Countrywide and Bank of America

This is part four of this series but I got tired of calling it "Depressing News," although it still is. In the latest news flash, Bank of America has told David Sambol, currently President of Countrywide, that his services will not be required as, if, and when the proposed merger takes place.  It would appear, however, that he will get the previously promised $28 million in compensation.

In a very kindly worded announcement, BofA said that they wanted the combined mortgage operation run by someone with a "deep understanding of the Bank of America culture and operating model."  Thus it would appear that BofA is buying the chicken coop without the top foxes and that the proposed merger is more likely to occur.

What is to be learned here?  The thing that I see is how blinded those who are benefitting from a structure can be to changes that can and will affect them. Whether it is President Mugabe of Zimbabwe or Angelo Mozilo of Countrywide or an almost successful Presidential candidate, they are part of a culture in which they tell themselves they are so successful that they can't lose. 

There is a fundamental part of human nature that seems to affect all of us.  The quick demise of Countrywide from high-flyer last year to almost bankrupt company being picked up for ten cents on the dollar was appalling only because of its speed. Had you asked Countrywide's highest executives about their prospects a year ago, they would have told you that they were bulletproof.

I want to make the distinction between types of seemingly random events. The type of disaster that hit Parkersburg, Iowa last week was random. You do not know where a tornado will happen, although it is more likely in Iowa than in, say, New York. But if you look at the Parkersburg website at http://www.parkersburgiowa.info/ I defy you to find any consciousness that some 40% of the town would soon be leveled. 

The Countrywide event is different. It is the result of a grave miscalculation of the risks involved in profligate lending. You wonder what Mr. Mozilo's approach to underwriting would have been had all losses been deducted from the $474 million in stock that he cashed in. It's easy to play risky games if you are playing with OPM, Other Peoples’ Money.

What is less understandable it that there was plenty of evidence that strongly suggested that the foreclosure rate was going to be high with subprime loans, perhaps in the 20% range, as now appears to be the case. Notwithstanding the evidence that suggested Countrywide's actions were incredibly risky, they went ahead and did them anyway.

Finally, speculation is that the Countrywide name will also vanish. That is not unusual. Remember that after the crisis of the '80s and '90s, many Savings & Loan Associations changed their names to Savings Banks, a name that appeared more appealing to consumers. But it does seem to be a sad end for one of America's most recognized brand names, even if it is fitting.  The brand joins WorldCom, Bear Stearns, Enron, and a host of others on the scrap heap of American business names brought down by greed. 

Funny Money Friday: Choose Your Own Real Estate Reality

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

All this doom and gloom about the housing market can be a real bummer. Especially if you're a real estate agent. Why put up with it? Why not...make your own news?! Pure genius.

Happy Real Estate News is the brainchild of a statistics company for real estate agents called REality. They've filtered out all the negative statistics, leaving you with pure joy and "positive news coming from many vibrant markets throughout the US." See, there's no need to worry. Zephyrhills is doing just fine. So is Dardenne Prairie and Delhi Township. Here's REality president Leon d'Ancona:

"The problem with glass-is-half-empty stories is that they have an undue psychological impact on markets that is not borne out by all the facts," says d’Ancona. "We know, because it's our business to know, that there are hundreds of cities and thousands of neighborhoods in the United States right now where the market is very healthy, thank you.”

That's right, there are hundreds of cities with healthy real estate markets. That sounds like a lot! Out of how many? Oh, hmmm. There are 30,000 cities in the U.S. Even if he meant 900, that only means that 3% of the American cities have healthy real estate markets? Not exactly a glass half full by my calculations.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Fraud Alert: CentralGroupInc.com and CentralGroupAlliance.com

The underworld of nefarious financial criminals keeps on growing.  We've identified a new loan scam online this week.

A site called CentralGroupAlliance.com or CentralGroupInc.com has stolen some of Credit.com's source code without authorization and has established an advanced fee loan operation. The company's lawyers are getting it shut down. In the meantime, we wanted to put out a warning to any potential victims out there.

CentralGroupAlliance.com is one of thousands of advanced fee loan scams operating across the country. With this scam, the so-called "lender" collects an application and goes through the motions of granting you a loan. During the process they ask you to send a downpayment or insurance payment via Western Union, usually to Canada. After you send the payment, you either never hear from them again or they continue asking you for more money.

There's no way to get your money back after it has been sent. And, unfortunately, very few places you can turn for help after you're a victim. The only thing you can do is to report your case to the anti-fraud agencies FTC and PhoneBusters in Canada.

If you think you might be dealing with a scam lender, here are some signs to watch out for:

• Any lender that asks you to wire transfer a payment is not legitimate. Don't send it.
• A site without any street address listed or contact information aside from an email form.
• An unsecured (not https) application online.
• A lender that emails you a contract as a word document or PDF.
• A website that has only been registered for a few weeks or months. You can get this information with a Whois.net look up.
• A site with no animated VeriSign seal at the bottom of the page.

Hopefully, this information can help prevent new victims of advanced fee loan scams from losing money. Stay safe out there, internet!

