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CAPITAL REGION
Homeowners in area struggling
‘Avoid foreclosure’ classes offered
BY JAMES SCHLETT Gazette Reporter

    For years, homebuyer assistance groups such as Better Neighborhoods and the Albany County Rural Housing Alliance have held workshops that outline steps consumers should take before purchasing a house. Starting next month, those organizations will launch foreclosure prevention classes.
    Even as the Bush administration rolls out a plan to temporarily freeze mortgage rates for some subprime borrowers, area legal and housing experts say demand for those foreclosure classes will be strong.
    Attempting to cut off a surge in potential defaults on adjustablerate mortgages in 2008, President Bush on Thursday announced the mortgage industry will voluntarily freeze certain ARM rates for fi ve years. That move comes as the nation’s nearly two-year-old sub- prime mortgage crisis careens toward a tipping point.
    Although the subprime industry was less active in the Capital Region than in other parts of the country, it has taken its toll on the area. And even before the ARMs adjust next year, many homeowners are struggling to pay their monthly mortgage bills as rising energy costs, job losses, taxes and other problems send them further into debt.
    “It’s going to help some people a little bit. But a lot of people I see are having a hard time with their mortgages before they adjust,” said Patricia Hall-Murray, a housing counselor for Better Neighborhoods Inc. in Schenectady.
    The administration’s rate-freeze plan will apply to loans made between Jan. 1, 2005, and Jan. 31, 2007, with rates slated to reset between Jan. 1, 2008, and July 31, 2010. Many mortgage brokers lured consumers with poor credit ratings into ARM products with low “teaser” rates that are fixed for usually one to five years. When those rates reset, they can add thousands of dollars to homeowners’ monthly bills.
    An estimated 1.8 million owneroccupied subprime mortgage resets will occur in 2008 and 2009. The administration said 1.2 million of those subprime ARM borrowers could qualify for affordable refi - nanced or modified mortgages. To be eligible for the freeze, borrowers need to be current on their mortgage payments by year’s end.
    “Most of the people I see are in default or foreclosure, and this program is not set up to help them,” said Tracy Petersen, a housing consulting coordinator for the Affordable Housing Partnership in Albany.
    The subprime crises is hampering Wall Street, as more financial firms such as Citigroup and Morgan Stanley get caught with souring loans. The subprime collapse has prompted banks to tighten their lending practices, making it harder for Americans to take out mortgages.
    An estimated $514 billion in loans are set to reset next year and $398 billion in 2009. Seventy percent of those loans in 2008 and 37 percent of them in 2009 went to subprime borrowers, according to a report by Banc of America Securities, the investment banking arm of Bank of America Corp.
    “I don’t think the impact will be great because the need has not been great,” said Doug Engels, a broker and co-owner of the Weichert Realtors Northeast Group in Guilderland.
    Two key factors are shielding the region from the nation’s subprime crisis, Engels said. They are the low number of subprime ARMs issued to area borrowers and the continued growth of home values.
    While home values have plunged in Florida and California, making it harder for borrowers to refinance into fixed-rate mortgages, the greater Capital Region’s median sale price rose 2 percent over the first 10 months of this year.
    In October, the number of New York households in pre-foreclosure stages shot up 51.4 percent to 6,519, compared with a year ago. Currently, Albany County has the largest number of houses in the region in pre-foreclosure at 217 houses, followed by 128 in Schenectady County. Rensselaer County has 112 houses in pre-foreclosure and Saratoga County has 107, according to RealtyTrac.com  an Irvine, Calif., home foreclosure and sale monitoring service.
    A growing number of Capital Region homeowners are also seeking protection from the subprime crisis in bankruptcy court. Many of them are filing for Chapter 13 protection, which halts the foreclosure process while they develop plans to repay their debts. Bankruptcy filings in the U.S. Bankruptcy Court in Albany rose 1.6 percent during the first 11 months to 3,323, compared to the same period of 2006.
    “It might be helpful, but I don’t think it’s going to solve the problem,” Paula Barbaruolo, a Latham bankruptcy attorney, said of the rate freeze.
    Barbaruolo said the administration needs to get the mortgage industry to streamline its onerous loss mitigation process. During that process, homeowners, housing counselors and lenders negotiate new payment terms. While major lenders such as CitiMortgage and Chase Home Finance have been more open to working with borrowers in default, many others have not been so helpful, said Petersen.     

