By: JILIAN MINCER | Wall Street Journal

Even the rich need to worry about credit scores.

The economic crisis has put a premium on these numbers which, when too low, can limit access to loans, insurance, even employment. But many affluent investors unknowingly hurt themselves with late payments, credit-card debt and not borrowing enough despite, or perhaps because of, high incomes.

Truth be told, being wealthy doesn't always make people smarter about credit. And contrary to what some people think, income and savings aren't factors in determining a credit score.

"Regardless of their finances, age, gender or ethnicity, people don't have an understanding of how credit works," says Jeremy E. Portnoff, a financial adviser with offices in Union, N.J., and Tustin, Calif. "They should be aware of their scores, especially in this environment."

He recalls a client who, despite more than $1 million in assets, had a poor credit score because he avoided any kind of borrowing -- he rented his home and didn't use credit cards. Because of that, he would have had difficulty getting a mortgage -- something he plans to do when he retires.

"He grew up thinking credit was bad," says Mr. Portnoff.

The credit crisis has raised the bar for people of all economic classes. Everyone needs higher scores now to qualify for loans and keep the cost of borrowing down.

"We think the limit is at least 760 to qualify for the best rates," says Scott A. Beaudin, a financial adviser with offices in Burlington, Vt., and Atlanta, Ga., who likes his clients to always be "credit ready."

 By: VIKAS BAJAJ and JOHN LELAND | NY Times

MIAMI GARDENS, Fla. — When her brother could no longer help support her, Luzetta Reeves asked her small mortgage company to cut her monthly payments. It did — by 11 percent — making it possible for her to afford her house here on her modest fixed income.

In Miami, Jeffrey Mitchell saw his family income drop just as real estate taxes and insurance premiums increased, making his monthly mortgage payments crushing. He got a lower interest rate, too. But with the added fees and penalties, his monthly payment remained the same. He is now back in foreclosure.

As the Obama administration steps up efforts to help troubled homeowners modify their mortgages, it might consider the experiences of these two South Florida borrowers and their mortgage companies, one small, one large.

National statistics on mortgage modifications suggest that what happened to Ms. Reeves, a disabled 54-year-old, and Mr. Mitchell, a 42-year-old union representative, is fairly typical.

The nation’s 14 largest banks reported that more than half of the loans they modified last year were delinquent again after just six months, according to the federal bank regulator, the comptroller of the currency. But several small mortgage companies like the one that helped Ms. Reeves, which have been pursuing modifications longer, say that less than 25 percent of their modified loans became delinquent again.

By: C.J. HUGHES | NY Times

If Dawn Mercedes had studied the application with her mortgage broker closely, she might have noticed fine print that she said she later realized overstated her ability to pay.

But Ms. Mercedes, a new mother and recent newlywed eager to own her first home, a four-bedroom ranch in Mastic, said she “didn’t even read it.” With $5,000 down, Ms. Mercedes, 43, who works in the deli section at Best Yet Market in Riverhead, bought the house for $350,000 in 2005.

“I was told, ‘Oh, you’re approved for $360,000,’ and that was that,” she said.

That mortgage would come back to haunt her. A few months later, her husband, Ramon Mercedes, who is from the Dominican Republic, was detained in New Jersey in a dispute over his immigration status.

Without his salary, Ms. Mercedes quickly fell behind on her $2,700-a-month payments, and GreenPoint Mortgage, her chief lender, refused a plan for partial payments, she said.

Foreclosure proceedings were begun, but a spokeswoman for Countrywide Financial, which currently holds some of GreenPoint’s mortgages, said it is working with Ms. Mercedes to modify the terms of her loan and prevent her from losing the house.

Ms. Mercedes’s predicament is hardly unique on Long Island, where for more than a year homeowners have faced higher foreclosure rates than much of the rest of New York.

By: GREG HITT | Wall Street Journal

WASHINGTON -- The House approved "cram down" legislation that would allow troubled homeowners to ask bankruptcy judges for relief from mortgage debts -- but only after Democratic centrists won concessions making the bill more lender-friendly.

President Barack Obama has endorsed giving judges new authority to modify mortgages as a key response to the wave of foreclosures sweeping through the economy. Supporters of the move say the proposal to give courts cram-down authority could spur mortgage servicers to move aggressively to help borrowers, in order to avoid having modified loans forced on them by a judge.

