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Social Security disability income shouldn’t mean you don’t qualify for a mortgage

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More than 15 million people receive Social Security disability income every year. For those relying on this income, qualifying for a mortgage can unfortunately become a challenge when lenders ask for proof of how long they will receive their benefits.

Today, we’re reminding lenders that placing unnecessary documentation requirements on recipients of Social Security disability income, including disabled veterans, may raise fair lending concerns. Following the guidelines and standards noted in the bulletin may help lenders comply with fair lending laws.

Difficult to prove your income

Generally, when you apply for a mortgage, you must show to mortgage lenders that you have a stable income. However, those who depend on Social Security disability income usually don’t have any documentation saying how long this income will continue. The Social Security Administration (SSA) normally only provides proof that consumers are currently receiving benefits.

Unfortunately, some consumers have reported that loan officers have asked them for a specific description of their disabilities or a statement from a doctor to prove that their Social Security disability income is likely to continue.

What our rules require

To verify income for Qualified Mortgage debt-to-income ratios, our rules require lenders to look at whether the SSA benefit verification letter or equivalent document includes a defined expiration date for payments. Unless the SSA letter specifically states that benefits will expire within three years of loan origination, lenders should treat the benefits as likely to continue.

Similar standards

The Department of Housing and Urban Development (HUD) has a similar standard for documenting income for FHA-insured mortgages, and emphasizes that a lender shouldn’t ask a consumer for documentation or about the nature of his or her disability under any circumstances.

The Department of Veterans Affairs (VA) allows lenders to use Social Security disability income as qualifying income for VA-guaranteed mortgages and emphasizes that it’s not necessary to obtain a statement from the consumer’s physician about how long a medical condition will last.

Fannie Mae and Freddie Mac have issued similar guidelines for loans that are eligible for their purchase, allowing consumers to use Social Security disability benefits as qualifying income for a mortgage.

Everyone deserves to qualify based on their income

Persons with disabilities should be able to qualify for mortgages they can afford based on their stable income, including from Social Security disability income. And anyone with disabilities, including disabled servicemembers, should not be prevented or hindered from buying a home by unnecessary barriers or requirements.

Together, these standards and guidelines should help lenders avoid unnecessary documentation requests and help individuals who receive Social Security disability income receive fair and equal access to credit.

Submit a complaint

If you are having an issue with a financial product or service, you can submit a complaint online or call (855) 411-CFPB. We can assist people in over 180 languages. We’ll forward your issue to the company, give you a tracking number, and keep you updated on the status of your complaint.

Veterans: Take advantage of student loan forgiveness, but don’t let it damage your credit

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For some veterans, their time in uniform caused a severe service-connected disability. This dramatically impacts their life after transition out of the military.

For 100-percent service-disabled veterans who have student debt, the Department of Education offers a valuable benefit to help them avoid financial distress – the chance to have their loans discharged (forgiven). Under federal law, veterans can seek federal student loan forgiveness if they receive a 100 percent disability rating by the Department of Veterans Affairs (VA). Private student lenders are not required to offer this benefit, but some do on a case-by-case basis, so be sure to ask.

We encourage all consumers to check their credit report regularly, but we want to especially encourage veterans who use this benefit to be sure that their student loan servicer (the company that collects payments) is providing correct information about their loan discharge to credit bureaus (the companies that compile and sell credit reports).

We continue to hear from veterans and servicemembers about the unique servicing obstacles they face as they seek to pay off student loan debt. We are concerned that, in some circumstances, when veterans are able to discharge their student loans due to their disability, they may experience damage to their credit report if their student loan servicer provides incorrect information to the credit bureaus. These mistakes, if uncorrected, can result in a negative entry on their credit report that makes it harder and more expensive for these disabled veterans to get credit, buy a car or take out a mortgage.

For example, one service-disabled veteran submitted a complaint to us describing how his credit score fell by 150 points as a result of this type of error. His score went from a nearly perfect “super prime” credit score to a much lower score simply because he received loan forgiveness.

I can’t get anyone to listen to me! I am a 100 percent disabled Veteran who has had his credit score ruined by a broken credit scoring system. I had my student loans…discharged…in August 2013…I went from 800 to 650 in less than 2 months. I am fighting to survive because a company from my own country is killing me.

Consumers are harmed when companies furnish inaccurate information to credit reporting agencies. An error in a credit report could make a big difference in whether someone receives a loan, qualifies for a low interest rate, or even gets offered a job. These credit-reporting problems, if uncorrected, can hurt veterans in this situation for decades.