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2 million subprime borrowers

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Subprime loan woes hit retailers
Consumers are cutting back on holiday spending due to crisis in home industry
BY ADRIAN SAINZ The Associated Press

    Jackie Castleberry won’t be playing Santa Claus this year.
    She usually buys her grandchildren, nieces and nephews lots of gifts around the holidays — bicycles, educational games, clothes — but this year she is just struggling to keep her North Las Vegas, Nev., house.
    The interest rate on her fourbedroom home loan shot up in October and she is $6,000 behind on her payments. She now owes $168,000 on her home, which once was worth $220,000 but is now worth about $150,000. In the past, when times were tough, she would borrow against her home’s equity — that’s no longer possible.
    “I was always seen as the person that’s giving, but it’s kind of affected this year,” said Castleberry, a former casino buffet supervisor who now makes $11 an hour, 30 hours a week, supervising children before and after school. “This year, I can’t see anything right now as far as gifts.”
    Castleberry is just one of thousands homeowners nationwide who can no longer finance their spending by tapping into their once inflated, now depreciating home equity. Others can no longer afford their higher monthly payments due to a reset in their adjustable rate mortgages and have been foreclosed.
    The crisis is taking a toll on consumer spending, particularly in areas that have been hit hardest like Florida, California and Nevada. And it is one of the biggest factors behind what is expected to be the weakest holiday season in five years.
    Nevada, California and Florida have posted the highest foreclosure rates in the country for the past several months, according to Irvine, Calif.-based RealtyTrac Inc. In October, Nevada reported one foreclosure filing for every 154 households; California’s rate was one for every 258 households; and Florida had one for every 273 households — up nearly 165 percent from October 2006’s total.
    Mark Zandi, senior economist with Moody’s Economy.com, said the housing downturn is “weighing increasingly heavily on retailers and will play a significant role during the holidays.” In the second half of 2006 and the fi rst quarter of 2007, mortgage equity withdrawals were at a peak of $850 billion on an annualized basis, Zandi said. But in the third quarter of 2007, that number had fallen to $550 billion.
    Nevada’s overall sales tax revenue was down 4.7 percent in August from a year earlier — marking the first drop since right after the Sept. 11, 2001, terrorist attacks.
    “The decline in house prices and homeowners’ equity is making it difficult for homeowners to pull out equity for their homes, and therefore they don’t have the cash to spend as aggressively,” Zandi said.
    And that’s also hurt people employed in the real estate and mortgage businesses.
    Last year, Leo Rojas could spend liberally on Christmas gifts for his 7-year-old son and 14-yearold daughter and the employees at his Miami-based mortgage company, which was processing 50 home loans a month. He bought a video game system and a slick toy all-terrain vehicle for his kids and Movado watches, expensive pens and Walt Disney World trips for his workers.
    But this year, his company is processing five loans a month. He has closed offices, laid off employees and is selling cellphones to make ends meet. He estimates he’ll spend about a quarter of what he spent last year on gifts, with his children getting a phone, clothing and perfume or cologne.
