The average amount of principal forgiveness being offered is about $150,000, said Ron Sturzenegger, an executive at Bank of America. “And when you take their new principal amount times their new interest rate, it’s about a 35 percent savings from what they were paying before,” Sturzenegger said (“Bank Of America Offers To Cut Mortgage Principal,” NPR, May 8, 2012).

Only a small group of Bank of America’s borrowers qualified for the one-time offers, which are scheduled to arrive in the mail this week:

• They must owe more than their home is worth
• They must be at least two months delinquent on their mortgage payments as of the end of January
• Eligible mortgages must be held and serviced by Bank of America or by investors who authorized the bank to change the terms of its loans

However, Sturzenegger said he’s concerned that some homeowners, already wary of calls and mailings concerning their home loans, will ignore Bank of America’s one-time offer at principal forgiveness.

Many homeowners with Bank of America and other lenders have participated in loan modification programs, only to be kicked out in worse shape than they were before. And other homeowners may be wary of scammers targeting underwater homeowners for bogus debt relief services.

“And so [Bank of America’s homeowners] have become defensive and they have not responded,” Sturzenegger said. “We would like for them to know this one is different. I don’t want to say this is their best last chance, but I think it’s the best chance they’ve had so far.”

Bank of America said that homeowners who don’t qualify for the principal forgiveness offer may still apply for what the lender calls “dignified alternatives,” which are programs that allow homeowners to modify their loans without principal forgiveness or lease back their homes from the bank.

It all started two years ago when Diana Mey got a call from debt collection firm Reliant Financial Associates, who threatened to put a lien on her home. Not only was the tactic a violation of federal and state fair debt collection laws, but the debt in question wasn’t even Mey’s. So Mey sent the company a cease-and-desist letter.

Exactly 23 minutes after Reliant Financial Associates signed for the letter, Mey began receiving a series of hang-up calls that showed up on her caller ID as coming from the local sheriff’s department. When she finally answered, a man on the other end responded with a vulgar, two-minute message.

“You’ve been really trying to get a hold of me, called quite a bit the last couple days,” Mey told the caller when she answered. “Yes,” the man replied. “I want to make sure you like being gang banged” (“West Virginia Woman Wins $10M Judgment From Abusive Debt Collector,” WPXI-TV, May 2, 2012).

Mey said she was frightened by the call and contacted police. A detective told her that the call didn’t come from the sheriff’s department and that the caller ID had been manipulated in a practice called spoofing. When she suspected the call may have come from Reliant Financial Associates, she did some research online and found that she wasn’t the only one that this had happened to.

Mey sued Reliant Financial Associates and won a $10 million default judgment against the debt collection firm — a record judgment against a debt collector — when its lawyer failed to show up in court. Neither the company nor its lawyer have been heard from since.

Although the company’s owners have been identified, collecting on the $10 million judgment may be a long shot. But Mey said that that her lawsuit wasn’t about the money. Instead, Mey said her lawsuit was about sending a message to other abusive debt collectors that they have to obey the law because there are people who will stand up against them.

And abusive companies might want to take notice, because Mey has a history of successfully fighting back. In 1999, Mey won a class-action lawsuit against a telemarketer who kept calling even after she asked it to stop.

Before things get that bad, however, there are five ways you can check to see if your credit cards pass the stress test. If you fail any one of these tests, you should probably rethink how you use your credit cards, before you end up in over your head with debt.

1. Are you operating close to your credit limit?

If any of your credit cards are maxed out or near their credit limit, then you’re operating in the credit stress zone. Cut back on your spending immediately and take your credit cards out of your wallet and put them someplace safe so you can’t use them on impulse and overspend when you’re out and about. Remember, every time you use a credit card, you’re taking out a loan. If you can’t afford something with cash, you can’t afford it.

2. Do you open new lines of credit to get discounts and other offers?

If you’re signing up for credit card accounts — especially store credit card accounts — to get a discount off your first purchase, a low introductory APR, free airline miles, or some other kind of offer, your credit stress test will show a big red flag. These offers are known as “teasers,” and they’re designed to do one thing and one thing only: lure you into more credit card debt. Most cards that offer deals are only temporary, as is the case with first-time shopping discounts and introductory APRs, and rewards cards typically charge higher interest rates. If you’re already struggling with credit card debt, resist the temptation to open any new accounts.

