Amy’s Yard

Guidelines for Selecting the Right Credit Counselor

Regardless of your particular need, selecting the right credit counselor is vital. Unfortunately, some organizations, including some that label themselves "nonprofit credit counseling agencies," may be more interested in their own bottom line than in helping their clients. A 2005 report by a U.S. Senate investigating committee observed: "Some new entrants to the industry, however, have developed a completely different business model - a 'for-profit model' designed so that their non-profit credit counseling agencies generate massive revenues for for-profit affiliates."

By contrast, the report lauded the National Foundation for Credit Counseling (NFCC) for its commitment to ethical credit counseling that is provided at low cost to consumers. The report stated that ". . . if applied throughout the industry, these [NFCC] professional standards could significantly address the abusive practices identified in this Report."

Consumers need to "know the difference" when selecting a credit counselor. And they must know the warning signs of a credit counseling agency who might not have your best interests in mind. The following information can serve as a valuable guide to help consumers "know the difference" when choosing a credit counseling agency.

How to Select a Legitimate Credit Counseling Agency

The last thing a consumer needs when struggling financially is to fall into the hands of an unscrupulous credit counseling agency. If you're considering using a credit counselor, shop around, and ask each agency the following questions. More importantly, be certain that you are comfortable with their answers before you book that first appointment. A legitimate agency is always more interested in your bottom line than theirs.

• Is the agency affiliated with a national body such as the National Foundation for Credit Counseling (NFCC) that requires strict quality, financial and ethical standards for membership? Examples of such requirements are annual audits by an independent CPA, written action plans provided to each consumer, and consumers provided with statements at least quarterly.

Is the agency accredited by an independent third party? Self-accreditation is not the answer you want. An example of a reputable third party accreditating body is the Council on Accreditation (COA). Such accreditation signifies that appropriate checks and balances are in place to protect you, the consumer.

Is the agency a 501(c)(3) nonprofit community organization? Being a nonprofit does not guarantee that the agency is legitimate, but it is a step in the right direction.

What is the composition of their Board of Directors? Board members should not be paid by the agency, should not be family members or friends, but should represent a wide cross-section of the community and civic interests.

What services does the agency offer? A wide-range of services is a good sign. This could include: budget counseling for those who are not in debt; debt counseling for those who may need professional assistance digging out; housing counseling for pre-rental, pre-purchase, first-time homebuyer, reverse mortgage, and foreclosure prevention; and the mandated bankruptcy pre-filing counseling and pre-discharge education.

What are the fees associated with the services provided? The agency should be forthcoming about fees, and no fee should be assessed prior to the service being provided. Be wary if the agency says their fees are voluntary. Any set-up fee or monthly fee should be reasonable, usually defined as $50 or less, with monthly fees in the $25 range. The agency should be willing to waive all fees in cases of true hardship.

What delivery options are available to you for counseling? Does the agency offer in-person counseling? Counseling by phone? Internet counseling? Is the channel that's most appealing to you offered?

Is the counselor assigned to you a Certified Consumer Credit Counselor? You want someone qualified assisting you with your critical financial decisions. NFCC certification means that the counselor has passed a rigorous battery of tests measuring their financial knowledge.

Does the agency provide educational classes or workshops?

Are any of these tools offered online? Is there a fee to attend? The absence of any true education offered to the general public is a red flag.

Will the agency work with all of your creditors?

Some agencies only work with creditors who agree to make a payment to them. A legitimate agency will take a holistic approach to solving your financial distress.

Is there a minimum amount of debt required to be counseled?

True credit counseling agencies will work with you regardless of how large or how small your debt may be.

What debt relief options are offered?

If the only tool is the Debt Management Plan (DMP), keep shopping. A DMP is a useful tool, and is often the appropriate resolution. However, each consumer's situation is different, thus the solution should be customized to fit their specific needs. A one-size-fits-all approach signals that you should continue your search.

Are the counselors compensated for writing DMPs?

Any such incentive is not a part of a legitimate agency's pay to their counselors.

How long will your counseling session last?

Don't be tempted by "drive-by" counseling. A counselor simply cannot do an adequate intake of your income, expenses and debts in a short amount of time. An initial session length of at least one-hour is standard.

If you go on a Debt Management Plan, how soon after receipt of your monthly payment will it be disbursed to creditors?

The success of a DMP depends on timely, consistent payments to creditors.

What happens to your first payment?

Believe it or not, some agencies keep the consumers first payment and consider it a donation. Be sure to ask about this.

Will the full amount of your payment be disbursed to your creditors?

The full amount should go toward the repayment of your debts, with no portion going into the agency's pocket.

How will your deposits be protected?

