CFPB Releases Student Repayment Assistant

The Consumer Financial Protection Bureau (CFPB) recently released an automated advice system for student debt on their website. This debt assistant asks borrowers questions about their student loans and financial situation in order to provide them with helpful information on how they can effectively repay their debt.
 
After determining what kind of loans a borrower has, the student debt repayment assistant offers such advice as:

  • Call your student loan provider and ask for payment reductions or extensions on bills
  • Enroll in the income-based repayment (IBR) program
  • Defer your loans if eligible

This assistant is but one step in the CFPB’s plan to provide help for student loan borrowers.
 
“The private student loan market is one of the least understood consumer credit markets. It has been operating in the shadows for too long,” said Raj Date, Special Advisor to the Secretary of the Treasury on the CFPB. “Shedding light on this industry will benefit students, lenders, and the market as a whole.”
 
In an effort to live up to this promise, the CFPB is asking the public to give their personal input on private student loans. The CFPB is asking for student loan borrowers to read and submit responses to a questionnaire on their site.
 
“It doesn’t matter whether you have two sentences or two pages of input,” the CFPB wants to receive any and all public input about private student loans, as reported on the CFPB’s blog.
 
The information collected from this questionnaire will aid the CFPB in preparing a report to be brought to congress on student lending.


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Holly Patraeus Testifies on Behalf of Victimized Military Personnel

Holly Patraeus, assistant director of the Consumer Financial Protection Bureau’s Office of Servicemember Affairs, spoke in front of the Senate Committee on Banking in an effort to bring to light financial obstacles military personnel face and to act as a financial advocate for all service members.
 
Wife of the now retired four-star general who was recently in charge of our troops in Afghanistan, Patraeus claims her experience as a wife, daughter, sister, and mother of service members makes her qualified to address military issues.
 
In Patraeus’ testimony before the Senate Committee, she addressed her concerns with the many types of loans that are used to victimize the military.
 
In her personal and professional experience, Patraeus has found military personnel often suffer from “too much month and not enough money.”
 
Predatory lending and horrid financial scams leave many of our troops struggling to pay off expensive debt for years.
 
Car dealers, for example, often congregate around military installations in an attempt to sell service members “clunkers at inflated prices with high financing charges.”
 
Patraeus claims it’s commonplace for dealers to use “spot financing” wherein a member will purchase car with a promise of certain financing, then be told in the following weeks that the financing fell through and that they’re now required to pay more on the vehicle.
 
Given the economic climate, since military service members receive a guaranteed check every month, predatory lenders seek them out. Salesmen who offer payday loans, rent-to-own plans for merchandise, and steep financing for items such as high-priced electronics, all of which just barely skirt the rules governed by the Military Lending Act, often go out of their way to target service members.
 
While not necessarily under lenders’ control, one of Patraeus’s largest concerns is home ownership.
 
She claims military members were hit particularly hard by the housing market crash. When a service member’s home is underwater and they receive a change of station notice, they can’t sell their home for enough to pay off their existing mortgage. Loan modifications and short sales usually aren’t options since the member isn’t yet delinquent on their payment, and refinances aren’t offered since upon moving their home is no longer their principal residence.
 
This often results in members leaving their family behind in their home while they migrate to their new station alone. Upon returning from deployment, the soldier and their family undergo serious family problems due to separation and finances.
 
When service members do fall behind on their payments, they experience harassment unlike that which citizens go through under the same circumstances: 20 to 30 calls a day, threats of reporting their default to military superiors, and even threats to punish members under the Uniform Code of Military Justice, which is a type of law applicable only to those in the military.
 
According to Patraeus, there has even been report of a lender “harassing a surviving spouse of a service member killed in action, insisting that she had to use the money from his death gratuity to pay the debt immediately.”
 
Patraeus claimed her department would persist in their effort to educate the military about financial matters, and to work further with other agencies to fight back against predators and scams pursuing military personnel.


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Government Announces Brief Opportunity to Consolidate Student Loans

Between January 1 and January 30, 2012, the U.S. Department of Education (department) will offer Special Direct Consolidation Loans, which are designed to help borrowers manage their debt by grouping federal student loans into a single bill with a single payment.
 