Update 6/4/08: CentralGroupAlliance.com has been shut down. CentralGroupInc.com is online and we received a report from a victim who lost $1,500 to the scam.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Eight Great Ways to Combat High Gas Prices this Summer

Back in 1970, my boyfriend and I took a trip across country in my navy blue VW bug. It seemed as though everyone made that trek at least once while they were in college, or soon thereafter. We camped in national and state parks or crashed with friends along our route. With gas costing around 36¢ a gallon, it was a cheap vacation and an acceptable excuse to not getting a job at a summer camp.

Using the Federal Reserve calculator, I discovered that what we paid for a gallon of gas is the equivalent to $2.00 in today's dollars, but it certainly felt more like 36¢ way back when. We could easily afford it, even on the slave wages we earned as grad students.

Assuming a journey from upstate New York, where I now live, to Credit.com's world headquarters in San Francisco (which was better known in 1970 as the home of Haight-Ashbury), we're talking about at least a 6,000 mile round-trip adventure. I think we averaged around 25 miles per gallon (MPG), which means we bought around 240 gallons of gas, for a grand total of $86.40 – the same amount a lot of people have to pay to simply fill their tanks today!

Even using the Fed's $2.00 number, it doesn't seem all that high at $480. Today, of course, you'd have to double that $480 – assuming gas stays at $4.00 a gallon. Wouldn't it be great if you could at least knock that $4.00 down to $3.60 or less for your fun in the summer sun? You can – easily – especially if your credit is very good to excellent. How?

Start Saving NOW 

1. Get a BP Visa Rewards Card from Chase and take advantage of its generous introductory rebate offer of 10% at BP and Amoco gas stations. The 10% rebate is only good for 60 days – perfect for summer travel – then it goes down to 5% at those stations. Plus there's a 0% APR on balance transfers for the first three to six months, depending on your credit picture. You can get 2% rebates for buying gas at other stations and for food and lodging as well, but that's doubled for the first 60 days, as is the 1% rebate on all other purchases. Please note: This is NOT a card to use if you're going to carry a balance. The interest rate is between 13.99% and 20.99%.

2. Fiddle first. If the car isn't moving, but the engine's running, you're getting 0 miles per gallon. Make all adjustments to mirrors, seat belts, hair, children – whatever – before starting up.

3. Stuck in traffic? Turn off the engine whenever you'll be sitting for 60 seconds or more, and you'll save on gas.

4. Pump them up. Properly inflated tires will save money on fuel costs. Buy a decent tire gauge and use it. Also, make sure your tires are properly balanced - another gas-saver.

5. "Higher octane = better performance" is nothing but a marketing ploy. Don't use gas with a higher octane rating than is recommended in your car's owner's manual.
   

6. A tune-up can cut your fuel costs by as much as 20%. The trouble is, today's cars don't need the old-fashioned tune-ups (points, plugs, condensers, idle adjustments) that we got every 15,000 to 25,000 miles in the good old days. See what your owner's manual says on the subject, and also see what else it says about raising your MPG and saving on gas.

7. Use sun shades (the kind you put in the windshield of your car). They'll keep the car cooler and the dashboard and upholstery in better shape. Plus, they'll cut your fuel costs on hot days by reducing the load on your air conditioner.

8. Slow down and chill out! You'll save on gas and you might just save a life. "Aggressive driving (speeding, rapid acceleration and braking) wastes gas. It can lower your gas mileage by 33 percent at highway speeds and by 5 percent around town," according to the EPA, which offers its tips on fuel economy here.

What are your favorite tips for saving money on gas? Please share them with us!

Nancy Castleman – Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 23 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com.

Funny Money Friday: Debt is the New Money

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

Its rare and magical thing when you can combine consumer advocacy with humor.

The Internets Celebrities and Consumerist.com have created a short video expose about check cashing in low income neighborhoods and how it compares to traditional banking. It's the best thing I've seen online  this year; hilarious and educational:

My two favorite lines are "debt is the new money" and "You know you've made it when you move from check cashing fees to ATM fees."

Note: the video contains a few instances of strong language and may be NSFW.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Depressing News – Part 3

The news about Countrywide is getting even worse with CEO Angelo Mozilo making front page news with his inadvertent e-mail slip up. A borrower had written to him requesting help. What he got was an e-mail in response that said:

"This is unbelievable. Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the internet. Disgusting."

He wanted to send this to some other executive by hitting FORWARD but what had happened was that he had accidentally hit REPLY. For those who would like to read the whole story, see:

http://emac.blogs.foxbusiness.com/2008/05/22/countrywides-mozilo-calls-borrowers-plea-disgusting/

For a company that is under siege on many fronts, whose executives are being sued, whose foreclosure practices are being questioned, whose stock is 90% off of its high of 2007, which may, or may not, be "rescued" by a proposed acquisition by Bank of America, this was not welcome news.

While the company is still struggling, guess who is winning? Executives, According to Bloomberg News:

"Countrywide Financial Corp.'s 14 senior executives are expected to receive stock-based awards of $28.5 million upon completion of the lender's sale to Bank of America Corp."

As to foreclosures the popular story that Countrywide would have you believe that they are out there helping struggling homeowners. There is no question but what they have a lot of problems. They have 12,766 homes listed for sale.  See details at http://countrywide-foreclosures.blogspot.com/  Whatever else they are doing is not exactly public knowledge unless you are satisfied with pablum statements like, "We are working with borrowers on an individual basis." 

