WASHINGTON - The Bush administration announced a new mortgage industry coalition on Wednesday aimed at helping homeowners avoid being trapped in a rising tide of foreclosures.

Treasury Secretary Henry Paulson said the initiative would boost financial companies’ efforts to help an estimated 2 million homeowners whose introductory mortgages with low rates are resetting at much higher rates, just as the housing industry suffers through its steepest downturn in 16 years.

The House pursued its own plan for helping homeowners, passing a bill to create a federal trust fund to finance construction and rehabilitation of affordable housing. The measure would provide between $800 million to $1 billion a year with the goal of creating 1.5 million affordable housing units over the next decade by funding grants to a variety of housing providers.

The trust fund would be financed mostly from profits Fannie Mae and Freddie Mac, the chief U.S. buyers and guarantors of mortgages.

President Bush has threatened to veto the measure. The White House and conservative Republicans argue that it would duplicate a program at the Department of Housing and Urban Development. GOP lawmakers said that siphoning money from Fannie Mae and Freddie Mac would amount to a tax on middle-income homebuyers.

The new mortgage industry coalition promoted by the Bush administration includes 11 of the largest mortgage service companies, representing 60 percent of all mortgages in the country. Other members are mortgage counseling agencies, investors and large trade organizations, and Paulson urged more mortgage service companies to join the effort.

“We need greater participation if we are going to get to all those that need help as quickly as possible,” Paulson said at a joint news conference with Housing and Urban Development Secretary Alphonso Jackson.

The new initiative, dubbed HOPE NOW, follows an Aug. 31 announcement by Bush that the administration was changing the Federal Home Loan Administration insured-loan program so more people could qualify for FHA-insured loans.

Democrats said the initiative still falls short of what is needed given the foreclosure crisis facing the country.

Sen. Charles Schumer, D-N.Y., noted that the National Association of Realtors on Wednesday revised down once again its forecast for home sales, predicting sales of existing homes will fall by 10.8 percent this year, a bigger drop than the 8.6 percent decline it forecast just a month ago.

“Unfortunately, the bottom is falling out of our housing market much more quickly than the administration is willing to stem the tide of foreclosures,” Schumer said in a statement.

Schumer and other Democrats in Congress are pushing legislation aimed at helping more people avoid losing their homes. Some of the bills also would attack predatory lending practices that critics see as a prime cause for the crisis.

Sheila Bair, head of the Federal Deposit Insurance Corp., suggested last week that mortgage service companies consider doing broadbased conversions of adjustable-rate loans to fixed-rate loans if the borrowers were current on their payments and living in the homes.

Estimates are that mortgages resetting from low “teaser” rates could mean an extra $250 to $300 in monthly payments on the typical $1,200 monthly mortgage payment.

Asked about a more aggressive response, Paulson said it was important that any efforts not harm lenders’ willingness to make more home loans in the future.

“How do we do things to help as many people as possible stay in their homes without shutting off future financing?” he asked.

Senate Banking Committee Chairman Chris Dodd, D-Conn., said he agreed with Bair’s suggestion that some sort of formula needs to be used to switch homeowners from adjustable to fixed-rate loans “because the numbers are just so large. Without that, I fear that too many borrowers may slip through the cracks and simply lose their homes.”

The rising defaults, which started in the market for subprime mortgages — loans offered to people with weak credit histories — roiled global financial markets in August, prompting the Federal Reserve to cut interest rates last month to ensure the country did not get pushed into a recession.

Paulson said the new coalition had created an “aggressive plan to reach more homeowners and help them find a way to stay in their homes.” That plan includes special toll-free numbers that the mortgage service companies have set up along with mass mailings to inform people of their options.

Industry officials said people worried about being unable to meet higher mortgage payments must contact their mortgage service companies or credit counseling organizations as quickly as possible.

“Consumers who do work with us have a good chance of finding a solution that will help them sustain home ownership, especially when the contact occurs at the first sign of trouble as it enables us to help before the weight of past due payments reduces consumers’ options for staying in their homes,” said Michael J. Heid, co-president of Wells Fargo Home Mortgage.

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Credit cards do have some benefits, but it’s easy to get into financial trouble if you rely on them too much. Here are more than a dozen tips for using cards wisely.

Use a credit card wisely and you can reap benefits like cash back, bonus points and airline miles, not to mention a better credit score. Use it unwisely and you could end up under a mountain of debt.

The No. 1 rule is: Pay off your balance every month. Otherwise, you’ll pay interest on your purchases. Paying the balance takes discipline. About 40% of households carry credit card debt, according to the Federal Reserve.