Ask for written evidence that the agency is bonded or insured to protect the consumer from fraud or the agency's own financial difficulties. As a final step, check with the Better Business Bureau and your state's Attorney General to see if there are unresolved complaints about the provider you are considering. Anyone can file a complaint. What is relevant is how the agency resolved it.

Legitimate credit counseling agencies counsel and financially educate millions of consumers each year, making financial stability a reality in their lives. It all starts with selecting the right agency. Asking the above questions, and receiving the right answers, will ensure that your credit counseling experience is a positive one.

If you are in financial crisis due to consumer debt and want to get professional help, you may be concerned about being scammed by tide of fraudulent "credit agencies" out there. Here are some guidelines from the National Foundation of Credit Counselors to help you find a reliable organization to work with.

A year after Fannie Mae and Freddie Mac teetered, industry executives and Washington policy makers are worrying that another government mortgage giant could be the next housing domino.

A Troubled Portfolio

Problems at the Federal Housing Administration, which guarantees mortgages with low down payments, are becoming so acute that some experts warn the agency might need a federal bailout.

Running questions about the F.H.A.’s future — underscored by interviews with policy makers, analysts and home buyers — came to the fore on Thursday on Capitol Hill. In testimony before a House subcommittee, the F.H.A. commissioner, David H. Stevens, assured lawmakers that his agency would not need a bailout and that it was managing its risks.

But he acknowledged that some 20 percent of F.H.A. loans insured last year — and as many as 24 percent of those from 2007 — faced serious problems including foreclosure, offering a preview of a forthcoming audit of the agency’s finances.

“Let me simply state at the outset that based on current projections, absent any catastrophic home price decline, F.H.A. will not need to ask Congress and the American taxpayer for extraordinary assistance — we will not need a bailout,” Mr. Stevens said in his testimony.

But to its critics, the F.H.A. looks like another Fannie Mae. The hearings on Thursday came on the same day that the federal agency charged with overseeing Fannie Mae and Freddie Mac provided a somber assessment of those giants’ health. In the year since the government stepped in to rescue them, the companies have taken $96 billion from the Treasury, and may need more.

Since the bottom fell out of the mortgage market, the F.H.A. has assumed a crucial role in the nation’s housing market. Created in 1934 to help lower-income and first-time buyers purchase homes, the agency now insures roughly 5.4 million single-family home mortgages, with a combined value of $675 billion.

In addition, these loans are bundled into mortgage-backed securities and guaranteed through the Government National Mortgage Association, known as Ginnie Mae. That means the taxpayer is responsible for paying investors who own Ginnie Mae bonds when F.H.A.-backed mortgages hit trouble.

“It appears destined for a taxpayer bailout in the next 24 to 36 months,” Edward Pinto, a former Fannie Mae executive, said in testimony prepared for the hearing. Mr. Pinto, who was the chief credit officer from 1987 to 1989 for Fannie Mae, went further than most housing analysts and predicted that F.H.A. losses would more than wipe out the agency’s $30 billion of cash reserves.

The issue has polarized Congress. Republicans, who led efforts to rein in Fannie Mae and Freddie Mac before those companies ran into trouble, are now seeking to bridle the F.H.A. Many Democrats insist the F.H.A. is playing a vital role in the housing market, which is only just starting to stabilize.

“F.H.A. has stepped into the void left by the private market,” Representative Maxine Waters, Democrat from California, said at the hearing. “Let’s be clear; without F.H.A., there would be no mortgage market right now.”

That was the case for Bernadine Shimon. Like many Americans, Ms. Shimon has recently been through some rough times. She lost a house to foreclosure, declared bankruptcy, got divorced and is now a single mother, teaching high school English in a Denver suburb.

She wanted a house but no lender would touch her. The Federal Housing Administration was more obliging. With the F.H.A. insuring her mortgage, Ms. Shimon was able to buy a $134,000 fixer-upper in August.

“The government gave me another chance,” she said.

The government is giving as many people as it possibly can the chance to buy a house or, if they are in financial difficulty, refinance it. The F.H.A. is insuring about 6,000 loans a day, four times the amount in 2006. Its portfolio is growing so fast that even F.H.A. backers express amazement.

For decades it was an article of faith that helping people of limited means like Ms. Shimon get a house was good for the new owner, good for the neighborhood and good for American capitalism. Then came the housing bust, which demonstrated that when lenders allowed people to buy houses they ultimately could not afford, it hurt the parties — while putting the economy itself in a tailspin.

In the aftermath of the crash, there is wide divergence on how easy, or how hard, it should be to become a homeowner. Skittish lenders are asking for 20 percent down, which few prospective borrowers have to spare. As a result, private lending has dwindled.

