Loans digger

I took the Dodd challenge, and the senator won’t like the result. Several days after news broke last month that Sen. Christopher J. Dodd and his wife received significantly reduced interest rates on more than $800,000 in mortgages from Countrywide Financial, Dodd taunted reporters to look at the rates. He claimed he got a deal available to any other borrower. He was wrong.

Dodd won’t provide any information to support his claim. He still has not. He denies knowing he was among the privileged on Countrywide founder Angelo Mozilo’s exclusive “Friends of Angelo” list. Eventually, Dodd admitted he knew he received VIP treatment from Countrywide on mortgages on his homes in Washington, D.C., and Connecticut.

Though he said he’d release documents associated with the transactions to the public “at some point,” Dodd continues to refuse to let his constituents see the secret details of two deals that will save him more than $70,000 over the life of the loans.

Some embarrassing devils must live in the details of the records Dodd refuses to release. Dodd got great deals from Countrywide, and checking the rates confirms it. The senior senator didn’t issue an easy challenge. The 2003 loan on his D.C. property, purchased a few years before from his old friend, Rep. Rosa DeLauro, was for $506,000. That’s a “jumbo,” more than the maximum of a conventional loan, and records on those interest rates aren’t widely available.

Curiously, Sen. Dodd has not produced a survey of interest rates available at the time he obtained his mortgages. The chairman of the Senate Banking Committee could get the information if he thought it would confirm his loud claim that it’s outrageous to think he got special treatment from Countrywide.

The average national rate for jumbo mortgages like the Dodds’ at the time he borrowed the money was about 5 percent, according to Keith Gumbinger, vice president of HSH Associates Financial Publishers. HSH compiles information each week from 2,000 lenders. The average rate at the time was not near the 4.25 percent the Dodds got from Countrywide.

Dodd’s wife, Jackie Clegg, told Conde Nast Portfolio magazine, which broke the story, “that two other lenders they checked with offered comparable interest rates.” She’s the head of Clegg International Consulting, serves as a director of the Chicago Board of Trade and was once the vice chairman of the Export-Import Bank. Someone with those credentials ought to have a firmer grip on details.

The Dodds won’t identify the phantom lenders. If it would lift the cloud of suspicion that has descended upon the senator, he would have released information weeks ago. He continues building his stonewall.

He refuses to tell his constituents how he managed to wangle those sweet deals. He may, in another twist that assaults reality, be willing to disclose the details to Barack Obama’s campaign. Somehow word leaked that Obama’s campaign asked Dodd for background information that accompanies the search for a running mate.

In June, one of the three members of Obama’s vice presidential search and vetting committee, James Johnson, took a powder from the task when the world learned that he enjoys $1.7 million in special deals from Countrywide. You can’t have sweetheart deals if you’re going to help Obama select a running mate, but you can have them if you’re going to be considered for the spot. Obama’s new politics grow more twisted and confusing each time it collides with an unpleasant reality.

Dodd may reveal to Caroline Kennedy Schlossberg, one of the two members left on Obama’s search committee, the details of his special mortgage deals that he refuses to disclose to his constituents. That’s a display of contempt for the public that skillful politicians strain to avoid letting us witness.

The vice presidential gambit starts to look like a mercy mention to help Dodd divert attention from his refusal to disclose damaging information about his dealings with Countrywide. Dodd’s economy with the truth last month emitted whiffs of panic. Dodd’s Countrywide mortgages continue to give birth to more questions about how the couple qualified for more than $800,000 at what appear to be extremely favorable rates. Silence won’t stop them.

Kevin Rennie is a lawyer and a former Republican state legislator. His column appears Sundays. He can be reached at kfrennie@yahoo.com.

The Federal Deposit Insurance Corp, a regulator of U.S. banks, is itself embroiled in a mess related to subprime mortgages, the Wall Street Journal said on Monday, citing court documents.

The U.S. government gave out high-interest, subprime mortgages, according to government documents filed in federal court, the newspaper said.

