowell, NNPA Columnist

Middle-Out Mobility, published by the Center for American Progress (CAP), relates how high inequality harms the growth of prosperity. It reached these conclusions after analyzing recent research by Alan Krueger, former chairman of President Barack Obama’s Council of Economic Advisers; Stanford University, Harvard University, the University of California-Berkeley, the Pew Economic Mobility Project and others.

“Economic growth depends on ensuring that we can make full use of a precious national resource: the American workforce. That means we must cultivate individuals’ talents and make sure that every person can realize their full potential. This is not merely a moral matter, it is an economic imperative: When one person is held back, all Americans are held back,” the report states.

The report also reviewed whether race was a factor in limiting the relationship between the middle class and mobility. Their findings suggest that racial inequities, both social and economic, still persist. Regions with large African American populations were linked to smaller increases in mobility than in other areas.

“The size of the middle class is a powerful predictor of mobility, yet its reach is limited by our nation’s troubling legacy of racial inequity.”

The report also states that while 97 percent of Americans believe that every person should have an equal opportunity to get ahead in life, children born to low-income parents tend to become lower-income adults. Metro areas with small or few middle class communities also tend to have higher amounts of poverty. Conversely, children of affluent parents, tend to remain affluent.

However, in metro areas with a strong middle class, better access to quality schools leads to improved test scores, more civic and religious engagement and the enhanced ability for greater mobility among low-income students.

Noting how tremendous economic growth was shared by an expanding middle class from the late 1940s to the early 1970s, CAP identifies another important gap: incomes. While American productivity continued to grow, wages did not. As a result, nearly all of the income gains from the last 40 years have benefited the nation’s richest 10 percent.

This mismatch of high productivity against stagnant wages is at the center of America’s hopes for future prosperity, according to the report. It is also the basis for the CAP report to refute “supply-side” or “trickle-down” economic theories that promote giving tax cuts to the wealthy as the way to generate economic prosperity and opportunity for all.

“If supply-side theory were right, then we should expect regions with higher taxes to have lower economic mobility. But there is simply no evidence of any such relationship; to the contrary, there is a small positive correlation. In regions with higher state income tax levels, low-income children were slightly more mobile than in regions with lower state tax levels.”

The report concluded, “Giving tax breaks and other benefits to the wealthy will only perpetuate the current era of diminished mobility; to reignite opportunity, policymakers must grow and strengthen a vibrant middle class.”

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.

Program returns foreclosed borrowers to homeownership

In the aftermath of more than 2.5 million foreclosures, the Federal Housing Administration (FHA) is now offering a homeownership program that will put previously troubled borrowers on a fast-tracked return to the home ownership market. The new program, known as “Back to Work – Extenuating Circumstance,” cuts the standard three-year waiting period to only 12 months.

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Charlene Crowell, NNPA Columnist

According to Charles Coulter, HUD’s Deputy Assistant Secretary for Single Family Housing, “We understand that families occasionally experience financial difficulties that are simply beyond their control. We already have a policy allowing for exceptions to this waiting period when there is an extraordinary life event. This Mortgagee Letter is a targeted expansion of that policy.

“As part of FHA’s ongoing mission” Coulter continued, “we want to make sure that qualified borrowers are not being unnecessarily shut out of the market. We ‘re looking forward to working with our industry partners to strengthen our housing market, to protect FHA’s insurance fund, and to make certain access to credit remains available for future generations of homeowners.”

That’s good news for borrowers who lost their home because of specific financial hardships but can now demonstrate they have regained previously lost financial ground. The list of eligible financial hardships reads like a list of housing crisis woes:

Housing Crisis Woes

Chapter 7 or Chapter 13 bankruptcy

Deed-in-lieu

Forbearance

Foreclosure

Loan modification

Loss of income, employment or both that totaled at least 20 percent of previous earnings for at least six months, including copies of applicable termination notices or changes in employment status

Pre-foreclosure sales

Short sales

Additionally, consumers must also meet other verifiable measures to participate in the program:

Proof of borrower’s current income – usually W-2 forms or federal tax returns that show the desired mortgage would be affordable and sustainable;

Credit history pre- and post the eligible hardship event that is free from late payments or other major credit issues, including rental housing payments and accounts delinquent by 30 days or more;

Credit score of at least 500; and Housing counseling by a HUD-approved counselor at least 30 days but no more than six months before submitting an FHA application.