    “We’re finding ourselves going back to the basics,” Rojas said. “We made a decision that we’re only going to give to our immediate family, as opposed to last year when we gave to all our family and our friends and our friends’ kids.”
    Many retailers have curtailed inventory levels and others started promotions earlier than before. Discount stores could benefit from a trade-down effect among consumers seeking better pricing over department stores, while home-related retailers such as furniture stores offer deals to stimulate sales. Luxury stores may be OK, considering that more affluent people tend to weather economic downturns more easily, analysts noted.
    “The housing market has caused a dent in our appliance sales,” said Bobby Johnson, senior vice president of Hollywood, Fla.-based BrandsMart USA. “But people seem to be buying flatpanel TVs, as many as they were before, if not more, because of the price erosion.”
    Conrad Szymanski, president of Bradenton, Fla.-based Beall’s Department Stores, an apparel and homewares retailer, said he’s seen an uptick in sales near the end of the year, partly due to an annual influx of seasonal visitors. But Florida still is seeing “some mounting headwinds” due to the housing situation, coupled with high home insurance and property taxes, he said.
    “In Florida, we have enjoyed a number of just fantastic years in a row,” Szymanski said. “In those years we aggressively went after market share with additional inventory. This year we’re taking a more cautious approach with regard to inventory.”
    Wachovia Economics Group senior economist Mark Vitner, said this season is a “little odd” because there’s no must-have item sending people flocking to stores.
    While all things Hannah Montana are hot, and shoppers are seeking hard-to-find Nintendo Wii consoles and video games like Guitar Hero 3, there is very little that is creating a consumer frenzy.
    And Miami-based analyst Tony Villamil said the middle retailer would probably feel the most pressure as people seek to trade down from department to discount stores.
    “This is a time for aggressively using the marketing mix of pricing, promotion and discounting to attract the consumer wallet,” Villamil said.
    Plenty of locally owned stores are facing a struggle. In California’s San Joaquin Valley, Christina Perret said the foundering housing market has caused sales to sag at her three high-end women’s fashion clothing shops and forced her to reconsider her stock.
    Perret’s gotten rid of racks of flashy tops with plunging necklines that were favorites with real estate agents, substituting a line of conservative sweaters popular with farmers’ wives.
    “We’re going after the wives of dairymen and women in agriculture because their economy is so much more stable,” said Perret, 25. “Even moms who come in shopping with their daughters for prom aren’t wanting to spend as much now. They want to buy dresses for $200 max and know their daughters can wear it at graduation next year.”
    Sal Arroyo, who manages a Western wear store in Fresno, Calif., said selling $300 ostrichskin boots is a challenge, since sometimes as few as 10 shoppers come in each hour.
    “Money’s really tight and that’s hard for us,” Arroyo said.
    Money’s also tight for Deborah Vick, a Las Vegas home loan officer who says she’s cut back on spending since the housing slowdown took hold and cut her salary in half. She used to have a BMW and a Land Rover, but had to give up the BMW to a company that took over her $600 a month lease.
    “If you have to give up a luxury item, which you probably shouldn’t have purchased in the first place, you know, for me it was a learning experience,” she said.
    “My daughter’s having a fabulous holiday. She always does,” Vick said. “Am I going to go buy myself another car this year? No.”