The Journal said federal officials seized Superior Bank FSB, a national subprime lender based in Illinois, in 2001, and the FDIC continued to run the bank’s subprime-mortgage business for months as it looked for a buyer.

Superior funded more than 6,700 new subprime loans worth more than $550 million, according to federal mortgage data, the newspaper said, and the FDIC sold a big chunk of the loans to another bank.

The Journal also said Texas-based Beal Bank SSB bought a portfolio of Superior loans, about half of which originated under the FDIC.

Beal sued FDIC in 2002 and is seeking to recover damages arising from the regulator’s alleged breaches of contract regarding subprime mortgage portfolios the bank bought from it, according to court documents.

Beal said in an amended complaint filed in U.S. District Court for the District of Columbia last year that it paid the regulator nearly $340 million to buy 5,315 home mortgage loans subject to the regulators representations and warranties.

The FDIC recently took over mortgage lender IndyMac IDMC.PK after withdrawals by depositors led to the bank’s failure. (Reporting by Varsha Tickoo in Bangalore and Paritosh Bansal in New York)

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RNC takes aim at member of VP vetting committee after newspaper report.

A veteran Democratic political insider from Minnesota who is helping Barack Obama vet vice presidential prospects is drawing fire from Republicans who have accused him of receiving special terms on loans.

The accusation follows a weekend story in the Wall Street Journal about loans that Jim Johnson, a former aide to Vice President Walter Mondale, received from Countrywide Financial Corp.

Johnson received the loans during and after his tenure as chief executive of Fannie Mae, a government-sponsored entity that was the biggest buyer of Countrywide’s mortgages, the newspaper reported.

It said a comparison of Johnson’s loans with prevailing interest rates at the time “raises the possibility” that Countrywide gave him “preferential terms.” But the Journal also said it was impossible to tell for sure from public documents because the disparity could be explained by a variety of other factors. And the paper noted that there is nothing illegal about a mortgage firm treating some borrowers better than others.

The Republican National Committee seized on the report as a problem for Obama, who has championed the causes of homeowners facing default. Party spokesman Brian Walton said the special loans Johnson received represent “a hypocrisy that shows Obama’s lack of judgment. Obama doesn’t understand that average Americans would never be able to get such deals.”

However, Obama spokesman Bill Burton said it was hypocritical for backers of GOP candidate John McCain to take issue with the loans when one of his top advisers, John Green, “lobbied for Ameriquest, which was one of the nation’s largest subprime lenders and a key player in the mortgage crisis.” Burton said Obama as president would “crack down on fraudulent lenders and bring real relief to Americans struggling in the grip of the housing crisis.”

Johnson, a native of Benson, Minn., did not return a call Monday to the Washington, D.C., merchant bank where he is vice chairman.

But his lawyer told the Journal that the loan terms were well within industry practice.

He served in the White House as Vice President Mondale’s right-hand man. In 1984, he chaired Mondale’s presidential bid. From 1993 until this month, Johnson also was a member of the board of directors of UnitedHealth, the Minnetonka-based insurer. He still sits on the board of Target Corp.

By Pat Doyle • 651-222-1210

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Todd Coffman thinks he’s a good credit risk — but because he’s studying at a community college, the banks suddenly seem to think otherwise.

Coffman, 28, is halfway through a two-year X-ray-technology degree at Bellevue Community College. In the past year, he took out about $4,500 in federally subsidized student loans through Citibank.

But turbulent credit markets prompted Citibank and other banks in recent weeks to stop offering student loans at many community colleges across the country, including BCC. When Coffman recently put in his paperwork to get next year’s loans, the college told him Citibank was no longer an option. The same thing happened with a second lender. Finally, he obtained a student loan through Wachovia.

But his headaches didn’t stop there. He needed to supplement his living expenses with private loans. He applied to lender after lender, about eight in all, many of whom listed BCC as an approved campus. But he was rejected time after time, even when his dad offered to cosign the loans. He finally landed a loan through a Bellingham credit union.