This special short-term consolidation opportunity is available to those who have both:

  • One or more Direct Loans or Federal Family Education Loans (FFEL) owned by the department and serviced by one of the department’s servicers
  • One or more commercially-held FFELs owned by an FFEL lender and serviced by one of that lender’s servicers

 
While a borrower must have both a department-owned loan and a commercial-owned loan to qualify for this program, only the commercial-owned loans will be consolidated.
 
The eligible commercially-held FFEL loans include:

  • FFEL Subsidized and Unsubsidized Stafford Loans
  • FFEL Plus Loans
  • FFEL Consolidation Loans

 
The loans must be in grace, repayment, deferment, or forbearance to qualify for the program.
 
The consolidated student loans will receive a 0.25 percent interest rate reduction then take on a fixed rate calculated from the average of all the loans, but cannot exceed 8.25 percent.
 
The repayment term on the consolidated loan will remain the same as the current terms on the borrowers’ existing loans, but since there will be an interest rate reduction, the total interest payment over the life of the loan will be smaller than a traditional consolidation program would allow.
 
If eligible, borrowers can still make use of the income-based repayment (IBR) program with these loans.
 
Finally, by turning commercially-held FFEL loans into Special Direct Consolidation Loans, they become Direct Loans, which allow eligibility for the Public Service Loan Forgiveness Program (PSLF). The PSLF grants full student loan forgiveness after 120 payments from an individual employed in an eligible public service job.


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FOMC Announces Interest Rates Will Remain Low

The Federal Reserve Board and the Federal Open Market Committee (FOMC) met on November 1-2 to review the economic trends of 2011’s third quarter and to discuss future economic projections.
 
The FOMC press release revealed that economic growth rose slightly between this quarter and last, suggesting the country had shrugged off some of the negative factors weighing the economy down.
 
It was also mentioned that despite the fact that unemployment remains high and the housing market is still in a slump, household spending has increased and business investments have been on the rise.
 
But the FOMC is hoping to bolster the economy further in the upcoming quarter. As a result, employment and price stability have been pushed to the forefront of the FOMC’s attention.
 
The FOMC expects the unemployment rate to decline in the upcoming years, and come closer to levels on par with their long-term goal—around five percent.
 
They anticipate that inflation rates will settle at levels at or below the FOMC’s long-term goal, but it was announced interest rates would receive their close attention and monitoring.
 
In a conscious attempt to keep inflation rates low, strengthen personal and commercial investment ability and, ultimately, improve the job market, the FOMC said they will keep the federal funds rate at low levels.
 
The federal funds rate is the rate at which banks receive money from the government, and have a direct impact on loans’ interest rates for the public.
 
The target the FOMC seeks to keep federal fund rates at lies somewhere between 0 and 1/4 percent, and rates are expected to remain at these extremely low levels until the middle of 2013.


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Freddie Mac Reports Positive Statistics on Mortgage Refinances

According to a recent release by Freddie Mac, homeowners who refinanced their mortgage in the third quarter of 2011 have strengthened their financial situation.
 
In fact, 82 percent of refinancing homeowners maintained or reduced their mortgage debt, according to the press release.
 
Those who participated in a home refinance “either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the [refinance] closing table.”
 
The reduction rate for a 30-year fixed-rate mortgage averaged around 1.2 percent, which translates to a reduction of around 22 percent in interest.
 
In an effort to further illustrate this reduction rate, Frank Nothaft, Freddie Mac’s vice president, explained “On a $200,000 loan, that translates into saving $2,500 in interest during the next 12 months.”
 
Nothaft gave further details on the current refinancing situation and opportunities by explaining that “Savvy homeowners are taking advantage of some of the lowest fixed-rates in more than 60 years to lock in interest savings. Fixed-rate mortgage rates hit new lows during September, with 30-year product averaging 4.11 percent and 15-year averaging 3.32 percent that month, according to our Primary Mortgage Market Survey.”
 
While refinancing is showing positive results, the report’s statistics for home equity conveys more pessimistic information.
 
