Portion Of US Home Loans Underwater Down Slightly In 2Q-Report

A slowing in the pace of home-price declines helped bring down the portion of home loans with negative equity - the situation where borrowers owe more on their mortgage than their home is worth - according to data from First American CoreLogic.

More than 15.2 million U.S. mortgages, or 32.2% of all mortgaged properties, were in a negative-equity position on June 30, edging down from 32.5% at the end of March, according to the real-estate information company, which tracks data on about 90% of mortgage loans nationwide.

The aggregate property value for loans in a negative-equity position was $3.4 trillion, according to the report.

Negative equity can occur because of a decline in property value, an increase in mortgage debt or a combination of both. Equity levels are important to people who can't make their mortgage payment since it affects their ability to sell or refinance, said Mark Fleming, chief economist for First American CoreLogic.

The slight drop in the portion of underwater loans reflects the recent flattening of home price changes, which is "great news" for the housing market as negative equity has been increasing for a number of periods, Fleming said.

Still, he stressed that this decrease is a quarterly comparison, not the yearly comparison typically used in house prices.

Negative equity is a strong driver of foreclosures, Fleming said, and the stunted growth rate in the second quarter is a positive sign that foreclosures may moderate in the future. First American CoreLogic made "very crude" estimates that the foreclosure rate will peak a bit higher than 4% in early 2010, he said.

Geographic Concentration


Distribution of negative equity is heavily skewed geographically. Just three states - Nevada, Arizona and Florida - account for about half of all mortgage borrowers in a negative-equity position, according to the company's data. Michigan and California round out the top five states.

In Nevada, 66% of the state's mortgages are underwater; in Arizona, the portion underwater is 51%; in Florida, 49%; Michigan, 48%; and California, 42%.

Nationwide, the total property value for loans in a negative-equity position was $3.4 trillion. California led states with $969 billion, followed by Florida with $432 billion, New Jersey and Illinois each with $146 billion and Arizona with $140 billion.

Looked at by city, Los Angeles topped the list with more than $310 billion of total property value underwater, followed by New York with $183 billion, Miami with $152 billion, Washington with $149 billion and Chicago with $134 billion, according to First American CoreLogic.

It's Not Over Yet


Though the decrease of negative equity is good news, it's by no means an end to the housing market's problems, Fleming said.

Fleming said it's possible that overall affordability, government programs and the stimulus helped people jump off the sidelines into the housing market in recent months. He added that price declines might reappear in the fall and winter based on the housing market's seasonal cycle.

The current data may help bolster consumer confidence, he added, because of the psychologically driven nature of the U.S. economy.

"As long as the economy continues to pull itself out of the doldrums," Fleming said, people "will be much more likely to [buy] again next spring."

Mortgage loan delinquency is slowing: TransUnion

Many Americans are still struggling to make payments on their home loans, but the pace of the problem is slowing, according to new data.

TransUnion.com says that the proportion of homeowners who are 60 or more days late paying their home loan rose during the second quarter to reach 5.81 percent. In the first quarter, 5.22 percent of borrowers were late.

This is the 10th quarter in a row that delinquency rates have increased, and the new figure is an all-time high, the report states.

However, there is a silver lining to the findings. Although delinquency continues to go up, the rate of increase has decelerated - which could mean market stabilization is just around the corner, TransUnion said.

"For the first time since the recession began at the end of 2007, the quarter-to-quarter growth rate for national mortgage delinquency shows a decrease," explained FJ Guarrera, vice president of TransUnion's financial services division.

He said the new finding adds to "several complementary economic statistics at the national level" that potentially point to an end to the recession.

"This is particularly noteworthy, in that delinquency statistics are generally lagging indicators of the economic environment," Guarrera said.

Mortgage loan delinquency has jumped 65 percent year-on-year, according to the data. Nevada and Florida were the states with highest rates in the second quarter, at 13.8 percent and 12.3 percent respectively.

As delinquency rates continue to creep up, some troubled borrowers have been opting to apply for home loan modifications.

However, while modifying a home loan can significantly lower your monthly payments, some consumer advocates are warning that it can also leave a black mark on your credit score.

"You have to make a decision, because modifying your loan is going to hit your credit," consumer credit expert John Ulzheimer told the Sun-Sentinel.

Lenders can report a modification to credit bureaus as a "partial payment," which may stay on your credit report for seven years, he said.