What I do know is happening is that they are calling from of their biggest and best customers and trying to keep them.  They rank their customers on the basis of which ones are most likely to refinance. An example would be someone with a $1,000,000 5/1 ARM which was about to readjust and roll over into a pure ARM.

If a borrower wanted to try to refinance he would pay a market rate of over 7% for a fixed rate loan and maybe 6.5% for another 5/1 ARM. But Countrywide would call you and offer you a new 5/1 ARM at 5% for a small processing fee. What a deal!!! You can't get that anywhere today.

So why are they doing this? The reason is the value of servicing, what our industry calls the process of receiving payments, sending the money to the owner of the loan, and doing the accounting. This is an extraordinarily profitable business, especially for a $1,000,000 loan. It doesn't cost any more to open an envelope with a $5,000 check than one that contains $50. Countrywide is trying to preserve some of its best assets so that they will still be a valuable acquisition target.

Is this OK? Sure it is!  They have no legal obligation to help troubled borrowers. That is a voluntary problem and who knows whether it is working or not.

However many troubled borrowers they are helping, it seems that most of them are silent, thankful, perhaps, but silent. Who you hear from are those who are angry. They even have a website:  http://www.countrywidehomeloansucks.com/

Take Advantage of this Yard Sale Season to Save Money – Not to Buy More Stuff You Don’t Need

The yard sale season is about to move into full swing here in upstate New York - finally! That means it’s prime time to get bargains on all sorts of things. In the hope of helping you find the best deals, I’m about to share my favorite tips. But first, this important proviso:

If you didn’t need it yesterday, why do you need it now? Buying something you don't need and didn't even know existed five minutes ago is no bargain, no matter how low the price.

If you’ve never gone “yard-saling,” you’re going to be amazed at how cheap everything is. Folks often just want to be rid of their stuff, and if they make a few hundred off their collection of junk, they’ll be happy. Unfortunately for them, that often means they’re almost giving things away.

As Dr. Lori, a certified antiques appraiser, recently wrote:

“I regularly attend yard sales, discover valuable objects for sale for mere pennies and tell the yard sale host to bring that valuable work of art or antique back in the house.

I told Marlene to bring a $175 antique planer back into the house when she had a $10 price tag on it. I surprised Gayle and her family with the news that she was only asking $2 for a valuable oil lamp at her yard sale which was actually worth $95. I informed Dan that the antique lighting fixtures that he removed from his early 1900s fixer upper house priced at $25 at his yard sale were actually worth $1,000 to $2,500.”

Twelve Tips to Money-Saving Yard-Saling

1. Look items over carefully before you buy them. Even though the price may be right, if it’s broken, stained, and/or won’t fit, keep looking. Sooner or later, you’ll find your equivalent of the brand-new black silk jacket I got for just a few bucks.
2.  Keep a hobby-collector-gift idea list and bring it with you. The shopping you do this spring and summer will save you money and time during the holiday season. If Uncle Bob likes to fly-fish, you might want to buy someone’s beautiful collection of homemade lures. If Grandma collects pink Depression glass, keep your eyes out for nice pieces. (Be sure there are no chips!)
3.  Make a deal with the kids. Figure out what their bare bones back-to-school clothing needs are and what your budget will be for each child. Agree that the money they save by choosing perfectly fine clothes at yard sales can be spent on things they don’t absolutely need, even if they’re purchased at the mall. If further bribery might prove useful, you can offer to use the extra money on family excursions, say, to their favorite amusement park.
4.  Make a deal with yourself. The same logic applies when it comes to yours truly. I’m a sweater hound, and although I certainly don’t need another one and wouldn't buy one retail, if it costs less than $3.00, if I love it, if it will fit, and if it’s cashmere, I gladly let myself go for it. You can reward yourself for wearing and using great garage sale finds, too. But I’m sure you’d rather use the money you save to pay down your credit card balances, right?
5.  Bring a family list along, too. Jot down whatever you’ve gotten the kids to agree to, and also add anything you need for the house. This year, I’m looking for a stainless steel or Pyrex fat separator. If I don’t find one by the fall, when it’s time to make chicken soup again, I’ll spring for a new one, but I’ve got months ‘til then. (Feel free not to be quite so practical!)
6.  Cast a wide net. Given the price of gas, it doesn’t pay to drive around aimlessly looking for sales on a Saturday morning. Check the classifieds in the local newspapers. (I can view the ads online for free, even in the paper with the smallest circulation around here.) Also keep your eyes out for signs as you go about your chores and chauffeuring during the week. Look for yard sale ads on supermarket bulletin boards as well as on any online bulletin boards and the Craigslist near you. Plot a route that takes in some sales as you do your errands on Saturday mornings. You’re also bound to see some signs, which brings me to the next tip:
7.  Remember to drive carefully. When you see what seems like a nifty sale, there’s no need to slam on the brakes or leave the car halfway on the road. If you get hurt, injure someone else, or wreck the car, yard-saling will lose its charm. Signal, pull off safely, walk a little, and you’ll live longer.
8.  All other things being equal, go to moving sales, first, as opposed to plain ordinary yard, garage, tag, or rummage sales. They often have the best stuff – things that are in perfect shape but unnecessary in the new house or too bulky to take along. If you're in the market for bigger ticket items, like furniture, televisions, rugs, and refrigerators, these are definitely the sales to focus on. Just be sure you have a plan for how you'll get your loot home.
9.  Be prepared! We usually have rope, a blanket or two, cardboard, and some tools in the trunk. You’d be amazed by the number of things we’ve brought home on the roof of our car from yard sales. One time, someone was giving away a metal shed – for free! It was already disassembled, so all we had to do was pile the pieces onto the car. I think it took two trips, but it was well worth it. We used the shed for awhile, and when it began to fall apart, we used the pieces to kill weeds outside our vegetable patch.
10.  Decide if you want to be an early bird. I am not a morning person, and accept that I won’t get the best selection. But if you’re up and at ‘em on the early side, go yard saling first thing. There is an advantage to shopping later in the day, though – the prices are usually lower and sellers are often much more inclined to hondle (negotiate).
11.  If you have the kids with you, make yard saling into a fun treasure hunt. If they don’t enjoy themselves, they’ll have negative associations with bargain-hunting, which is very bad news for your pocketbook! In the car, talk about what they’d like to find. While you might say NO! to a new toy or trinket at a store, at yard sale prices, you can afford to surprise them by saying YES! without a fight – either to an inexpensive pre-owned find or to a set budget of a few dollars that they can spend as they see fit.
12. Have your own yard sale. You’d be amazed at how much money you can make, how many people you’ll get to see, and how much fun you’ll have. Plus, there’ll be a lot more room in the house and a lot less clutter.

