RALEIGH, N.C. – Winning the lottery in North Carolina can mean no payout if the winner owes the state back taxes, student loans or child support.

The News & Observer of Raleigh reported Tuesday that the state has collected $1.3 million in overdue payments from lottery winners since the first ticket was sold in 2006.

Some winners also have had to repay hospital debts. State law requires that officials check winners to see if they have such debts.

Lottery spokeswoman Alice Garland says some winners are happy the money will repay such debts, including a man who hit a $100,000 prize and paid some for back child support.

One man who won a $35,000 prize left the lottery office with nothing after taxes and debt payments were deducted.

Banks based in North Carolina have accepted more money from the Treasury Department’s rescue package than financial institutions in any state except New York, the nation’s financial capital.

With President Barack Obama promising to reshape the $700 billion Troubled Assets Relief Program before distributing the second half of the funding, details are emerging about how North Carolina banks are using the money received in the first round of payouts.

Since the program’s creation last fall, 20 North Carolina-based banks have accepted a total of $48.6 billion through TARP. The vast majority — $45 billion — went to Bank of America in Charlotte, the nation’s largest bank. The remaining funds went to institutions across North Carolina.

The TARP program was designed to loosen frozen credit markets that made it difficult for consumers and businesses to obtain loans.

Some North Carolina banking executives said in interviews this week they used the funds to increase lending. Others also funded acquisitions of other banks or used the extra cash to shore up capital reserves, uses that were not specifically prohibited by Treasury and in some cases were encouraged by Bush administration officials.

Republican and Democratic members of Congress and Obama have criticized the way the Bush administration handled the program. Obama has promised major changes when the $350 billion left under the program is distributed.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services committee, and other critics have complained about the low level of disclosure required of banks on how they use the money.

And he and others have accused Bush administration Treasury officials and some banks that received TARP funds of “distorting” the intent of the legislation by using the government money to buy other banks, pay out lavish bonuses and buy private jets — any use other than making loans.

Several North Carolina CEOs said that despite the push by the government to increase lending, the poor economy makes it difficult to find people and businesses who want to risk their current financial status for loans. The smaller pool of potential borrowers also was less likely to meet more rigorous lending standards that have came about over the last year.

“Not as many people are borrowing right now. They’re drawing back in and waiting for a turn in optimism before going forward with their plans,” said Scott Bauer, the chairman and chief executive of Southern Community Financial Corp. in Winston-Salem.

The bank received $42.8 million in December. Bauer said he plans to leverage it — borrow against it to bring in more capital — to make more loans. He said the bank has not ruled out using the money to “assume the assets of banks that might not make it.”

“We feel we have a fiduciary responsibility to use these funds prudently,” Bauer said.

Yadkin Valley Financial Corp. CEO Bill Long said that the bank is putting half the $36 million it received in January toward its $92 million cash and stock purchase of American Community Bancshares Inc. of Charlotte, a deal announced in September.

Long said the move made financial sense because it meant the Elkin bank would not have to borrow as much to finance the deal.

As for the rest, “Our goal with the money is to use it for growth in the communities we serve, such as loan growth,” he said. “It’s hard to determine where each dollar of that capital purchase is going since we just received the money on Jan. 23.”

Ted Ashby, CEO of Surrey Bank & Trust in Mount Airy, said his bank’s loan volume has increased over the last three months. He attributed the spike in part to new customers since the demise of some specialty lenders — those that focused on the trucking industry, for example. The bank received $2 million in January.

Ashby said tight credit markets have made it difficult to sell some loans to larger lenders. That forced the bank to keep more loans on its books, which requires larger capital reserves.

Like other North Carolina TARP beneficiaries, his bank was well capitalized before the government money arrived, Ashby said.

“In tough times like this, I’m not sure you can have too much capital,” Ashby said.

Other community banks said they had seen a spike in lending demand as interest rates have fallen, especially mortgage refinancing.

Roger Dick, president and CEO of Uwharrie Capital Corp. in Albemarle, said he expects to close over 125 single-family home loans in January, almost triple the volume in an average month. The company, which operates community banks in several counties, received $10 million in December. Dick said the bank could leverage it to make 10 times that amount in loans.