Rest of Article via nytimes.com

Author(s) Catherine Hutchings, The New York Times Learning Network

Grades: 6-8, 9-12

Subjects: Economics, Health, Mathematics, Social Studies

Interdisciplinary Connections

Overview of Lesson Plan:In this lesson, students analyze global food consumption then take a “food challenge” to create a nutritious menu on a limited budget. Then, students prepare inexpensive, healthful foods to be shared together as a class. 

Review the Academic Content Standards related to this lesson.

from the NY TImes Learning Network: a lesson plan for Middle and High schoolers, with a tip of the hat to one of my favorite blogs, The One Dollar Diet Project.

In the last two decades, more than a million families around the country have invested in state funds that pledged to cover the cost of attending their state’s public colleges and universities, regardless of how much tuition increased.

But in the last year, the stock market slump and rising college costs have combined to drive all but two of the nation’s 18 such funds, known as prepaid college savings plans, into the red, jeopardizing those pledges.

Even with stock market gains since March, the losses have forced some programs, like Pennsylvania’s and Washington’s, to impose new and higher fees that could amount to thousands of dollars a year in additional costs to parents.

Others like South Carolina’s have developed doomsday scenarios, capping how much a family would get if the program shut down completely. West Virginia had to pump $8 million into its prepaid program to help restore its financial health because its fund lost 25 percent of its value in the last year. And Alabama closed its program to new enrollees because the fund lost almost half of its assets — more than $300 million — in the stock market in the last year, and the state might have to put its own money in to keep it solvent.

“I think ultimately more and more of these plans are going to close down to new investments,” said Mark Kantrowitz, the founder and publisher of FinAid.org, a financial aid Web site.

“Every time there’s a significant market downturn, there’s two main ways states make up for the losses: close to new participants to cut off the losses,” Mr. Kantrowitz said, “or raise fees. And raising fees makes it less attractive to new participants.”

The funds were first proposed 23 years ago in Michigan as a fail-safe investment tool. They were quickly adopted by other states after 1996, when Congress allowed them to be tax-deferred under Section 529 of the Internal Revenue Service Code. In 2001, Congress expanded that to make all qualified educational disbursements tax-free. As a result, the 529 prepaid funds — not to be confused with 529 college savings plans that do not promise a specific return — grew into financial powerhouses, even though 7 of the 18 funds have closed to new investments over the years.

All 18 state prepaid plans differ slightly, but most sell contracts or tuition credits that establish how much someone will pay in now to receive a certain return in the future based on projected in-state public university tuition.

If, in the end, students decide not to go to a state school, they can use the money at other schools, though the amount is likely to fall short of the full cost of tuition.

Between them, the 18 state funds serve nearly 1.6 million families and hold $23.8 billion in assets, ranging from Tennessee’s small $80 million fund serving 9,700 families to Florida’s massive $8.7 billion fund that serves about 850,000 families.

“The reason they’re popular is simply because the states bear the risk, not the individual,” said Jackie Williams, who was executive director of the Ohio Tuition Trust Authority for 10 years, until June.

The trust oversees Ohio’s $590 million prepaid fund, which was closed to new enrollees in 2003 after the state began allowing public universities to raise their tuition as high as they wanted. That resulted in double-digit increases, which, combined with a tough stock market, threw the fund out of balance.

Not every state fully guarantees its prepaid funds. Only five states offer a “full faith and credit” of the state guarantee, and seven are required by law to consider helping the funds out if need be. The other five states — Alabama, Colorado, Nevada, Pennsylvania and Tennessee — and Texas’s new prepaid fund have no guarantee, though officials say they doubt that the states would ever let the funds become insolvent and would step in if need be.

All of the funds but Florida’s and Colorado’s now have an actuarial deficit, meaning they do not have enough money to pay all of their future college tuition obligations. Most are only about 80 percent to 90 percent funded. But many are worse off, like the Illinois fund, which is about 75 percent funded, and South Carolina and Alabama’s funds, which are both about 66 percent funded.

Carol M. Perdue was troubled by a letter she got from Alabama’s treasurer this summer that said the state’s prepaid program had lost about 50 percent of its assets in the stock market. She is suing to force the state to put money into the fund to make up for the losses.

“At first I was kind of scared,” said Ms. Perdue, 40, an insurance agent in Phenix City who has about $30,000 in the program for her two daughters. “And then I felt almost cheated, like I was sold a bill of goods that wasn’t there.”

via nytimes.com

No mention in this article of the state of the Virginia plan (the one that interests me). Anybody... Mr. Deeds ?? Mr McDonell ?? Anything to say ?