Let us know your yard-saling secrets and successes. How much money do you save (or blow) at them?

Nancy Castleman – Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 23 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com.

Hot Document: Credit Report Training Guide

I was doing some research on credit score formulas online this week and ran across a TransUnion training guide (PDF) for retail credit report users. The guide was apparently created in 2003 to help mortgage brokers, auto lenders and the like decode the old-style unfiltered credit reports.

Real credit geeks will appreciate the detailed insight into all the numeric and cryptic codes that sometimes appear on a credit report. You get a real sense of the credit bureau zeitgeist. Here are two examples:

Date Indicators
A Automated
C Closed
D Declined
F Repossessed/Written Off/Collection
I Indirect
M Manually Frozen
N No Record
P Paid Out
R Reported
S Slow Answering
T Temporarily Frozen
V Verified
X No Reply

MOP Current Manner of Payment
00 Not rated, too new to rate, or approve but not used
01 Pays as agreed
02 30–59 days past the due date
03 60–89 days past the due date
04 90–119 days past the due date
05 120 days or more past the due date
07 Paying or paid under Wage Earner Plan
or similar arrangement
08 Repossession
8A Voluntary repossession
8D Legal repossession
8P Paying or paid account with MOP 08
8R Repossession; redeemed
09 Charged off to bad debt
9B Collection account
9P Paying or paid account with MOP 09 or 9B
UC Unclassified
UR Unrated

The document also lists the expiration dates for various negative records, special triggers and classifications that might come into play on a TransUnion report. Click here to read this five page document.

 Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Using Craigslist and eBay to Make Ends Meet

We've promoted it in our posts about how to make ends meet during an economic downturn and advised consumers struggling to make their mortgage payment to do it...now the statistics are there to prove people it. Consumers appear to be selling on Craigslist and online auction sites in order to make ends meet.

The number of Craigslist sale listings doubled in March 2008 over March 2007.  In this Marketplace story, a residential mortgage banker is out of work and selling his collection of vintage amps and guitars.

If you're considering selling online to raise some extra cash or make ends meet, here are a few tips:

• Watch out for scammers. Online selling can be fraught with fraud and scams. eBay has a great security center full of tips and resources. Craigslist has a similar page of warnings.
• Calculate shipping and "handling."  Be sure to include the shipping, packaging and cost of your time in with your prices.
• Research. Look at postings for similar items to get an ideal of the market price and important features to highlight.
• Be persistent. You may need to list a large ticket item for a few weeks or more to lure a seller.  Repeated postings help keep your sale fresh.
• Find the best place to sell. You may have better luck selling a car through AutoTrader.com or an antique piece through an auction house. You'll pay for these services but should also get a higher price.
• Don't forget the old fashioned garage sale. A few signs, some stickers and an early morning wake-up are all you need to have a garage sale at home. Use this method for lower priced items or heavy pieces you don't want to ship.
• Take a hard look at your finances. Selling off some items can be a good way to raise cash for reducing a debt or covering a short term need, but it isn't likely to solve larger financial problems. If you fear that foreclosure on bankruptcy is ahead, start looking to your options now.

I may be an example of this online selling trend in action. Although, my finances are fine and I'm not struggling to pay a mortgage, I used eBay for the first time last month and made $200! Are you jumping on the online selling bandwagon?  Share your story in the comments section below.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Funny Money Friday: The Map is Always Greener

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

This week's post is more "fun" than "funny." I found a new online widgit to help you procrastinate.

