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April 12, 2007
Wells Fargo Card With Mortgage Rebates
Credit-Card Firms Are Rethinking Their Fees
Bankruptcy May Not Save Homes
Mortgage Defaults Pass Cards: Study
Industry/Regulator Differences on System Settled?
Defaults Rise in Next Level of Mortgages
Readjusting Mortgages
Washington Wire: No One Utters the 'B Word'
Trade Group Saw Possible Conflicts in Student Loans
Curbs on Military Payday Loans Cover Narrow List of Products
Banks Seen Missing Opportunity to Make Money
NADA Urges Senate to Make Insurance Data on Flooded, Totaled, Stolen Vehicles Available to Consumers
Should You Refinance Your Auto Loan?
Finance 101
GMAC Starts Cooperation With Raiffeisen Leasing International in Order to Expand Business in Central and Eastern Europe
New Century's Bid for Financing Granted
AFSA Concerns Influence Proposed DOD Regulations
AFSA Files Amicus Brief in Andrews v. Chevy Chase Bank FSB
National Motor Vehicle Title Information System
AFSAEF Urges Borrowers to Reevaluate Finances
Wells Fargo Card With Mortgage Rebates
American Banker (04/09/07) P. 18; Terris, Harry
Wells Fargo & Co. is the latest mortgage lender to offer a credit card that applies rebates toward a home loan. The San Francisco-based company on April 16 will kick off an in-store promotional campaign under which it will hawk the card program, which applies rebates equal to 1 percent of purchases directly toward paying off principal mortgage balances in increments of $25. GMAC and MBNA Corp. teamed up for a card mortgage rebate program in 2004, and Countrywide Financial has a similar partnership with JPMorgan Chase's First USA affiliate.
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Credit-Card Firms Are Rethinking Their Fees
Orlando Sentinel (FL) (04/08/07) Tompor, Susan
This year, Congress has hauled credit-card executives to Washington twice to explain their fees. A few credit-card companies are making changes on their own. Chase Card Services, a division of JP Morgan Chase, has eliminated two-cycle interest calculations, a costly practice for consumers. Citigroup Inc. will no longer raise interest rates and fees for current customers at "any time for any reason." The change takes place for new customers immediately and goes into effect for current cardholders by April. Citigroup also stopped universal default--where rates on a Citi card can go up if a consumer makes a late payment or defaults with another lender. Other card issuers may say they no longer or never use universal default, but consumer advocates warn that some card issuers are using different definitions.
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Bankruptcy May Not Save Homes
Wall Street Journal (04/12/07) P. D6; Wei, Lingling
A recent Credit Suisse Group report shows an increase in the number of subprime borrowers filing Chapter 13 bankruptcy to avoid foreclosure and a decrease in the number of borrowers able to keep up with repayment plans instituted by the courts. The study indicates that a 2005 law that makes it more difficult for people to erase credit-card and other debts via Chapter 7 bankruptcy--which frees up cash for them to make their mortgage payments--has played a role, leaving many homeowners with no choice but to relinquish their homes to their lenders. Jay Guo of Credit Suisse predicts more homeowners will simply move right into foreclosure, which will hit investors in mortgage-backed bonds hard. While borrowers fuss that lenders fail to offer assistance following a bankruptcy filing for fear of violating restrictions against debt collection, 75 percent of borrowers are able to sidestep foreclosure through repayment plans or pre-foreclosure sales.
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Mortgage Defaults Pass Cards: Study
American Banker (04/11/07) P. 9; Launder, William
A new report from Experian Information Solutions Inc. reveals that late payments on subprime mortgages have risen 13.2 percent over the past four years, while delinquencies on credits cards have fallen by about the same amount during that period. Late payments on credit cards tend to be higher than mortgage delinquencies, and analysts generally believe the reason is because consumers place greater value on their homes. "When stressed, homeowners generally exhaust all means before defaulting on their mortgage, including defaulting on unsecured debt," Kevin St. Pierre of Sanford C. Bernstein & Co. explains. Experian, a credit bureau based in Costa Mesa, Calif., also says mortgage lending to subprime borrowers has risen 58 percent over the past four years.
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Industry/Regulator Differences on System Settled?