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Farley ‘appalled’ by rise in risky loans
Montgomery County leads subprime list in New York

BY BOB CONNER Gazette Reporter

    Montgomery County led the state in 2006 in subprime loans, with more than 40 percent of housing loans falling into that higher-cost, higher-risk category, according to figures released Thursday by state Superintendent of Banks Richard Neiman.
    Statewide, the percentage of subprime loans increased to almost 28 percent by the end of last year, Neiman said. The 40.12 percent figure for Montgomery County is from 2006, and shows an increase of almost 10 percentage points from 2005. It is the highest percentage in the state, closely followed by the Bronx, Neiman said in testimony before the Senate Committee on Banks.
    Sen. Hugh Farley, R-Niskayuna, chairman of the committee, said he would work with Neiman on legislative proposals to address the problems with the subprime lending market.
    “I was appalled” to see the Montgomery County figure, said Farley, who represents the county.
    Cassie Walbrodt, Neiman’s special assistant, could not provide details after the meeting that might explain the high rate of subprime loans in Montgomery County.
    Neiman also released a top 10 list of counties with the highest percentage of homes in foreclosure, which did not include any in the Capital Region. Walbrodt said, however, that the increase in subprime lending in Montgomery County could result in a future increase in foreclosures there.
    Peter Edman, Farley’s staff director of the Committee on Banks, said the senator wants to find out what is behind the Montgomery County data. He said the expansion of subprime lending is not an entirely negative phenomenon, because in some cases it makes credit available and home ownership possible for poor people who might not previously have qualified.
    Neiman said the Spitzer administration would propose legislation to “require more in-depth evaluation of a borrower’s ability to repay, prohibit certain loan practices, clarify mortgage brokers’ duties to borrowers, and further strengthen state enforcement tools.”
    Farley said the committee would work with the Democratic governor’s administration on a bipartisan basis. “The committee is unanimous in its support for trying to address this problem,” he said.
    Several senators tried unsuccessfully to get Neiman to identify financial institutions that have taken advantage of borrowers and helped create the crisis. Sen. John Bonacic, R-Orange County, suggested that the Banking Department should list the worst mortgage brokers on its Web site, so as to discourage borrowers from dealing with them.
    Sen. Liz Krueger, D-Manhattan, spoke about “a well-orchestrated attempt to defraud people of their homes and their savings all over the state.” Farley, however, said the problem is worse in other states.
    Edman said Farley has sponsored a bill, which has never passed the Assembly, to create criminal penalties for mortgage fraud.
    Farley and Neiman said the state is waiting to see what legislation emerges from Congress, which is considering tougher regulations. But Edman said a consensus bill on the state level may emerge next year.
    Last week, Spitzer said a Bush administration initiative to freeze interest rates on subprime mortgages “is a constructive first step, [but] does nothing to help thousands of homeowners in New York who are already more than 30 days in default.”
    Meanwhile, the State of New York Mortgage Agency on Thursday allocated $20 million to extend the Homes for Veterans Program, which helps military veterans buy homes with low-cost mortgages, and its Closing Cost Assistance Loan product, which helps SONYMA borrowers finance new homes by providing funds for closing costs.

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Mortgage mess prompts calls for response
BY ALAN ZIBEL The Associated Press

    WASHINGTON — Support is growing on several fronts in Washington for mortgage industry reforms and homeowner assistance programs with broader potential impact than the Bush administration’s plan to freeze interest rates on a small percentage of home loans.
    So far, the government has pursued modest responses to this year’s surge in mortgage defaults and home foreclosures. But mounting foreclosures, fears of a recession and an upcoming election are prompting a range of more aggressive proposals from Congress, the Federal Reserve and consumer groups.
    The Bush administration favors restraint, with President Bush saying Monday that “the government should never bail out lenders.” Still, the president noted that Treasury Secretary Henry Paulson is working with Rep. Barney Frank, D.-Mass., on a plan to allow Fannie Mae and Freddie Mac to finance larger loans, in conjunction with tighter regulation of the government-sponsored companies.
    Several housing-related bills had been stalled in Congress for much of the year. On Friday, though, the Senate overwhelmingly approved bills that would allow more government-backed loans to borrowers with weak credit and permit homeowners to receive tax-free mortgage forgiveness from their lenders. The IRS currently taxes any loan forgiveness as income.
    These two measures have bipartisan support and appear likely to be signed by the president next year. Other proposals are more divisive and likely to be the subject of heated debate in Congress.
    The Federal Reserve is expected today to propose a new set of reforms for the home-loan market, including requiring lenders to borrowers with spotty credit to set aside money for property taxes and insurance, and restricting loans that do not require proof of a borrower’s income.
    However, the Fed’s actions are unlikely to diminish Democrats’ desire for stricter protections for borrowers. Analysts say House and Senate Democrats are likely to push for more stringent restrictions next year.
    “The drumbeat of bad news about mortgage delinquencies and foreclosures will keep the issue at the front of the policy debate,” said Douglas Elmendorf, a senior fellow at the Brookings Institution.
    Several proposals are already being floated:
    Alan Greenspan, former chairman of the Federal Reserve, suggested in a TV interview over the weekend that more government intervention was needed to help borrowers. “Cash is available and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this,” Greenspan said Sunday during an appearance on ABC’s “This Week,” offering few specifi cs.
    The Center for American Progress, a liberal public policy think tank, last week proposed the creation of a new government agency, the Family Foreclosure Rescue Corp., that would help borrowers whose home value has declined to less than that of their mortgage by providing fixed-rate loans and issuing government-insured bonds to pay for the efforts.
    Democrats and consumer groups are advancing legislation to bar abusive lending practices and to allow bankruptcy judges to reduce the size of a borrowers’ home loans in court. Advocates say this change could help 500,000 borrowers or more, compared with around 250,000 likely to be helped by the Bush administration’s plan to freeze introductory interest rates for some borrowers.
    Some Republicans and lending industry lobbyists warn that an overreaction in Washington will limit access to mortgage loans just when they are needed most.

