For our first entry in Wednesday’s Washington Weekly, let’s discuss an issue that has been a topic of conversation in almost every American home-the housing crisis.  Millions of Americans are feeling the effects of the subprime mortgage meltdown.  Many have lost their homes or are currently in danger of meeting that same fate, as they cannot afford mortgages that at one time appeared affordable.  No matter where you want to point the finger-at the lenders, at the borrowers, at the brokers-the next step in this discussion needs to focus on the solution.

So what is President Obama’s proposed solution?  How does our new commander-in-chief propose that we dig ourselves out of this crisis?  Obama’s “Making Home Affordable” plan aims to work with lenders to modify loan terms and to create more affordable fixed-rate loans.  Approximately 4 million Americans will benefit from the modified terms, while 5 million Americans will be granted the more affordable fixed-rate loans.  The 9 million Americans who will reap the plan’s benefits must fall in the category of borrowers who owe up to 5 percent more than their home’s current value.  If you fall into this category, you must submit your most recent tax return, two pay stubs, and an “affidavit of financial hardship.”  The conditions of the housing plan dictate that borrowers will only be allowed to have their loans modified once; furthermore, the loans needs to have been granted on or before January 1, 2009, and must either be backed by Fannie Mae or Freddy Mac.

So how is Washington responding to the fact that the “Making Home Affordable” leaves out the rest of homeowners who owe more than 5 percent of their home’s current value?

Secretary Tim Geithner commented:

“Two weeks ago, the President laid out a clear path forward to helping up to nine million families restructure or refinance their mortgages to a payment that is affordable now and into the future.  Today, we are providing servicers with the details they need to begin helping eligible borrowers.”

This is only the beginning of a plan that will, over time, trickle down to help other Americans caught in the midst of the subprime mortgage crisis.  A crisis of this size, with this much money involved, cannot be solved overnight.  For more information regarding the details of President Obama’s housing plan, visit www.financialstability.gov.

Europe’s largest bank, The Hong Kong and Shanghai Banking Corporation (HSBC), announced that it will scale back its US lending as a result of failed sub prime mortgage investments.  Coming off of their worst quarter ever, HSBC will be eliminating 6,100 jobs nationwide by closing all 800 of its Household Finance & Beneficial Offices here in the US.

So what happened to HSBC’s profits?  In 2007, HSBC reported profits of $19.1 billion.  Their 2008 profits came in at a much less $5.7 billion.  Unable to predict the deterioration of the US economy, HSBC purchased Household International six years ago for $14 billion.  This purchase made HSBC the largest subprime mortgage lender in the US.  Forming the Household Finance & Beneficial offices, this unit began lending money to borrowers that did not have strong credit history.  What was predicted to be a successful and profitable acquisition turned ugly in 2008, when consumer loans considered 60 or more days delinquent rose dramatically from 7.7% to 12.5%.

Stephen Green, group chairman for HSBC, stated that “In light of this, we have taken the difficult decision that, with the exception of credit cards, we will write no further consumer finance business through the Household Finance and Beneficial brands in the U.S., and will close the majority of the network.”

In official statements, HSBC has promised that despite the halt on its consumer lending practices, it will continue to help its current customers pay off their loans, helping them avoid foreclosure.

What does this mean for me?  Green also vowed that HSBC is “not turning our backs on the US“, as they will continue to issue and promote credit cards.  Simply stated, this is good for consumers!  The credit card HSBC is bringing back, Orchard Bank card, is their subprime card for bad credit borrowers.  Originally pulled from the web on December 1^st of 2008, it is available again for consumers.  With the lowest rate among subprime cards, HSBC’s Orchard Bank Card does not have outrageous upfront fees to pay. This card is designed for people who are looking to rebuild their credit.

To sum it up: HSBC’s decision to discontinue its consumer lending business actually benefits the millions of consumers who are looking to re-establish a strong credit history.  It is important to remember that you have many options when choosing a credit card company, as companies like HSBC promote specific credit cards to help people with poor credit.  Check out sites like Credit.com to learn more about the various credit card options you have as a consumer.