The Federal Reserve Bank of New York has assembled a collection of dynamic maps that track real estate trends. You can drill down by state, county and district to see the share of loans, ARM's, loan delinquencies, no doc loans and foreclosures. 

If you think foreclosures are bad in your neighborhood, take a look at poor Florida and Puerto Rico. Marvel at the high rates of ARMs across the country. Grit your teeth about Arizona, where the appear to be prepping for a big ARM reset.

Click around and play economic pundit from your own desktop!

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Depressing News – Part 2

In Part 1 of this series, I discussed the acquisition of Countrywide by Bank of America, a deal which was announced a few months ago and is to take place later this year. I stated that the value of the servicing portfolio of almost $1.5 trillion was probably the most valuable asset of the company. The lingering questions are what the other assets are worth and what hidden liabilities might yet be uncovered.  You always wonder about when the next shoe is going to drop.

We can now say that another shoe has dropped. A lingering issue has been that of the precipitous decline in the value of Countrywide's stock. It reached a high of $45 per share last year and is now less than $5 per share. Particularly distressing were management's continuing reassuring public statements about the health of the company while they themselves were systematically unloading shares that they owned.

Angelo Mozilo had filed with the SEC a planned liquidation of stock. Indeed, the purpose of these filings is to establish a long-term liquidation plan that is not tied to performance that the executive would know about as an insider. However, Mr. Mozilo kept modifying his plan so as to increase the rate of liquidation of his stock. You'd have to have come to town on a turnip truck not to believe that he increased his sales rate due to the mounting evidence of bad news. Ultimately Mr. Mozilo sold $474 million during a period when his fellow shareholders were getting virtually wiped out.

It should come as no surprise that executives would enrich themselves at the expense of shareholders. That is deplorable but not uncommon practice these days. Those of us on the sidelines in the mortgage business certainly believed it was worse than was being admitted.

However, the Countrywide executives are in a state of denial. Only last week a senior executive admitted that some loan officers may have erred "from time to time." There is a great difference between "from time to time" and "all the time" and "we were encouraging them to cheat." What is more depressing is the extent to which executives seem to have not only condoned but encouraged widespread and ongoing disregard of underwriting standards that resulted in billions of dollars of losses and bringing the nation's largest mortgage lender to its knees.

In a suit filed previously by irate shareholders, a Federal judge ruled yesterday that the executives must answer charges. A report in The New York Times on May 15, 2008 quoted the judge as saying, "It defies reason, given the entirety of the allegations, that these committee members could be blind to widespread deviations from the underwriting policies and standards being committed by employees at all levels."

This is not what has been said in the media. Indeed the politically expedient thing to do is to accuse mortgage brokers. Indeed current legislation being discussed in Congress focuses many additional requirements on mortgage brokers. 

Indeed, malfeasance among mortgage brokers occurred in large part because they were being encouraged by the lenders. The lender's sales people were out beating the bushes telling brokers of lax standards. The brokers knew that the lender would approve most packages they submitted regardless of quality.

My belief is that non-broker entities were at least as culpable. Lenders like Countrywide were just as quick to approve bad packages submitted by their own employees as they were loans submitted by brokers.

This demonstration of the lack of ethical conduct at the nation's largest lender should serve to tell both the public and Congress that new regulations need to apply to everyone in the industry, large and small, brokers and lenders alike.

They and borrowers also need to know that there always have been a large number of mortgage brokers whose ethical standards were never compromised, regardless of temptation. Those people are still in business and are still trustworthy advisors to borrowers who seek them out. A good place to start is http://upfrontmortgagebrokers.org

Reader Question: Help! Sallie Mae Destroyed my Credit Score

A reader wrote in earlier this week with this question:

Did you see the news about Sallie Mae's credit reporting error last week?  Basically, former students on graduated payment plans were reported as behind on payment. It impacted about 1 million loan holders. This brings up two questions:

1) How big is the credit score hit? Some people are claiming their scores took a 100-point hit. Is that possible from just one credit report change?

2) One credit bureau, Equifax, has already fixed the mistake. I thought it normally takes 30-45 days for a correction to go through with the bureaus? 

Our credit scoring expert, John Ulzheimer, responded:

1.  Yes, one black mark can damage your score that significantly. In fact, we've seen many scenarios where scores have dropped >200 points because of something derogatory hitting the credit files. Higher scores will be damaged more by new derogatory information. They tend to act like water...they take the path of least resistance.

It appears that the culprit is the narrative code added to the Sallie Mae accounts.  The code, which is translated as "Arrangements made with credit grantor to make partial payments" is considered negative by the FICO scoring system.  This is a good example of how a seemingly innocent change in reporting practices can be disastrous if done without proper research.  One simple phone call to FICO before this change and this disaster would have been avoided.  Who knows how many people were declined credit or approved at disadvantaged rates and have no idea why.

And, if that text was added to multiple accounts (I don't know if SM reports each financial disbursement as a separate loan and therefore a separate account on a credit report, many student loan companies do) then not only were the consumers damaged by the "negative"  incident but were also damaged by the volume of perceived negative incidents.

2.  The credit bureaus can update information in 24 hours when they're motivated to do so.  In fact, they all support services referred to as "rapid rescoring" or "rapid update" for mortgage lenders who have a pending mortgage for a client.  These fee based services turn around credit file changes/corrections  within a day or two.  The 30-45 day update is for the rank in file disputes.