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and restricting loans that do not require proof of a borrower’s income.

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AS OTHERS SAY IT Bush’s mortgage plan does just enough

    Large-scale government intervention to remedy the bad investment decisions made by individuals never is the ideal course, but the prospect of a million-mortgage meltdown with far-reaching effects on the U.S. and world economies makes some action justifiable.
    The deal worked out between the Bush administration and leading mortgage lenders appears to be appropriately limited in scope and duration.
    The plan doesn’t put taxpayers on the hook with a bailout that the nation can’t afford. By limiting the freeze to those mortgages that are not delinquent, it avoids rewarding borrowers and lenders who struck deals that were unsustainable from the start.
    --The Columbus (Ohio) Dispatch

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Federal Reserve proposes new lending rules
BY JEANNINE AVERSA The Associated Press

    WASHINGTON — The Federal Reserve moved Tuesday to protect home buyers from dubious lending practices, its most sweeping response to a mortgage meltdown that has forced record numbers of people from their homes.
    The Fed has been under attack for not doing more to stem the crisis as hundreds of thousands of people lost the roof over their head. The situation raised the odds the country will fall into recession, unhinged Wall Street, racked up multibillion losses for financial companies and resulted in political finger-pointing over who was to blame.
    The proposed rules, endorsed by the Federal Reserve Board in a 5-0 vote, would crack down on a range of shady lending practices that has burned many of the nation’s riskiest “subprime” borrowers — those with spotty credit or low incomes — who have been hardest hit by the housing and credit debacles. The rules also would curtail misleading ads for many types of mortgages and bolster financial disclosures to borrowers.
    “Unfair and deceptive acts and practices hurt not just borrowers and their families, but entire communities, and indeed, the economy as a whole. They have no place in our mortgage system,” Fed Chairman Ben Bernanke said. “We want consumers to make decisions about home mortgage options confidently, with assurance that unscrupulous home mortgage practices will not be tolerated,” he said.
    If ultimately adopted, the plan would apply to new loans made by thousands of lenders of all types, including banks and brokers. It would not cover loans already made.
    The proposal would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower’s income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower’s ability to repay a home loan from sources other than the home’s value.
    The plan disappointed both supporters and opponents of tougher home-lending regulations.
    Mortgage lenders worried that the Fed plan was too tough and could crimp customers’ choices. “We worry that some of the product restrictions could make it harder for bankers to tailor products for their customers and communities and result in some creditworthy customers not being able to obtain a loan,” said Edward Yingling, president of the American Bankers Association.
    Consumer groups and Democrats in Congress complained that the proposal doesn’t provide sufficiently strong safeguards for borrowers.
    “The Fed has done too little, too late,” said Kathleen Day, spokeswoman for the Center for Responsible Lending, a group that promotes homeownership and works to curb predatory lending. “We don’t think it is strong enough to protect people in the future and does nothing to help people left holding the bag now,” she said.
    Consumer advocates wanted an outright ban on prepayment penalties. These penalties, they say, deter homeowners from refinancing on more favorable terms. The penalties can be hard on borrowers who want to get out of adjustable-rate mortgages that reset from a low introductory rate to a much higher one they have trouble paying off. However, mortgage industry representatives argued that prepayment penalties ensure that lenders receive a minimum return if loans are paid off early, and can provide borrowers with a benefit of lower upfront costs or lower interest rates.
    Another disappointment to consumer groups: to make a case for a possible violation, the lender has to have engaged in a pattern of making loans without considering the borrowers’ ability to repay. An individual incident would not be sufficient by itself.

