Strategic Delinquency Rates Reach 27%

A strategic delinquency occurs when a homeowner purposefully allows their mortgage payments to become 60 days late, usually shortly after property price drops eliminate much of their equity while they’re attempting to keep other debts repaid. In other words, as homeowners continue to lose equity in their homes because of the dropping property prices, many of them are making the strategic decision to not pay their mortgage in order to keep up with other financial obligations. According to JPMorgan analysts, approximately 12,000 to 14,000 strategic delinquencies have occurred per month during the past year. As a result, strategic delinquencies now comprise as much as 27% of the total new late payments in the United States, rising up from only 20% just a year ago.

Analysts believe that many Alt-A and prime borrowers are choosing to go delinquent even though they have the means to continue making repayments towards their mortgage. Amherst Securities Group Analyst Laura Goodman believes that lenders and financial institutions need to focus on reducing principal in order to provide incentive for homeowners to avoid delinquencies and begin stemming the current foreclosure crisis, which could threaten another 10 million properties if such measures are not taken.

According to recently released Bloomberg data pertaining to August bond reports, a record high of nearly 33% of the $1.2 trillion in securitized nonagency loans have either become at least one month delinquent, are currently in foreclosure, or have already been seized. These statistics not only reflect the decisions of homeowners to go delinquent strategically, they also indicated that there has been a significant slowdown in loan liquidation. According to a recent S&P index, home prices in and around 20 of the largest US cities have dropped more than 30% since their peak in July 2006.

According to Freddie Mac and Fannie Mae analysts, the number of loans that are larger than the limits defined by the federal government for which loans would be backed, is up to almost 40% from 30% a year ago. This statistic indicates that lenders are becoming increasingly dependent on borrowing by applying for more of these “jumbo” loans. The share of Alt-A loans that are expected to be defaulted on strategically has risen from 30% to 35%, while the number of subprime loans that are expected to be defaulted on strategically has also risen similarly from 20% to 25%. In terms of loan amounts, 15% of loans less than $100,000 may be of are at risk for being strategically defaulted on, while 35% of loans larger than $400,000 are likely to be liquidated due to strategic delinquencies.

Surprisingly, individuals with the highest credit scores account for approximately 40% of the strategic delinquencies, while individuals with low credit scores account for only approximately 20%, confirming the suspicion that some of the more sophisticated borrowers are strategically defaulting on mortgage loans to focus on repaying other debts. Because of the high number of strategic delinquencies on nonagency securitized mortgages, approximately 10,000 homes per month are being liquidated, a statistic that has been steady for the past several months. According to Federal Reserve data, the loans that have been strategically defaulted on account for approximately 12% of the overall US home-mortgage debt.

Meanwhile in late September, the California Attorney General said that she would reject the proposal for a nationwide settlement with banks pertaining to foreclosure practices, based on her opinion that the proposed agreement was “inadequate.” According to CoreLogic Inc. (a California real estate data provider), there are nearly 11,000,000 homes that may be foreclosed on within the near future in California, which comprises more than 22% of all the homes in the state have a mortgage. Unfortunately, J.P. Morgan analysts believe that property values will most likely drop another 7% before hitting rock bottom next year.

 

Correcting Erroneous Items on a Credit Report

Credit reports are requested by prospective lenders, credit card companies, and even employers to determine the financial stability of applicants. Whether you’re trying to apply for a profitable job position, obtain financing for your dream home, start a new business endeavor, or simply apply for new credit card, you’ll need to ensure that your credit report is free of negative items and accurately reflects your financial history. Although credit reporting agencies like Experian, Equifax, and TransUnion typically do an excellent job of maintaining the accuracy of their reports, there are some instances in which erroneous items may be filed. Luckily, it is relatively easy to dispute inaccurate information, provided you have the proper documentation and understanding.

Items That Can Be Disputed on a Credit Report

While it is not possible to dispute the credit score itself, you may be able to have negative items removed from your credit report if it can be shown that they are an accurate in any way. After the items are removed your credit score should improve within 30 to 90 days, depending on how long after a new score is issued. The following are items that may be able to be disputed:

  • Outdated Information

It is not uncommon for outdated items pertaining to delinquencies and defaults to be found on a credit report, even after the debt has been fully repaid. In addition, any debts that are older than seven years should not remain on the credit report, and can be removed if brought to the attention of the reporting agency.

  • Inaccurate Late Payments

Many times credit card companies or financial institutions will issue a negative item on a cardholder’s credit report even though the payment was submitted on time. It may be possible to have these notations related to late payments removed if you can prove that they are an accurate. Thus, it’s best to make credit card payments with automated bank transfers or checks that can be recorded and documented in the event that proof is needed during the dispute.

  • Items Caused by Fraudulent Activity

Unfortunately, credit card fraud is becoming increasingly common as fraudsters invent new ways to obtain credit card details over the Internet. Nowadays it is possible for fraudulent activity to go unnoticed for months or even years at a time if you do not closely scrutinize your credit report. Some credit reporting agencies will make the mistake of filing a negative item on your report because someone with a similar name defaulted on one of their loans. Luckily, after being brought to the attention of credit reporting agencies most cases of fraud are removed from the credit report and the credit score returns to normal shortly thereafter.

Filing a Dispute

To maximize your chances of success when filing a dispute with a credit reporting agency it is important to include the proper documentation along with your dispute letter. Although it is possible to file a dispute via e-mail or phone, for the best results it would be advisable to write a formal letter that describes the erroneous/inaccurate item, and why you believe it should be removed from your credit report.  Ideally, you should attach a copy of any statements that relate to the negative item (if applicable), and include a copy of the erroneous credit report with the questionable information highlighted or circled to simplify the job of the person responsible for reviewing your dispute. By filing a dispute in writing with the appropriate documentation attached you can prove that steps were taken to dispute a negative item in the event of a legal suit.