“I don’t see why any bank wouldn’t want me,” said Coffman, adding that he’s got a good credit history. “It’s been a hassle.”

Students at community colleges across Washington are finding themselves in similar situations. And many will face more difficulties — and costs — when it comes time to consolidate loans from multiple lenders.

“The last couple of weeks have really been something,” said Kim Matison, the director of financial aid services at Tacoma Community College, where Citibank and KeyBank have just pulled out. “It’s one thing to read about it happening. It’s another to have it happen to you and your students directly.”

Matison said TCC had 10 lenders offering student loans last fall. That list is now down to six, and could soon be at five. Changes at Bank of America are forcing the college to consider dropping that lender.

Some fear the market could collapse further.

“If something does happen, it’s likely to happen all at once,” said Matison, who said she is monitoring developments closely.

Students in Washington take out about $900 million in student loans each year, said John Klacik, the director of student financial assistance for the state Higher Education Coordinating Board.

About 40 percent of the loans are made directly through the federal government and aren’t affected by the market turmoil, he said. That means students at the University of Washington, Western Washington University, Seattle University and Shoreline Community College — among others — have nothing to worry about.The remaining 60 percent of federally subsidized student loans are made through private banks and lenders.

The current situation has prompted a little-known Seattle nonprofit to apply for federal status as a “lender of last resort” for Washington and Idaho.

That entity, the Northwest Education Loan Association — which is sponsored by the U.S. Department of Education — would step in and ensure students could still access loans in the “unlikely event” that private lenders dry up altogether, said executive director Karen deVilla.

What has angered many people is that banks appear to be withdrawing services from community colleges — where students often come from low-income backgrounds — while continuing to offer loans at four-year institutions.

“I think it stinks. It bothers me,” said Sherri Ballantyne, the assistant dean of financial aid at Bellevue Community College. “It doesn’t seem fair that because [the banks] are making more profit at a four-year, they would be excluding students who are less prepared to attend college.”

But Mark Rodgers, a spokesman for Citibank, said the bank is not singling out community colleges, but rather has suspended loans at all colleges with small loan volumes and short repayment terms.

“The combination of a significant increase in our funding costs, as well as the expense of originating and servicing these loans, has made loans to borrowers at these schools economically unworkable at this time,” he said in an e-mail.

The Seattle Community College system won’t be affected by the changes. That’s because the system took the unusual step a decade ago of pulling out of the student-loan network altogether, due to high default rates among its students.

2008 The Seattle Times Company

Nick Perry

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Credit secured against a home on top of a mortgage carries major risks, writes Nic Cicutti.
TIMES are getting harder for hundreds of thousands of homeowners. Personal loans, formerly cheap and easy to obtain, have started to dry up or are suddenly much more expensive. Credit card applications are being rejected. Credit is generally tougher to find.

At times like this, the potential attractions of a loan secured against the property you own become that much greater. Such loans appear to offer significantly better rates of interest than alternative forms of credit, and lower monthly payments if the loan is linked to a standard mortgage repayment period.

But second charge loans – so called because they are the second debt in line to be repaid if a property is sold – also create financial traps for the unwary. Experts warn that they can significantly worsen borrowers’ difficulties and even cost them their homes.

Meanwhile, the debt crisis is getting worse. A spokeswoman at the National Debtline, a charity which offers advice to people with credit problems, says: “We have seen a 20% increase in the number of people who have been calling our helpline. The debts they need help with include mortgages and also loans secured against their properties.”

Until 12 months ago, with many providers willing to offer personal loans with rates as low as 6.5%, unsecured loans were seen as also-ran products.

Yet the secured or second charge loan market is already massive, worth between £5bn and £6bn a year, with more than £35bn outstanding in loans. In the current credit crunch, where people are unable to access credit in other ways, some predictions see it rising to £10bn a year in the next five years.

Many of those who take out second charge loans are borrowers who may already be facing credit problems. Research from the price comparison website Moneysupermarket.com found that nearly 13 million people have taken out loans to consolidate their existing debts, of whom more than eight million go on to build up further debts.