3. Are you using credit cards to cover the gap between paychecks?

If you’re living paycheck to paycheck, the worst thing you can do is use a credit card — which is the same thing as taking out a loan — to cover the gap between paydays. If you’re doing this, you’re failing your credit stress test. If you can’t afford your monthly expenses, paying for them with high-interest credit cards will likely only result in paying eve more for the money you spend, on top of things like late payments, over limit fees, or the inability to make a minimum monthly credit card payment at all. And then you’ll be in real trouble.

4. Do you wait until the last minute to make credit card payments?

Waiting until the last minute to make credit card payments is another red flag on your credit stress test because it probably means you don’t have the money you need to pay off your debts. Making eleventh-hour payments because you’re a procrastinator or were busy and forgot is one thing, but hurrying to scrape together enough money to make a minimum monthly payment is a clear indicator that you don’t need to be using credit cards at all. Shelve the credit cards and go the cash-and-carry route to avoid having a credit card heart attack.

5. Are your credit cards declined when you use them?

If you’re getting declined at the cash register when you try to use your credit cards, it’s a major-league failure of your credit stress test. Not only are you operating near your credit limit — which means you’re carrying a high monthly balance — but you obviously don’t know how much available credit you still have. That means you’re simply not paying attention to your finances. And not paying attention to your finances is eventually going to get you into a heap of trouble. Retire your credit cards to a safe place and work hard to pay them off, little by little if you have to, while using only cash to cover monthly expenses.

Credit cards aren’t there to help you pay for things you can’t afford, they’re there to help you more conveniently spend money that you already have — although credit card companies don’t see it that way; they love it when cardholders carry a balance and pay lots of fees. And credit cards aren’t for everyone. Some people have a hard time using them while not over extending themselves and going into deep debt.

If you answered yes to one or more of these five questions, then you’ve either failed your credit stress test or are close to failing it. Our advice? Dump the credit cards, pay them off, and only use them for absolute emergencies if you can’t work out a payment plan when you get into a bind. Not only will your credit stress level improve, but so will yours.

Swanson, who in Jan. filed a lawsuit against Accretive Health accusing it of violating federal and state privacy and health access laws, released a scathing report last week documenting the company’s overly aggressive tactics for obtaining funds from patients of Minneapolis-based Fairview Health Services.

The report detailed several highly controversial and allegedly illegal tactics, which included working with hospitals to staff emergency rooms with agents who use “stop lists” to demand payment from debtors who seek treatment, even for life-threatening conditions.

Documents released by Swanson also show Accretive Health staffing hospitals with agents, indistinguishable from medical staff members, who take down sensitive information, including patient health information, and ask incoming patients to make a credit card payment. Agents are instructed by upper management to stall patients entering the emergency room until they have agreed to pay a prior balance and, in boiler-room sales fashion, use quotas and threaten agents with termination if they fail to collect.

Overall, Swanson has alleged that Accretive Health may have broken state and federal debt collection laws and may have violated state healthcare law by using aggressive collection tactics that “may constitute a threat to withhold medical treatment” (“Debt Collector Wants MN AG’s Lawsuit Thrown Out,” Twin Cities Business, May 1, 2012).

Debt Collector: AG Can’t Sue Us Because of Similar Legal Action From DOC

In a statement issued Sunday, Accretive Health fired back at Swanson, saying that “the inaccuracies, innuendo, and unfounded speculation that have been part of the Minnesota attorney general’s recent allegations are extensive” and that the lawsuit “includes allegations that are factually baseless and legally indefensible.”

As an example of one of the lawsuit’s supposed inaccuracies, an allegation in Swanson’s’ report that a father was approached for payment prior to his child being provided care was incorrect. According to Accretive Health, a family member had requested financial consultation in advance of treatment and “the father expressed his appreciation for our assistance.”

“Nevertheless, we take any patient’s concerns seriously,” Accretive Health said in a statement. “One of our fundamental principles is that patients should never believe that the critical work we do has interfered with their access to care. We are committed to understanding and addressing any situation where a patient expresses concern.”