“The Catch 22 is that there’s not always good loan demand out there. People say, `loan this money right away.’ My response is to say, ‘be patient and let us do it in a prudent way.’ If not, it could cause more problems,” Dick said.

But, he said, “We’re doing what I think we’re supposed to be doing with the money, loaning it back to our community.”

Several large banks have been criticized for paying hefty bonuses to executives while staying silent about their lending activities.

When asking Congress to release the rest of the TARP funds, the Obama economic team indicated it would force greater disclosure about lending activities, limit purchases of other banks by recipients and impose stricter limits on executive compensation. The coming changes prompted some executives who received funding under the old rules to step up lending disclosure.

Bank of America said Wednesday that it would begin publishing tracking reports on its lending activities.

The Breakdown

State …………………..Sum received from Troubled Assets Relief Program

NY …………………$145.16 Billion

NC …………………… 48.55 Billion

CA …………………..27.37 Billion

MI …………………..21.18 Billion

PA ……………………. 8.77 Billion

OH ……………………..7.72 Billion

MN ……………………….7.00 Billion

GA ……………………..6.14 Billion

VA ……………………..4.04 Billion

AL ……………………..3.63 Billion

Source: Media General analysis of U.S. Treasury Department data

WASHINGTON – U.S. Rep. Brad Miller of Raleigh plans a news conference in Washington today to promote legislation that would allow home mortgages to be restructured in bankruptcy like other types of personal debt.

The price of college continues to surge, and financial aid isn’t keeping up. The Wall Street meltdown has hammered the stock market and college savings. And a college degree is ever more essential for finding a good job.

No wonder polls show voters want to know what, if anything, the two presidential candidates would do to make college more affordable.

Democrat Barack Obama and Republican John McCain have offered similar campaign pronouncements: A college education should be affordable to anyone, and the process of getting federal aid is more complicated than it should be.

But there are differences in how each would tackle the problem.

Obama’s proposals are more detailed – and more expensive. They reflect an assumption that government should do more to help students pay for college.

McCain’s proposals are more general and emphasize streamlining the aid system – improving but not necessarily expanding it. He calls for making more information available to parents and eliminating wasteful spending on pork-barrel university research projects.

Both candidates pledge to simplify financial aid.
 
A look at their proposals in some key areas:

NEW AID PROGRAMS
      The most sweeping proposal by either candidate is Obama’s call to provide most students with up to $4,000 a year in tax credits for college, in return for 100 hours of community service.

The Obama campaign says the plan would make two major improvements over the programs that it would replace – the HOPE and Lifetime Learning tax credits, which provide at most $2,000 annually.

First, it would be fully refundable, so low-income families who don’t pay enough in taxes to benefit from the full tax credit could still get $4,000. Second, aid would be awarded based on prior-year tax data, so families wouldn’t have to fill out lengthy federal aid forms and face a long wait to find out how much aid they can get.

Unlike Obama, McCain isn’t proposing new programs to help with college costs, but a senior adviser says the GOP candidate is committed to helping families, especially low-income ones, pay for college.

The adviser, Douglas Holtz-Eakin, said McCain’s approach uses taxpayer dollars more responsibly.

“We don’t have any new college proposals in terms of massive expansions of funding,” he said. “There is a budgetary reality; we have enormous spending pressures already. It would be irresponsible to go to every interest group and promise them lots of money. The other campaign does that. We don’t.”

Obama adviser Danielle Gray said all of Obama’s education proposals are paid for by cutting other federal programs, contracting and procurement reform, and eliminating spending on special projects pushed by members of Congress. The campaign puts the cost of the expanded tax credits at $10 billion.

PELL GRANTS
      For low-income students, Pell Grants, which don’t have to be repaid, are the most important federal aid program. This year 6 million students – virtually all with family incomes under $50,000 – will receive Pell Grants of up to about $4,700.

Because they target the neediest, Pell Grants are widely considered among the most effective aid programs. But over the past 20 years, demand has vastly outstripped supply. The maximum Pell Grant used to cover more than half of the cost of an average four-year public university; now it covers about one-third.

