RM Howard

The holidays have come and gone, and despite a recession there are millions of homes receiving credit card statements with higher balances. Many gift purchases were charged even though families were struggling to stay ahead of the debt in place before the holidays started.

Making the situation worse this year is the fact that most of the credit card companies are raising interest rates and fees ahead of the new Credit CARD law to take effect on February 22. The new law limits when the credit card companies can raise interest rates and fees so the banks are making sure they are positioned where they can collect higher rates after the law takes effect.

Those Christmas purchases are now going to cost a lot more and the goal, according to financial planners, should be to pay off those credit cards as quickly as possible. The New Year is traditionally a time to make resolutions and review financial status. Already into the middle of January, it is an excellent time to look at current debt status with a critical eye. One of the steps many consumers are taking is reviewing the previous year spending patterns before evaluating ways to consolidate current debt. Even better than consolidation is paying off debt whenever possible.

The reason spending patterns are reviewed first is because some consumers borrow from one source to pay off credit card debts only to create new balances again through overspending and charging. But the new interest rates and fees that credit companies are charging are proving to be exorbitant. Even people with excellent credit scores are getting notification their interest rates are going up as high as 26% and sometimes higher.

Financial planners recommend that consumers pay off the credit card debt as quickly as possible. Credit card companies have lost billions of dollars as the recession lingers on and now they are faced with tougher federal regulations on rate changes. It is not surprising these companies are looking for ways to preserve revenue.

It is surprising though that many consumers charged their Christmas purchases despite the recession. A better plan for the New Year is to buy Christmas gifts throughout the year and avoid charging any gifts in 2010. The author of “Life or Debt 2010” is Stacy Johnson. He points out that, “Banks and credit card companies aren’t your friends.” That can be hard to remember when reading the nice advertisements that come with the cards claiming to help consumers manage their expenses by supplying credit.

The exorbitant interest rates are not being well received by consumers or Congress. There has been discussion about moving up the start date of the new Credit CARD law though implementation is only five weeks away now. But consumers can take charge of their spending habits and debt right now. Paying off the credit card balances is the first step. The second step is making sure spending is managed in a way that reliance on credit cards to balance budgets is minimized.

The mortgage modification program has been under fire over the last few months because of the small number of people actually helped. That seems to be changing as the U.S. Treasury department reports that 947,000 people have seen their mortgage payments fall on a temporary basis as of the end of January under the modification program.

The Home Affordable Modification Program (HAMP) was slow to start, but the Obama Administration has been pushing lenders to provide more assistance to homeowners in trouble. A mire of paperwork was preventing many homeowners from getting relief, and as a result the procedures have been simplified in some areas and forms processing streamlined. Lenders are being asked to produce results because many consumers are experiencing nothing but frustration trying to work with their mortgage companies.

The program is incentivized by the federal government. It is estimated there are 1.7 million mortgages eligible under the current program rules. This equates to 3 percent of all mortgages. The types of modifications being made include loan term extensions and lowered interest rates. In fact, some interest rates have been cut to as low as 2 percent. The median amount of the mortgage reduction is approximately $522 each month.

The program gives homeowners a temporary reduction in their mortgage payment for up to three months. The trial period serves two purposes. The first reason is to give consumers involved in the program time to gather together the necessary documentation to prove their income and justify a permanent modification. The second reason is to give the lender a chance to see if the homeowner will be able to meet the new mortgage payment on a timely basis.

As of the end of January, the U.S. Treasury Department reports that 116,000 households have completed permanent mortgage modifications. That is a small number considering the number of applications for temporary modification. Some modifications never make it through the process because the homeowners are unable to meet the income verification requirements.

Some believe it is unfortunate that many unemployed people will lose their homes because they are not eligible for the modification program. The opposite viewpoint is that the government is not obligated to keep people in homes they cannot afford. The Treasury Department reported that 60,000 loan modification accounts have been cancelled to date for one reason or another.

Those consumers who do not qualify for the HAMP program are often faced with foreclosure or short sales. A short sale is when the lender allows the homeowner to sell the house for less than the mortgage balance. It is expected that many people will simply not be able to qualify for permanent mortgage modification.

In 2010 it is expected that close to 2 million more homes will go into foreclosure. The expansion of the HAMP program is expected to help many keep their homes, but more will be foreclosed on. Program detractors say that a number of the people losing their homes should never have qualified for the original mortgage based on their incomes.