The Federal Trade Commission (FTC) issued a ban on eight companies marketing loan modification services. The FTC’s statement alleges that “the marketers charged up-front fees and falsely claimed they could get their mortgage loans modified or prevent foreclosure on their homes.”

The following defendants and settlements were named in the FTC’s recent press release:

Federal Loan Modification Law Center - Steven Oscherowitz and other associates settled with the FTC on charges that they advertised and sold a deceptive “Federal Loan Modification program.” Under this program Oscherowitz and his company would charge troubled homeowners up to $3000, often required up-front, in exchange for loan modifications that rarely delivered the promised results, according to the FTC complaint.

• The FTC settlement order includes the following conditions against Oscherowitz:
• Permanently banned from selling mortgage relief services and from telemarketing and good or service.
• Prohibited from misrepresenting any good or service, selling or otherwise benefiting from customers’ personal information
• Required to dispose of customer information properly
• Imposes an $11.5 million judgement, representing the amount customer paid to the defendant while involved in the alleged loan modification scheme

Any moneys collected in satisfaction of the judgement will be paid to injured consumers or the US Treasury. Two additional individuals and three corporate defendants have also settle with the FTC in association with this complaint. The FTC continues to pursue five other defendants in this matter.

Loss Mitigation Services - Dean Shafer, Marion Anthony “Tony” Perry, and Bernadette Perry (aka Bernadette Carr and Bernadette Carr-Perry) settled FTC allegations for falsely assuring consumers they could provide loan modification for an up-front fee of $5,000.

The defendants were were principals of Loss Mitigation Services, Inc. (LMS) and Synergy Financial Management Corporation, doing business as Direct Lender or DirectLender.com (Direct Lender). These individuals allegedly misrepresented themselves as being affiliated with or an actual department of the consumer’s mortgage lender or servicer.

Shafer and the Perrys were also alleged to have promised consumers refunds if they were unable to provide a loan modification. In many cases, the defendants were not able to secure a loan modification and consumers lost their homes, according to the FTC complaint.

• The FTC settlement order includes the following conditions against Shafer and the Perrys:
• Banned from selling mortgage relief services
• Imposes a $6.2 million judgement (suspended due to their inability to pay)

The FTC also secured a default order against Loss Mitigation Services (LMS) and Direct Lender, banning them from selling mortgage relief services and ordering the payment of $6.2 million.

Under the settlement orders, Shafer and the Perrys are banned from selling mortgage relief services. The orders also impose a $6.2 million judgment that is suspended due to their inability to pay. In addition to the orders against Shafer and the Perrys, the FTC obtained a default order against LMS and Direct Lender, banning them from selling mortgage relief services and ordering them to pay $6.2 million.

Hope Now Modifications - Salvatore and Nicholas Puglia, Hope Now Modifications LLC and Hope Now Financial Services Corporation settled FTC allegations that they falsely assured consumers they could obtain mortgage loan modifications and would refund their money if they were unsuccessful. The defendants also claimed to be affiliated with the HOPE NOW Alliance, a free federal homeowner assistance program, according to the FTC complaint.

The FTC settlement order includes the following conditions against the defendants:

• Banned from selling mortgage relief services
• Prohibited from misrepresenting any good or service, violating the Telemarketing Sales Rule, selling or otherwise benefiting from their customers’ personal information
• Required to properly dispose of their customer information

The FTC settlement order also places a judgement of nearly $5.3 million that will be suspended when the defendants surrendering all of the funds in their bank accounts, which are currently frozen by court order.

These settlements are just the latest in a series of investigations focused on marketers targeting financially distressed consumers. Recently, the FTC has also issued warnings to free credit report websites and settlements against debt relief services.

Note: All FTC settlement orders are just that, settlements. They do not constitute an admission by the defendant of violating and laws.

For those homeowners that are having trouble paying their mortgage the FTC has released this video to help you avoid foreclosure scams:

Marketers peddling a “Rapid Debt Reduction” program and false promises to reduce consumers’ credit card interest rates have been fined $1.5 million by the FTC. Under court order the principals have agreed to pay the fine in restitution for their debt relief scheme, which claimed interest rate reductions in exchange for an up-front fee of up to $899. The fines will go to refund defrauded consumers.

This FTC action is just one of several filed as part of a collaboration with law enforcement, known as “Operation Short Change.”