Much of the financial-services industry opposes the proposal, saying it would create uncertainty in an already troubled market and force them to raise the cost of lending. Nodding to those business arguments, a coalition of moderate Democrats blocked an earlier version of the bill. The moderates argued that greater efforts were needed to ensure that homeowners make good-faith attempts to work with their lenders, before going into bankruptcy.

The revised legislation, approved Thursday on a 234-191 vote, included a package of provisions intended to accomplish that goal.

The effort on the cram-down bill came as some centrist Democrats in Congress have started to flex their muscles against the party's more liberal leadership on a number of issues. Also this week, some Senate Democrats have said they would break with the party and oppose a $410 billion omnibus spending bill they say is too bloated with spending on special projects for members, and they are urging Mr. Obama to veto the package.

By: TARA SIEGEL BERNARD and JENNY ANDERSON | NY Times

The economy’s deep troubles are pushing a growing number of already struggling consumers into bankruptcy, often with far more debt than those who filed in previous downturns.

Plummeting home values, dwindling incomes and the near disappearance of credit have proved a potent mixture. While all the usual reasons that distressed borrowers seek bankruptcy — job loss, medical bills, divorce — play significant roles, new economic forces are changing the calculus of who can ride out the tough times and who cannot.

The number of personal bankruptcy filings jumped nearly 8 percent in October from September, after marching steadily upward for the last two years, said Mike Bickford, president of Automated Access to Court Electronic Records, a bankruptcy data and management company.

Filings totaled 108,595, surpassing 100,000 for the first time since a law that made it more difficult — and often twice as expensive — to file for bankruptcy took effect in 2005. That translated to an average of 4,936 bankruptcies filed each business day last month, up nearly 34 percent from October 2007.

Robert M. Lawless, a professor at the University of Illinois College of Law, pointed to the tightening of credit by banks as a significant factor in the increase in October. As banks have pulled back on lending, he said, consumers have been finding it more difficult, and in many cases impossible, to use credit cards, refinance their home mortgages or fall back on their home equity lines to get them through a rough period.

“A credit crunch can drive people into bankruptcy today rather than later as sources of lending dry up,” Professor Lawless said. “With the consumer credit tightening and the economy in a nosedive, this pop could just be the beginning of a long-term rise in the bankruptcy filing rate to levels that are even higher than we had before the 2005 bankruptcy law.”

As Borrowers Go Broke, Lenders Take What They Can Get

By: ERIC DASH | NY Times

Hard times are usually good times for debt collectors, who make their money morning and night with the incessant ring of a phone.

But in this recession, perhaps the deepest in decades, the unthinkable is happening: collectors, who usually do the squeezing, are getting squeezed a bit themselves.

After helping to foster the explosive growth of consumer debt in recent years, credit card companies are realizing that some hard-pressed Americans will not be able to pay their bills as the economy deteriorates.

So lenders and their collectors are rushing to round up what money they can before things get worse, even if that means forgiving part of some borrowers’ debts. Increasingly, they are stretching out payments and accepting dimes, if not pennies, on the dollar as payment in full.

“You can’t squeeze blood out of a turnip,” said Don Siler, the chief marketing officer at MRS Associates, a big collection company that works with seven of the 10 largest credit card companies. “The big settlements just aren’t there anymore.”

Lenders are not being charitable. They are simply trying to protect themselves.

Banks and card companies are bracing for a wave of defaults on credit card debt in early 2009, and they are vying with each other to get paid first. Besides, the sooner people get their financial houses in order, the sooner they can start borrowing again.

So even as many banks cut consumers’ credit lines, raise card fees and generally pull back on lending, some lenders are trying to give customers a little wiggle room. Bank of America, for instance, says it has waived late fees, lowered interest charges and, in some cases, reduced loan balances for more than 700,000 credit card holders in 2008.

American Express and Chase Card Services say they are taking similar actions as more customers fall behind on their bills. Every major credit card lender is giving its collection agents more leeway to make adjustments for consumers in financial distress.

Here are the answers to some common questions about the Obama administration's new foreclosure-prevention plan

By: JAMES R. HAGERTY | Wall Street Journal

What do these programs involve?

One component calls for reducing payments for distressed borrowers through modifications of loan terms, known as loan mods. A second involves refinancing mortgages for some people who are current on their payments but have little or no equity in their homes.

When does this start?

Immediately.

How do I know whether I qualify for a loan modification?

For starters, this program applies only to your primary residence. That could be a home for one to four families, condo, cooperative apartment or manufactured home affixed to a foundation. It doesn't apply to second homes or investment properties, and the home can't be vacant or condemned. It also doesn't apply to mortgages on one-unit homes whose balances exceed $729,750.