Super-cheap home loans

TWO foreign banks operating in Singapore have just unveiled rock-bottom home loan deals in a bid to secure a bigger slice of the fast-growing mortgage market amid record private home sales.

Market observers say it is too soon to say if a full-blown mortgage rates war will erupt - but the latest rates are sure to get the attention of home hunters.

One key factor allowing super-cheap mortgages is the fact that a key interbank rate, which influences consumer loan and deposit rates, is tipped to stay at depressed levels well into next year.

The rate - the three-month Singapore interbank offered rate (Sibor) - is hovering at 0.68 per cent, near the all-time low of 0.56 per cent back in June 2003.

With such cheap funds on hand, HSBC has just launched a mortgage package with an interest rate of Sibor plus 1 per cent throughout the loan term.

This is a steal, compared with its Sibor-pegged loyalty package, with interest rates of Sibor plus 1.3 per cent in the first year, Sibor plus 1.2 per cent in the second, and Sibor plus 1.1 per cent after that.

Customers can save about 7 per cent in interest payments for a loan of $600,000 over 20 years, the bank said.

The package, available until Sept 30, is for both completed and uncompleted homes with a minimum loan size of $300,000.

It has no lock-in period and is for existing customers. Non-HSBC customers who want to get on the scheme must park at least $50,000 with the bank.

The other new cheap deal is from a small player, State Bank of India (SBI) Singapore. It is offering a jaw-dropping Sibor plus 0.6 per cent for the first year, Sibor plus 0.8 per cent for the second and Sibor plus 1 per cent for the third. The package is for completed properties only, and not for buildings under construction.

Fewer lenders dominate home loans

Six mortgage lenders increased their hold over the market for new UK home loans in 2008, according to Council of Mortgage Lenders (CML) data.

The top six, led by the Lloyds banking group, accounted for 78% of all new loans, compared to 72% the year before.

The CML said the credit crunch, which started in 2007, had dried up the supply of mortgage finance.

Overall new lending fell by 28% last year, with some specialist lenders being driven out altogether.

"The lending community itself has undergone... dramatic changes," the CML said.

"With so many lenders either merging or ceasing lending, this year's largest lenders' table has changed more than in other years," it added.

Driven out

A key factor was Northern Rock dropping out of the top-ten mortgage lenders as a result of its insolvency in 2007, when it accounted for 8% of all new lending.

In 2008 it lent just 1.1% of new mortgage funds.

But the CML said another factor was that specialist lenders - those which did not depend on savers' money to finance their lending - had fallen from a 7% share of new lending to just 2%, and of a much smaller market.

"In effect, many specialist lenders ceased new lending in 2008," the CML said.

Ray Boulger of mortgage brokers John Charcol, said borrowers were now receiving the worst of all possible worlds.

"If you have fewer lenders you have less competition," he said.

"Those lenders still in the market have only limited amounts to lend, so they aren't competing hard with each other if borrowers have less than a 25% deposit," he added.

After Lloyds, the biggest lenders in 2008 were Santander, the Nationwide, Barclays, RBS and HSBC.

Mergers

Banks and building societies were also badly affected by the drying up of funds from the wholesale banking markets.

House prices fell, undermining the value of their past loans, and more borrowers defaulted on their mortgages because of the recession.

One effect was a flurry of mergers and takeovers, with some of the more financially troubled lenders having to be rescued by larger operators.

Lloyds TSB took over HBOS, which meant that the first and third largest lenders were combined.

And the Spanish bank Santander, which had already taken over the Abbey, also took over the Alliance & Leicester.

Among building societies, the Nationwide took over both the Cheshire and Derbyshire building societies, and there were mergers between the Scarborough and Skipton, the Catholic and the Chelsea, and the Barnsley and Yorkshire building societies.

"We may not have seen the end of the current wave of consolidation," the CML warned.

"So, next year's table is likely to look different again, with more new names and an even larger market share in the hands of the largest firms," it added.

Decrease the Burden on Monthly Payments With a Home-loan Modification

Due to global financial meltdown and job losses at an all time high, many families are feeling the heat of the current recession. However, thanks to the home loan modifications people can pay off their loan amount comfortably without facing the credit crunch. It alleviates them from strain and takes care they reside in their homes.