For example, here’s what could happen if a veteran tried to buy a home after a credit reporting error caused similar damage to her credit profile and score and this damage went uncorrected. If she used a VA home loan to buy a $216,000 home, she could pay more than $45,000 in additional interest charges over the life of her mortgage (depending on the length and terms of the mortgage), since this error would cause her to qualify for a much more expensive loan.

Here are two important reminders for service-disabled veterans who have discharged their federal student loans:

    1. Check your credit report.

    If you received loan forgiveness due to your service-connected disability, your credit report should not state that you still owe the debt. Other borrowers who receive a disability discharge are monitored for three years by the Department of Education. But if you received a discharge based on VA documentation, you don’t have to worry about this step and your credit report should show that you no longer owe the loan, not that it was “assigned to government” for monitoring. And remember, you can check your credit report for free.

    If you have discharged older federal loans made by banks, pay even closer attention.

    Most federal loans taken out before 2010 – loans generally made by banks and other private entities but guaranteed by the federal government – require your lender to update the information on your credit report after your loan has been discharged. Even though no new loans are issued under this program, there are still millions of borrowers repaying this type of loan. Veterans who have discharged these loans should be sure to check their credit report regularly, since the rules regarding disability discharge changed in 2013.

    2. If something doesn’t seem right, contact the credit reporting company and dispute the error.

    Understanding how discharged loans show up on your credit report can be complicated. If you file a dispute and it still doesn’t get corrected, submit a complaint with us and we’ll work to get you a response from the company. You can call us at (855) 411-2372 or submit a complaint online.

Last year, we put companies on notice that they must investigate disputed information in a credit report, and that we will take appropriate action, as needed. We will also continue to closely monitor complaints from veterans and other disabled student loan borrowers to make sure student loan servicers are furnishing correct information to the credit bureaus about disability discharges. All financial services providers that serve veterans should redouble their efforts to ensure that veterans are not penalized for receiving the benefits they earned and deserve for their sacrifices.

Holly Petraeus is Assistant Director of the Office of Servicemember Affairs and Rohit Chopra is the CFPB’s Student Loan Ombudsman.

Hosting a financial coach in your community

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It’s no secret that having a trusted, well-informed advisor or financial coach can increase your odds of financial success. We know that some people who are transitioning, perhaps from military service, being unemployed, or another tough financial situation, might especially benefit from this one-on-one service focused on their financial and life goals.

That’s why we announced an initiative last year to place trained financial coaches in organizations to provide coaching to consumers, including veterans and those who are low-income or economically vulnerable. Following a full and open competitive procurement process, in April 2014 we contracted with the Armed Forces Services Corporation (AFSC), a Service-Disabled Veteran-Owned Business (SDVOB), to run this initiative. The financial coaches will work in organizations that are already providing other services, including job training, education, social, and housing services.

Here’s how you or your organization can help

AFSC is looking for 20 organizations, in geographically diverse locations across the country that serve economically vulnerable consumers, to host financial coaches. To be clear, this is not an opportunity for a grant, contract, sub-contract, or funding – just to have a financial coach placed on-site at an existing service delivery location. Check out the criteria and see if your organization or one in your community might be the right fit to host a financial coach. If you think it is, send a submission by October 15, 2014.

Protecting servicemembers from predatory auto loans: Harry and Ari’s story

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Protecting consumers from predatory financial products and services is part of our mission and something we take very seriously. We received a Tell Your Story from the father of a servicemember that led to us opening an investigation into an auto loan program. The program, which targeted servicemembers, was found to have deceptive marketing and lending practices. The investigation led to an enforcement action against auto lenders requiring them to refund approximately $6.5 million to over 50,000 servicemembers. Ari, a servicemember, and his father Harry, shared their story with us, and here’s what they had to say:

“It’s very important to speak up because there are people within the government that are there to help us get through challenging financial situations,” Harry said. “It’s very important for any citizen to speak up and just tell your story.” Ari mentioned that: “The fact that the CFPB took action in the name of servicemembers across the entire country… really shows us that someone’s in our corner.”

We were glad to be there for Harry and Ari – they shared their story with us and got the help they needed. To learn more about their story, share your own, or find resources for servicemembers check out consumerfinance.gov/yourstory.

Working together to protect student veterans

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We’re joining the Departments of Veterans Affairs (VA), Defense (DoD), and Education (ED) to better protect servicemembers, veterans, and their family members who are attending college. We’ve signed an agreement to carry out a comprehensive strategy to strengthen our enforcement and compliance work.