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The Federal Reserve moved Tuesday to protect home buyers from dubious lending practices, its most sweeping response to a mortgage meltdown that has forced record numbers of people from their homes.
    The Fed has been under attack for not doing more to stem the crisis as hundreds of thousands of people lost the roof over their head. The situation raised the odds the country will fall into recession, unhinged Wall Street, racked up multibillion losses for financial companies and resulted in political finger-pointing over who was to blame.

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Morgan Stanley posts loss, borrows from China
The Associated Press

    NEW YORK — Morgan Stanley, the No. 2 U.S. investment bank, reported a $9.4 billion writedown on Wednesday from bad bets on mortgage-related debt, leading it to take a $5 billion infusion from an arm of the Chinese government.
    The writedown, nearly triple what Morgan Stanley warned of in November, pushed the investment house to the first quarterly loss in its 73-year history. Chairman and Chief Executive John Mack accepted blame for the fiscal fourthquarter loss, and said he would forego his annual bonus, which last year topped $40 million.
    Morgan Stanley becomes the latest on Wall Street to be punished by the unfolding credit crisis — and to be forced to reach out to a foreign government to secure a major investment to shore up its books. Major global banks have lost $100 billion in the past six months alone.
    “The results are embarrassing for me, and our firm,” Mack said on a conference call with analysts. “Ultimately, accountability for our results rests with me.”
    Mack aggressively expanded Morgan Stanley in the past year into the home loan industry, and trading in securities that support it. That strategy backfired, and Mack pinned the disappointing results on “isolated losses by a small trading team in part of the firm” whose members were fired.
    Similarly large writedowns have already caused the ouster of Merrill Lynch & Co. CEO Stan O’Neal and Citigroup Inc. CEO Charles Prince. Last month, Morgan Stanley pushed out co-President Zoe Cruz in a broader shakeup of its top ranks.
    The writedowns also caused a number of global banks to seek capital from sovereign wealth funds, such as China Investment Corp.’s investment in Morgan Stanley. China’s governmentcontrolled investment vehicle will hold no more than 9.9 percent of the investment bank once its investment converts to common shares in 2010.
    Morgan Stanley said it lost $3.61 billion, or $3.61 per share in the fourth quarter, compared to a profit of $2.27 billion, or $1.44 per share, a year earlier. The investment house reported negative net revenue of $450 million because of the writedowns, compared to revenue of $7.75 billion a year ago.
    Results broadly missed Wall Street projections for a loss of 39 cents per share on revenue of $4.23 billion, according to analysts polled by Thomson Financial.
    “This quarter will put [Morgan Stanley] in a very precarious position as it relates to keeping clients and keeping employees,” Wachovia Capital Markets analyst Douglas Sipkin said in a note to clients. “Further strategic initiatives under the current leadership will likely be scrutinized by investors considering the poorly timed push into the mortgage market at the end of 2006.”
    The results also led to warnings about potential downgrades from major rating agencies. Among them was Standard & Poor’s, which said the “dismal fourthquarter results heightened our concern regarding its strategic direction and risk appetite.”
    Mack, whose very leadership and strategy has been called into question, sounded a conciliatory tone during his conference call. He said management has learned a lesson, but that Morgan Stanley has no plan to back off.
    “We’re going to dial it back a little bit,” he said about the fi rm’s appetite for risk. “We’ve been sprinting, and we’ll be jogging for a while, but we will still be in the market taking risk.”