Accretive Health slammed Swanson for orchestrating “a nationwide media campaign” against he company rather than litigate the case in a courtroom. Accretive Health hinted that such a campaign was responsible for encouraging Fairview Health Services to terminate its billing contract with the debt collection firm.

In its motion for dismissal, Accretive Health said that since the company has received a consent order from the Minnesota Department of Commerce in February to “address its debt collection practices in Minnesota,” it can’t be sued by Swanson over identical claims.

After Swanson released her report last week, several law firms announced they were filing class-action lawsuits against Accretive Health on behalf of investors in the company, who claim that Accretive Health and its leaders violated securities laws by issuing false and misleading statements about the business and failed to disclose that it was violating state and federal laws, as alleged by Swanson.

The so-called “debt snowball plan,” coined by Dave Ramsey, uses psychology to help folks get out of debt. Normally, financial experts recommend paying off high-interest debts first because you’ll typically owe less over the long term. However, the debt snowball plan recommends that you pay off low-balance debts first so that you build up the confidence you’ll need to maintain long-term momentum on your way to debt freedom. Here’s how it works:

• Organize all of your debts and arrange them from lowest balance to highest balance
• Make all your minimum monthly payments on all of your debts, but pay as much extra as you can on the debt at the top of your list so you can pay it off faster
• Once the lowest-balance debt at the top of your list is paid in full, transition that payment as an additional monthly payment on the second debt on your list — in other words, don’t decrease your total monthly debt payment; use the extra money you no longer need to pay on your first debt to help pay down your second debt faster
• Once your second debt is paid in full, transition its monthly payment (which will be the amount you had been paying on your first and second debts combined) as an extra monthly payment on your third debt
• Repeat these steps as necessary; by the time you reach your final, largest-balance debt, you’ll be paying significantly more than the minimum amount each month (in fact, the total of all your other debt payments combined, plus the minimum monthly payment of your final debt)

Paying off your lowest-balance debt quickly and then transitioning that monthly payment to your second debt, and then the monthly payment from your first and second debt to your third debt, and so on, will help keep you motivated to get debt free as soon as possible.

Have you tried the debt snowball plan? Let us know how it worked for you. We did it, and it worked great for us.

Accretive Health contracts with some of the largest hospital systems in the United States to collect their debts. But according to hundreds of documents released Tuesday by Minnesota Attorney General Lori Swanson — who filed a lawsuit against the debt collection firm in January — the company’s business practices paint the firm as having a boiler room mentality and a policy of routinely obstructing patients’ access to medical care.

Documents show that, in order to have patient debts collected by Accretive Health, hospitals must agree to turn over the management of their front-line staffing (including patient registration, scheduling, and billing) and back-office collection activities to Accretive Health. Once that happens, Accretive Health staffs hospitals with agents, who routinely use confidential patient health records to try and wrangle money from debtors.

The agents, who are indistinguishable from medical staff members, take down sensitive information, including patient health information, and ask incoming patients to make a credit card payment. Internal documents also show that if incoming patients don’t have credit cards, agents are told to say, “If you have your checkbook in your car, I will be happy to wait for you.”

Accretive Health debt collection agents, who call themselves “financial counselors,” are instructed by upper management to stall patients entering the emergency room until they have agreed to pay a prior balance, according to the documents released by Swanson.

The documents also reveal a boiler-room mentality by upper management, which instructs agents to use a so-called “stop list” to identify supposed debtors, much in the same way that the FAA uses a no-fly list to track passengers who are supposed security risks. If agents don’t collect, they’re told they will be fired, according to documents and agent statements.

“It is absolutely stunning that the company has systematically trampled on patient rights, perverting the charitable mission of a hospital,” Swanson said (“Debt Collectors Sued Over Emergency Room Tactics,” Idaho Statesman, April 25, 2012).

Firm: We Have ‘Great Track Record’ of Helping Hospitals Enhance Quality of Care

Documents show that hospital employees feel that patients are “harassed mercilessly,” discouraging some from seeking life-saving treatments, and that medical care at the hospitals that contract with Accretive Health has declined precipitously. But the debt collection firm dismissed such claims as “country club talk.”