It is tough to deal with the home requirements, everyday family expenditure in addition to mortgage repayments all right away. The recommendation of a home loan modification is many and still a good number of people are ignorant on the information. Even for persons, having a bad credit will have in all likelihood approval for loan modification. It will not prevent you from yielding a modification loan.

The deception with reference to the cost involved in the request of loan modifications makes several families to avoid the loan process. People assume that there is not as much of chances of granting the loans for their credit record and for this reason believe that it will be an entire waste of money spend for the loan. This will bring about additional debt that could be a burden. One thing is sure; loan-modification does not cost a lot of money.

It is a fact that a few companies charge consultation fees and apply hidden charges. This may prove expensive for the clients. However, many companies provide free consultation and will not charge the borrowers until the loan modification is certain. An accurate study is required to be completed in recognizing these companies. It is excellent to contact companies that will charge just after the loan amount is agreed.

A large number of people have got the wrong impression the need for loan modification. People think loan-modification is required only for foreclosures. The awareness is that only during severe circumstances and as soon as on the threshold of foreclosure, people contact for a loan modification. A home loan modification can help the borrowers in trimming down the interest rate, monthly payments, and outstanding principal amount in addition lengthen the tenure of loan. This may perhaps be extremely useful for the homeowners once they are stuck with grave monetary obligations. A home loan modification could decrease the burden on monthly payment. Monetary requirements can be different in accordance with the individual requirements. It is better to make sure with an advisor although definitely the loan modification can save plenty of money for the borrowers.

Search online for more information on home loan modifications, there are so many websites these days that offer host of services such as online interest rate calculators, interest rate comparison, and free expert advice. Apart from the home loan modification the other steps that one should think about is reducing monthly expenses and increasing income by doing some part time jobs. There is no other asset that will cost this much or take this much time in most lifetimes. With that being known, it is apparent that taking the time as well as effort to find out the most excellent option could pay huge dividends in the end.

By: Marc Symonds

Demand for student loans soaring

Dwindling bank account balances and looming tuition payments are sending students at the University of Windsor to their financial assistance office in droves.

The number of applicants for student loans has increased 30 per cent compared to last year, said Aase Houser, the director of student awards and financial aid at the U of W. “We expect to be very busy this year (with) lots of competition for very little money. It will be a bit of a feeding frenzy.”

From the beginning of June until the end of July, the department received 4,200 applications for assistance — that’s about 900 more than were received during the same period last year.

“I think it’s just a reflection of the economy and the fact that families have suffered a loss of income,” Houser said. “It’s more difficult for students to come by jobs themselves.”

Lauren Quinn, a 23-year-old who just graduated from the U of W, will be returning to campus this fall to pursue a teaching degree. She said she usually works 40 to 50 hours per week in the summer, but this year she only had about 10 hours of work each week.

“It will not pay the bills,” she said. “This summer has been really rough.”

Quinn said stiffer competition for summer employment is driving more students to seek loans. “A lot of the people who were laid off are doing any kind of job, taking jobs that we would usually take. Obviously, I really sympathize, but now we don’t have those jobs. It’s a domino effect.”

An increase in enrolment at the university could account for at least part of the rise in applications for financial assistance. The total enrolment in undergraduate programs has increased by a couple hundred compared to this time last year, said Gregory Marcotte, director of registrarial services at the U of W.

But the search for student loans goes beyond Windsor. A spokesman for the Ontario Ministry of Training, Colleges and Universities said applications for the Ontario Student Assistance Program are up eight per cent from last year across the province.

“Probably this year we’ve seen an increase as a result of the recession,” said Patrick O’Gorman. “More people will go to a post-secondary education or stay there longer because the job market isn’t as good. But also … we don’t see as many general labour jobs as we saw in the past. It tends to be more specialized and that requires some sort of post-secondary education.”

Despite the increased competition for student loans, there is good news at the U of W. Houser said the average loan amount has increased because of new grant programs.

But Quinn, a member of the student group Drop Fees for Poverty, said student loans often don’t cover all expenses. She is expecting to receive about $11,500 in assistance this year, but said her tuition is more than $6,000 alone, and she also has to pay for books, a bus pass and rent. “Plus, I usually like to eat,” she said. “It’s still going to be tough, even with financial assistance."

Agencies paying more of their employees’ student loan debt

Federal agencies reimbursed employees for $51 million worth of student loan payments last year, the Office of Personnel Management reported Wednesday.