Workers Earning Less Now than at the Height of the Recession

If you have ever wondered why you don’t seem to be able to stay on top of your bills, a recent report issued by the New York Times can answer that question quite easily. You are probably earning at least 6.7% less than you were during the height of what is being called the Great Recession.

It is difficult enough to keep up with recurring bills such as utilities, rent/mortgage, automobile payments, credit card bills but when you are earning $6.70 less on every hundred you make, it is almost unbearable. Not only are you earning less, but prices just keep on going up. Inflation is at a breakneck speed and it does not appear that it will level off any time soon.

According to a study conducted by two former officials of the Census Bureau, the median household income is now at $49,909 which marks a total decrease of 6.7% from December of 2007 when the recession officially began. During the recession household income only fell 3.2% which is why it is so dismaying that we have fallen so low when Washington tells us the recession is over.

Americans are not only unhappy with the current state of affairs, they are downright angry. When polled, most people state that leaders are letting them down and that it’s politics as usual. This does not appear to be good news for either the Democrat or the Republican parties as the caucuses are in full swing.

President Obama is calling the financial situation an official ‘emergency’ and is asking for Congress to pass his jobs bill. Many analysts feel that it doesn’t stand a chance of passing even though there are some strong spots in the bill. However, at a cost of $477 billion, it is more than Washington is prepared to spend at the moment. The bill itself is a blend of public works, tax cuts and unemployment benefits which Republicans are none too pleased with.

The two men responsible for the report on the current state of household income, John F. Coder and Gordon W. Green, Jr. find that the American standard of living is significantly reduced. Oddly, our standard of living is reduced but joblessness is waning as well. They find that there are two main factors contributing to this situation.

First of all, there are growing numbers of people outside the workforce. These are categorized as those neither working nor seeking a job. The second factor is that hourly pay is being held low and is not in keeping with the rate of inflation. Of note are the rises in the cost of oil and food which have risen significantly. What is most surprising about these facts is that during the recession, wages rose faster than inflation.

The pair noted that a great number of people who became unemployed during the recession had to take a sizeable decrease in pay just to get a job again. In fact, the situation is so critical at the moment that many of the country’s leading economists claim that the recession is far from over.

For the average consumer in the United States, this means tightening our belts and really keeping an eye on our own debt. If all you can make is minimum payments, then at least keep up with them. Economists suggest that we charge less, pay more and watch our own personal finances. We could be in for the long haul if things don’t improve soon.

Also, take the time to keep track of your credit report because hard economic times also tend to lead to rising amounts of identity theft. Make sure to order your annual free credit report and score so that you can make sure that everything on your report is of your making. If not, dispute it as soon as possible. Times are not getting easier and you need to know that any debt on your report is fair and accurate.

 

How to Deal with Interest Rate Penalties and Credit Card Repricing

Recent reports indicate that more than 50% of cardholders are now paying penalty interest rates on their card balance. When the interest rate applied to a credit card balance or certain transaction types is suddenly raised this is called repricing. Sadly, the majority of cardholders that are dealing with credit card repricing are not even sure why the penalty interest rate was applied in the first place. Although many times a credit card company will simply charge a one-time fee to penalize a customer for late payments or not paying the minimum amount, in some cases they may apply a permanently raised interest rate. The following paragraphs outline the common causes of interest rate penalties and credit card repricing, as well as how to prepare for and deal with repricing.

 

What Causes Credit Card Repricing

 

Credit card repricing is not always understood by cardholders that are subjected to interest rate penalties, but sometimes the cause of the penalty can be disputed with success. In most cases, credit card companies will hike the interest rate due to a late, insufficient, or missed repayment. However, it is also possible for repricing to be caused by regional economic factors, such as bank interest rates. All credit card companies and lenders have the right to raise interest rates at any time as long as they provide at least 14 days notice to the cardholder or borrower. Thus, it is important to check your mail on a regular basis and be on the lookout for notifications from your card company, so that you may dispute repricing as soon as it becomes evident.

 

Preparing for Repricing

Fortunately, it is possible to adequately prepare for credit card repricing and minimize the possibility of incurring unnecessary debt by understanding the terms and conditions of promotional periods, interest rates, and repayment requirements. It is important to know the expiration date of the promotional period, as this will help you prevent the possibility of being caught off guard and conducting a lot of transactions while you’re under the false assumption that your balance is incurring the 0% introductory interest rate. It is also important to note that some transaction types automatically carry different interest rates than general purchases. For example, a cash advance can carry interest rates as high as 20% APR or more, even if the same card has a 0% APR introductory rate for balance transfers and other transaction types. It is becoming increasingly difficult to avoid penalty interest rates due to the universal default clause, which allows credit card companies to apply penalties to cardholders for defaulting or making late payments on any of their credit cards.

 

How to Dispute Penalty Interest Rates

It is imperative to dispute any unexpected repricing or interest rate penalties as soon as they’re noticed, especially if you’re not sure why the interest rate has been changed. The first step to disputing penalty interest rates is determining the cause by submitting an inquiry to your credit card company either via e-mail or phone. Anyone that frequently utilizes one or more lines of credit should closely examine their monthly statements and always strive to understand any changes in their account status or interest rates. If you find that your card’s interest rates have been risen unjustifiably it is best to write a formal letter or e-mail to request that the rates be returned to the standard or introductory APR if possible. Before zealously disputing a penalty interest rates caused by a late payment, it is important to realize that credit card companies penalize cardholders based on when a payment is processed.