The issue for borrowers seeking help from the National Debtline is that a second charge loan is only one part of the total equation, explains a spokeswoman: “There are cases where people have been on various fixed rate deals for the past couple of years. At the same time, they have also been running up other unsecured debt.

“So (they] take out a secured loan, running in parallel with their mortgage. What then happens is that the original home loan deal runs out and they find that they are now having to pay a much higher mortgage rate which they cannot afford.”

The issue becomes critical because, unlike their previous unsecured credit or even their card debts, they now have a loan secured against their home. If they default on the secured loan, the lender can have a legal charge placed on the borrower’s home.

In the pecking order of creditors, the lender of a secured loan takes second place to a mortgage lender, so if the home is repossessed and sold the secured loan company would get its money back when the mortgage had finally been paid off. That in turn makes many secured loan providers much less flexible in cases where a borrower is unable to meet regular monthly payments.

This is a problem recognised by Yvonne Gallacher, chief executive at Money Advice Scotland. She says some of the main culprits are so-called sub-prime lenders, who specialise in offering loans to people who otherwise would find it difficult to obtain credit from mainstream providers.

“We are seeing different patterns from some of the lenders, with some less willing to negotiate,” Gallacher says. “There is a banking code of practice, but the problem (comes] when you have people who are not subscribers to the code and are effectively not joined to any organisation.”

This absence of effective regulation alarms consumer groups. A report by Citizens’ Advice in December last year argued that the Office of Fair Trading, which regulates second charge loans under the Consumer Credit Act (CCA), does not operate well.

“Regulation of second charge lending by the Office of Fair Trading has not been updated to take account of changes in the marketplace. The OFT also does not have a clear and proactive compliance strategy,” the report claimed.

Changes to the CCA in the past 12 months mean that borrowers can take complaints about second charge loans to the Financial Ombudsman Service (FOS). However, consumer credit complaints that can be referred to the FOS apply only to events taking place after April 6, 2007.

This means if you took out a secured personal loan before that date and feel you were unfairly treated, the broker or lender may well get away with it. A spokeswoman at the FOS says: “We have not really seen a flood of complaints about second charge loans so far, mainly because they are not retrospective, so it is a bit early to say what is likely to happen.”

That said, the FOS can look at earlier events in order to determine a complaint about something that happened after April 6, 2007. So if your complaint refers to the way your loan has been handled after that date, it can be heard by the FOS even if it was taken out before then.

There is no formal requirement under the CCA for brokers or lenders to have professional indemnity insurance. Although some brokers may already have cover as part of their other activities in the financial sector, their cover is unlikely to extend to second charge loans.

This means that while a big lender may be able to afford to pay out in the event of a successful consumer complaint, it is less likely to be the case for brokers.

If you need to complain, make sure you do it properly

• First make it to the firm you have a problem with, either the lender or the broker.

• That firm then has five working days in which to acknowledge your complaint.

• Within four weeks, the firm must issue either a “final response letter” or a “holding response letter”. The latter must explain why it has been unable to resolve the complaint so far, and indicate when it will make further contact with you.

• The final response letter, which must be issued within eight weeks, must confirm whether the firm is upholding the complaint, and, if so, what form of redress it is offering.

• If you are dissatisfied with the firm’s final response you can refer your complaint to the Financial Ombudsman within six months.

• Once a complaint form is received by the ombudsman, it will first try to resolve the matter by mediating between the firm and the customer. In more complex cases, a formal adjudication may be made.

• If you do not agree with the findings, you can contact the adjudicator and, if still unsatisfied, ask for a review and final decision by an ombudsman. You can still take court action against the business concerned.

• Finally, if you are tempted to take out a secured personal loan, research all the options first. That includes other forms of credit that do not place your home at risk. It is always better not to have to complain at all than to do so because something has gone wrong.

Borrowing tips

• Don’t borrow more than you need: you will only spend it and have more interest to pay.

• Can you afford the repayments? Make sure they won’t make you overdrawn.