The benefit helped out 6,879 employees at 35 agencies. That represents a 4 percent increase in the number of participating employees and a 22 percent increase in spending on the student loan repayment program, as compared with fiscal 2007, concludes OPM Director John Berry in a letter accompanying the report.

“My commitment to the president and members of Congress is to encourage agencies to use student loan repayment and other discretionary benefits strategically to ensure that the cost of using these benefits is commensurate with the benefits gained,” Berry wrote.
The largest group of employees receiving loan repayments were criminal investigators, comprising 15 percent of the total number of recipients. Among criminal investigators, 1,020 received loan repayments, including 1,013 FBI special agents. Attorneys were second at 655 employees, or nearly 10 percent of the total. The Securities and Exchange Commission made loan payments for 214 attorneys; the Justice Department, for 186 attorneys.

Intelligence analysts were third largest group of recipients at 491 employees, or 7 percent of the total, with 448 of the intelligence analysts working at the FBI.

Four other agencies — the Commodity Futures Trading Commission, the National Capital Planning Commission, the Office of Government Ethics and the Overseas Private Investment Corp. — have created loan repayment programs to use in the future.

Agencies may repay certain student loans of employees for recruitment and retention purposes.
Agencies can pay up to $10,000 a year in loans for each employee and up to a total of $60,000 for each employee. In return, the employee must sign an agreement promising to stay at the paying agency for at least three years.

Should the employee voluntarily quit or be terminated for misconduct, unacceptable job performance or other negative performance issues, the employee must reimburse the agency for all loan repayments made.

Agencies Pay More Student Loans

Federal agencies increased their spending on student loan repayments for employees by 22 percent in 2008, and the incentives were widely used for recruiting and retaining information technology workers, according to a new report by the Office of Personnel Management.

The report, released on Wednesday, found that 35 federal agencies provided 6,789 employees with $51.6 million in student loan repayments in calendar year 2008, of which information technology management positions represented 2.6 percent of total recipients. But the top jobs receiving the incentives were criminal investigators, attorneys, intelligence analysts and nurses, according to the report.

By law, agencies may make payments to a loan holder of up to $10,000 per year, with a maximum payout of $60,000. In return, employees must sign a service agreement to remain with the agency for at least three years. The program is designed to help agencies recruit and retain top talent, especially as a large number of senior employees become eligible for retirement over the next few years.

The five agencies making the most use of the benefit last year were the Justice, Defense, and State departments, the Securities and Exchange Commission and the Government Accountability Office. The Environmental Protection Agency noted in the report that the student loan repayments have made its efforts to recruit individuals with master's degree in environmental sciences, analysis and information technology much more successful.

Forgiving student loans to boost the economy

Would forgiving student loan be good for the economy?

Some groups think so. A campaign is underway to get student loans forgiven so grads can afford to spend their money on other things. Proponents say this would immediately stimulate the economy.

But would it?

Mark Kantrowitz, publisher of FinAid.org, crunched some numbers. Kantrowitz says there is $730 billion in outstanding student loans — $598 billion in federal loans; $132 billion in private loans. But to have an immediate impact on the economy, Kantrowitz notes, you have to consider only loans that are in repayment because that’s money now going to loans and not other consumer spending.

But a little less than 4 percent of outstanding debt — or $28.8 billion a year —is now being repaid, Kantrowitz says.

“So assuming that the borrowers would spend this windfall instead of saving it or using it to pay down other debt, this proposal would involve the government spending $730 billion now in order to increase consumer spending by $28 billion,” Kantrowitz writes. “Since less than 4% of the cost of this proposal would be spent by consumers in the first year, it will clearly not have the “immediate stimulating effect” claimed by the proposal’s proponents.”

Kantrowitz adds: “Forgiving all debt provides a financial windfall to borrowers who are capable of making their monthly loan payments, such as wealthy doctors and lawyers, and not just to borrowers who are experiencing financial difficulty. There are more effective and better-targeted ways of spending taxpayer money.”

He suggests, for instance, increasing Pell grants to needy students or repealing the law that prevents private student loans being discharged in bankruptcy.

What do you think? OK, Charles sent me an email that votes for "yes" aren't registering. Could it be our polling software has some strong feelings on loan forgiveness? Anyway, I'm going to try to post the poll again and see if we have better luck. And thanks, Charles, for giving us the heads up.