With Consumer Protection Week wrapping up today, we wanted to focus our third article in this series on how to protect yourself from financial scammers.  The fact of the matter is there are a lot of crocks out there looking to scam you out of something as sensitive and as serious as your finances.  We feel that the conclusion of consumer protection week is an especially appropriate time to advise you on how you can steer clear of Loan Scams and Fake Lenders.

How do Loan Scams Work?

The scam usually starts with a fake lender sending you an offer in the mail.  The scammers often reference a well-known name of a legitimate lender to reel people in.  After all, if they mention that they are affiliated with a company that you know is legit, they must be for real, right?  WRONG!  Here is how they manipulate victims day after day using their well thought out tactics:

1.      You respond to a letter or email you get that offers you a loan.

2.      Within the email or letter, you are asked to call a “third party consultant” that will get your application started.

3.      During this phone call, you are asked to give your personal information, such as your date of birth and social security number-then suddenly, after quickly assessing your information over the phone (or so you think), your loan is magically approved!

4.      The scammer will then either fax a bogus loan package to the person or will ask them to visit a website, where they will enter their bank account information.

5.      Lastly, the person is asked to wire an advanced payment to the scammer.

6.      Boom-the fake lender disappears into thin air, with all of the person’s personal information-and their advance payment.  They never receive a loan, and are left with nothing but an emptier bank account and a stolen identity.

Signs You are Working with a Fake Lender

There are certain things a legitimate lender will never do.  Below, we list things that should raise a huge red flag:

• They contact you – legitimate lenders will not be harassing you via email or via mail.
• They guarantee your loan will be approved, no matter what – this isn’t realistic! If you hear these words, run for the hills! No legitimate lender will ever make this guarantee up front. The background check legit lenders perform includes checking your credit and contacting your references. It is simply impossible to approve a loan over the phone that quickly!
• They ask for advance payment to an individual – legitimate lenders will not ask for an advance payment, especially not to an individual person.
• They direct you to a website to enter more personal information – these scammers often imitate legitimate loan websites, stealing logos and information. When the window appears, it actually takes you to Microsoft’s website. Be sure to type the correct url into the window yourself to see if the website is legit.

How to Protect Yourself from Loan Fraud

Now that you are aware of the red flags to watch out for when it comes to fake lenders and loan scams, it is important to be aware of the additional things you can do to protect yourself.

• Subscribe to an identity theft protection service: If you believe you may have mistakenly fallen for one of these scams, as many consumers do, it is crucial to subscribe to an identity theft prevention service. If you have handed over personal information, you can be sure these scammers are taking full advantage of possessing your personal information. These identity theft services will run a check to see where your personal information is being used, and will help resolve any issues they may find.
• Do your homework-comparison shop: If you need a loan, do your research. Look online to see what other consumers are saying about the legitimate lenders they have worked with. The time you take to investigate will help you learn about specific experiences other consumers have had with lenders. Talk to your friends, ask people at your work-get a referral from someone you trust. Don’t sell yourself short by responding to an email or letter from a potential fake lender-it will cost you in the end!

We have adopted a new strategy moving forward with this blog.  We want to tie in important happenings in our economy with the everyday life of all Americans.  To do this we will start with three weekly themes:

Monday’s Market Movers

This weekly theme will watch the global markets and discuss the significance they will play in our everyday lives.  Monday’s Market Movers will follow and examine how the markets will affect credit and lending on both the individual level as well as on the banking level.

Wednesday’s Washington Weekly

On Wednesdays we will examine important events from Capitol Hill and the White House to assess their direct impact on lending and credit.  We will look specifically at the enormous amounts of spending and how it will trickle down to the everyday lives of all Americans.

Friday’s Financial Fitness

On Fridays we will gear our theme towards helping readers better their financial and credit standing.  We will look at little things that can be done to better your credit score, save some additional cash, or help your borrower profile to get the loan you need.  The overall goal of Friday’s Financial Fitness is to get you into a healthier financial situation.

We will begin discussing these themes in the next week.  We will continue to grow and expand our themes based on the economic situation and the response from readers like you.