Protect your good name (and score)

• Make your payments by the date — and time — they’re due. Late fees are $29 or more. A couple of late payments will trigger an interest rate increase. Because late and missed payments lower your credit score, the interest rate can go up on your other credit cards and for future loans as well. (See “7 fast fixes for your credit score.”)
• Limit the number of cards you have. Experts recommend having two to six cards. Applying for lots of cards can hurt your credit score. Conversely, closing several credit cards at once will trigger a decrease in your score. (See “1 in 7 Americans carry 10 or more cards.”)
• Read the fine print. Know the interest rate you will be charged, the grace period for paying your debt before interest kicks in and your credit limit. Does your company use two-cycle billing? (Better look, because two-cycle billing means you could pay interest even when you carry no balance.) Also, almost half come with a “universal default” clause, allowing an increase in your interest rate if you are late paying any other bill. (See “Credit card companies’ evil tricks.”)
• Negotiate. If your credit score is 700 or above, you may be able to get a lower interest rate or get the company to drop a late fee. (Estimate your credit score.)
• Don’t exceed 30% of your credit limit. Credit bureaus don’t care if you pay off your balance each month. They’re interested in how much of your available credit you use. If it’s excessive, your credit score will drop.

The devil in the details

Credit card companies market different types of cards, featuring low interest, rewards or other benefits. Be careful about the terms, which are subject to change.

• If you’re transferring a balance to a new card with lower interest, find out how much will the company will charge for the transfer. Urge that it be done electronically so you don’t accumulate interest on both the old and new accounts. Low-interest introductory offers may apply only to the balance transfer and not to new purchases.
• Reward cards that provide dividends like rebates and airlines miles sound too good to be true, and can be. The higher interest rate charged by most reward cards can more than offset the reward if you carry a balance. Reward offers can change with little notice and may come with budget-busting conditions — for instance, you have to spend a certain amount to earn the reward.

Convenience? Sometimes

If you buy a defective item or protest a charge, your credit card company is obligated to investigate. If your card is stolen, you’re liable for no more than $50 for unauthorized charges.Other “services” offered by credit card companies have potential drawbacks.

• Contactless credit cards make it even easier to purchase items because you don’t need to swipe your card or hand it to a cashier. But thieves can scan the info on your card. You can buy a signal-blocking sleeve or make one out of aluminum foil. (See “New credit cards allow hands-free theft.”)
• Don’t use “convenience” checks your credit card company sends you unsolicited in the mail. They’re costly — with a fee of 3% or 4% of the amount you write, plus high interest rates with no grace period — and don’t provide the consumer protection you get when you make a purchase with your credit card. (See “Dangerous checks in the mail.”)
• Credit card protection insurance generally covers only the minimum payment if you become disabled or unemployed, and interest continues to build on your outstanding balance.
• Using a credit card issued by a department store you frequent can entitle you to cardholder discounts, but limit yourself to one card. Each department store account you open reduces your credit score.

Getting back in the game

Getting and using a credit card could be the easiest way to re-establish credit if yours has gone sour. But getting back into the credit game comes with potential hazards.

• Cards issued to those considered credit risks come with interest rates in the 18% to 22% range and low spending limits. Such cards sometimes have extra fees hidden in the fine print. (See “Credit cards for the desperate.”)
• Don’t take the bait when companies want to issue you one low-limit card after another. You can find yourself back in debt, paying late fees, over-limit fees and high interest rates on multiple cards.

If you’ve fallen off the wise-spending wagon, seek counseling from a nonprofit credit-counseling agency certified by the National Foundation for Credit Counseling.

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Some of the worst offenses: Huge fees exceed card issuers’ costs and risks. Interest rates aren’t disclosed to card applicants. Rates get jacked up even if you pay just hours late.

Parents spend the first several years of children’s lives teaching them how to play fair. By the time we hit elementary school, most of us are pretty good at knowing what’s just and what’s not.

That sense of fair versus foul, though, tends to get tangled up in the world of credit cards. Some practices that seem egregious at first glance actually make sense when you understand their rationale. Other policies don’t hold up so well to scrutiny, even though they’re widely accepted in the industry.

What makes matters more complicated is that a few credit card issuers are bad to the bone. Some of the companies that have the most consumer-friendly practices in one area turn around and punish their customers unfairly in another.

After many years of covering this industry, fielding reader complaints, talking to the issuers and listening to consumer advocates, I’ve drawn up the following list of what I consider fair and foul play, plus what you can do about it.

Mystery interest rates

Fair play: charging different customers different interest rates or offering different terms, based on their credit histories.Foul play: not telling folks upfront what interest rates or terms they’ll get.

