Lenders Begin Revoking Home Equity Lines of Credit

On the heels of Bank of America's eyebrow-raising mass mailing telling thousands of customers that their credit card interest rates were jumping by as much as 100%, Countrywide has informed 122,000 customers that their home equity lines of credit (HELOC) have been suspended due to falling home values.

A HELOC is a revolving credit line with a limit proportionate to the homeowner’s equity in their property. They typically offer much lower interest rates than regular credit cards because they are issued against a “secured asset” — a home.

Other lenders, including Bank of America, Wells Fargo and Chase have acknowledged that they, too, will be following in Countrywide's footsteps by reviewing customer credit lines and lowering limits or suspending credit lines.

During the housing boom, as property values soared, so too did the number of homeowners who tapped into their equity to fund remodeling projects, cars, vacations and other luxuries. Lenders were writing loans for 120% of a home's value – 100% for the primary mortgage and another 20% for a HELOC. Now that the pendulum is swinging the other way, and properties are losing value at a double-digit rate with no bottom in sight, the line of credit soon may no longer be covered by the value of the home. Nervous lenders are pulling back the reins, even on good customers who may not have used much of their HELOC and have made timely payments.

Many affected customers are expressing outrage, particularly those with high credit scores and stellar repayment histories. The lenders, they say, are miscalculating the value of their homes in an effort to be uber-conservative, and punishing them even though they have been good customers.

Countrywide has reportedly advised some irate customers that they can get another appraisal (at a cost of more than $400) if they want to appeal the closure of their HELOC. But given the fact that consumers may already have paid $2,000 or more in non-refundable fees just to open the HELOC – some just a year or two ago – the idea of paying for another appraisal for the mere "possibility" that the HELOC will be reinstated is a bitter pill to swallow.

What is my REAL credit score?

Dear Credit Mama,

I've been working hard to pay all of my bills on time and have almost paid off my credit cards. I want to see if my efforts have made my credit score go up. I've looked into buying my credit score online, but it's confusing because different companies have different ranges for what your credit score could be – some have scores that go to 850, some go to 990. What's the deal? And which one should I believe?

--Angie, St. Louis, MO



Dear Angie,

Very astute of you to notice this! You are right – not all credit scores are the same.

The "FICO" score was invented by Minneapolis-based Fair Isaac Corp. in 1988 as an attempt to quantify the odds that borrowers will repay loans on time. The company’s name is derived from those of Bill Fair and Earl Isaac, an engineer and a mathematician, who created the credit scoring concept and founded Fair Isaac in the 1950s.

FICO scores range from 300-850. FICO calculates your score using the following factors:

• 35% payment history
• 30% amount owed
• 10% tpes of credit in use
• 15% length of credit history
• 10% new credit

"Vantage" scores, dubbed "FAKO" scores, were developed by the three credit bureaus and introduced in 2006 to compete with FICO scores. Because they do not have the actual FICO formula (a secret as closely guarded as Coca Cola's recipe), they are only approximations of the FICO score.

Vantage credit scores range from 501-990. Each 100-point interval corresponds to a letter grade, in ascending order. A score of 501 to 600, for example, would translate into a grade of "F", while someone with a score greater than 900 would receive an "A." Vantage calculates your score using the following factors:

• 32% payment history
• 23% utilization of available credit
• 15% credit balances
• 13% length and depth of credit history
• 10% recently opened credit accounts
• 7% available credit

FICO Vs. FAKO

Consumers usually buy their credit scores from the credit bureaus – the VantageScore. However, Fair Isaac states that most lenders (90% of the 100 largest banks) use the FICO score. (To complicate matters, some lenders create their own variation on a FICO score, adding in their own criteria.) Your "FAKO" scores can differ from your FICO scores by as much as 50 points.

More than two-thirds of all consumers qualify for a grade of "C" or higher. FICO scores, by contrast, range from 300 to 850, with 85 percent of Americans coming in at higher than 600. If you found a score of higher than 850 then you are "buying" one of the other scores - not the FICO score that lenders use.

Fair Isaac has filed a federal antitrust lawsuit against the nation's three credit bureaus, alleging they are "misleading and confusing consumers" when selling their own version of the credit score. They contend that since Equifax, Experian and TransUnion own the consumer data it uses to create the FICO scores, they could "unfairly manipulate the credit score price, sales and distribution process" to promote VantageScore.

The bureaus claim that the new scoring model increases competition, giving more choices to credit grantors and consumers.

Having more scoring options is good for lenders, but not necessarily good for consumers. With multiple scoring models, the odds increase that a lender can find a score to use to declare you a subprime candidate and increase your rates.