Portion Of US Home Loans Underwater Down Slightly In 2Q-Report

A slowing in the pace of home-price declines helped bring down the portion of home loans with negative equity - the situation where borrowers owe more on their mortgage than their home is worth - according to data from First American CoreLogic.

More than 15.2 million U.S. mortgages, or 32.2% of all mortgaged properties, were in a negative-equity position on June 30, edging down from 32.5% at the end of March, according to the real-estate information company, which tracks data on about 90% of mortgage loans nationwide.

The aggregate property value for loans in a negative-equity position was $3.4 trillion, according to the report.

Negative equity can occur because of a decline in property value, an increase in mortgage debt or a combination of both. Equity levels are important to people who can't make their mortgage payment since it affects their ability to sell or refinance, said Mark Fleming, chief economist for First American CoreLogic.

The slight drop in the portion of underwater loans reflects the recent flattening of home price changes, which is "great news" for the housing market as negative equity has been increasing for a number of periods, Fleming said.

Still, he stressed that this decrease is a quarterly comparison, not the yearly comparison typically used in house prices.

Negative equity is a strong driver of foreclosures, Fleming said, and the stunted growth rate in the second quarter is a positive sign that foreclosures may moderate in the future. First American CoreLogic made "very crude" estimates that the foreclosure rate will peak a bit higher than 4% in early 2010, he said.

Mortgage-Bond Yields Rise for Fifth Day; Loan Rates May Climb

Yields on Fannie Mae and Freddie Mac mortgage securities soared, increasing for a fifth day and signaling that interest rates on new home loans will climb amid data showing refinancing last month was slower than forecast.

Yields on Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds rose 0.09 percentage point to 4.80 percent as of 4:01 p.m. in New York, the highest since June 18 and up from 4.38 percent on July 31, according to data compiled by Bloomberg. Yields were driven up by higher benchmark Treasury rates after a report showed the U.S. lost fewer jobs in July.

The rise in mortgage rates from the record lows earlier this year has cut refinancing, contributing to a 21 percent drop in prepayments last month on Fannie Mae and Freddie Mac securities that was greater than JPMorgan Chase & Co. analysts forecast. A Mortgage Bankers Association index of refi applications has remained near 2,000 after rates moved down from recent highs, compared with the JPMorgan analysts’ projection of it reaching 3,000, a reflection of the difficulties for homeowners without the most-creditworthy profiles, they wrote in a report today.

The pace, which compares with a level more than three times higher earlier this year, “speaks to the inability of recent government policies to sustain the refinancing effort,” the analysts led by Brian Ye in New York wrote.

The Obama administration announced July 1 that a loosening of rules for Fannie Mae and Freddie Mac intended to stoke more refinancing for borrowers with little or no home equity would be expanded to help individuals owing 125 percent of their homes’ values. That was up from the 105 percent limit announced Feb. 18, when President Barack Obama said the program might aid 4 million to 5 million homeowners.

Terms for Borrowers

Under the program, borrowers with loans owned or guaranteed by Fannie Mae or Freddie Mac who have loan-to-value ratios of 80 percent to 125 percent and aren’t delinquent can refinance without buying mortgage insurance, or paying for more insurance than they already have. Rates on loans between 105 percent and 125 percent may be higher than other loans because the debt won’t be allowed into typical Fannie Mae and Freddie Mac bonds.

Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac under the “Home Affordable” program also still charge upfront fees of as much as 2 percent of loan balances when borrowers have lower credit scores or home equity.

To keep home-financing costs low for refinancers and home buyers, the Federal Reserve is also buying as much as $1.25 trillion of mortgage bonds guaranteed by the government- supported companies or U.S. agency Ginnie Mae. Net purchases total $721 billion, the central bank said yesterday.

Fixed Rates Falls

The average rate on a typical 30-year fixed-rate mortgage fell to 5.22 percent in the week ended Aug. 5, Freddie Mac said yesterday. The rate reached a low of 4.78 percent in April, before climbing to 5.59 percent in June and sparking concern that the Fed’s efforts to keep financing costs low might fail.