In this FTC complaint principals and affiliates of Mutual Consolidated Savings (MCS) used cold calls, pre-recorded “robocalls,” and the Internet to pitch a fictitious “Rapid Debt Reduction” program. This false debt relief program collected between $690 and $899 from consumers in exchange for promises to reduce credit card interest rates, save them thousands of dollars, and pay off their debt three to five times faster than current repayment plans.

In addition, the defendants allegedly broke numerous Do Not Call (DNC) and Telemarketing Sales Rules (TSR) including calls to consumers on the DNC, failing to honor request to stop calling, transmitting fake Caller ID information, failing to identify themselves on calls, and making illegal robocalls.

• The FTC settlement order includes the following conditions against the defendants:
• Bans the defendants from working in the debt relief industry
• Prohibits them from misleading consumers or helping anyone else mislead consumers about any material facts regarding goods or services they are selling
• Must comply with TSR and DNC rules
• Pay approximately $1.5 million (all available assets) to be distributed to injured consumers
• If the defendants have misrepresented their financial assets they will be ordered to pay the full $22.5 million of alleged consumer injury

Note: All FTC settlement orders are just that, settlements. They do not constitute an admission by the defendant of violating and laws.

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The Federal Trade Commission has issued warnings to 18 websites offering “free” credit reports. The FTC expects each to more clearly disclose the consumer’s right to a free annual credit report under federal law.

According to a press release these warnings were in response to the recent FTC’s amended Free Credit Reports Rule (effective April 2, 2010). This amendment requires that credit report providers more clearly distinguish between “free” credit reports that require the buying of additional services (i.e., credit monitoring) and the federally mandated free annual credit reports available to consumers at AnnualCreditReport.com or 877-322-8228.

The FTC warnings specifically mandate that a disclosure and links to AnnualCreditReport.com and FTC.gov be displayed across the top of each page mentioning free credit reports, throughout the websites. Violations are subject to penalties of up to $3,500 per violation.

The FTC disclosed the following as recipients of these warning letters:

National Credit Report.com LLC

• NationalCreditReport.com

Quinstreet, Inc.

• FreeCreditReport4U.com

MyCreditCenter.com, Inc.

• MyCreditCenter.com
• 3CreditReport.com
• OnlineFreeCreditReports.com

Vertue, Inc.

• My3BureauCreditReport.com
• FreeScore.com
• Free3BureauCreditReport.com
• FreeTripleCreditScore.com
• FreeOnlineReportNow.com

ConsumerTrack, Inc.

• GoFreeCredit.com
• FreeCredit-Reports.net
• Free-Credit-Reports-Repair.com

ConsumerDirect, Inc.

• FreeCredit-Report.net
• SmartCredit.com

Mighty Net, Inc.

• 3FreeCreditReportsUSA.com

Amie Nguyen

• AllFreeCreditReports.com

Amanda Raab

• FreeCreditReportsUSA.com

FTC offers it’s own, tongue and cheek public service website and advertising for free credit reports:

Successful loan modifications are providing debt relief for a few lucky homeowners. However, many are discovering that there is more bad news lurking–a significant ding to their credit. In some cases consumers are seeing as much as 100 points shaved from their credit scores.

US Rep Jackie Spier (D-CA)

U.S. Rep. Jackie Spier (D-CA) doesn’t think that’s fair. Spier’s H.R. 5743, the Protecting Homeowners’ Credit History Act would protect consumers’ credit scores from negative reporting while paying their modified loan payments.

A loan modification can involve a change in the original mortgage term, interest rate, or even a reduction in principle. In all cases a modification alters the original terms of the mortgage contract.

The current practice by many lenders is to report these borrowers and their payments as delinquent or in partial repayment, causing significant damage to their credit scores.

“Homeowners shouldn’t have their credit scores damaged for doing the right thing,” said Speier. “Rather than rewarding responsible homeowners who modify their mortgage payments to keep their homes, the credit reporting system punishes them.”

According to the U.S. Department of Housing and Urban Development (HUD), many of these borrowers are struggling with their mortgage payments because of lost jobs or underemployment–currently the number one cause of mortgage delinquency.

A significant drop in their credit score could wipe out any chance they might have at a fresh start and may even place them in deeper financial peril.

Credit scores are increasingly interwoven into the very fabric of our daily lives. A poor credit score can prevent you from getting a car loan or a cell phone, cause you to pay higher rates for insurance or even prevent you from getting a better job.

With the U.S. unemployment rate already over 9 percent some would argue these practices are not helping consumers recover.

