Coach: Knowledge Is Key To Restructuring Debt

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Debt collectors are an unwelcome intrusion, whatever time they call. Money Coach Alvin Hall explains the legal boundaries of debt collection and how those in trouble can restructure their debt. Hall also helps listeners make sense of woes faced by financial institutions Fannie Mae and Freddie Mac.

MICHEL MARTIN, host:

I'm Michel Martin, and this is Tell Me More from NPR News. Coming up, our monthly visit with the O Magazine ethics panel on why the best thing to say is, sometimes, nothing. But first, we're continuing Cheapskate week on Tell Me More where we are looking how we can save a buck or two.

Today, debt collectors. You come home, look at that flashing answering machine light, and you know that the caller I.D. is not showing the number for a friend. You're getting calls from debt collectors, intimidating, frustrating, embarrassing for most people. Debt collectors can make you feel like a prisoner in your own private hell. But our financial expert Alvin Hall tells us it doesn't have to be that way. He's going to tell us how to get some sanity and stop the madness. Welcome Alvin, thanks for talking to us.

Mr. ALVIN HALL: I'm glad to talk about this because I want people to know that they are not alone. That the government is actually in some ways on their side.

MARTIN: Well, first of all, let's just talk about who are debt collectors. Is there one company or agency that does this and what point do they get involved in calling people?

Mr. HALL: A debt collector is an agency, it can also be an attorney who is responsible for bringing in the debts of people who have defaulted on them. The company from whom you got your credit card or taken a loan, calls up this company and says I have a dead beat here get my money. And so, they start, sometimes calling you up daily in order to get that money. And this always happens after somebody has defaulted on the loan and not returned the phone calls of the primary lender, be that a credit card or a bank.

MARTIN: What's considered a default? Is there some trigger for a default or does it change, does it vary depending on who the lender is?

Mr. HALL: Generally, when you hit the 90 days late mark, you're in default. Some credit card issuers or lenders will let you go a little bit longer, but if you don't start returning their phone calls, if you don't start negotiating in good faith and putting into place a plan that you can actually adhere to, they will turn you over to a debt collector, just like that.

MARTIN: Are there any guidelines for how debt collectors have to behave?

Mr. HALL: Yes. There's an act called The Fair Debt Collection Practices Act that really lays out clearly what debt collectors can and cannot do. For example, they cannot call you before eight a.m. or after nine p.m. They cannot call your employer, if your employer hates certain phone calls, and people don't know, you can actually stop them from calling you. If you write a letter to the debt collector, saying that you wish not to be contacted by them any longer, they must stop doing that. That does not mean that the debt goes away, all you're doing really maybe is putting your head in the sand, but you can stop them from calling you.

MARTIN: How could it possibly be that simple?

Mr. HALL: Because.

MARTIN: First of all, how do you know who you're writing to?

Mr. HALL: When they call you, you ask for an address and a phone number. Generally, if you're really firm about that, they will give that to you. You then send it in writing. If you want to negotiate in good faith and come up with a plan that you can adhere to, put it in writing and state the terms of it. You have much more control over the situation than many people imagine.

MARTIN: So, what you're saying is get control of the situation, and if you are intimidated, if you are afraid, write it down. Say I have a good faith intention to work this out.

Mr. HALL: Yes.

MARTIN: And maybe you feel more control when you write it down.

Mr. HALL: Exactly, by the time you've gotten to a debt collector this means that the primary lender has lost faith in your ability to keep your promises. So, I tell everybody try not to let it get to that point. When you're negotiating with your lenders, come up with amounts that you know you can afford. Important. Keep your promises, if you say I'm going to make a payment on this date, make a payment on this date. And interestingly, debt collectors are prohibited from depositing checks that are pre-dated or post-dated checks. They're prohibited from depositing them early. So, if you say I'm going to make a payment on this date, and you send them the check, they must hold that check until that date.

MARTIN: Is there any way to restructure debt without going through a bankruptcy proceeding or without going to court?

Mr. HALL: There is, but you have to be really strong. When debts reach a certain level beyond 50, a 100,000 dollars you might as well just look at the courts for remedy. You can try, but you then have to take control of every aspect of your debt.

You have to arrange it from highest interest rate to lowest interest rate. You have to put in a schedule of payments, for when you are going to pay them off, and I think it's really important psychologically to give yourself an end date. Say I plan to pay this off in the next three years. However, if you've lost your job, you've had medical emergencies and there is just no way you can get money, then you just have to be blunt with people, and say if you push any further, you're forcing me, in essence into bankruptcy and then they'll get nothing.

MARTIN: I want to switch gears now, to another story that's in the news. Fannie Mae and Freddie Mac, and no, we're not talking about your country cousins.

(Soundbite of laughter)

Mr. HALL: My North Carolina cousins.

MARTIN: North Carolina cousins. What are those two entities, and what happened over the weekend that's so important?

Mr. HALL: These two entities were set up to give banks more money to make mortgage loans. These organizations would go around, look at the portfolio of loans that banks around the country made, buy up those loans from those banks, thus giving those banks more money to make more loans. Fannie Mae and Freddie Mac would then package those loans into pools of loans and then sell certificates or bonds to institutions backed by that pool of mortgages. What happened was they held a number of those mortgages on their own books, and those mortgages began to default. Wall Street and some of the investors, especially the aggressive investors, saw this as a lame rabbit just limping toward the grave, and they decided to just jump on this, and they sold short those shares and drove them way, way down. And it seemed as if these two institutions, which are critical to the American housing market, were going to go under. Over the weekend, Paulson, secretary of the Treasury, and other financial leaders got together and came up with a way to provide Fannie May and Ginnie Mae, access to more money, therefore their financial situation now looks more stable.

MARTIN: Crisis over or not?

Mr. HALL: No. I don't think the crisis is over. There's one really important factor in all of this. The names of these organizations are the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. With the word federal in front of it, it would seem to imply to the public that these are government-backed organizations. In reality, the securities that they issue were backed by the full faith and credit of only the organization itself, not the government. So the government has now stepped in and given it much more of a feeling of government backing, government guarantee, but the crisis not over because you now have the regional banks all around the country. You have Indy Bank, which went under, and we saw people trying to get their money out of that bank. This does not make the average person feel comfortable with the banking system, especially if there are rumors out there that 30 or more banks could possibly go under.

MARTIN: If you have a mortgage that's backed by Fannie Mae or Freddie Mac, is there something you should be concerned about?

Mr. HALL: Not really. You can still make your mortgage payment on time. They will still hold your mortgage if they have not pooled it together and sold it to somewhere else. Your mortgage will still be safe, so that's not your worry. The worry is will they be able to make more mortgages, and will they be able to service the pools of mortgages that they put together if they really stumble financially.

MARTIN: Some grim news ahead huh?

Mr. HALL: Well, we live in difficult times. What's so dark about this period to me is that it's going at the heart of what Americans cherish, your home. So we all bought the dream, we worked hard to get on the property ladder, and many people were sold mortgages that they could not afford. At least in working out this new plan, the government is saying if you take out a mortgage starting in December 2009, the lender must make sure you can afford the mortgage. The question is, why didn't somebody think about this earlier? And the answer is there was too much profit on the table for people to care.

MARTIN: Alvin Hall, our financial expert joined us from our bureau in New York. Alvin, thank you so much.

Mr. HALL: You're welcome.

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