If you have a good credit history, you should get a good rate, not one that’s been inflated to cover the risks of others who haven’t been as responsible.

But no one should have to play Russian roulette when applying for a card. Though some issuers, including Citibank and Capital One, usually tell you in advance what rate you’ll get if approved, others — including Chase, Discover, American Express, HSBC and Bank of America — typically only offer a range of possible rates. You might get a rate that’s in the single digits or one that’s over 20%.

 

More from MSN Money

 

 

• Weird stuff that hurts your credit
• Estimate your credit rating
• People who charge everything
• A big lender’s credit card trap
• Too broke to save money? Never
• Talk back: Do credit card companies play fair?

“In the best of all worlds, you would fill out an application, be told what interest rate you are approved for, then be given the chance to OK that rate or decline the offer. It rarely works that way,” said Justin McHenry, the research director for IndexCreditCards.com. “Oftentimes you won’t even know what rate you’ve been approved for until the card shows up in the mail.”Many times the terms are variable as well. A card may offer 0% for “up to” a year, for example, but once you’ve applied, you may get the touted rate for as little as three months, said Jeffrey Weber of SmartCreditChoices.com.

Credit limits are almost never disclosed in advance, either. This can be a serious issue for people transferring balances because shifting debt from a high-limit card to a lower-limit card can damage their credit scores.

• Video on MSN Money: How’s your credit?

Your best move: Don’t hang on to a card you don’t want. Though closing cards can never help your FICO credit scores and may hurt them, the damage isn’t likely to be as serious with a newly issued card as it might be with one you’ve held for many years.

But you shouldn’t apply willy-nilly for cards, either, because each application can potentially ding your scores. Also, some lenders may look askance at a borrower who rapidly opens and closes accounts, McHenry said, thinking such customers will be unprofitable.

If you’re looking for a lower rate, first contact your existing issuer and negotiate for one. Read “Get a better deal . . . with a threat” for tips. If you plan to apply for a new card, know your FICO scores so you have an idea of what interest rates you’re likely to get. You can get a ballpark idea of your scores from MSN Money’s credit score estimator; generally, folks with FICOs above 720 get the best credit card rates and terms.

Slanted reports

Fair play: reporting your missteps to credit bureaus.Foul play: reporting half-truths.

The credit reporting system in the United States has some serious flaws. Creditors wield too much power, and it’s too hard for consumers to fix mistakes.

But overall, the system has succeeded in making credit more widely available, which is a boon to savvy consumers. If you get credit and use it responsibly, you can build a credit history that allows you to get the loans you need to buy a home, build a business or accomplish other goals.

What irks me, though, are lenders that deliberately make their customers look like worse credit risks than they are. Some of the worst offenders are issuers that don’t report their customers’ on-time payment records at all. Next on the list are those that don’t report their customers’ credit limits, like Capital One.

When a lender doesn’t report a customer’s credit limit, the bureaus typically use the “highest balance charged” as a proxy for the limit. The problem comes when borrowers charge about the same amount each month.

Here’s how it works: If you use $300 of a $1,000 limit that’s properly reported, the all-important credit-scoring formulas figure your “credit utilization” at 30%, and that’s good. If your limit isn’t reported and the highest balance you ever had was $300, it looks like you’re using 100% of your available credit — and that’s bad.

It makes sense not to report a credit limit when a card has no preset spending limit, as is the case with many American Express cards. But folks that have those types of cards tend to have pretty good credit to begin with, so the lack of an accurate credit limit on one account isn’t likely to hurt much. The people who really get crunched are the people with short or troubled credit histories who are trying to do things right but are unknowingly being penalized by their credit issuers’ practices.

Your best moves: If your issuer isn’t properly listing your credit limits, you can request that they do so. If your issuer is Capital One, though, you’re out of luck. You can either charge up a big balance to reset your “highest balance charged” or switch to another card issuer.

Soaring rates

Fair play: raising your interest rate if you miss a payment.

Foul play: jacking up your rate if you’re a few days late.

Late payments can happen to virtually anyone. Payments get delayed in the mail; online bill-payment systems experience glitches; issuers change addresses and payments go awry. Or people just goof.

Goofing to the point of forgetting a payment altogether, though, is rarer. A skipped payment is thus a better indication that someone is having money trouble.

The credit card companies know there’s a big difference between late and skipped payments. That’s among the reasons payments that are less than 30 days overdue typically aren’t reported to the credit bureaus. But many issuers will still take advantage of your mistake by sending your rate skyward, even if your payment arrived only hours (not even days) late.

Your best moves: Don’t carry credit card balances. Card issuers have far fewer ways to mess with you when you pay your balance in full every month.