If you are trying to qualify for a mortgage or other major loan, you will want to access the real FICO, not the FAKO. Our friends at mycreditroadmap.com can link to you a FICO credit reporting product that will give you reports and scores for each of the three national credit bureaus.

Sweetbay Supermarket Latest Data Breach Victim

Another day, another data breach. This one affects more than 4 million Sweetbay/Hannaford customers in New England, New York and Florida who used their credit or debit cards between Dec. 7, 2007 and March 10, 2008.

The breach was discovered in late February when a payment card clearinghouse notified Hannaford of an unusual number of payment card transactions. Hannaford transmits its data over phone lines and uses encrypted wireless communications to transmit numbers inside its stores. The hackers snatched the credit/debit card data sometime between when the customers swiped their cards in the reader at the register and when those transactions were approved.

According to news reports, Hannford's security measures met industry standards with regard to how data is stored and maintained (unlike the TJX breach, which was blamed on lax security). Experts are anticipating that this may be just the first of many cases to surface this year wherein the affected retailer was hacked even though it appeared to be following all of the security rules laid out by the credit card associations.

Cybertrust's Bryan Sartin said,

"[We have] found with a number of very recent compromises that attackers have seized control over the very terminals that control cash registers or point-of-sale systems within a retail store, or the server through which all registers connect to pass transaction data out across the Internet to the store's payment processor." Once these systems have been compromised, the attackers typically eavesdrop on the network using "sniffer" programs that can extract credit and debit card data as it moves across the wire, before it even leaves the store's network.

Kevin Mandia, president of Mandiant Corp., a company that specializes in investigating data breaches, said, "We're seeing at least two new companies a week discovering that they've lost credit card numbers, and at the rate we're going [the criminals] are going to exhaust U.S. retailers as targets.."

To date, about 2,000 cases of fraud have been reported in the Hannaford/Sweetbay breach. The company is asking that consumers contact them with questions or information about their data being used fraudently at 866-591-4580.

Each of you should be regularly reviewing your financial institution and credit card statements, and immediately contacting your credit card company or issuing bank with any questions or concerns about individual charges. If you are concerned that your credit/debit card data has been compromised, you may file a fraud alert on your credit report by calling one (just one) of the three major credit bureaus:

Equifax: 1-800-525-6285
Experian: 1-888-397-3742
TransUnion: 1-800-680-7289

The fraud alert is good for 90 days. Once you place a fraud alert on your credit report, you will receive information via mail about ordering one free credit report from each of the companies. You may want to wait a month before ordering the report as it may take some time for suspicious activity to appear on the report.

Another Victim of the Housing Market Meltdown: Your Privacy

During the recent housing bubble, millions of Americans purchased or refinanced their homes with mortgage lenders throughout the country. With the implosion of the housing market, many of these mortgage shops closed their doors permanently.

It probably occurred to very few applicants that their files -- loaded with all kinds of personal data, from Social Security numbers and bank statements to tax returns, retirement accounts and credit reports -- would ever be in danger. Yet the records of thousands have been compromised - and not from a gang of thieves breaking into these offices. It seems that once the business is shut down, some mortgage lenders are simply disposing of all these paper records in public dumpsters. According to MSNBC:

• First Magnus Financial Corp., one of the nation’s largest mortgage lenders whose headquarters was one of the biggest employers in Tucson, Ariz., threw away thousands of mortgage loan records in an unlocked trash dumpster in Ft. Lauderdale, Fla.


• The records of hundreds of former customers of the defunct Alpha Mortgage Services were left in a recycling bin behind a grocery store in Toledo.


• After Union Mortgage Services of Ohio shut down last month, confidential files on hundreds of people were thrown out in a dumpster behind a pizza shop in Cleveland.


• American United Mortgage Co. of Northbrook, Ill., left hundreds of borrowers’ financial documents in an unlocked dumpster, many of them in open trash bags.


• Sheriff’s deputies in DeKalb County, Ga., outside Atlanta, found the mortgage records of at least 1,200 former customers of Ameriquest Mortgage Co. in a dumpster behind an apartment complex in October, two years after the company, once one of the nation’s biggest subprime lenders, went out of business.


• In Honolulu last year, a handyman hired by the former president of the defunct Fidelity Escrow Services dumped 39 boxes of financial records in a recycling bin.

While the Fair and Accurate Credit Transactions Act, or FACTA, requires businesses to dispose of sensitive financial documents in a way that protects against “unauthorized access to or use of the information,” it doesn't actually require the physical destruction of the data. To date, only one case has been brought against a company by the FTC (American United Mortgage was fined $50,000 after continuing to violate FACTA after receiving a warning). The challenge is pursuing action against companies that no longer exist.

