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Posts Tagged ‘lenders’

The U.S. House of Representatives passed by a vote of 357-70 today, a so-called ‘credit-card bill of rights’ bill, following the adding of a provision that will require banks to apply consumers’ payments to balances with the highest interest rates first.

Uncollected credit card debt rose to 8.82% in February, and that’s the highest amount registered by Moody’s Investors Service Inc. since it began keeping records twenty years ago.

The legislation will also require credit-card companies to give forty-five days notice before increasing rates, and require statements to be mailed at least twenty-one days before the payment due date, and the provision will take effect ninety days after the measure is signed into law.

The House bill imposes broader restrictions than those enacted by the Federal Reserve in December, leading House Speaker Nancy Pelosi to say, “Very soon this will be the law of the land, and consumers will benefit. The House action today will give the legislation momentum heading into the Senate, and with a Democratic president who will sign final legislation there is little doubt it will get support needed in both chambers”.

The senior Republican on the House Financial Services Committee, Spencer Bachus, voiced concern however saying, “Too many restrictions will lead lenders, such as Bank of America Corp. and Citigroup Inc., to pull back on credit in the midst of a severe economic decline. Credit cards play a crucial role in the life of ordinary Americans. Any legislation affecting credit-card practices is going to have a profound effect. There are a great number of people whose rates will go up”.

Edward Yinglingm, who is the President and Chief Executive Officer of the American Bankers Association said in a statement, “It is vitally important to maintain access to credit at this difficult economic time. This is especially true for credit cards, which serve as a driver of economic activity and are relied on by consumers and small businesses as way to bridge short-term financial gaps”.

The Obama administration just announced two new programs, that it’s hoped will help homebuyers who are experiencing problems paying their mortgages.

The first program, which should be up and running within a month is intended to help borrowers that have second mortgages stay out of foreclosure, and it will make cash amounts up to $12,000 available to servicers, investors and borrowers who modify loan terms, and a government spokesperson said that as many as a two million participants in the mortgage-modification program may be eligible for the second-lien assistance.

An example of how the plan would work, would be borrower who had a $250,000 interest only, first mortgage and was paying 6% interest. If the housing expenses were equal to 40% of the borrowers income, then the government would pay $2,625 per year, for five years in order to reduce the payments. Moreover, if that same borrower also had a $43,942 second mortgage and was paying 8.6% interest, then the government might, and I say “might”, pay one half of the $2,336 annual cost for five years.

The government’s second plan, is intended to renew interest in the Hope for Homeowners program, which until now has attracted very little enthusiasm from either borrowers or lenders. The program is primarily aimed at borrowers who owe more on their mortgages than their homes are worth, and to make the plan more attractive, the government will now provide a $2,500 incentive fee to loan servicers, and also require them to consider the plan when reworking a mortgage.

Overall reaction to the plans seems favorable, with Laurie Goodman who is an analyst at the Amherst Securities Group LP saying, “The new measures may ease mortgage investors’ concerns that the biggest banks and servicers would be tempted to rework too many loans under the program, in order to bolster their home- equity portfolios. Certainly, it appears that the Treasury has listened to first-lien investors and the announcement goes a very long way toward addressing their objections”.

Treasury Secretary Timothy Geithner said in a statement, “Ensuring that responsible homeowners can afford to stay in their homes is critical to stabilizing the housing market, which is in turn critical to stabilizing our financial system”.