For consumers meeting all of these criteria as well as other standing FHA mortgage guidelines, the Back to Work program is now available nationwide through FHA-approved lenders. Once participating lenders determine that mortgage applicants meet all eligibility and policy criteria, the same 3.5 percent minimum FHA down payment requirement will apply. Mortgage insurance and closing costs will also apply.

Only one FHA program is ineligible for the Back to Work program: reverse mortgages.

Earlier research by the Center for Responsible Lending found that more than 2.5 million homes were lost to foreclosure during the housing crisis. According to CoreLogic, a firm providing data and analysis to financial services companies and real estate professionals, the number of homes in some state of foreclosure dropped below the million-mark as of July 2013, to 949,000. This figure also represents a drop of 32 percent since July 2012.

Underwater mortgages, properties that are now worth less than their purchase price, also continue to haunt housing recovery. As of May 2013, Core Logic, the firm specializing in residential property information, found that 11 states had more than 1-in-5 underwater homes. The states with the seven highest numbers of underwater properties were Arizona, Florida, Georgia, Michigan, Nevada, California and Illinois.

As CRL has stated before, the housing crisis is not yet over. But programs that enable former troubled borrowers to regain the pride of home ownership and the chance to build family wealth have to be good news.

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.

America’s Crisis: 38 Million have no Retirement Assets

As more Baby Boomers continue to retire, a new research report has found that the nation is facing a trillion dollar retirement savings crisis. According to the National Institute on Retirement Security (NIRS), 38 million Americans— 45 percent of working-age households— have no retirement account assets.

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Charlene Crowell, NNPA Columnist

Among all working households, 92 percent do not meet conservative retirement savings targets for their age and income. As a result, the collective retirement savings gap among working households ages 25-64 ranges from $6.8 to $14 trillion, depending upon the financial measure used. NIRS analyzed the readiness of all working-age households using data from the U.S. Federal Reserve.

“The heart of the issue consists of two problems: lack of access to retirement plans in and out of the workplace— particularly among low-income workers and families— and low retirement savings,” the report found. “These twin challenges amount to a severe retirement crisis that, if unaddressed, will result in grave consequences.”

Financial experts recommend that retirement assets be the equivalent of 8 to 11 times their annual income to preserve a standard of living. Many experts also recommend retirement fund contribution rates ranging from 10-15 percent to eventually reach adequate retirement funds.

But what if there is no retirement plan or option for workers?

In 2011, according to the report, 44.5 million people worked for an employer that did not sponsor a retirement plan. Even among full-time employees, 35.2 million had no access to a retirement plan. Low-wage industries, regardless of size, were found to be the least likely to offer a retirement plan.

Today, the average working household has virtually no retirement savings. The median retirement balance for all working-age households is $3,000 and only $12,000 for those nearing retirement.

The shortage of available funds for retirement adds yet another complex dimension to the hope for a full financial recovery. In the aftermath of the worst financial crisis since the 1930s’ Great Depression, communities of color face financial challenges worsened by disproportionate unemployment, foreclosure-blighted neighborhoods and in many instances, lower incomes and markedly less wealth than the general population.

While some might assume that America’s workers make poor financial decisions, earlier research by the Center for Responsible Lending determined that the typical household has just $100 left each month after paying for basic expenses and debt payments. After controlling for inflation, the typical household had less annual income at the end of 2010 than it did in 2000. Households headed by persons aged 55-65 saw the largest losses in wealth. People at or nearing retirement lost an average of $90,000 from 2007-2010.

Additionally, CRL found that income declines in communities of color are higher in part because of declines in over-representation in two types of employment that historically provided stable and secure jobs: manufacturing and construction. These two industries suffered job losses of 10 and 20 percent, respectively. African-Americans who formerly worked manufacturing and construction jobs lost more than twice the number of jobs between 2007 and 2011 than they previously gained in the pre-recession decade.

The new NIRS report offered three specific actions to remedy the retirement crisis:

*Strengthen Social Security, the primary source of retirement income for low and middle-income Americans;

*Expand low- and middle-wage workers’ access to high-quality, low-cost retirement plans with professional investment management and risk pooling; and

*Expand eligible income limits and credit rates for the federal Saver’s Credit that reduces income tax liability by 10-15 percent on the first $2,000 in contributions to a qualified retirement account.

Without long-term solutions to the retirement crisis, NIRS concludes, “An increasingly dependent elder population will likely place increased strain on families and social service organizations. American workers, employers, and policymakers need to look closely at what we need to do individually and collectively, so that everyone can build sufficient assets to have adequate and secure income after a lifetime of work.”

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at: Charlene.crowell@responsiblelending.org.