Otherwise, reduce the likelihood of late payments by setting up recurring payments in your online bill-payment system or by agreeing to an automatic debit so at least the minimum payment is withdrawn from your checking account each month. If you use any method other than automatic debit, you’ll need to check the credit card issuer’s mailing address each month to make sure it hasn’t changed.

If you do get dinged with a late fee, or a fee plus a higher rate, talk to your credit card company. Many issuers will waive late fees for good customers. Fewer will rescind the interest rate hike, but you can always try. Some will restore your original rate after 6 months of on-time payments.

Big fees

Fair play: charging late, over-limit and balance transfer fees.Foul play: charging outrageous late, over-limit and balance transfer fees.

Until the mid-1990s, the typical penalty fee was about $10. Last year, the average late fee was $35, according to IndexCreditCards.com, and many companies charged $39. The average over-limit fee was a hair more than $32.

Some issuers also removed limits on the balance transfer fees they charge. In the past, the typical balance-transfer fee was 3% with a cap of around $75. Today some cards issued by Chase, Bank of America and others have no cap, which means a $5,000 transfer could cost you $150.

It makes sense to charge borrowers something for handling a balance transfer, just as it’s justifiable to subject them to some kind of penalty for paying late or going over the limit. It’s the amount that’s being charged that makes no sense. These fees bear little relation to the costs or risks involved.

• Video on MSN Money: How’s your credit?

Your best moves: Clearly, you want to avoid late and over-limit fees whenever possible. Set up automatic payments so at least your minimum balance gets paid every month. Track your balances — which you can do online, via phone, by using personal-finance software like Microsoft Money or Quicken, or simply by writing down your purchases and keeping a running tally. (Microsoft is the publisher of MSN Money.) You’ll do your credit scores a favor by keeping balances to no more than 30% of your limits.

If you do get dinged, ask your issuer to waive the fee.

Before you transfer a balance, read the fine print and calculate all of the fees you’re likely to face. Compare offers using sites such as CardRatings.com, Bankrate.com or IndexCards.com. With a little research, you can often get a better deal. Then use your low rate to help you pay off your balance; don’t keep shifting it around.

A whole deck of cards

Fair play: issuing cards with low credit limits to riskier borrowers.Foul play: issuing multiple cards with low limits to risky borrowers.

Credit card companies wisely limit their risks with certain customers by issuing cards with low limits, say $200 to $500. You’re most likely to get one of these cards if your credit history is short or troubled.

As you show you can responsibly use the credit — by paying your bills on time and not maxing out your card — a typical issuer will reward you by raising your limit. If you miss payments or go over your limit, though, you don’t typically get more credit.

An exception is Capital One. BusinessWeek recently revealed the card company’s practice of simply issuing additional low-limit cards to the same customers. The big downside for borrowers is that they have more due dates and limits to track. The practice increases the chances a cardholder will mess up and incur late or over-limit fees.

Capital One has helped a lot of folks rebuild their credit after bankruptcy and other financial missteps. But it needs to drop the practice of issuing multiple low-limit cards.

Your best move: Don’t max out your credit cards or charge more than you can pay off in full every month. Instead of accepting a new card, ask for a higher credit limit on the one you have.

Paying twice

Fair play: charging interest on balance transfers.Foul play: charging interest before the check clears.

This one may be a little tricky to understand, so bear with me.

When you’re approved to transfer a credit card balance, the company that’s receiving your balance sends a payment to the company that currently has your debt. This payment may be electronic or may be a check.

The issue revolves around when your new credit card company begins charging interest on the balance transfer. Some start doing so long before the balance is actually switched, which means you could wind up paying interest to two companies on the same debt for a week or even longer.

Curtis Arnold of CardRatings.com polled six major issuers — American Express, Bank of America, Capital One, Chase, Citibank and Wells Fargo — and found that all begin charging interest as soon as they initiate an electronic transfer to the card issuer holding your balance. That’s OK in my book because electronic transfers tend to happen quickly, and the overlap period where you’re paying interest twice is usually a day or two, at most.

If the issuer sends a check, though, policies vary. Bank of America, Citibank and Wells Fargo wait for the check to clear before starting to charge interest, Arnold said. American Express, Capital One and Chase begin to levy finance charges as soon as they cut the check. If it takes a while for the receiving bank to get and deposit the payment, you’re the one who pays.

Your best moves: Is this a huge deal for a consumer? Probably not. Even with big transfers — say, $10,000 or more — we’re still talking about only a few bucks a day and a total cost that’s less than most late fees. But it’s annoying nonetheless. Clearly, you want to try to press for an electronic transfer whenever possible.

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