In a statement to the Chicago Tribune, The American Bankers Association argue that lenders need to know that changes have taken place to borrowers’ loans.

“To deny information on modifications being used in credit scores only harms the ability of lenders to evaluate the creditworthiness of borrowers in the future, making it harder to determine a borrower’s ability to repay any future loan,” said Joseph Pigg, vice president and senior counsel of the association.

Nearly a million Americans are struggling through the frustrating process of temporary loan modifications in hopes of receiving permanent mortgage payment relief. Unfortunately, each of these homeowners’ credit scores are taking a beating for the attempt.

This may partially explain alarming research published this month by the Fair Isaac Corp., producers of the FICO credit score. More than 25 percent of American consumers now have credit scores below 599–significantly below the long-term average of 15 percent.

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• Penalties for mortgage modifications are wrong (sfgate.com)
• More homeowners get help outside of federal program (usatoday.com)
• Modifications need not be score-wreckers (seattletimes.nwsource.com)
• Millions of Americans See Credit Scores Plummet (dailyfinance.com)

Mortgage-backed securities took the US economy to the brink of total collapse when US bank over stuffed themselves with these assets. Attracted by the siren song of high yields and illusions that real estate always appreciate and homeowners never default in huge numbers, they learned the folly of their assumptions.

Is the US Federal Reserve headed down the same road? Recently released Fed data shows that their balance sheet has grown to $2.324 trillion, mostly fueled by increased ownership of mortgage-backed securities (MBS) guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. The central bank is now holding $1.129 trillion of these housing agencies’ MBS assets.

The Fed had committed to buy up to $1.25 trillion in MBS and $175 million in Fannie Mae, Freddie Mac, and Federal Home Loan Bank bonds as a part of their rescue of the collapsing mortgage and housing markets. This commitment was scheduled to cease in March 2010, but the Federal Reserve appears to continue to take delivery on these securities.

The US government balance sheet is still highly weighted in supporting a limping recovery from the worst US recession in 70 years. In addition to the bloated mortgage-backed securities and housing related assets on the Fed’s balance sheet, emergency lending to Banks continues to grow. The Fed reports that overnight direct loans to banks, via the discount window averaged $86 million in the current week–up from $41 million in the previous week.

Any silver linings in the financial markets and economic trends are tempered by questions of how much in stability is wholly the result of enormous US government balance sheet support.

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• Agency Mortgage Bonds Return Most to Start Year Since 2002 (businessweek.com)
• UPDATE 1-U.S. Fed balance sheet hits record in latest week (reuters.com)
• Mortgage-Bond Yield Spreads Approach Lowest Level on Record (businessweek.com)

Corporate bonds, bets on the repayment of corporate debt, are experience a sustained rally. Investors are showing a renewed confidence in the global economy as they grab new debt securities in a variety of companies recent capital raises. This rally is currently the longest in four month–approaching the six day bond rally in March 2010.

Retailer Target Corp. was able to raise $1 billion in their bond sales, the first in two years. And in the International markets Dutch chipmaker BV, whose credit ratings are considered in the range of junk bonds, raised $1 billion as well. As a broader indication relative yields fell on more than 8,500 bonds represented in the Bank of America Merrill Lynch’s Global Broad Market Corporate Index for the fourth straight day.

Despite the fears created by the recent fiscal troubles of Greece, optimism seems to be returning for an economic recovery. Greece was able to sell its bills yesterday at interest rates below European Union and Internal Monetary Fund bailout rates–creating some feeling of stability in that region.

On another key front for economic sentiment–mortgage bonds–are showing record low yields. Fannie Mae and Freddie Mac mortgage bonds are approaching record lows relative to US Treasuries, another positive sign.

This is likely to signal a pending increase in mortgage interest rates, but positive economy recovery.

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An early morning report from Bloomberg Businessweek says AIG may be considering giving the US government a position in mortgage bonds to repay a portion if its Federal bailout debt. Ironically, this stake would be in the same “toxic assets” that nearly collapsed the large insurer.

This report is being whispered by unnamed sources close to the potential AIG/US government deal.

The mortgage bonds being considered in this trade would be assets in Maiden Lane II and Maiden Lane III, special purpose entities created in 2008 during efforts to get these impaired mortgages of the New York-based insurers balance sheet.

AIG’s CEO, Robert Benmosche, has already publicly disclosed portions of the companies strategy to repay the $182.3 billion bailout. AIG expects to sell off stakes in two non-US life insurance divisions to retire a portion of their Federal Reserve line of credit. However, this still leaves billions owned to the US Treasury.

