Loan Defaults

As job losses mount and Americans are faced with mortgage payments they can no longer afford, many are asking: Should I stay or should I go? Bailing out on your home loan and opting to rent may make economic sense in some circumstances, particularly if you are saddled with a big mortgage payment on a home that has dropped steeply in value. But there are serious consequences -- financial, legal, emotional and ethical -- attached to the decision. "There is no angle that you can look at that situation and think it is a great idea," said Bruce McClary, a spokesman for ClearPoint Credit Counseling Solutions.

Shares of for-profit education companies plunged Thursday after industry leader Apollo Group Inc. shocked Wall Street by predicting a sharp drop in enrollment amid growing government pressure in the industry. For-profit colleges have encountered harsh criticism in recent months from regulators and lawmakers, who say the schools admit poorly qualified students who drop out at high rates and rack up enormous government-guaranteed loans that they have trouble paying off, leaving the tab for taxpayers.

Defaults on U.S. sub-prime mortgages continued their relentless climb in December as some borrowers faced rising payments on adjustable loans, according to Wachovia Corp. A team of analysts at Wachovia said 28.1% of loan balances backing 20 sub-prime bonds created in the first half of 2006 were in default, up 2.43 percentage points from the previous month. That increase compares with a jump of 2.25 percentage points in November. "It is increasingly difficult to find new synonyms for the word 'increase' to describe the direction of nonperforming loans," the analysts wrote in a report dated Friday.

European finance officials agreed Sunday to make about $41 billion in loans available to Greece to help the Mediterranean nation stave off the threat of a debt default. The loans would be charged at below-market rates to enable Athens to keep its borrowing costs down as it struggles to raise money to finance its runaway public debt. Global markets have punished Greece in recent days with high interest rates, reflecting widespread anxiety over Athens' creditworthiness. The Greek government continues to insist that it will not need to resort to assistance from fellow European countries or the International Monetary Fund to stay afloat.

Conseco Inc. posted its eighth loss in the last 10 quarters on loan defaults at its finance unit and $136.8 million of one-time expenses, including restructuring costs and investment write-downs and losses. The insurance and finance firm's loss was $96.9 million, or 28 cents a share, contrasted with net income of $80.2 million, or 23 cents, a year earlier. Excluding one-time items and investment losses, profit for the Carmel, Ind., firm was 12 cents a share, 2 cents below estimates.

A federal education official, defending a crackdown on student loan defaults, said Friday that some profit-making business schools recruit barely literate students out of unemployment lines. That charge at a Senate hearing by Bruce Carnes, deputy undersecretary of education, drew an angry retort from Sen. Edward M. Kennedy (D-Mass.), who accused the Reagan Administration of aiming its budget ax at "the most vulnerable young people in our society."

Countrywide Financial Corp. said Friday that home loan delinquencies and foreclosures rose in January as more borrowers struggled to make their mortgage payments. The nation's largest mortgage lender and servicer said loan delinquencies increased to 7.47% last month from 7.2% in December and 4.32% in January 2007. Loan servicers collect mortgage payments and distribute them to the owners of the mortgages. Calabasas-based Countrywide services mortgages totaling about $1.48 trillion.

The number of recorded notices of default dropped for the third month in a row in November, indicating that foreclosure activity in California has peaked and is on its way down, a real estate information service reported. Lenders started foreclosure proceedings on 9,112 homes last month, down from 9,663 in October, 10,138 in September and 10,954 in August, Dataquick Information Systems reported. An all-time statewide peak was reached last June with 12,054 recorded notices of default.

Defaults on student loans are declining as indebted graduates scramble to "do what's right" and the government uses new tools to dig into their wages and tax refunds in case they do not. Taxpayers are expected to spend $2 billion this year paying off uncollected student loans, down from a peak of $3.6 billion in 1991, Education Secretary Richard W. Riley said Thursday. "After years of rising defaults, it's going the other way," he said.

The Education Department, trying to control the soaring number of defaults on student loans, threatened sanctions Wednesday against institutions with high default rates. Any college, university or other post-secondary school that has a default rate exceeding 20% in the Guaranteed Student Loan Program by 1990 could be expelled from that program and all other federal student aid programs under the new rules. The announcement by Education Secretary William J.