• Check the interest rate. Lenders are obliged to offer two-thirds of customers the advertised rate, but the rate you are offered may be higher depending on your credit score.

• Look at the small print for penalty charges. Some lenders have strict rules for making payments.

• Always reject payment protection insurance if it is offered. For most people it is inappropriate.

Scotsman

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Silicon Valley investor accused of using false information and failing to pay back borrowed funds

San Jose socialite and investor William “Boots” Del Biaggio III carried out “a complete fraud” against an investment firm that has accused him of scamming it out of $3 million in a bogus loan deal, according to a lawsuit filed this week in Santa Clara County Superior Court.

The lawsuit provides the first public details of alleged improper business dealings that have prompted a federal investigation into Del Biaggio, a 40-year-old financier who until recently was a minority investor in the San Jose Sharks and late last year became a part-owner of the Nashville Predators.

With allegations swirling about improper loan deals, Del Biaggio earlier this week resigned from Sand Hill Capital, a Silicon Valley lending firm he co-founded in 1997. The lawsuit does not target Sand Hill, but instead names Del Biaggio, San Francisco investment bank Merriman, Curhan, Ford & Co., and Scott Cacchione, a Merriman managing director.

In the lawsuit, DGB Investments, a San Jose investment firm that provides loans to businesses, accuses Del Biaggio of orchestrating a $3 million loan in November 2007 through bogus claims and phony documents, and then refusing to pay it back when confronted. The lawsuit contends Del Biaggio secured the DGB Investments loan by claiming he had millions of dollars in assets in a Merriman account, but “the truth was otherwise.”

Douglas Bergeron, San Jose-based VeriFone’s chief executive officer and a DGB Investments officer, signed the lawsuit. In addition to Del Biaggio, the lawsuit cites Merriman and Cacchione for their assistance. Cacchione is accused of getting Del Biaggio the account materials he needed to carry out the loan deal.
Publicly recorded financing statements show that Del Biaggio obtained other bank loans in 2006 and 2007 using a Merriman account as collateral. There is no indication in the filings to verify whether or these were his accounts or not.

Elliot Peters, Del Biaggio’s lawyer, could not immediately be reached for comment on the lawsuit. Peters earlier this week told the Mercury News his client is a “good and generous person” and “will cooperate fully with any investigation.”

DGB’s lawyer declined comment. Federal law enforcement officials also have declined comment.

Del Biaggio has been a rising star in the valley’s financial world since the mid-1990s, when he started Heritage Bank with his father, William “Bill” Del Biaggio. His career took off when he co-founded Sand Hill Capital, which handled the initial public offerings of such companies as ShopNow.com and VerticalNet.

The firm also lost big on some deals during the dot-com crash, although it is unclear whether that financial pressure has any links to the business deals now under scrutiny. In recent years, Del Biaggio also became interested in professional hockey, investing in the Sharks and later the Predators.

He lives in a chateau-like estate in Almaden Valley, and has been a major philanthropist in the area.

By Howard Mintz and Pete Carey
Mercury News

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The world of student loans just became more complicated and expensive for some borrowers, while others are about to get a great deal.

It all depends on whether you’re borrowing now or dealing with loans from the past.

Interest rates on variable-rate student loans will drop sharply on July 1st. That will make newer, fixed-rate loans look like a terrible deal, although for most borrowers, they’re the “only deal in town.”

Two years ago, Congress changed the student-loan program from a variable-rate deal based on Treasury bill rates to a fixed rate program at 6.5%. That rate now looks extremely expensive in comparison with falling interest rates in the marketplace. Still, those who have Federal student loans taken out after July 1, 2006, are stuck with those relatively high fixed-rate loans for the life of the loan.

The divergence becomes even more apparent because interest rates on older, variable-rate loans are about to be cut in half — to 3.61% from the current 6.62% — starting July 1. The cut comes because rates on those older loans are tied by formula to the T-bill auction that took place the last week in May.