Congress has increased the maximum authorized Pell Grant, but in practice the increase is meaningless unless Congress and the next president fully fund the program – something that hasn’t happened for 30 years.

Obama pledges that Pell Grants will “keep pace” with increases in the cost of college. McCain does not commit to specific increases but would consider raising Pell awards if there is a pressing need and the budget allows, Holtz-Eakin said.

With the economy slumping, and Washington committed to a massive Wall Street bailout, the next president will be hard-pressed to maintain Pell levels, let alone increase them. A Bush administration official recently told Congress that Pell applications are running 10 percent higher than a year ago, and paying for the program may require spending increases of $6 billion – about 50 percent – next year.

STUDENT LOANS
      About $60 billion – nearly half of all public and private student-aid money – comes via the federal student loan program. The candidates have a major philosophical difference over how it should operate.

Currently, there are two parallel systems – students can borrow directly from the government, or take out loans from banks and other private lenders that are subsidized by the government.

Obama, who often mentions that he only recently finished paying off his own student loans, proposes moving the whole system to direct government loans and eliminating subsidies to banks. Last year, Congress made substantial cuts to those subsidies but did not eliminate them.

McCain, who attended the U.S. Naval Academy, which is free of charge, supports the dual system of government and private loans. Supporters of the current system say it provides competition that helps students, and say the federal government would be hard-pressed to administer the full program.

In some ways, the debate already has shifted. Experts point out that during the recent credit crisis, the government stepped in to prop up the subsidized lending program, so in practice the two programs already are merging.

Both candidates say they want to simplify the financial aid application process, and Obama wants to eliminate the Free Application for Federal Student Aid (FAFSA) form altogether. On Wednesday, Education Secretary Margaret Spellings planned to propose a new form that shortens the FAFSA from more than 100 questions to 26.

COLLEGE PRICES
      A recent survey by the College Savings Foundation found that one in four parents want the federal government to cap college costs. Neither candidate plans anything like that, or even smaller steps such as forcing schools to spend more from their endowments to hold down prices. That’s a relief to colleges, which resent interference from Washington.

The reasons why college prices are rising are complicated, and largely beyond the purview of the White House. Washington provides $86 billion annually in grants, loans and tax benefits to support students, but it’s state budgets that mostly determine public colleges’ list prices.

Critics say colleges share the blame, for failing to curtail their own spending. Families also bear some responsibility: While they gripe about rising prices, in the end, many still choose more costly schools. That could change in a prolonged economic downturn.

Michael Dannenberg, senior fellow with the New America Foundation and a former adviser to Sen. Edward Kennedy, D-Mass., says Obama’s proposals take the problem of college affordability more seriously than McCain’s. And he calls the tax credit a significant innovation.

“McCain’s message when it comes to increased tuition is, ‘You’re on your own,”‘ said Dannenberg, who has not worked for Obama’s campaign. “Obama’s message to families is, ‘We’ll give you more financial aid to help you with college costs, but your kids are going to have to help others.”‘

But Richard Vedder, an Ohio University professor affiliated with the conservative American Enterprise Institute, believes more spending on federal aid – such as what Obama proposes – will just encourage colleges to charge more. (However, as a member of Education Secretary Margaret Spellings’ higher education commission he signed on to recommendations that included more money for Pell Grants).

“I think this is just going to fuel the academics race rather than restrict it,” Vedder said. Spending more on aid means “treating the symptoms and not the disease.”

WASHINGTON-When Bush administration officials came to Capitol Hill earlier this week to make the case for a buyout of bad mortgage debt, Sen. Elizabeth Dole said she was skeptical of the plan. Then she looked backwards.

In 2003, Dole began sponsoring legislation to beef up weak government oversight of two key players in the housing market – Fannie Mae and Freddie Mac – warning that failure to fix the mortgage giants could lead to problems.

That prediction proved accurate. The government was forced to take over the two firms this summer, shortly after the passage of provisions Dole had been pushing for five years.

“This problem could have been resolved years ago,” Dole, R-N.C., told Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke at a hearing of the Senate banking committee Tuesday.

Over the last six years, Dole’s membership on the committee gave her a voice on a host of debates related to the current crisis, from the regulation of mortgage giants, to oversight of Wall Street investment banks and hedge funds and monetary policy.