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Morgan Stanley, the No. 2 U.S. investment bank, reported a $9.4 billion writedown on Wednesday from bad bets on mortgage-related debt, leading it to take a $5 billion infusion from an arm of the Chinese government.

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Credit card debt surges Experts link woes to subprime mortgage crisis
BY RACHEL KONRAD AND BOB PORTERFIELD
The Associated Press

    SAN FRANCISCO — Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year and prompting warnings of worse to come.
    An Associated Press analysis of financial data from the country’s largest card issuers also found that the
    was among accounts more than 90 days in arrears.
    Experts say these signs of the deterioration of finances of many households are partly a byproduct of the subprime mortgage crisis and could spell more trouble ahead for an already sputtering economy.
    “Debt eventually leaks into other areas, whether it starts with the mortgage and goes to the credit card or vice versa,” said Cliff Tan, a visiting scholar at Stanford University and an expert on credit risk. “We’re starting to see leaks now.”
    The value of credit card accounts at least 30 days late jumped 26 percent to $17.3 billion in October from a year earlier at 17 large credit card trusts examined by the AP. That represented more than 4 percent of the total outstanding principal balances owed to the trusts on credit cards that were issued by banks such as Bank of America and Capital One and for retailers like Home Depot and Wal-Mart.
    At the same time, defaults — when lenders essentially give up hope of ever being repaid and write off the debt — rose 18 percent to almost $961 million in October, according to filings made by the trusts with the Securities and Exchange Commission.
    Serious delinquencies also are up sharply: Some of the nation’s biggest lenders — including Advanta, GE Money Bank and HSBC — reported increases of 50 percent or more in the value of accounts that were at least 90 days delinquent when compared with the same period a year ago.
    The AP analyzed data representing about 325 million individual accounts held in trusts that were created by credit card issuers in order to sell the debt to investors — similar to how many banks packaged and sold subprime mortgage loans. Together, they represent about 45 percent of the $920 billion the Federal Reserve counts as credit card debt owed by Americans.
    Until recently, credit card default rates had been running close to record lows, providing one of the few profit growth areas for the nation’s banks, which continue to flood Americans’ mailboxes with billions of letters monthly offering easy sign-ups for new plastic.
    Even after the recent spike in bad loans, the credit card business is still quite lucrative, thanks to interest rates that can run as high as 36 percent, plus late fees and other penalties.
    But what is coming into sharper focus from the detailed monthly SEC filings from the trusts is a snapshot of the worrisome state of Americans’ ability to juggle growing and expensive credit card debt.
    The trend carried into November. As of Friday, all of the trusts that filed reports for the month show increases in both delinquencies and defaults over November 2006, and many show sequential increases from October.
    Discover accounts 30 days or more delinquent jumped 25,716 from November 2006 and had increased 6,000 between October and November this year.
    Many economists expect delinquencies and defaults to rise further after the holiday shopping season.
    Mark Zandi, chief economist and co-founder of Moody’s Economy. com Inc., cited mounting mortgage problems that began after this summer’s subprime financial shock as one of the culprits, as well as a weakening job market in the Midwest, South and parts of the West, where real-estate markets have been particularly hard hit.
    “Credit card quality will continue to erode throughout next year,” Zandi said.
    Economists also cite America’s longstanding attitude that debt — even high-interest credit card debt — is not a big deal.
    “The desires of consumers to want, want, want, spend, spend, spend — it’s the fabric of our nation,” said Howard Dvorkin, founder of Consolidated Credit Counseling Services in Fort Lauderdale, Fla., which has advised more than 5 million people in debt. “But you always have to pay the piper, and that can be a very painful process.”
    Filing for bankruptcy is no longer a solution for many Americans because of a 2005 change to federal law that made it harder to walk away from debt. Those with above-average incomes are barred from declaring Chapter 7 — where debts can be wiped out entirely — except under special circumstances and must instead file a repayment plan under the more restrictive Chapter 13.