The so-called constant prepayment rate, or CPR, for Fannie Mae’s 30-year, fixed-rate securities fell to 18.2 last month, while Freddie Mac speeds dropped to 19.3, JPMorgan said, based on data released yesterday. The measure represents the share of the debt that would be retired in a year at the current pace.

Prepayment speeds of securities backed by loans with higher rates may have been increased by Fannie Mae and Freddie Mac buying delinquent loans out of the pools, as well as refinancing under the Home Affordable program, according to Barclays Capital Inc. analysts. The companies must buy delinquent debt out of their bonds after a certain amount of time, or if the loans will be reworked to aid borrowers. They are part of Obama’s modification plan targeting 3 million to 4 million homeowners.

“Delinquency buyouts should ramp up quickly over the next couple of months,” the analysts led including Derek Chen in New York wrote in a report yesterday.

Wiltonian helps launch student loan company

The future of lending is here and it isn't going anywhere, said Al Alper, president and chief operating officer of People Capital, a brand new peer lending company that issues private student loans.

People Capital, a fully web based student loan company, is opening up its service to college students around the country this 2009 academic school year.

"People Capital is unlike any other student loan company," said Alper a Wilton resident who is the chairman of the town's Republican Town Committee. "Unlike other loan companies, the market sets the prices and rates for the loans."

The idea for People Capital was initiated in 2006 by its founder and CEO, New York City resident Tom Shelton. Alper said Shelton was very interested in the student loan business and thought that a new method of lending needed to be created. In comparing People Capital to other loan companies, he said that one major difference is the New York City-based company does not have one specific rate or pricing. Instead, it lets the lenders decide what that price will be.

"This company is designed for anybody to loan to anybody," said Alper. "A consumer posts a need for a loan on the site and a lender looks at their background and decides if they want to lend the money to that person and at what rate -- it's like an auction."

To make it easier for lenders to decide who they want to lend to, People Capital created "Human Capital Score," a peer-to-peer lending platform. Alan Samuels, chief product officer of People Capital, says Human Capital Score gives academic performance data to figure out a borrower's future potential.

"The concept of the Human Capital Score is to figure out a college student's achievements and what they will end up making when they get out," said Samuels. "The estimations we give will help lenders have a better insight of the students they are lending money to."

The Human Capital Score looks at college student's SAT scores, GPA, majors and extra-curricular activities. After a student fills out this information, the Human Capital Score produces a projection of what their income and future potential will be.

"You can't always project exactly what a person will make or the career they will have, but this is more on the money than any other option available to lenders," said Alper.

Samuels said the Human Capital Score was launched in January for investors to try out, and has received a lot of positive feedback. He said that even though this is People Capital's first year, he has no doubt it will be a success.

"This is not only a great way for lenders and borrowers to get the best deals on loans, but it also will make the world a better place," said Samuels. "I found a lot of attraction with lenders having a connection with helping kids pay for college and (getting) an education, especially in this economy it's a great new system."

The Bottom Line: Student Loan Early Repayment?

Forced to repay a student loan early -- so the lender can get its money back sooner?

That's what a local family thinks might be happening, after their son's lender made a bizarre request.

They brought their story to the attention of CBS6's Dori Marlin -- so Dori is getting to The Bottom Line, since it's something that could also happen to you.

Kevin Pittz of Delmar is going into his senior year at Nichols College, in Massachusetts.

He's a finance major, with a minor in economics. And right now, he's getting his own lesson in both.

"Well, when we got confirmation of the loan, the contract says 'repayment period grace period of six months after graduation,'" says Jerry Pittz, Kevin's father. He says Kevin was approved for his second loan with Chase Bank, for the coming year.

Their signed contract says Kevin's not supposed to start repayment until 2010, but just last week, Chase delivered a surprise: a letter in the mail, saying Kevin has to start repayment -- even though he's going into his last year.

"When I called Chase about that," says Jerry, "they said, 'well, he graduated.'"

"And you said?" asked Dori.

"I said, 'well, no he didn't, because you're giving him another loan!'" exclaimed Jerry.

He says Chase claimed, it was a problem with the school. So Jerry called Nichols College, talked to a couple staff members on the phone, and finally -- got an answer that astounded him.

"She said they're just getting bombarded with phone calls, because no matter who the lender is... Sallie Mae, Chase, whomever... everybody is getting these letters, telling them 'you're now going to be in repayment, even though you haven't graduated.'"

Their claim -- that the lenders are targeting students, for money.