With Congress mulling over a proposal to buy $700 billion worth of Wall Street securities linked to bad mortgages, many are now asking whether Congress and the administration did enough to prevent the current financial woes.

Dole’s role on the banking committee has come up as an issue in her bid for re-election against Democratic state Sen. Kay Hagan.

A review of committee hearing transcripts and bills Dole sponsored during her tenure show she was an early and sometimes lonely advocate for beefing up oversight of Fannie Mae and Freddie Mac, even after a series of accounting scandals revealed deep problems at both firms.

Financial analysts and economists say a lax regulatory environment helped the firms conceal substantial problems created by their purchase of massive quantities of risky subprime loans, a flaw that has hurt the broader economy.

The review of hearing transcripts and legislation she sponsored during her first term also suggests that Dole was more engaged in the mortgage giants’ troubles than she was in a host of other issues that analysts and economists say also contributed to the current woes.

A review of committee hearing transcripts shows Dole did not attend or did not speak- the transcripts do not make clear which – at several banking committee hearings during her first term.
The hearings covered banking and hedge fund regulation, oversight of Wall Street, problems in the subprime mortgage market, foreclosure prevention, and a few included discussions with the Federal Reserve chairman on economic issues.

Hagan’s campaign says her “silence” in those committee hearings shows a lack of commitment to those issues. But Dan McLagan, a spokesman for Dole’s campaign, suggested that argument reflected an overly
simplistic view of the way Washington works.

“There are a lot of ways for a senator to influence regulatory policy and Sen. Dole takes advantages of many of those different options. Depending on the issue, raising it in committee may not be the most effective way of making change,” he said.

Fannie Mae and Freddie Mac have been key players in the housing market for decades. They buy mortgages from banks, package the mortgages together as securities, and sell them to investors or keep them on their own books.

Until a few years ago, the firms mainly bought mortgages that banks issued to the safest borrowers. But a few years ago, they expanded into the growing market for subprime mortgages. Their presence helped make it easier for many Americans to get loans – and drive housing prices up by bringing more buyers into the market.

The firms were private, but long operated with an implicit bailout guarantee from the federal government.
Because of that guarantee, Dole and a handful of Republican senators introduced legislation on several occasions to allow federal regulators to take a closer look at Fannie’s and Freddie’s books. The legislation gave regulators the power to force the companies to reduce risk by decreasing the number of securities tied to subprime mortgages in their portfolios and to require the companies increase the amount of money kept on hand to cover bad bets on subprime mortgages.

Both led to financial problems for the companies that led to the government takeover.

For years, the legislation went nowhere, though Dole and others raised the issue repeatedly in banking committee hearings.

“We need it now,” she said at a hearing in 2006. Many of those provisions passed this year, just in time for the government to take over the companies.

Senate Republicans have blamed Democrats for resisting the measure both before and after Congress changed hands in 2006. But Colleen Flanagan, a spokeswoman for Hagan, said that Dole’s failure to get it passed showed she was not an effective voice on the banking committee.

“She can sign her name on bills until she’s blue in the face, but if they didn’t go anywhere…it’s really no different than total inaction,” she said.

McLagan said the senator did everything she could to get it passed in the face of intense lobbying from the two mortgage firms.

“On what I think is universally seen as the major tipping point of the current crisis, Freddie and Fannie, she talked about it with regulators, staff, members of the administration, and used all private and public venues up to and including brining it up in committee hearings,” he said.

Fannie and Freddie sold many of the subprime backed loans to Wall Street investment banks, including many of the larger firms that have collapsed in recent months.

But whether the collapse of Fannie and Freddie was the major tipping point of the crisis is open to debate, financial experts say. The current problems had many fathers, including some unrelated to mortgages. They include lax oversight of investment banks and hedge funds, and the emergence of complicated financial instruments that, in hindsight, failed to accurately account for risks firms were taking in non-mortgage lending.

“If Fannie and Freddie had not failed, I think we’d still have a financial crisis. That wasn’t the primary trigger,” said Rob Bliss, an expert in financial markets and a professor of business at Wake Forest University.