That creates some interesting opportunities for those who borrowed in earlier years and are now graduating, as well as for graduates who have not yet consolidated their old, variable-rate loans. Not only will they get lower rates, they’ll also have the opportunity to lock in those low rates for the duration of their loans.

There is some good news for current borrowers. Rates on subsidized Stafford loans taken out after July 1 will carry a fixed rate of only 6% for the life of the loan. Future cuts in new fixed-rate loans are scheduled for the next three years. But all those rates will be fixed for the life of the loan.

Loan Consolidation Rates Drop — But No Loans Available!

There’s more good news, and bad. If you’re a graduating senior looking to consolidate your student loans and lock in current rates, you’ll get a great deal if you wait until after July 1st. The consolidation rate on variable loans will drop from the current 7.25% all the way down to 3.625%!

The new lower rate is available only for six months after graduation, so you have to act quickly. (Those who use their once-in-a-lifetime consolidation opportunity after six months have passed since graduation, will pay a slightly higher rate of 4.25%.)

The consolidation rate actually takes into account a “weighted average” of your outstanding loans, so your rate might be slightly different.

But the really bad news is that few, if any, lenders are currently offering consolidation loans — as a result of the current credit crunch. At SimpleTuition.com there is an online comparison tool for all kinds of student loans. But this year there are no consolidation loans to compare.

Instead there is a link to the Department of Education’s Direct Loan program — the only consolidator left in the business. With an estimated $30 billion of student loans eligible for consolidation, from this year’s graduates, and past un-consolidated loans, you can be sure the government will be swamped with applicants.

Read the rest of this entry »

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You’re unlikely to get an SBA government-guaranteed loan if you already have too much debt, but there are ways to improve your chances.

My son was in an accident and I borrowed money to pay his medical bills. Before the accident, I hoped to get an SBA loan to expand a construction business I operate part-time (I also have a full-time job). Now, I’m contemplating bankruptcy due to my debt. Will a bankruptcy filing ruin my chances for getting a small business loan in the future?

—S.H., Minneapolis

A U.S. Small Business Administration loan is actually a private loan guaranteed by the government and made to small companies and startup entrepreneurs with viable business plans who couldn’t get commercial loans. The borrower must undergo a criminal background check and demonstrate creditworthiness. If you have a history of insolvency or are perceived to be a credit risk, you’re unlikely to qualify for a loan of any kind.

If you have good credit aside from the loan you’ve taken out to help your son, you’d be better off applying for the SBA loan first and then filing for personal bankruptcy later if necessary, says Steve Berman, a business bankruptcy attorney based in Tampa. “You’ll need to give the bank a financial statement and a business plan. Be careful not to make any fraudulent misrepresentations to them. They may look at your situation and ask if you intend to file for bankruptcy, and if you do, you’d have to disclose that and it would probably kill the loan,” says Berman. If the loan officer does not ask you about the possibility of a future bankruptcy, don’t volunteer that information, he adds.

May Be Possible to Avoid Bankruptcy

You might try to work through your financial difficulty first and then apply for the loan, using the extra time to build up your construction business while you continue with your full-time employment. It’s possible you may be able to avoid bankruptcy. “Many times, medical providers will write down bills in exchange for lump-sum payments,” Berman says. “If your son owes $10,000 and you can make a lump-sum payment of $5,000 or $6,000, they may be willing to write down the remainder of the debt, especially since you are paying for your son’s bills and you’re in difficult straits.” Sometimes medical providers will provide interest-free payment terms as well, he notes.

If you do get the SBA loan and then find you eventually have to declare personal bankruptcy after all, you will not automatically be declared in default on the business loan. “As long as you’re still making payments and you haven’t breached the other provisions of the loan agreement, they can’t cancel the loan on you just because you file for bankruptcy,” Berman says.

The bottom line: The more financially precarious your situation, the more difficult it will be for you to meet your current obligations, let alone make a payment on a new loan. If you’re heavily in debt or highly leveraged in your assets, you’re not likely to get a small business loan—bankruptcy or no.

Karen E. Klein is a business journalist who covers small-business issues for several national publications.