At $5.3 billion, the home equity cashed out in the third quarter is down $1 billion from the second quarter. Compared to the boom-time numbers of $83.7 billion held by the second quarter of 2006, the home equity cash-out figures are down a staggering 93.6 percent.
 
This amount of home equity converted to cash is at its lowest level in 16 years.


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Former Google CIO Enters the World of Payday Lending

Former Google executive David Merill is now trying his run at payday lending, according to DailyFinance.com.
 
His new site, Zestcash.com, “uses some fairly high-level Google-esque algorithms to assess its borrowers’ creditworthiness,” according to DailyFinance.
 
From using traditional factors like payment history to exploring new frontiers that Merill feels are revealing, such as a borrower’s cell phone plan, Zestcash hopes to gauge a borrower’s likeliness of paying a loan back.
 
But Merill is receiving a lot of criticism for venturing into what many see as a questionable business.
 
Payday loans have been the recipient a lot of ill-attention in recent years, particularly by politicians looking to pass legislation limiting loans’ high interest rates.
 
“As high unemployment and falling wages continue to push more Americans into poverty, financial innovators like Merrill are on the lookout for new ways to milk profits out of this demographic,” says Huffington Post reporter Catherine New.
 
Merill’s website defends itself by claiming Zestcash loans are not payday loans.The site claims its borrowers set their own payment, can make small payments over time, and offers rates up to 50 percent lower than most payday lenders.
 
But ultimately its loans still have an annual percentage rate (APR) of nearly 400 percent—very similar to that of payday loans.
 
Zestcash loans’ APR then rises if a borrower is late on payment since late fees are administered.
 
Currently, Zestcash loans are only available to those states with no maximum interest rate: Missouri, Utah, Idaho and South Dakota.


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Freddie Mac Reports 95 Percent of Refinances Chose Fixed-Rate

Freddie Mac, the mortgage company created by Congress in 1970, announced yesterday that 95 percent of borrowers who refinanced in 2011’s third quarter chose fixed-rate mortgages.
 
“Regardless of whether their original loan was an adjustable-rate mortgage (ARM) or a fixed-rate,” borrowers clearly favored fixed-rate loans, as stated in Freddie Mac’s release.
 
In fact, only about 37 percent of refinancers who had a hybrid ARM to begin with chose to refinance into an ARM again.
 
To explain this, Frank Nothaft, Freddie Mac’s vice president, said “Fixed mortgage rates averaged 4.29 percent for 30-year loans and 3.47 percent for 15-year [loans] during the third quarter in Freddie Mac’s Primary Mortgage Market Survey, well below long term averages.”
 
The exodus away from ARMs may be due to the negative attention ARMs have received since the bubble, but is also due to the steady nature of fixed rate mortgages. Unlike ARMs, the stable fixed mortgages allow borrowers to lock today’s record low rates in.
 
Citing the recently extended Home Affordable Refinance Program (HARP), Nothaft advises those looking to refinance at even lower rates to consider refinances for shorter terms.
 
“The enhancements [from HARP] provide incentives for eligible borrowers to shorten their loan terms, from 30 years to 20- or 15-years,” said Nothaft.
 
These HARP incentives include eliminating certain risk-based fees for any borrower refinancing into a shorter-term mortgage.
 
Refinancing into a shorter-term loan would also allow borrowers to potentially reach rates almost a full percent lower than today’s 30-year mortgages.


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Disaster Relief Loans Offered to Tropical Storm Lee Survivors in Virginia

Tropical Storm Lee survivors in Virginia are now able to receive low-interest disaster loans from the U.S. Small Business Administration (SBA), as announced this week in an SBA news release.
 
SBA administrator Karen G. Mills made these disaster loans available after receiving a letter from Virginia Gov. Robert McDonnell on Nov. 9.
 
Virginia’s Department of Emergency Management’s website reports McDonnell first appealed to the Federal Emergency Management Agency (FEMA), but his petition for help was denied.
 
“Getting businesses and communities up and running after a disaster is our highest priority at SBA,” said Mills.
 