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Slingerland man suing over foreclosure costs
Thursday, January 3, 2008
By James Schlett (Contact)
Gazette Reporter

A Slingerlands man is leading a class action lawsuit to challenge what he claims are excessive foreclosure costs.
Edward Herzog filed the suit Monday in U.S. District Court in Albany, alleging St. Louis-based CitiMortgage and its retained law firm, Sweeney, Gallo, Reich & Bolz of Rego Park, “hold a monetary gun to the consumer and say, ‘Pay these excessive fees, or lose your home.’” That strategy amounts to embezzlement, extortion under wire fraud and mail fraud, according to the suit.
A call to Sweeney, Gallo, Reich & Bolz seeking comment was not immediately returned today.
The class action attempt is being handled by Richard DiMaggio, a Glenville attorney who wrote “Collection Agency Harassment: What the Debt Collector Doesn’t Want You to Know”. The class could consist of more than 100 CitiMortgage borrowers who have also been sued by Sweeney, Gallo, Reich & Bolz for foreclosure.
Herzog did not take out a subprime mortgage for his Bullock Road home, which he still owns, DiMaggio said.
“It’s not a subprime issue. He fell behind on his mortgage, like a lot of people are. … Making money on a foreclosure has become big business,” said DiMaggio.
In November, Sweeney, Gallo, Reich & Bolz sued Herzog, a construction worker who by then faced $6,961 in charges for six overdue mortgage payments, late fees and servicing fees. CitiMortgage had stopped accepting his checks for his mortgage payment and returned them uncashed.
The law firm also charged Herzog $3,565, including a $750 open legal fee and a $1,050 motion for summary judgement fee.

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CAPITOL
Assembly plan would help borrowers
BY BOB CONNER Gazette Reporter
Reach Gazette reporter Bob Conner at 462-2499 or bconner@dailygazette.net.

    Assembly Democrats proposed a $180 million program Thursday to help people who have fallen behind on their subprime mortgage payments get out of financial difficulty.
    “Time is of the essence on this issue,” said Assembly Speaker Sheldon Silver, D-Manhattan, at a news conference. “New Yorkers are losing their homes.”
    The plan would provide $150 million to assist borrowers who are in default, to help them work out deals with lenders, who Silver said would be expected to agree to take less than is owed them. He said that would be in lenders’ interests, because they’d get more than they would going through the foreclosure process. But he said the legislation was aimed at helping homeowners, not bailing out lenders.
    Another $30 million would be provided for counseling, legal services and mediation.
    Also part of the plan, according to a Silver statement, is a bill to address “current predatory lending abuses in the industry such as negative amortization, prepayment penalties and lending without regard to repayment ability, by increasing lenders’ and broker responsibilities toward borrowers.”
    Silver said: “People have been victims of lending practices that should never have been allowed.”
    Peter Edman, staff director to the Senate Banking Committee, which is chaired by Sen. Hugh Farley, RNiskayuna, said a Senate bill to address lending abuses would likely be introduced this month, and he was hopeful that legislation could be enacted this year. However, Edman said “I think we’re skeptical” about providing taxpayer funding in the way proposed by the Assembly.
    Bill Ferris, a lobbyist for AARP, which supported the Assembly program, said the Keep the Dream plan announced last year by the State Of New York Mortgage Agency did not go far enough to address the problem. But Edman said SONYMA recently expanded the scope of that program.
    Asked where the state funding would come from, given the projected $4.3 billion budget defi cit, Silver said he was announcing the plan now, before the start of the legislative session, to show the high priority the Assembly puts on it. However, he also listed other areas, including most of the budget, where he wants to see more spending, or at least no cuts. Silver also said he favored property tax relief, and does not at this time support proposals to raise tuition at the state and city universities.
    The Republican-controlled Senate, meanwhile, released a proposal Thursday calling for a “multibillion-dollar property tax relief plan as top priority for 2008.”