“We have a great track record of helping hospitals enhance their quality of care,” an Accretive Health spokeswoman said.

Last year, publically-traded Accretive Health reported $29.2 million in net income, up 130 percent from a year earlier.

Swanson’s lawsuit against the company charges Accretive Health with violations of the Health Insurance Portability and Accountability Act for inappropriately accessing confidential patient health records.

It is unclear if the hospitals that contracted with Accretive Health were being investigated for providing agents of the company with access to those confidential records.

The complaint by Ohio Attorney General Mike DeWine accused Christopher Rojas of Irvine of regularly changing the name of his business when complaints began to surface in an attempt to hide his fraudulent activity from consumers.

“This individual takes thousands of dollars up front but fails to provide promised services,” DeWine said in a statement. “He also changes his business names regularly so he can keep operating in the same pattern without consumers catching on” (“Ohio Attorney General Sues Over Scam Foreclosure Fix Scheme,” Huntington News, April 19, 2012).

According to the complaint, Rojas has done business as National Juris Solutions, US National Legal Solutions, Weston & Wyatt, Merrill & Warren, and Legacy Holdings Group.

Rojas has been charged with failure to deliver, a violation of Ohio’s Consumer Sales Practices Act, and charging excessive fees in violation of the Debt Adjusters Act. DeWine is seeking injunctive relief, consumer restitution, and civil penalties.

In a statement, DeWine reminded Ohioans who are worried about making their mortgage payments to consider some basic advice:

• Never pay up-front fees for mortgage debt relief or foreclosure prevention services. By law, mortgage debt relief companies are prohibited from charging and accepting fees until consumers receive and accept a loan modification offer from their lenders.
• Research businesses before giving them any money or information. Make sure to check with the Better Business Bureau and the Ohio Attorney General’s Office to see if consumers have filed any complaints.
• Free foreclosure assistance is available from Save the Dream Ohio. For more information, visit www.savethedream.ohio.gov or call (888) 404-4674.

Consumers who believe they have been treated unfairly or have been the victim of fraud are encouraged to file a complaint online with the Ohio Attorney General’s Office or by calling (800) 282-0515.

Further Reading

Complaint and Request for Declaratory Judgment: State of Ohio v. Christopher Rojas. Filed April 17, 2012.

The study, “Financial Literacy and Credit Cards: A Multi Campus Survey,” conducted by researchers from five U.S. universities, was published this April, coinciding with Financial Literacy Month. The study found major problems with U.S. students’ understanding of credit cards and credit card debt:

• Seventy percent of students have credit cards
• Five out of six of those students are unaware of their cards’ interest rates
• Seventy-five percent of those students don’t know what their late-payment fees are
• Seventy percent of those students don’t know what their over-balance fees are

As a result, more than 90 percent of college students who have credit cards are carrying monthly credit card debt. Perhaps more shocking was that nearly all of the 725 students who participated in the 2009 survey were business majors.

“Our students lacked even basic financial knowledge of a common credit tool that many of our students used every day,” the study said. “There is no way to describe these results as a success in education of financial literacy” (“Survey: Students Fail the Credit Card Test,” Fox Business, April 16, 2012).

There were several other troubling findings in the study as well:

• Credit card use “has snowballed in the last decade” on campus; in 2004, the average student credit card debt was $946, but by 2009 the average had climbed to $4,100
• Nearly a third of college students with credit cards had more than one card
• Only 9.4 percent of students paid their credit card debt in full each month, a steep decline from 32 percent in 2003
• Only 14.6 percent of students claimed to know their interest rates
• Demographically, younger students used credit cards more than older students; students who had taken an ethics class were more aware of interest rates, and employed and married students tended to be more responsible users of credit cards

In the end, the study’s conclusions were disturbing. “This result may also explain part of our national problem with credit,” the study said. “If our college students do not understand credit costs, what can we expect from the larger portion of our society without a college education?”

“These results should serve as a wakeup call for both our college students and our college outreach efforts into the community to train people about the costs of credit. It is clear the status quo of financial literacy is a failure.”