John Ulzheimer – Credit scoring and credit reporting expert, author and President of Credit.com Educational Services. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

What the Millennials Are Thinking May Soon Change America

A majority of Millennials, people who are between the ages of 18 and 29, "believe that the government can be a force for good in the economy, and that increased investments in healthcare, education, and other areas are necessary to ensure strong and sustainable economic growth." That's a key finding from a just-published study by the Center for American Progress on the economic attitudes of this age group: "The Progressive Generation: How Young Adults Think About the Economy," by  David Madland and Amanda Logan.

The authors mainly relied on two long-running academic surveys that have been asking many of the same questions for decades, which makes it possible to compare the opinions of different age groups (and is music to the ears of this sociologist!). For example, Madland and Logan discovered that:

• Millennials are more likely to support universal health coverage than any age group in the 30 previous years the question has been asked. In fact, 87% of them think Uncle Sam should spend more on health care -- even if taxes have to be increased to pay for it

• A whopping 95% think education spending should be increased, even if taxes have to be raised. They're the most sup­portive age group ever to respond to this question.

• The Millennials overwhelming support increased government services, think the economy is the biggest issue in this year's election, and they're pro-labor union, too.

It's going to be quite an adjustment for me and the other baby boomers out there, but not only are the Millennials more progressive than we are (or were), but there are more of them than there are folks from our generation – and their percent of the population will only increase as we head off to the great bye and bye. Almost seven out of ten of them already think their generation is unique, while only half of the baby boomers feel that way.

What Makes the Millennials So Progressive?
You might think that their viewpoints are due to the hard time they're having with declining incomes, growing debts, and increasingly high costs for health care, housing, education, and especially child care. (For more about the current economic state of young Americans, see my last post, where I concluded "it's not so hot," based on findings from new Demos research.)

Perhaps you're thinking, maybe once they get a little older, their attitudes will moderate. That's not likely, according to David Madland and Amanda Logan, who have reviewed the academic literature and conclude that:

"political ideas and attachments that are developed in early adulthood tend to last. Research suggests that a social­ization process occurs that leads young adults to hold onto the party identifica­tion and opinions that they developed in their formative years. While people’s opinions certainly change throughout their life, they are more likely to hold onto existing views than to reverse them."

The authors also point to independent studies that show the same thing, and "contradict commonly held assumptions that aging leads to conserva­tism" and "cast significant doubts on the idea that the Millennials' economic pro­gressivism will moderate over time." If that's true, and the Millennials will maintain their viewpoints, it seems as though a lot is going to change in this country. This is a politically active generation that not only cares deeply about economic issues, but it's also voting in increasing numbers.

Are you a Millennial, or do you love any? Do these research findings jibe with your viewpoints? How do you think the Millennial's will impact your finances?

Nancy Castleman – Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 23 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com.

Counting Our Financial Industry Blessings in the Midst of the Credit Crunch

I was on a radio show this morning with two other industry experts. The conversation pretty quickly turned to bankruptcy, foreclosure, horrible credit card rates, predatory lenders, debt and the general idea that the financial services industry really wants to see consumers fail. It was pretty depressing.

I'm can be a big pessimist but honestly I don't feel that things aren't quite that bad out there. Yes, there are major problems with the mortgage world, debt levels are high, and the government has been siding with the industry for the past decade or so. But there are also some really good things happening when it comes to personal finance. It's time for another "count-our-blessings" session:

• Online companies are empowering consumers. Free services like Mint.com make it easy for anyone to manage their money like a pro. Sites like Credit.com and CardRatings.com let you compare credit card offers in detail. ING Direct gives you a really high savings rate. Prosper.com facilitates peer-to-peer lending. Fool.com, FannieMae.com, FTC.org, etc. all have huge libraries of free educational tools you can use to learn how the systems work.
• You can borrow money inexpensively. Credit cards, even high rate cards, are an affordable way to borrow money on a short term basis. Borrowing $1,000 for a month on a 13% APR card would cost you a measly $10 bucks, you can't even get lunch for that anymore. And thanks to the fed rate, you can still find historically low rates on auto and home loans. 
• Banks are scrambling to be the "good guy." Some of the giant banks have made it clear that they don't care. But this leaves an opportunity for smaller banks to compete to be different. Washington Mutual has been pursuing this and Wachovia is solidly in place as a consumer friendly bank.
• Regulations are coming. Finally! Hopefully, the new credit card rules are going to be just the tip of the iceberg. The mortgage fall out has created an atmosphere where regulators are finally returning that setting rules is good for consumers and the industry.
• The financial service industry does not want you to fail. Honestly. Consumers are much more profitable to banks and lenders when they are paying their bills and managing their money. This is the reason why it is so hard for someone with a low credit score or a low income to get approved for a loan or credit card. Banks don't want you to foreclose, file for bankruptcy or go into collections, it's as simple as they lose money when this happens.
• Free annual credit reports. That this actually passed is a miracle in itself. Consumers can get a free credit report from each of the credit bureaus every 12 months through www.annualcreditreport.com.
• Consumers are smarter about credit than ever before. When I started in this industry 7 years ago, you were lucky if you could find someone who had even heard of a credit score. Now, pretty much everyone knows the basics of credit reporting and scoring. People are blogging about personal finance and talking about credit, it's amazing!

