What happens when a bank wants THEIR loan modified?
April 11th, 2009 Categories: Real Estate News, San Diego county Real Estate News
SAN DIEGO– When banks took TARP they were prodded to offer loan modifications prior to foreclosing on a home. Unfortunately, in most situations those loans modifications do not help the homeowner and in many situations the payment actually increases.
On April 3, 2009 the Huffington Post wrote about a Controller of Currency report that showed less than 
half of all loans modified resulted in payment reductions of less than 10%. It also reported that 1 in 4 loans modified actually had an increase in their monthly payment. The primary cause of this is banks adding fees and/or past due interest.
In today’s San Diego Union the headline read;”Banks finding bailout burdensome”. It seems as though the Chairman of some banks are taking issue with executive pay limits and other restriction such as a restriction on the number of foreign citizens they can employ that come with the TARP money. To avoid this “government interference” some banks, feeling healthy now, would like to repay their bailout loans early and get back to business as normal. The catch, they want to modify the terms of their loans.
Large and small banks have pressed the Obama administration to make it less costly for them to exit the bailout program by waiving the right to exercise the stock warrants the banks had to grant the government in exchange for the loans.
Douglas Leech, the founder and chief executive of Centra Bank, a small West Virginia bank that briefly participated in the capital assistance program but returned the money after the government imposed new conditions, said he complained strongly about the Treasury’s decision to demand repayment of the warrants. That effectively raised the interest rate he paid on a $15 million loan to an annual rate of about 60 percent, he said.
“What they did is wrong and fundamentally un-American,” he said. “Even though the government told us to take this money to increase our lending, the extra charge meant we had less money to lend. It was the equivalent of a penalty for early withdrawal.”
Now these are terms they agreed to. They were not changed or left to be defined later at the whim of the government.
Do you know what I consider wrong and fundamentally American? Arbitrarily raising a client’s credit card interest rate who is in good standing on their account!!! And they are doing it all the time.
A fellow agent I work with came in this week very distraught. When I asked her what was wrong she said that CITI raised her credit card rate from 9.9% to almost 17%. She had not missed any payments, was not over her credit limit and was not participating in a “special rate”. She called customer service and was told that her only solution was to pay off the balance. Unfortunately, she is not able to do this as she had consolidated her consumer credit on to this card since it had the lowest rate.
What kind of penalty does Douglas Leech consider this?
The government, realizing this is an unfair and unethical business practice, 
have passed legislation limiting when and what credit card companies can do but that legislation does not take effect until July of 2010.
The Federal Reserve Board passed new rules in December but they don’t take effect until July 2010. Those rules will:
•Prohibit credit card companies from raising interest rates on money already borrowed.
•Protect new card holders by prohibiting interest rate increases in the first year of an account.
•Implement a new rule that zero interest means zero. No more so-called deferred interest.-TBO.com
Hopefully the FED stand strong and enforce the agreements made with these institutions.
sidenote: with the closing of many newspapers, I do subscribe to the San Diego Union and to the North County Times.