"I've got to imagine that this is just infuriating as a parent, to see your son sort of led through the circles like this," said Dori.

"Absolutely," said Jerry, "because not only are you still paying for your college experience, now they're telling you to start paying early."

The situation is just as maddening, for student Kevin.

"Senior year, it's stressful enough," he said. "Now I have to deal with needing to repay the loan, before I'm even graduated."

Jerry wondered, if this is going on at a small school like Nichols, who's to say it isn't happening elsewhere?

So Dori called a couple local schools -- UAlbany and Siena College -- and both say, they have not run into this problem.

With Kevin's loan though, Chase had said it was a problem with the school... reporting Kevin had graduated, even though he hadn't.

The school had said, every month, they are reporting Kevin as still being in school... and they made the claim about the lenders.

So what's The Bottom Line here?

Dori talked to several sources on this one. First, both the Attorney General's office -- which the Pittz family did contact -- and American Student Assistance wanted to clarify, there are two types of student loans: privately funded loans, and federally funded loans, or Stafford loans.

Kevin's is a Stafford loan, meaning according to regulation, repayment should not start until six months after graduation -- unless the student takes a semester off, or drops below half the number of qualifying credits.

Kevin did neither.

Dori talked to Nichols College once more, to ask about the supposed trend; only this time, the staff members there backed off their stance, saying "it happens on a regular basis, but is not frequent" -- and they suspect it's due to "miscommunication" between the lenders, and the national clearinghouse where they report on each student.

Dori then contacted the lender -- Chase, in this case -- which insisted they are not targeting students for money, they have not gotten many calls about this type of matter, but that it does sound like simple "information miscommunication" that can easily be resolved.

Dori talked to the school's clearinghouse as well, and they basically said the same.

Late in the day, however, Dori got a call from someone else with Chase -- saying they discovered on documents from when the loan was first taken out, that Kevin wrote he was supposed to have graduated by now. That person said the clearinghouse had the same misinformation, they had talked to Kevin this afternoon, and now the whole issue was resolved.

Dori called Jerry Pittz once again, right after that phone call, and he said neither he -- nor Kevin -- had talked to anyone with Chase... since Monday.

Since this raises more questions than answers, Dori is going to stay on top of all parties involved. In the meantime, if something like this has happened to you, send Dori an email: news@cbs6albany.com .

Drug Offenders To Get Federal Student Aid Under New Bill

College students convicted of drug possession may soon get access to federal student loans due to a little-noticed provision in the 181-page Student Aid and Fiscal Responsibility Act of 2009.

The bill, which makes major revisions to the student loan system, was introduced by California congressman George Miller, a Democrat. It is expected to pass in the House of Representatives.

The provision would reverse a 1998 amendment that made students convicted of drug-possession ineligible to receive federal funding unless they completed a rehabilitation program and passed two unannounced drug tests. Students convicted of dealing drugs would continue to be prohibited from receiving financial aid.

Advocates on both sides of the issue say it is an important one.

"This bill is an important step in restoring education to our country's youth," said Adam Wolf, staff attorney for the ACLU, which has unsuccessfully fought the current restriction for several years in the courts.

Kris Krane, executive director of Students for Sensible Drug Policy, said of the current law: "It's an unfair penalty, it's double jeopardy, and it impacts students of color and low income students predominantly. It actually creates more drug abuse, because we know that the best way to prevent drug abuse later on in life is to get a college degree. That opens opportunities for economic advancement later on in life."

But law enforcement groups say the current law is supposed to make students think twice before using drugs.

"[Changing this policy] would remove one more deterrent for people breaking the law. It's not good policy and is something that we would oppose," Jim Pasco, executive director of the Fraternal Order of Police, told FOXNews.com.

Others say tax dollars should not be spent to help people who break the law go to college.

"If they want to continue to use drugs they ought to pay for college themselves. Or get off the drugs -- and stay off the drugs -- as a condition for continuing to be supported by the taxpayers," said Dr. Barrett Duke of the Southern Baptist Convention's Ethics & Religious Liberty Commission.

"It isn't as though these students can't get federal funding back. They have all kinds of opportunities to [get it back] by entering a treatment program."

Over 200,000 students have been denied financial aid because of drug infractions over the last 10 years, according to data from the Department of Justice. The Congressional Budget Office estimates that giving aid to students convicted of drug possession would cost an extra $24 million over the next 10 years.