Republican Senators David Vitter of Louisiana and Jim DeMint of South Carolina sent a letter Tuesday to Treasury Secretary Timothy Geithner criticizing the Obama administration for encouraging federally-backed mortgage giants Fannie Mae and Freddie Mac — which together hold 60 percent of all U.S. home mortgages — to provide mortgage debt relief via loan principal reductions to struggling homeowners.

Edward DeMarco, the head of the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, has been stubbornly against principal reductions, despite frequent calls by the Obama administration and Democratic lawmakers to provide them as a means to help struggling homeowners stay in their homes. However, DeMarco seemed to take one step back by saying recently that offering homeowners reductions on their mortgage principal balances may make sense after all, but that more study was needed.

DeMarco’s comments prompted the letter by Vitter and DeMint, in which the Senators argued against the Obama administration’s plan to use some of the $46 billion set aside for the 2008 Troubled Asset Relief Program (TARP) on foreclosure prevention. The pair said that big banks holding second mortgages will be the ones that benefit from write-downs, not homeowners. The plan “will pay off the mega banks with taxpayer cash in exchange for reducing the principal balance on some mortgages,” Vitter and DeMint wrote. “We write to urge you, on behalf of the taxpayers, to reconsider and, instead, return this money to the Treasury to pay down the national debt” (“GOP Senators: Forget Write-Downs, Pay Down Debt Instead,” The Wall Street Journal, April 17, 2012).

Michael Steagman, a Treasury housing official, said prior to the Senator’s letter that he disagreed with the notion that big banks, instead of homeowners, would reap the benefits of mortgage principal reductions.

“Principal reduction is by no means the solution for all borrowers struggling to pay their bills,” Stegman said. “But it is smart economic policy for some, and where it is we should provide that help.”

Under pressure from Congressional Democrats, Edward DeMarco, the head of the Federal Housing Finance Agency — the top regulator of Fannie Mae and Freddie Mac, which together hold 60 percent of America’s home mortgages — said that offering mortgage debt relief to underwater homeowners via a reduction on their home loan principal balances may make sense after all, but that more study was needed.

DeMarco has been stubbornly against principal reductions, despite frequent calls by many Washington lawmakers to allow them. Although DeMarco’s recent comments may have opened the door to the idea of principal reductions on home mortgages, he repeated the reasons why he has been opposed the idea, including concerns over a moral dilemma in which homeowners who aren’t in trouble flood lenders with demands of principal reductions (“FHFA Chief DeMarco Loosens Up a Bit on Principal Reduction,” MSNBC, April 10, 2012).

Shaun Donovan, Secretary of Housing and Urban Development, told a Senate panel earlier this year that increasing data showed that mortgage debt relief via principal reduction would be good for homeowners, investors, and communities. Principal reductions would “allow people to pay [their bills], stay in their homes and increase the value of those mortgages,” Donovan said.

Meanwhile, private lenders are offering principal reductions to their borrowers. “Private lenders are doing it for an increasing share of their [mortgage portfolios] when it makes sense,” said Andrew Jakabovics, a research director at Enterprise Community Partners, Inc. “If [Fannie Mae and Freddie Mac] aren’t willing to do it there are plenty of investors who are buying these notes because economically it makes a lot of sense.”

But DeMarco, thus far, hasn’t been persuaded. Instead, DeMarco has said that borrowers have a moral obligation to repay their mortgages. “The far larger group of underwater borrowers who today have remained faithful to paying their mortgage obligations are the much greater contingent risk to housing markets and to taxpayers,” DeMarco said.

As a result of DeMarco’s position — which he holds despite the government having propped up the money-losing mortgage agencies with more than $150 billion in taxpayer funds — the FHFA has offered only interest rate deductions, loan term extensions, and principal forbearance, which postpones the repayment of a portion of a loan balance, but doesn’t permanently reduce it. For his part, DeMarco cited data on Fannie Mae’s loan modifications showing that lowering monthly payments is a more effective way of preventing defaults than reducing principal balances.

Since the U.S. housing market collapse in 2006, the value of American homes has plunged $7 trillion dollars, leaving about 11 million homeowners owing more on their homes than they’re worth.