The loan amounts available are:

  • Up to $40,000 for homeowners and renters to repair and replace personal property damaged in the storm.
  • Up to $200,000 for homeowners to repair and replace damaged real estate.
  • Up to $2 million for businesses and non-profit organizations of any size to repair real estate, equipment, and inventory.

 
These disaster relief loans will be offered with interest as low as 2.5 percent for homeowners and renters, 3 percent for non-profits, and 4 percent for businesses. All of these loans are available with terms of up to 30 years.
 
The deadline to apply is January 13, 2012 for physical property damage loans, and August 14, 2012 for economic injury loans.
 
A Disaster Recovery Center will open this week, allowing survivors to have questions answered, the loan program explained, and to help complete and submit the applications for these loans.
 
Individuals and businesses unable to make it to the Disaster Recovery Center can get information and applications by either calling the SBA’s Customer Service Center at 1-800-659-2955, emailing disastercustomerservice@sba.gov, by download at www.sba.gov, or by direct application at https://disasterloan.sba.gov/ela/.


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The FDIC Announces a Possible Replacement for Payday Loans

Martin J. Gruenberg, chairman of the Federal Deposit Insurance Corporation (FDIC), gave a recent speech that covered some of the FDIC’s steps taken to curb the harmful effects payday loans have had on lower-income and minority families.
 
After determining “7 percent of U.S. households [who] do not have bank accounts, and another nearly 18 percent who may have an account still utilize non-bank financial services such as check cashers and payday lenders,” as stated by Gruenberg, the FDIC is shifting focus to “expanding access to insured financial institutions to all Americans.”
 
The measures the FDIC has begun to take include the testing of a project recommended in the past: the Small-Dollar Loan Pilot Program.
 
This program’s aim is to provide banks with a business model that would allow them to offer the same services payday lenders offer, but to allow those services to be profitable to both borrowers and banks alike.
 
The loans offered by this program are for $2,500 or less, have a term of 90 days or less, and carry an annual percentage rate (APR) of 36 percent or less. They have low origination fees, if any, and banks’ decisions to offer the loans are to be made within 24 hours of receiving an application.
 
Gruenberg reported that after testing the program on 28 volunteer banks, the Small-Dollar Program “demonstrated that banks can offer safe, affordable small-dollar loans as an alternative to high-priced sources of emergency credit.”
 
He said the FDIC is “hopeful that the results of the testing will encourage more banks to offer such products.”


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Majority of Americans Oppose New Government Agency

According to a press release by the U.S. Chamber of Commerce, a new survey reveals the majority of Americans would have opposed the creation of the Consumer Financial Protection Bureau (CFPB) if they had more information about the bureau’s power.
 
Largely in response to the housing crisis, the CFPB was established in 2010 as a result of the Dodd-Frank Act with the purpose of protecting borrowers from abusive or predatory financial practices.
 
But Harris Interactive, the company hired by the U.S. Chamber of Commerce to conduct the survey, exposes the public’s true feelings about this agency established to protect them.
 
When the survey revealed to its testing sample that the CFPB “has access to more than half a billion dollars in government funding each year, and does not need congressional approval to spend this money,” 68% said they were less likely to support its creation.
 
When told “the CFPB is run by a single director confirmed by the Senate for a 5-year term who can only be removed from power by the President in extreme circumstances,” 64% were less likely to support the creation of the CFPB.
 
According to the survey, this powerful bureau also has the ability to ban features of products or entire products that it deems unfair.
 
David Hirschmann, president of the Chamber’s Center for Capital Market Competitiveness, said “This poll shows that when the American people learn about the CFPB, they are wary of its broad powers, unaccountability to Congress, and direct funding outside the budget process,” according to the press release.
 
“For this agency to succeed, it must provide accountability to the American people at a time when jobs and our economy are at stake,” Hirschman continued.
 
With $500 million at the disposal of a single director who cannot be fired except by the President of the United States, Hirschman’s statement about the American peoples’ attitude may not be that inaccurate.
 
The extraordinary power this bureau gives a single, unchecked director prompted 44 republican senators to send a letter to President Obama declaring their unwillingness to confirm any nominee to be the director of the CFPB—regardless of party affiliation—according to a press release by Senator Ard Shelby earlier this year.


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