And it isn't for people who can easily afford to pay their loans. You qualify only if your mortgage payment is more than 31% of your pretax monthly income. The monthly payment includes principal, interest, taxes, insurance and homeowner association or condominium fees. Income includes wages, salary, overtime, fees, commissions, tips, Social Security, pensions and other items.

You may qualify whether or not you are up to date with your payments, but you will need to show that you don't have sufficient cash or other readily available assets to meet your current payments.

By: MICHAEL M. PHILLIPS and RUTH SIMON | Wall Street Journal

WASHINGTON -- The Obama administration announced details of a housing-rescue plan it said would help as many as one in nine homeowners, from low-income Americans struggling to avoid foreclosure to well-off borrowers who owe more than their homes are worth.

The announcement came two weeks after President Barack Obama said he would spend $75 billion on the housing component of an emergency economic plan that includes a financial-system bailout and a $787 billion spending-and-tax-cut package.

The package represents an effort to tackle the political challenges inherent in any housing rescue. While the administration wants a sweeping program that would prevent millions of foreclosures, it doesn't want to be seen as rewarding the greedy or reckless.

"It is imperative that we continue to move with speed to help make housing more affordable and help arrest the damaging spiral in our housing markets, just as we work to stabilize our financial system, create jobs and help businesses thrive," Treasury Secretary Timothy Geithner said in a written statement.

The administration, which was criticized for its rollout of its financial-sector rescue last month, got a generally warmer reception for the details of the foreclosure program. The Dow Jones Industrial Average rose 149.82 points, or 2.2%, snapping a dismal losing streak in recent days.

It remains uncertain how successful the administration will be in overcoming one of the biggest problems to forestall private efforts to fix troubled mortgages: the objections of investors who own mortgage-backed securities.

Mortgage-Assistance Program Offers Disparate Treatment Depending on Goals and Circumstances

By: NICK TIMIRAOS | Wall Street Journal

New rules issued by the White House on Wednesday clarify who can take advantage of the latest round of federal efforts to head off foreclosure. President Barack Obama announced his housing stability plan two weeks ago, promising the most far-reaching effort yet by the government to help large numbers of at-risk borrowers.

The program has two main components. One provision will allow diligent borrowers who are current on their mortgage payments but have little or no equity in their homes to refinance their first mortgage to take advantage of current interest rates, which have fallen to near record lows. That is designed to allow responsible borrowers -- mainly those who have been hurt by falling home prices -- to benefit from the current climate. Lenders won't refinance borrowers who don't have equity in their homes.  

The second component involves modifying mortgages loans to lower monthly payments to 31% of the borrowers' gross monthly income, mainly by reducing the interest rate on the loan. This effort would target borrowers who are falling behind on their mortgage payments or who are in danger of falling behind. The government will provide financial incentives to lenders and mortgage servicing companies to encourage them to offer the reduced payment plans, which last for five years.

Borrowers Who Hire Firms to Renegotiate Mortgages Rarely Come Out Ahead

By JAMES R. HAGERTY | Wall Street Journal

President Barack Obama's foreclosure-prevention plan, announced last week, is designed to give several million troubled borrowers another chance to lower their mortgage payments. But government officials and counseling agencies warn that it also presents a golden opportunity for firms to fleece unsuspecting borrowers.

Over the past few years, there has been a proliferation of firms that charge fees for what they promise will be quick results in negotiating with banks to get easier loan terms. In many cases, the firms take the homeowner's money but never deliver the services promised. Even when the firms do deliver what they promise, they charge fees -- often more than $1,000 -- for services borrowers can receive free. In July, Congress increased to $360 million the funds it has allocated for foreclosure-prevention counseling to organizations that provide the service without charging consumers.

"Borrowers don't need to pay anybody," says William Apgar, a senior adviser to Shaun Donovan, President Obama's new secretary of housing and urban development. But Mr. Apgar and others fear that the recent headlines about the Obama housing plan will prompt more consumers to seek help in the wrong places.

Under the Obama plan, the government will offer incentives and subsidies to persuade mortgage-servicing companies to offer lower monthly payments to borrowers in danger of losing their homes to foreclosure.

The publicity about the plan could be "the greatest advertisement of all for these scamsters," says John Ryan, an executive vice president of the Conference of State Bank Supervisors, which helps coordinate bank regulators. But he adds that his group is working with state and federal regulators to alert consumers and crack down on scams.