By Carol Coultas , Business Writer
Sunday, August 10, 2008

So you think you know what an annuity is? How about the advantages of a 15-year mortgage over a 30? What's magical about a credit score of 700?

You might know the answers to those financial questions, and dozens of others, if you hung around Androscoggin Bank's booth at the Business to Business trade show earlier this summer. Their display - a money tree, festooned with envelopes hung like Christmas decorations - encouraged people to prove their financial acumen. Pluck an envelope, answer the question, win a prize.

"It got a terrific reaction," said Kristin Tardif, vice president of marketing at the bank.

And it laid the foundation for the bank's financial literacy series, set to debut this fall. The free series, which covers topics such as estate planning, investing, mortgages and consumer lending, will be offered in local high schools, businesses and at the bank itself to better educate people about money matters.

"We felt strongly that if we could do more to promote financial wellness in our community, it would benefit the customer and the economy, and if it benefits the entire community, it will benefit the bank," Tardif said.

It's also a timely response to a wave of financial ills sweeping the nation in the wake of a sub-prime mortgage fiasco - one that has led to government takeovers of banks, record foreclosures and fluctuating housing markets.

Maine has remained somewhat above the fray: None of its banks are in danger of failing; its foreclosure rate is one-fifth the national average and home sales are steady. But people are still nervous.

"When it's hard economic times, you don't want people overextending themselves," said Tardif.

The not-so-surprising result: foreclosures. Nationally they are happening at breakneck speed, especially in states that have had population explosions such as Nevada and California, according to RealtyTrac, an online company that tracks foreclosures. In Maine there is one foreclosure per 838 households - much better than the national average of one foreclosure per 171 households.

A recently released study from the Maine Bureau of Financial Institutions found that of the 88,000 mortgage loans held by Maine's state-chartered financial institutions, 166 were in the process of foreclosure, or one loan for every 528. There were 28 completed foreclosures, representing one for every 3,130 loans.

But even those foreclosures might have been avoided if consumers had a better understanding of how to manage money. Will Lund, director of the Maine Office of Consumer Credit Regulation, is a big believer in financial literacy. The better educated the consumer, the smaller the chance of someone getting in over his or her head.

"It used to be that the most frequent consumer complaint we got was about debt collectors," Lund said. "Now mortgage-related complaints surpass all others."

Mortgage complaints
Over the past 12 months, the office has received 470 mortgage-related complaints. Most of them stem from mortgages initiated by independent or out-of-state lenders, rather than state-chartered banks and credits unions.

Lund said that when he took office in 1987, the state licensed 55 mortgage lenders. Last year there were more than 1,000, but that number has leveled off to about 750. Many of the companies that left were from out of state, discouraged by Maine's shrinking market, he said.

Private lenders are a popular alternative to the mortgages available at banks and credit unions. About 50 percent of the loans that originate in Maine are handled through independent lenders, Pietroski said.

But their ranks have nose-dived. Sharron Eastman, a mortgage broker in Kennebunkport and a director with the Maine Association of Mortgage Brokers, has seen that trade group's membership decline from 115 members a few weeks ago to 69.

"There's plenty of money to lend, but the breadth of mortgage products doesn't exist anymore," she said.

Investors - the groups that trade mortgage securities - have been burned by the number of foreclosures across the country. As a result, they're retrenching and avoiding risks, which means fewer mortgage products are out there.

"There's no demand (by investors) anymore," said Eastman. "... so the products are drying up."

New consumer protection laws that took effect in January have also restricted lending practices, Lund said. But an abundance of affordable properties and low interest rates have kept the mortgages flowing.

"There's a lot of opportunity now," said Chris Pinkham, president of the Maine Association of Community Banks. "If people are in a position to buy, there are great values. Real estate is moving, it is not on hold."

Pietroski and Pinkham said their members are reporting plenty of mortgage activity. The banks, which operate under state or federal authority, tend to have more conservative lending practices than independent lenders, said Pinkham.

"In general, (Maine banks) are in very good shape from a stability and management perspective," he said. "Their directors and boards are quite conservative, almost risk-adverse."

He cited the failure of California's IndyBank as an example of poor banking policies, whose "lending cowboys" allowed the $30 billion bank to go under.

"It's 180 degrees from how anybody here lends in Maine," said Pinkham.

Still, it never hurts for the buyer to beware. Tardif said the response to the bank's financial literacy series has been "phenomenal," with many schoolteachers asking for in-class presentations and at least nine businesses signed up for lunch-and-learn topics.

"It's the economy," said Tardif, explaining the interest in the series. "When it comes to finances, people need help."

Next year, the bank intends to launch another series of classes, these directed at children in kindergarten through middle school.

"We're trying to teach kids to save, to get beyond instant gratification," Tardif said. "We'll see what happens if we can get to them really early."

Lund applauds efforts at financial literacy. It's an investment that will pay dividends to consumers for years ... and possibly lighten the load on his staff.

"It's really an issue of self-determination," he said. "When a consumer learns what's best for them, and not what someone tells them is best, they won't be led astray."

Androscoggin's classes are one way to help the consumer deal with an increasingly sophisticated array of financial temptations, she said. And they're not alone. Earlier this year the Maine Credit Union Financial Literacy Council was created to educate its members. Two weeks ago the the U.S. Small Business Administration revived a division dedicated to the same.Foreclosures rampant

They are answering a call that Joe Pietroski has been sounding for a long time. For years, the president of the Maine Bankers Association tried to get financial literacy integrated into public school curricula, without success.

"We kept hearing that there was no room for it, but now you're seeing the results of that," said Pietroski. "People don't have a basic understanding of credit and obligation."

That lack of understanding can put consumers upside down - owing more than a property is worth - on loan agreements, with the most poignant examples in the mortgage market. Products initially intended for well-heeled clients such as mortgages with no money down, or interest-only payments, or those that required no income verification, filtered down to people with fewer financial resources or wherewithal.

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