The breaches leave thousands of consumers at risk for identity theft. For former customers of now-defunct lenders, there isn't much recourse. The best safeguard is vigilant monitoring of your credit report.

So What IS the Average Credit Score, Really?

I was reading an article today posted by BusinessWeek called "Buying a Franchise with Bad Credit." One of the first things that struck me was the reference to average credit scores. A nonprofit contractor for the SBA microloan program says,

"Usually they have what I'd call an average credit score—in the mid 500s or 600s—but not a high credit score."

But hold on a minute! The credit bureaus say that the average credit score in the U.S. is 692. (In case you didn't know, FICO scores range from 300-850, although other credit bureaus use different scales.) In fact, Fair Isaac says on their Web site (myfico.com):

"About 40% of credit card holders carry a balance of less than $1,000. About 15% are far less conservative in their use of credit cards and have total card balances in excess of $10,000. When we look at the total of all credit obligations combined (except mortgage loans), 48% of consumers carry less than $5,000 of debt. This includes all credit cards, lines of credit, and loans-everything but mortgages. Nearly 37% carry more than $10,000 of non-mortgage-related debt as reported to the credit bureaus. " They report that 58% of consumers have a credit score of 700 or more.

Yet the data from Federal Reserve says something very different:

"The average household has $11,000 to $12,000 in credit card debt... Those figures are diluted by those who don't hold any debt. Households that carry debt from month to month carry close to $17,000 of unsecured debt on average. One out of every five households is either behind on payments or over the limit on at least one account."

To make matters worse, not only is the rate of foreclosures at an all-time high, but it is projected that 10% of home owners (approximately 8.8 million people) will have negative equity by month's end.

Hmm. According to the bureaus, 30% of your score is determined by your debt ratio: how much money you owe, divided by the amount of available credit you have. Thirty-five percent of your score is based on payment history. In total, that's 65% of your score - and the data shows that the majority of American households are not doing so well in these two areas.

Now factor in the sneaky credit industry tricks -- universal default (where credit card issuers can raise your interest rates should your credit falter - even if you have never made a late payment), interest rate increases for no reason, not reporting your true credit limit on cards, "chasing balances" (where credit card companies reduce your credit limit as you pay down the card) -- and it's clear that the average consumer's credit score is being attacked from so many angles that an "average" credit score of nearly 700 is improbable.

Ask any residential mortgage broker or loan officer if their average applicant's credit score is 692. Just be prepared for the snickers or guffaws.

My business partner was speaking with a mother of three the other day. As she was talking about her credit, her demeanor completely changed - her shoulders slumped forward, head hung low, voice full of apology. She truly believed that she "deserved" to pay higher interest rates because of her "poor credit." Yet if she knew that the majority of people had credit scores in the same range as hers, would she be so accepting?

Bank Fees Go Up As Interest Rates Go Down

In a recent study conducted by the Government Accountability Office, an interesting trend was discovered. Over the past six years, as interest rates set by the Federal Reserve decreased, the amount of fees charged by banks increased. The report suggests that because banks don't make as much money on interest rate 'spreads' they try to generate revenue by raising fees.

These fees include overdraft fees, increases in credit card interest rates with no apparent explanation, ATM fees, and fees associated with changes to account status.

By law, fee schedules are supposed to be "clearly and conspicuously posted" at every bank. Those that don't are in violation of the 1991 Truth in Savings Act and Federal Reserve Regulation DD. Yet in 22% of the visits that GAO surveyors made to banks across the country, they were unable to find the fee schedules. One-third of banks had no information at all on overdraft fees and policies. More than half had no fee information on their Web sites.

One would imagine that being in violation of a federal law should yield some fairly stiff penalties. But not surprisingly, the consequences suffered by banks has been minimal. In fact, there have been just two times when regulators took formal enforcement actions. And consumers have no recourse except to file a complaint with regulators - which are generally ignored.

Meanwhile, bank fees are up 11% since 2000. The GAO study reported that last year banks grabbed $36 million out of depositors' accounts in fees, accounting for 27% of banks "non-interest income." Lack of fee information hinders consumers who try to comparison shop between banks.

While some attribute the fees to poor banking by consumers, the truth is that banks collect far more than just overdraft fees. And policies regarding when banks post deposits vs. when they deduct charges has impacted thousands of banking customers.