What are you thankful for in the middle of this credit crunch?

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Tune-in: Two Important Stories

There are two great personal finance stories you should tune into online. First, Jean Chatzky appeared on the Today Show yesterday to discuss the importance of credit scores in light of the credit crunch. She mentioned Credit.com as a source for her credit score facts:

After you watch that clip, tune into this American Life to listen to their episode on the housing crisis. The latest episode of This American Life brings the credit and real estate problems in the US back to a "Giant Pool of Money." It's a great, easy-to-understand explanation of what is happening to the economy.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Reader Question: Is Piggybacking Gone?

Dear Gerri:

I read that you said that piggyback someone else's credit card could help boost your credit score.  My brother called his credit card company to add me as an authorized user and they said it would not help me. I would be a secondary on the card, not a primary.  If I was added as an actual person on the account they have to run my credit score and that would actually hurt me.

Please clarify this for me.  I am very confused.  I am working on increasing my credit so that I can by a house and get a better deal.

Thank you so much for your assistance with this matter.

- Confused

Dear Confused Homebuyer:

Piggybacking used to be a great way to boost your credit quickly. It sounds like you understand the concept, but let me repeat it. You would ask a friend or relative with a major credit card to add you on to their credit card as an authorized user provided they had

a. paid it on time for years and

b. didn't have a high balance relative to the credit limit.

You never even had to use the card for it to appear on your credit reports. Most card issuers reported authorized users to the credit reporting agencies and reported the entire account history when they did. That would result in a positive account with a longstanding credit history on your credit report – and that usually meant a boost to your credit score.

However, due to abuses by credit repair companies that were brokering the rental of authorized user slots on credit cards, this tactic is in the process of being blocked by the credit agencies. We have reported on that change previously on this blog several times. The card issuer could be warning you of this change. It's also possible your brother's card issuer does not report authorized users to the credit bureaus, a policy that may even have been in place before the brouhaha over rented tradelines.

I don't know the extent of your credit issues, or what kinds of problems they are causing you in getting a lower home loan rate, but I would suggest you be cautious about quick fixes. As we've seen with the mortgage meltdown, stretching things to squeak into a loan isn't a great long-term strategy.

If you do want to fully understand your credit report and scores, I would highly recommend my colleague John Ulzheimer's book, You're Nothing But a Number. Read John's straightforward advice and by the time you get done you'll probably know more about credit reports than your loan officer!

Best of luck with your home loan shopping.

Gerri Detweiler – Personal finance author, radio host and credit expert. Gerri contributes budgeting, debt recovery and savings information online.

Funny Money Friday: Icon of the Mortgage Bubble

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

Big economic bubbles seem to always come with mascot or posterchild. For the dot com bubble, the Pets.com sock puppet became an icon for internet companies that were all marketing and no sense. For the 1920's stock bubble, it was the flashy Jay Gatsby. For the 1637 tulip mania, there was the red and white tulip bulb, Semper Augustus, that sold for 6,000 florins when the average yearly income was around 150.

What will emerge as the icon for the housing bubble? I'm putting my money on Ameriquests' "Don't Judge" advertising campaign.

Ameriquest was the nation's largest subprime lender. And they put on an extensive television advertising campaign with the tag line "Don't Judge too Quickly, We Won't". The funny ads presented people being inaccurately judged when caught in embarrassing situations and ended with the phrase "Ameriquest. An open-minded, equal opportunity lender." Here's a sample:

The idea being that Ameriquest understands your embarrassing financial situation and will still give you a mortgage loan. Marketing genius!....Until the company started a tailspin in 2006 with predatory lending lawsuits and big layoffs. In September 2007, Ameriquest stopped taking new loan applications. They were officially #41 on the Mortgage Implode-o-Meter.

It turns out that judging is kind of an important part of the mortgage process. You might know it better by it's other name: underwriting.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Depressing News

It was pretty depressing reading the paper this morning.  The first article I read was about Bank of America and its potential acquisition of Countrywide, a deal made several months ago but not yet consummated.  Several analysts were questioning whether BofA should go ahead with the deal.

A little background information is in order. Countrywide was, like many lenders, running short on cash last year as the credit crisis started. In August 2007 they stuck a deal wherein BofA purchased $2 billion in Countrywide Preferred stock. The capital thus injected allowed Countrywide to continue normal operations in spite of the beginnings of the capital market freeze that is now obvious to everyone.

At the time, Countrywide's common stock was selling for about $22 per share, just about half what it had been earlier in the year.  While Countrywide maintained a positive outlook, even forecasting profitability after their first quarterly loss in its history, the reality of the marketplace was that losses were mounting, as has now been acknowledged.

There was obviously a lot more going on behind the scenes and in January 2008, BofA and Countrywide announced that they were merging. At the share price on the day it was announced, Countrywide shareholders would have gotten about $7 in BofA stock for their Countrywide stock. The stock closed today at about $5 per share.