This new agreement is part of a larger effort to prevent abusive and deceptive recruiting practices by schools serving servicemembers, veterans, spouses and other family members. This includes working to ensure that these servicemembers and others have the right information to make informed choices with their education benefits and that colleges are providing these students high-quality academic and student support.

Our agreement requires the agencies to:

  • Have a point of contact for sharing information
  • Share complaints about schools
  • Alert each other of suspected fraud, deception, or misleading practices; and/or
  • Notify each other of any agency action that could lead to a college’s loss of eligibility, a suspension of enrollment, or a termination of license

Before this agreement, an agency could have been looking into a particular school or even taking away the school’s eligibility for federal funds without the other agencies knowing about it. Now, we have a system for sharing important information and coordinating efforts.

Recently, we also worked with VA, DoD, and ED to launch an online student complaint system. Here, students can report negative experiences at schools and training programs. The complaints are forwarded to schools and also shared with other law enforcement agencies. The student complaint system has already received over two thousand complaints.

We look forward to even more successful work together in the future.

Closing the book on Colfax

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Today, we announce an enforcement action against Colfax Capital Corporation and its subsidiary Culver Capital, LLC for engaging in unlawful lending practices that targeted and financially harmed servicemembers.

Although the name Colfax Capital Corporation might be new to some, this is actually the last gasp of a chameleon-like company with a long and deplorable record of preying on servicemembers.

Formerly known as Rome Finance Co. Inc. and Rome Finance Company, LLC (collectively Rome Finance), this unlicensed lender provided financing that merchants, such as SmartBuy, used when selling products to military members. Rome Finance’s contracts inflated the disclosed prices of the products to hide the true finance charges that the servicemembers would have to pay, typically by military allotment. This trapped servicemembers in contracts that generated millions of dollars for the company and substantial debt for its customers.

Background on the company’s actions

Rome Finance first came to our attention on Veterans Day 2010, when SmartBuy, Rome Finance and other affiliated finance companies operating in New York were sued by NY Attorney General Eric Schneiderman for unlawful practices that targeted soldiers at Fort Drum. A subsequent review of complaints submitted to the Federal Trade Commission’s Consumer Sentinel Network, our consumer complaints, and an investigation by AG Schneiderman’s office revealed that military members were also targeted in California, Tennessee, Colorado, Georgia, North Carolina, Oklahoma, Texas, and even overseas. The NY suit led to approximately $13 million dollars in fines and settlements.

The NY suit was actually not the first time Rome Finance had been called to account for its unlawful practices. Tennessee Attorney General Robert Cooper had brought suit in 2005 against Rome Finance and an affiliated company called Britlee Inc. for unlawful practices that targeted servicemembers near Fort Campbell Army post through their The Military Zone and Laptoyz Computers and Electronics stores. The TN lawsuit also resulted in a multi-million-dollar judgment against Rome Finance and its network of companies.

What it means for impacted consumers

Although Rome Finance was able to continue doing business for some time by filing for bankruptcy, changing its name to Colfax Capital Corp. and Culver Capital, LLC and employing other evasive maneuvers, I am happy to see that we can finally close the book on Rome Finance in all its forms, and see that they never receive another penny from servicemembers.

Since the company is being liquidated in bankruptcy, Colfax does not have enough money or assets to pay back consumers affected by its actions. Instead, consumers will no longer have to pay on the more than 17,000 outstanding finance agreements, amounting to a total of about $92 million in debt relief for consumers. If you have outstanding finance agreements with Colfax should stop making payments immediately and turn off any allotments that were set up to make these payments. The Bankruptcy Trustee will also notify the credit reporting bureaus that consumers’ contracts with the company should be treated as “paid as agreed,” which could potentially help consumers’ credit scores. Also, if you had default judgments against you, you can apply for the judgments to be vacated. If you have questions about how to do this, check with your JAG or the Attorney General’s office in your state.

Defend yourself from deceptive practices

The sad truth is that Rome Finance was not the first and will not be the last company to financially prey on the military community. Servicemembers, veterans and military families need to actively guard themselves against bad business practices and financial scams.

Make sure you know the total price of the product you’re buying, including interest and fees for your loan, not just the monthly payment! Use available resources like your installation Personal Financial Manager, JAG or legal aid office, your state’s Attorney General office, the Better Business Bureau, and even the internet to research the contract terms and company. Demand to take a copy of the sales contract to a financial or legal professional for review before you enter into it. And if the company will only take payments by military allotment, ask why. That could be a red flag.

Federal and state officials worked in this case to protect you, but remember that you are your own most important first line of defense when it comes to consumer financial decisions!