"The due date on my Bank of America credit card was on a Sunday. I paid the balance in full on the preceeding Friday in the 4:00 hour at BOA. BOA charged me a $40 late fee ... for paying two days early. Apparently, in the world of banking reality, anything paid after 4:00 counts on the next business day, which in my case was Monday. If I hadn't have been paying attention, taken the time from my schedule to go to the bank and complain, BOA would have stolen $40 from me. And the really sad part was that the bank stood by their practice. I told the bank manager that if BOA wanted the bill paid by 4:00 Friday, then put BY 4:00 FRIDAY on the bill. Then, he had the gall to ask me if I wanted to open an account with them. All I could do was walk off." (Texas consumer)

"What concerns me about banks the most, is their practice of re-organizing transaction amounts from greatest to least (AKA posting highest to lowest). This practice maximizes the instances of overdraft fees. How is it legal for banks to post transactions outside of the order they are authorized? A ledger showing one instance deserving a $35 overdraft fee results in a bank statement boasting $300 in overdraft fees made possible by this method of organzing posts. I am very committed to bringing federal attention to this unethical banking practice." (Vanessa, South Carolina)

Then there is the issue of "holds." Using your debit card can screw you up even if you do keep a detailed register of your account. One example: gas stations can place a hold on funds when you use your card at the pump. Some hold $1 just to make sure its a valid account, some hold $50 or more and release the hold when they process the actual amount you spent. These holds may cause your bank account to go into the red, even if there is money in the account.

Other fees include changes imposed on long-standing accounts without disclosure to the consumer:

"Years prior, I had set up two IRA bank CD accounts with MBNA whereby there were no fees, just like a non-IRA CD account. However, after the merge with Bank of America, suddenly an annual $30 maintenance fee is applied to each account. I called BofA to complain and found that I am now stuck with these fees. I cannot transfer these IRAs to another bank (without penalty) until the CDs mature." (KW in Las Vegas)

"I signed up for a free checking account at my local bank a number of years ago. After I refinanced my home and took out $50K in equity, I deposited this into my free checking account, I then began to spend this equity on home improvements to my house. Without my knowledge the bank changed my account type to one that provided free checking for accounts with balances in excess of $20K. As soon as my account balance went below the $20K amount, they started taking $20.00 a month as the fee for this account. Shame on me that I didn't catch it
until the end of the year, which was 10 months and $200.00 later. I went down to the bank and had the account switched back. The bank played stupid, wouldn't refund the money and wouldn't even pretend to investigate who had changed the account." (Bob, Massachusetts)

"Just last week my bank sent me a notice advising me that my interest rate on my bank credit card has risen from 20% to 25% with no justification what so ever. My credit is outstanding, my accounts are on point and I have never been late on a payment or switched any of my previous accounts." (Anonymous)

To all the people who just say 'don't overdraft your account and you won't get fees' - it's not that simple. Most banks have a policy of posting withdrawals before posting deposits - meaning if you deposit a check in the morning and write a check in the afternoon - at midnight when the bank posts the transactions, they will post the withdrawal first, even though the money should have been there.

Banks are for profit entities, and their primary existence is to maximize profits for their share holders. Credit unions are not-for-profits whose primary mission is to offer the lowest loan rates and fess and the highest savings rates to its member owners. If you are frustrated or overwhelmed by the fees charged by national banks, you may want to investigate switching to a local bank or credit union.

Attention TJ Maxx and Marshall's Shoppers!

If you made purchases or returned items at TJX Cos. such as T.J. Maxx, Marshalls, HomeGoods, A.J. Wright, Winners and HomeSense, you may be entitled to compensation.

Notices are just now beginning to go out to millions of customers who may have been affected by the largest data breach in history. Last year, TJX disclosed that information from nearly 46 million debit and credit cards was stolen by hackers, and that nearly a half million people who returned items without their receipts may have had personal data (such as driver's license numbers) stolen. Court filings by banks that are suing TJX indicate a much bigger breach, saying that more than 100 million cards may have been compromised.

The breach is believed to have begun in mid-2005 but wasn't detected until December 2006. The stolen information covers transactions dating as far back as December 2002.

Customers who believe their personal financial data was stolen or put at risk, and believe they were harmed, can join the class action lawsuit. They can send in a claim form to ask for benefits if they are eligble, ask to be excluded from the settlement (if they provide notice by June 24) or object to the terms.

Terms of the proposed settlement

TJX will offer vouchers to customers who show they shopped at TJX stores in the U.S., Canada and Puerto Rico — except Bob's Stores — during the breach and incurred costs.

TJX also will provide three years of credit monitoring and identity theft insurance to certain customers who returned merchandise without a receipt and were sent letters notifying them that their driver's license or other identification information may have been compromised.

For more information, call toll-free to 1-866-523-6770 or visit http://www.tjxsettlement.com/.