The questions that was being posed today was, "Should or will BofA go ahead with the merger?"  The question revolves around the issue that everyone in mortgage lending faces today: maybe the assets worth less than I think they are and maybe the liabilities are larger than they appear today.

On the one hand, they are buying a company for about $4 billion that had a market value of $25 billion the year before.  Plus they have access to Countrywide’s customer base and can sell them other BofA products. Sounds like a good deal. But the crown jewel is the Countrywide servicing portfolio.

Remember that servicing is the collecting of payments from borrowers and transmitting the money to the institution that bought the loan. In round numbers, the value of servicing varies as to type of loan but in general the servicing is worth a little less than 1% of the value of loans being serviced.

Countrywide's servicing portfolio is almost $1.5 trillion. That means that the value of servicing is a little less than $15 billion. The way I see it, if you pay $6 billion and get a servicing portfolio worth $15 billion, you got yourself a good deal. You get all the rest of the company, its many offices, its tens of thousands of employees, and all the rest of those assets for free.

But then again there are those liabilities. As Countrywide noted in a press release of first quarter 2008 results:

"securities retained in prior securitizations and nonagency inventory subject to fair value adjustments were written down."

The question is what else is there in the woodpile that you don't know about. 

As much as I worry about am insensitive, bureaucratic, behemoth lender that will have a market share of the mortgage business in excess of 25%, I worry even more about what might happen if they don't do the deal. I don't see how Countrywide can avoid bankruptcy and who knows where that will lead.

As if that wasn't depressing enough, in the next article I read about analysts questioning whether FannieMae and FreddieMac have enough capital!  I'll talk more about that next week.  Stay tuned.

The Economic State of Young America: It's Not So Hot

Today’s young adults are the first generation not to surpass their parents’ standard of living. That’s the key finding of “The Economic State of Young America,” a new research report from Demos, which attributes this change to four main factors:

1. Declining incomes for most young workers. Most strikingly, the earnings for young men – ages 25 to 34 – with only high school diplomas fell by 29%. Unfotrunately, racial disparities continue -- the typical incomes for white young adults were 25% higher than for African Americans in 2006 and 30% higher than for Latinos. Asian-Americans had the highest incomes—11% higher than for whites

2. Growing debt. Here, the statistics are quite amazing:

• On average, credit card debt has increased by 47% between 1989 and 2004 for this age group.
•  Young adults with card debt in 2004 “spent on average 25 cents of every dollar of income to pay all their debt obligations—more than double what Baby Boomers of the same age spent on debt payments in 1989.”
• There has been a 734% increase in the amount college students borrowed in private loans, which typically carry higher interest rates and less flexible payment options than federal loans.

3. High costs – of education, housing, health care, and so on. For example:

• In 2005, 43 percent of young adults spent more than 33% of their salaries on rent, up from 18 percent in 1970.
• Young workers are more likely to have jobs with few or no benefits.
• One-third of young adults do not have health insurance, which makes this generation the one with the highest percentage of uninsured.

4. The expense of child care. Over half of women with a child under age one are in the labor force (up from 31% in 1976). Yet only 39% received paid maternity leave. Full-time care for a toddler costs them between $3,794 and $10,920 a year, according to Demos, while full-time care for an infant rages from $4,388 to $14,647.

"For this generation of young workers, the economy no longer generates widespread opportunity and security, and our public policies haven't evolved to pick up any of the slack,” explains Tamara Draut, director of the Economic Opportunity Program at Demos, who wrote the report. “In fact, many of the problems we see today are a direct result of a disinvestment in the policies meant to ensure that the opportunity ladder is firmly in place."

What Should Be Done?
The Economic State of Young America ends with a series of policy recommendations, many of which have to do with the creation of more good jobs, including:

• “Green collar” jobs, where people would be trained to install energy efficient technology or renewable sources of energy on homes and businesses.
•  Career ladder programs in health and education, where people can receive on-the-job training and time-off for certification to help them move up in these growing fields.
• The removal of barriers to unionization, for example, “in the ever-growing food and retail industry.”
• Making college more affordable and accessible, through what Demos calls “The Contract for College,” where the assorted federal financial aid programs would be transformed into one guaranteed financial aid package for students, with grants making up the bulk of aid for students from low and moderate-income families.
• The regulation of private college loan programs. Demos want Congress to restrict rates and fees, improve disclosures, and restore the right of borrowers to get relief from private student loans in bankruptcy court, which was taken away in the 2005 “reform” of the bankruptcy laws.

Demos also wants Congress to end abusive, deceptive, and unfair credit card practices (for example, universal default), and to create “a universal, easily accessible, portable, and equitable savings vehicle,” which would include incentives to save – for example, a matching tax credit could be direct-deposited into workers’ accounts, say for a down payment on a home. And if Demos has its way, there’d be an end to deceptive mortgage practices and a reduction in foreclosures for people with subprime mortgages. Finally, Demos supports legislation that would put families first, including paid parental leave and a universal, voluntary, early learning and care program.

These all sound like excellent ideas to me. What do you think? What policies would help the young adults in your life – including you, if you are one – to be on a better financial track?

Nancy Castleman – Co-author of "Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent the last 23 years teaching people how to get out of debt, save money, and live better on less. She writes on all these subjects for CreditBloggers.com.