The US already has a nearly 80 percent stake in the troubled insurer as a result of the 2008 bailout.

AIG contributed nearly $6 billion to the Maiden Lane entities and is entitled to profits from the entities, following the repayment of the nearly $40 billion loaned to it by the Federal Reserve. AIG is reporting that it has booked a $751 million gain in Maiden Lane III in the first quarter.

However, skeptics think that this rebound is entirely fueled by the Federal Reserves current policies in supporting the mortgage bond market.

There are other market indications that the entities may hold considerable value. Again, unnamed sources in the US Treasury say that there is consideration for the proposal as they believe there is value in the entities, particularly the Maiden Lane III entity. In addition, Black Rock, Inc., who manages the portfolios on behalf of the New York Federal Reserve, elected to keep most of the assets and collect the payments rather than sell them below face value.

As for ongoing AIG company strategy, Benmosche is said to be refocusing the insurer back on its historical competencies–global property-casualty coverage and US life and retirement products.

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• AIG shares jump on report of possible IPO (seattletimes.nwsource.com)
• Maiden Lane goes public (ftalphaville.ft.com)

Have you ever applied for a credit card, car loan, or mortgage? If so you have probably heard the lender talk about your credit score. But, do you know what your credit score is or more importantly how to improve it?

Credit scores are the centerpiece to any decision to lend a consumer money. However, increasingly that all important number is being used to determine whether you can rent an apartment, get a cell phone, or even have affordable insurance.

If a single number has this much control over your life, you had better learn to get control over it!

What is a FICO score?

A credit score may also be call a risk score or more commonly a “FICO score.” This is because it is used as a gauge of risk (or probablity) that you will repay a loan and the mathematical algorithm used to determine the number was developed by Fair Isaac and Company.

This score is the result of the collaboration of lenders and credit bureaus. Anyone who might lend you money or provides you a service on credit can report your payment history to the credit bureaus. There are three main credit bureaus: Equifax, Experian, and Transunion. These credit bureaus take this repayment reporting and combines it with other historical trends and predicts your credit risk, the probability that you will repay future lenders.

Lenders then routinely pull your credit report to determine not only if they will lend you money, issue insurance, or give you a cell phone; but how much and at what price.

See why it’s so important to control your credit score?

How do I improve my credit score?

Controlling and improving your credit score starts with digging a bit deeper into how the score is determined (this break down is not perfect since the algorithm is proprietary, but it is general accepted as accurate):

• 35% is determined by payment history
• 30% is based on the amounts you owe each of your creditors
• 15% is based on the length of your credit history
• 10% is based on the number of recent account opened versus total open accounts
• 10% is based on the types of credit accounts you have

This simple breakdown can give us pretty good insight into how we can optimize our credit score to keep it in tip-top shape. Here are a few simple steps to improve your credit score:

1. Check for errors. There is a very good possibility that there are inaccuracies on your credit report. Lenders often make errors in reporting or fail to report paid-off or closed accounts. A quick review and a couple of letters requesting corrections can give your credit score a big lift.

2. Pay your bills on time. As you can see by the distribution of factors determining your credit score, paying your bills on time is critical. This is also the quickest way to rebuild your credit score if you have past blemishes.

3. Pay down your credit card balances. High credit card balances, versus your available credit limits on those cards are credit score killers. If you have a few extra bucks during the month pay more than the minimum on your credit card balances.

4. Keep credit cards open, but use them responsibly. If you are financially savvy enough to have paid off one or more credit cards or just have some with really low balances–keep them that way. Having a high percentage of your available credit limit available increases your credit score. This is also why you shouldn’t close credit cards you have paid off (assuming you can resist the urge to charge them back up).

5. Pay off, don’t transfer, balances. With years of cut-throat credit card company competition low interest balance transfers became all the rage. This might seem like a short term fix, but usually hurts you in the end. Continually opening new credit cards and transferring balances is a shell game credit bureaus can easily detect and ding your FICO score. Pay balances down, don’t transfer.

6. Don’t open new credit accounts unnecessarily. Consistent with tip number five, if you don’t need credit don’t get it. Unnecessary credit card, retail cards, and signature loans are a liability and temptation.

7. Contact creditors directly if you’re having financial trouble. If you do ever get in over your head with credit resist the urge to hide from creditors. Contacting them immediately is the best way to find a solution and minimize any impact it might have on your credit score.