The Obama administration unveiled new measures Friday aimed at getting lenders to reduce the principal balances on problem mortgages and to refinance "underwater" borrowers, who owe more than their homes are worth, into government-sponsored loans. The initiatives are part of an escalating effort to buoy the housing market -- and an acknowledgment that more steps are needed to prevent a fresh wave of foreclosures. One provision will allow many unemployed homeowners to get three to six months of reduced mortgage payments while they look for a job. But the most significant change to the $75-billion program is aimed at helping underwater borrowers.

Wynn Bloch has always dutifully paid her bills and socked away money for retirement. But in December she defaulted on the mortgage on her Palm Desert home, even though she could afford the payments. Bloch paid $385,000 for the two-bedroom in 2006, when prices were still surging. Comparable homes are now selling in the low-$200,000s. At 66, the retired psychologist doubted she'd see her investment rebound in her lifetime. Plus, she said she was duped into an expensive loan. The way she sees it, big banks that helped fuel the mess all got bailouts while small fry like her are left holding the bag. No more.

Government officials have subpoenaed documents from 15 lenders whose Federal Housing Administration-backed loans have high default rates, including a failed Missouri bank that was owned by an Orange County financial firm. Many of the FHA-backed loans issued by the lenders went bad almost immediately, said Kenneth M. Donohue, inspector general for the Department of Housing and Urban Development, which includes the FHA. At a news conference Tuesday, he called the action a review that was not yet an investigation.

Troubled home loans continued to mount in the nation's banks in the third quarter as even once-solid borrowers increasingly fell behind on their mortgage payments. For the first quarter ever, the number of homes in foreclosure with mortgages serviced by U.S. national banks and savings and loans topped the 1-million mark, according to figures released Monday by the Office of Thrift Supervision and the Office of the Comptroller of the Currency. The percentage of prime borrowers whose loans were 60 or more days past due doubled from the July-to-September period a year earlier.

The flashy spendthrift needs his prim, conservative neighbor to bail him out. Such is the situation between debt-ridden Dubai and flush Abu Dhabi, two Persian Gulf emirates with starkly different financial strategies and temperaments that may grudgingly need each other to prevent long-term investor panic from spreading beyond the United Arab Emirates. Dubai's $80-billion debt, nearly $60 billion of it held by the investment conglomerate Dubai World, is testament to the emirate's overextended reliance on a real estate market whose fortunes tumbled in the global downturn.

With rising foreclosures still threatening the economy, the Obama administration is trying to pump new life into its much-criticized program to lower payments for homeowners at risk of defaulting on their home loans. Officials unveiled requirements Monday that would step up government scrutiny and threaten fines on banks and other mortgage lenders should they lag in converting temporary mortgage modifications into permanent changes in loan terms and conditions by the end of the year.

The Webster Career College in downtown Los Angeles invites students to "step into a brighter future" by enrolling in brief vocational courses. A private, profit-making school, Webster offers six-month courses in typing, data processing or clerical accounting at a cost of $3,950 per session. Practically all the students get federal loans to cover the cost. But upon leaving Webster, 61% of them begin their business careers by defaulting on the government-backed loans.

One of the largest providers of home mortgage money in the country is about to deploy a new high-tech early warning tool designed to keep thousands of borrowers who have fallen behind on loan repayments out of foreclosure. The Federal Home Loan Mortgage Corp. or Freddie Mac, the congressionally chartered owner of about 7 million home mortgages, has developed an electronic system that spots borrowers who are statistically most likely to end up in foreclosure.

Dubai is a clever blend of audacity and architecture, a shiny monument to the egos and ambition that turned a tiny emirate into a Middle East financial giant. Russian oligarchs stroll along man-made islands shaped like palm trees, and sheiks race down a ski slope built inside a shopping mall. Lacking the oil reserves of the emirate's neighbors, Dubai's ruling family created a parallel economic reality fueled by real estate, international investment and the art of the possible. The emirate was fashioned into a sleek cityscape of startling images: Islam balanced against the seduction of Western capitalism, and tribal traditions brushing the fleeting trends of globalization.

As job losses mount and Americans are faced with mortgage payments they can no longer afford, many are asking: Should I stay or should I go? Bailing out on your home loan and opting to rent may make economic sense in some circumstances, particularly if you are saddled with a big mortgage payment on a home that has dropped steeply in value. But there are serious consequences -- financial, legal, emotional and ethical -- attached to the decision. "There is no angle that you can look at that situation and think it is a great idea," said Bruce McClary, a spokesman for ClearPoint Credit Counseling Solutions.