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Parents and college students can only wonder if the student loan system will flunk out this year in light of the credit crunch.

So far, financial aid directors at major Michigan universities and colleges say Michigan students should be OK. Student loans continue to be out there — somewhere, if no longer everywhere.

Dozens of lenders have either cut back or stopped making some student loans, and colleges are changing their lending programs, too. The biggest trouble is likely to hit students who need money beyond student loans backed by the federal government.

College students now must treat news on student lending as required reading.

“Every day, we hear that somebody’s going out of business or they’re going to change the conditions of their student loans,” said Rick Shipman, Michigan State University’s director of financial aid.

“There has never, ever been a time like this.”

A lot of hope is riding on federal funding. A new student loan bill, signed into law earlier this month, is designed to head off a collapse in the student loan market. The bill is to increase the amounts students can borrow through federal Stafford loans.

Some key developments:

• If you typically applied for a student loan through Comerica Bank, you need to find another lender. Comerica, the fourth-largest student lender in Michigan, is among several banks that got out of the student loan business this year.

The bank said it made the move because the credit crunch has meant the bank has been unable to sell those loans on the secondary market.

• Bank of America, the third-largest student lender in the country, is no longer offering private student loans. It said it would continue to offer student loans through federal student loan programs, including Stafford and PLUS loans.

• Beginning this fall, MSU and Wayne State University students will still have access to Stafford loans, but they must go through some new hoops.

Some state schools make switch
MSU and Wayne State decided to switch to the Federal Direct Student Loan Program beginning in the fall. As a result, students would apply for Stafford loans directly from the federal government, not through a bank.

Last month, the Michigan Higher Education Student Loan Authority said it could no longer raise the capital needed to finance loans through the Federal Family Education Loan Program. The state could provide better terms than for-profit lenders.

But the credit crunch meant that Michigan ended — at least temporarily — the program through which students borrowed $519 million last year.

Three of the state’s 15 public universities use the Federal Family Education Loan Program — Michigan State, Wayne State and Eastern Michigan.

Eastern has not announced how it will address the issue. Wayne State and MSU both switched to the direct loan program as a way to reduce the concern about banks going out of the student lending business.

Mark Kantrowitz, publisher of FinAid.org, said already this year, about 350 colleges and universities either moved to the federal direct lending program or applied to do so.

Direct lending schools, he said, should not see any problems with Stafford loans.

Don’t panic, but do plan

Plenty of lenders remain in the student loan business. Even so, some parents and students have reason to worry. Some lenders will increase costs on private student loans, Kantrowitz said.

Experts say private student loans likely will have stricter eligibility restrictions, requiring a higher credit score or a cosigner.

“Private student loans are becoming harder to get,” said Conwey Casillas, managing director of public affairs for Sallie Mae. Casillas suggests that parents and college students line up loans before July or August.

Kelli Schilik, who is in a fifth-year teaching program at MSU, did not wait. Her parents borrowed and paid for her first four years of college, but told Schilik that the fifth year was on her.

Schilik already has lined up her subsidized Stafford loans for next year and expects that she will have enough money through about $8,400 in student loans, some grants and other savings.

College students will be able to borrow more through the Stafford Loan Program beginning July 1. The limit on unsubsidized loans increases by $2,000 for undergraduates.

For dependent students, the new limit for a junior or senior, for example, would be $7,500 a year, with any subsidized portion being limited to $5,500.

Under the new rules, federal PLUS loans for parents will be available even to parents who may be up to 180 days late on their mortgage or medical bills.

To apply for a Stafford loan, you must submit the Free Application for Federal Student Aid. For the 2008-09 academic year, the subsidized Stafford loan has a fixed rate of 6% and the unsubsidized Stafford loan has a rate of 6.8%.

Contact SUSAN TOMPOR at stompor@freepress.com

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Already burned by bad mortgages on their books, lenders now are feeling rising heat from loans they sold to investors.