One of those students who lost her financial aid was Kandice Hawes, who was a freshman at California State University, Fullerton, when she was convicted of marijuana possession in Nevada.

"I was in Las Vegas," she said, "and I had a little more than an ounce [of marijuana], which was a felony at that time.... So I lost my aid.

"I had to take on a full-time job to stay in school, and ever since I've been trying to make it up by taking classes after work. I can't go to school full-time any more," she said.

Hawes said she did not enter a treatment program because of the prohibitive cost -- thousands of dollars, she said.

After her arrest, she said, she founded a chapter of NORML, a marijuana advocacy group. She is currently taking night classes to get a political science degree.

"[Changing this law] would be the best thing that could happen," she said. "Murderers and rapists are still able to get school funds, so people [convicted on] possession of marijuana charges definitely shouldn't get the money taken away."

Pasco agreed that the current law prohibits only drug users from receiving aid -- there are no legal prohibitions for other felons, including murderers and rapists -- but he said that he would prefer to see the law made even stricter.

"If they're looking for consistency, then no lawbreakers should get federal aid. We love consistency, but consistency means that if you break the law there are consequences for your actions," he said.

Duke, of the Southern Baptist Convention, said he disagreed with Krane's argument that putting students though college would help get them off of drugs.

"I think eventually most people outgrow their youthful enthusiasm for drugs, but I'm not convinced college is the thing that causes them to outgrow that."

The office of Rep. Mark Souder, R-Ind., who authored the 1998 bill, did not return calls for comment.

Whether the provision will become law mostly depends on the Senate, Krane said.

"It is highly likely that it will pass the full house," he said, adding that an amendment to remove the provision from the bill was killed in committee.

"We have no idea yet whether the Senate bill will include this language, but if it is in the Senate version and it passes both houses, that would be terrific."

House Bill Would Overhaul Student Loan Program, As Defaults Rise

Backers of a bill inching through Congress aim to take the middleman out of the student loan business. Introduced by Rep. George Miller (D-CA), the Student Aid and Fiscal Responsibility Act of 2009 (HR 3221) hit Capitol Hill this summer amid concern about mounting student loan defaults, chronicled in recent months by the Boston Globe and the Wall Street Journal.

Also known as HR 3221, the bill on July 21 passed out of the Education Committee, chaired by Miller, on a largely party line vote of 30 to 17, reports The Hill.

The measure would supplant the current system of student loans companies sponsored by SLM Corp. (Sallie Mae) with a Direct Loan program funded by the federal government. The Education Department would choose lenders according to how well they serve customers, offer financial counseling, and avert loan defaults.

HR 3221 has already drawn fire from House Republicans who see it as an intrusion of the government into the lending arena. "I, for one, am not comfortable with the idea of the federal government acting as a profit-making bank," Rep. Brett Guthrie (R-Ky.) was quoted as saying by The Hill. For his part, the committee’s Ranking Member Rep. John Kline (R-Minn.) saw the legislation as part of a pattern of federal takeovers of sectors once left to private enterprise, lamenting, "Is there any industry not on the verge of federalization?"

Meanwhile, the nonpartisan Congressional Budget Office projects that HR 3221 would save the government $87 billion over 10 years. Some $40 billion of that sum would fund increases in Pell Grants for students. The Direct Loan program would start in 2010, under the legislation.

Recent years have seen an upsurge in student loan defaults. The Boston Globe reported an increase in defaults on federal loans, which comprise four fifths of all U.S. student loans, from 4.6 percent in 2005 to 6.9 percent in 2007. In the smaller private student-loan market, meanwhile, Sallie Mae faced defaults on 3.4 percent of its 2008 loans, twice the rate of failure that lender dealt with two years earlier, according to the Wall Street Journal. And all that was occurring before the current recession kicked in.

"Economic downturns affect people's ability to pay off all kinds of debt," Lauren Asher, then acting president of the Project on Student Debt, a Berkeley, CA research and advocacy group, told the Globe, "and you have more people with student loans than ever before."

President Obama has thrown his political weight behind getting banks out of the student loan business. "We have a student loan system where we're giving lenders billions of dollars in wasteful subsidies that could be used to make college more affordable for all Americans," Obama was quoted as saying by the Washington Post.