Your credit score, especially in economic downturns, will directly effect your financial situation. Therefore, it is in your best interest to closely monitor your credit score and manage to as close to perfection as possible.

According to a report just released by FICO, Inc., US consumers are sinking to new credit lows. The credit score bell curve, traditionally skewed above 700, has now drastically shifted below 599. In data released on MyFICO.com, figure show that over 25% of consumer (an estimated 43.4 million people) now have credit scores below 599.

The explanation seems to be the millions of people losing jobs, underemployed, or hit with crisis that have had to rely on debt to sustain their spending.

This report would indicate that this lifeline is running out.

Andrew Jennings, chief research officer for FICO, commented in an interview with the Associated Press that 2.4 million people have moved into the lowest credit score category in the last two years–representing unprecedented credit risk volatility.

Of course, this may not be the worst of it as unemployment and underemployment continue to rise. The Department of Labor reports more than 26 million people still out of work or underemployed and millions still facing foreclosures. These hardships are likely to continue this downward spiral in consumer credit scores.

However, the consumer market may not be completely without a silver lining. The same FICO data reveals an increase in the number of people with FICO scores above 800. This leads experts to hypothesize a general trend (where able) of consumers cutting spending and paying down debt in the face of recession.

The recent volatility in consumer credit risk seems to be changing the shape of the curve. The traditional bell curve is turning into a barbell shape, with consumers either having very bad or very good credit.

This fact will certainly mean that those in the middle, with moderate credit scores of 650-699 are likely to be squeezed out by lenders’ tightening credit standards. The reality is middle-class America, the backbone of any economic recovery is going to be challenged to find affordable housing, autos, and insurance ahead.

This is going to make it more important than ever to learn to manage and improve your credit score.

Mortgage Insurance, also know as Private Mortgage Insurance (PMI) or Mortgage Protection Insurance, is insurance paid by the borrower to protect the lender against their failure to repay the home loan. Lenders require PMI on all home loans that have less than a 20% downpayment, that is a mortgage of more than 80% of the home’s appraised value or Loan-to-Value (LTV).

Piggy-back Loans to Avoid PMI

PMI can be a very expensive additional cost to buying a home, particularly since PMI protects only the lender and provides no benefit to you, the buyer. This is why in recent years many mortgage lenders have created innovative ways to avoid PMI.

The most common way to avoid PMI is by adding a piggy-back loan (second mortgage) to the first mortgage. This second loan, often a home equity loan or home equity line of credit is used to finance the portion of the 20% downpayment the borrower is unable to pay.

The most popular programs are 80/10/10 or 80/15/5; meaning the borrower’s first mortgage is 80% of the home’s value, the second mortgage is 10% or 15% of the home’s value, and the borrower is only left to put down 10% or 5% of the home’s value.

Typically, the second mortgage is held by a second lender so the first lender is still protected with a 20% equity cushion and the second lender is comfortable taking this additional risk of default by charging the borrower a much higher interest rate for the second loan.

Benefits of Private Mortgage Insurance (PMI)

The benefits of PMI to borrower is really very little. It offers you no protection and you are paying to insure that you don’t default on your mortgage payments, all the while making that payment more with PMI.

If there is an advantage it is that you can buy a home with less of a downpayment and finance the cost of the additional required 20% downpayment and the cost of PMI.

The Homeowner’s Protection Act (HPA) of 1998

One of the big injustices of PMI in the past was the even after a borrower would pay their loan down to less than 80% of their loan-to-value mortgage insurers would often continue to collect premiums, often until the loan was paid off. In 1998 this practice was corrected by legislation with the passing of the Homeowner’s Protection Act.

This new law required that mortgage insurer stop collecting premiums when the mortgage was paid down to 78% of the original value of the home or half of the amortization period was reached.

Is PMI Tax Deductible?

In 2007 Congress, under the Tax Relief and Health Care Act of 2006, made another borrower friendly adjustment to mortgage insurance. Now a portion and in some cases (i.e., households with income below $110,000) all of PMI premiums are tax deductible. In some cases this could actually make PMI cheaper than using a piggy-back loan to assist in making the 20% downpayment.

In most situations it is to the borrowers advantage to put 20% down on their purchase of a new home. However, if you just can’t wait and you’re willing to pay a little bit more in interest or PMI premiums there may be options to get a mortgage with significantly less than 20% down.