Unhappy buyers of subprime mortgages, home-equity loans and other real-estate loans are trying to force banks and mortgage companies to repurchase a growing pile of troubled loans. The pressure is the result of provisions in many loan sales that require lenders to take back loans that default unusually fast or contained mistakes or fraud.

The potential liability from the growing number of disputed loans could reach billions of dollars, says Paul J. Miller Jr., an analyst with Friedman, Billings, Ramsey & Co. Some major lenders are setting aside large reserves to cover potential repurchases.

Countrywide Financial Corp., the largest mortgage lender in the U.S., said in a securities filing this month that its estimated liability for such claims climbed to $935 million as of March 31 from $365 million a year earlier. Countrywide also took a first-quarter charge of $133 million for claims that already have been paid.

The fight over mortgages that lenders thought they had largely offloaded is another reminder of the deterioration of lending standards that helped contribute to the worst housing bust in decades.

Such disputes began to emerge publicly in 2006 as large numbers of subprime mortgages began going bad shortly after origination. In recent months, these skirmishes have expanded to include home-equity loans and mortgages made to borrowers with relatively good credit, as well as subprime loans that went bad after borrowers made several payments.

Many recent loan disputes involve allegations of bogus appraisals, inflated borrower incomes and other misrepresentations made at the time the loans were originated. Some of the disputes are spilling into the courtroom, and the potential liability is likely to hang over lenders for years.

Repurchase demands are coming from a wide variety of loan buyers. In a recent conference call with analysts, Fannie Mae said it is reviewing every loan that defaults — and seeking to force lenders to buy back loans that failed to meet promised quality standards. Freddie Mac also has seen an increase in such claims, a spokeswoman says, adding that most are resolved easily.

Many of the repurchase requests involve errors in judgment or underwriting rather than outright fraud, says Morgan Snyder, a consultant in Fairfax, Va., who works with lenders.

Additional pressure is coming from bond insurers such as Ambac Financial Group Inc. and MBIA Inc., which guaranteed investment-grade securities backed by pools of home-equity loans and lines of credit. In January, Armonk, N.Y.-based MBIA began working with forensic experts to scrutinize pools it insured that contained home-equity loans and credit lines to borrowers with good credit. “There are a significant number of loans that should not have been in these pools to begin with,” says Mitch Sonkin, MBIA’s head of insured portfolio management.

Ambac is analyzing 17 home-equity-loan deals to see whether it has grounds to demand that banks repurchase loans in those pools, according to an Ambac spokeswoman.

Redwood Trust Inc., a mortgage real-estate investment trust in Mill Valley, Calif., said in a recent securities filing that it plans to pursue mortgage originators and others “to the extent it is appropriate to do so” in an effort to reduce credit losses.

Repurchase claims often are resolved by negotiation or through arbitration, but a growing number of disputes are ending up in court. Since the start of 2007, roughly 20 such lawsuits involving repurchase requests of $4 million or more have been filed in federal courts, according to Navigant Consulting, a management and litigation consulting firm. The figures don’t include claims filed in state courts and smaller disputes involving a single loan or a handful of mortgages.

In a lawsuit filed in December in Superior Court in Los Angeles, units of PMI Group Inc. alleged that WMC Mortgage Corp. breached the “representations and warranties” it made for a pool of subprime loans that were insured by PMI in 2007. Within eight months, the delinquency rate for the pool of loans had climbed to 30%, according to the suit. The suit also alleges that detailed scrutiny of 120 loans that PMI asked WMC to repurchase found evidence of “fraud, errors [and] misrepresentations.”

PMI wants WMC, which was General Electric Co.’s subprime-mortgage unit, to buy back the loans or pay damages. Both companies declined to comment on the pending suit.

Lenders may feel pressure to boost reserves for such claims because of the fear they could be sued for not properly accounting for potential repurchases, says Laurence Platt, an attorney in Washington. At least three lawsuits have been filed by investors who allege that New Century Financial Corp. and other mortgage lenders understated their repurchase reserves, according to Navigant.

–James R. Hagerty contributed to this article.