National average mortgage rates declined from the previous week to 4.72% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on June 10th. Rates have recorded weekly declines in seven out of the past nine weeks. Fixed mortgage rates are now just slightly higher than the all-time low of 4.71% set in December 2009.
After more than a year of talking about it, actual change has finally arrived for the tens of millions of Americans who rely on credit cards.
Come February 22, 2010, card lenders will be barred from raising interest rates on most borrowers’ existing balances—a practice that increasingly irked consumers over the last decade and one of several that federal regulators and lawmakers finally barred as unfair and deceptive.
But the new law already requires banks to give cardholders 45 days’ notice of any change in terms. So if your bank didn’t mail you a rate-change notice by January 7, 2010, you no longer face a doubling or tripling of your interest rate on your current balance—as long as you keep paying and don’t fall 60 days late. The Federal Reserve recently issued more than 1,100 pages of rules telling card issuers how to implement that new prohibition and other elements of the nation’s new credit card law, whose main terms take effect February 22.
If you’re a “convenience user” of credit cards—one of the four in 10 cardholders who pay off your bill each month—you’ll be less affected than those who carry a balance. But pay attention, anyway, because the new rules are forcing the card industry to reevaluate business models that for too long relied on tricks and traps to generate revenue. It isn’t yet clear how the card market will evolve, especially since this is playing out during the middle of a deep and painful recession.
Still, many of last year’s dire warnings don’t seem to be coming true. “Rewards” programs haven’t vanished, nor have annual fees suddenly become the norm. Average rates even dipped in November 2009, which the bankers called evidence that “issuers are working to keep rates down even in these tough times.”
In short, good customers still seem able to enjoy the benefits of paying with plastic without shouldering much more of the costs. And that’s unlikely to change, because of competition and also because of one of the basic dynamics of the credit card business: Since they also get lucrative fees from the companies that accept plastic payments, the last thing card issuers want is to steer you to start paying with cash or checks.
Highlights of the new rules include
-No rate increases on existing balances. The dirty little secret of what card issuers called “risk-based pricing” was that some of the best prices were offered to some of the riskiest customers. The trick was that they knew they could profit by offering lucrative deals to these customers because they could predict that some portion would soon be paying much more—often “default” or “penalty” rates topping 30%—on big balances.
Sometimes the new rate was triggered by a late payment of a few hours. Sometimes it was triggered by a late payment to another creditor. Sometimes it was caused by nothing more than a dip in a consumer’s credit score and contract terms allowing rates to be changed “at any time for any reason.”
What’s changed: Except for introductory rates, which must last at least six months, interest rates cannot be raised on existing balances except in rare situations, such as if a cardholder falls 60 days late.
-Faster payoffs for some borrowers. The new law also ends a trap sprung on cardholders who were lured by low-interest or no-interest balance-transfer offers but didn’t read the fine print. If they subsequently used the card for purchases carrying a higher rate, they soon found that they were accumulating interest no matter how much they paid each month. Card issuers would not allow them to pay off the purchases until the low-rate or interest-free balances had been fully paid. What’s changed: Starting February 22, any payment over the monthly minimum must go toward paying down the portion of the balance carrying the highest interest rate.
-No increases for the first 12 months. When it comes to new purchases, less has changed. You may still face an interest-rate increase based on triggers in your card contract- even for tardiness paying another creditor, the trap that came to be known as the “universal default.” But there are two key differences. The first is that since August 2009, you’ve been entitled to 45 days’ notice and the right to say “no, thanks” to new terms. The second is that, as of February 22, a card issuer cannot raise your rate during the first year an account is open, unless an “introductory rate” is expiring and the “go to” rate was plainly disclosed at the start. Of course, since card issuers can no longer apply new rates to old balances, opting out may no longer be the best solution, in part because the law allows the issuer to double your monthly minimum. You’d be better off if you simply quit using the card. But if the issuer imposes a new annual fee, opting out may be your only alternative.
-New billing and payment terms. Starting in February, your card company must mail or deliver your bill at least three weeks before your payment is due, and give you a consistent monthly due date. Payments must be credited if they arrive by 5 p.m. on the due date. And if that day falls on a Sunday or holiday, you’ll be entitled to an extra day.
-Over-limit charges. As of February 22, a card company has to ask whether you want it to approve charges that push you over your credit limit. If you say yes, the issuer can only charge you one over-limit fee per month. And if you opt out, it can’t charge you a fee if it allows such a purchase.
-Young borrowers. If you’re under 21 and want a credit card, you’ll now need to show that you have the financial resources to make payments, or obtain a cosigner.
-Big changes still ahead. This isn’t the last of the new credit card rules. By August 2010, the Federal Reserve has to decide how to implement two of the trickiest parts of the new law: its requirements that penalty fees be “reasonable and proportional,” and that card issuers who have raised customers’ rates since Jan. 1, 2009, reevaluate those rates to see if they should be reduced, and to do so at least every six months.
In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan recently announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. The announcement is part of the Obama administration’s commitment to addressing foreclosure. Secretary Donovan recently announced $2 billion in Neighborhood Stabilization Program grants to local communities and nonprofit housing developers to combat the effects of vacant and abandoned homes.
“As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential home buyers,” said Donovan. “FHA has an unprecedented opportunity to fulfill its mission by helping many home buyers find affordable housing while contributing to neighborhood stabilization.”
With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.
“This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed,” Donovan said.
In today’s market, FHA research finds that acquiring, rehabilitating and reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.
The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.
“FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties,” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”
The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping,” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:
-All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
-In cases in which the sales price of the property is 20% or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.
-The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.
For more information, visit www.hud.gov.