Mortgage Line (04/10/07) P. 46
A disagreement between industry entities and state regulators concerning a licensing system for state-licensed mortgage brokers and lenders seems to be settled, at least temporarily, due to a deal on rules and sample legislative wording. In March, the Conference of State Bank Supervisors and American Association of Residential Mortgage Regulators published a set of rules that individual states should think about as they enact legislation to take part in the licensing system that is scheduled to be in operation by January 2008. These regulations note that the licensing system does not overrule state law and reinforces the importance of the state's part in deciding how best to manage mortgage lending. In addition to the rules, the regulators drew up sample legislation wording for the states to review that the American Financial Services Association (AFSA) backs. "In particular, we are pleased the principles clarify that the system is not intended to promote the licensing of mortgage loan originators who work for already-licensed companies," states AFSA President and CEO Chris Stinebert. The Internet licensing system is intended to automate and simplify licensing for mortgage firms and permit state regulators to monitor licensees and locate problem firms. State regulators have consented to create an industry council that will be informed on a regular basis on registry matters and offered audited financial statements.
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Defaults Rise in Next Level of Mortgages
New York Times (04/10/07) P. C1; Bajaj, Vikas
Companies such as IndyMac and Countrywide Financial lent nearly $400 billion to borrowers with between prime and subprime credit ratings, known as Alternative-A, for mortgages in 2006; and now delinquency rates for these types of loans are on the rise. With the decline of the subprime mortgage market that started in last year's fourth quarter, analysts and investors have been keeping an eye on Alt-A loans, which are proving to be particularly vulnerable to the deterioration in formerly overheated residential property markets in the Southwest and along both coasts. Now, Wall Street reportedly is becoming increasingly wary of Alt-A and is putting loans back to lenders or bidding less for them, which could result in default rates getting even worse before they get better. Until recently, Alt-A loans were considered by many to be only slightly more risky than prime mortgages; while losses in bonds backed by such mortgages were typically rare and quite small. Center for Financial Research and Analysis analyst Zach Gast remarks, "This is a definite sign that at least in the secondary market, the subprime issues are spilling over."
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Readjusting Mortgages
Newsday (04/09/07)
The subprime mortgage market's collapse has prompted legislation to regulate high-credit risk lending practices. Over one million American homeowners face foreclosure as low initial interest rates on subprime loans balloon past affordability; in the past year, over 12 subprime mortgage brokers have gone bankrupt. Sen. Charles Schumer (D-N.Y.) backs House and Senate measures implementing a national regulatory process to target "predatory" mortgage lenders and certain teaser-rate loans. Schumer also suggests collaboration between New York nonprofit and private-sector organizations to assist homeowners in escaping from foreclosure. Still, despite its risks, subprime lending should not be eliminated, as it provides the only path to homeownership for many borrowers, many of whom have been able to meet the payments, this editorial says. Those who are exploiting subprime loans to make a profit through quick property turnaround, however, do not merit assistance, the editorial continues.
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Washington Wire: No One Utters the 'B Word'
Wall Street Journal (04/06/07) P. A6; Carnevale, Mary Lu
As federal regulators and elected officials convene to examine the failures of the subprime mortgage market, there has been no formal talk of a bailout just yet. Among the upcoming gatherings is a "summit" of lenders, regulators, and consumer advocacy groups being planned by Senate Banking Chairman Christopher Dodd (D-Conn.). The various parties will gather to explore ways that homeowners facing foreclosure can be helped. House Financial Services Chairman Barney Frank (D-Mass.) says he will brainstorm with Fannie Mae, Freddie Mac, the Federal Housing Administration, and others to address the predatory-lending problem; and the staff of Treasury Secretary Henry Paulson plans to get together with federal and state regulators to "talk about lessons learned." Later this summer, meanwhile, the Kansas City Fed's yearly symposium in Wyoming will examine the housing and mortgage markets' importance to monetary policy.
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Trade Group Saw Possible Conflicts in Student Loans
Wall Street Journal (04/11/07) P. A1; Armstrong, David; Golden, Daniel
Four years ago, a National Association of Student Financial Aid Administrators (Nasfaa) task force detected a need to keep an eye on the relationships between aid representatives and the lenders aggressively promoting student loans. The task force recommended that the association's board propose a federal law mandating that lenders bestowing gifts worth more than $50 on college-assistance officials publicly announce those gifts. The association's board, however, opposed recommending the limit, and numerous association members never even knew the vote occurred. In an investigation that has included some of the leading colleges in the country, New York Attorney General Andrew Cuomo has contended that lenders are offering inappropriate incentives to schools and aid representatives in exchange for sending them loan business, which can harm students if schools wind up suggesting lenders that do not provide the best interest rates or cheapest fees. Eight schools have settled with Cuomo in regards to payments he views as lender kickbacks. Cuomo has stated lenders fund trips for aid officials and their spouses to the Caribbean and other locations. In addition, authorities at Columbia University and the University of Texas obtained shares in lending firms at inexpensive insider prices, while Johns Hopkins University's financial-aid director got $65,000 in tuition and consulting reimbursements, investigators claim. Nasfaa officials are presently opposing a Department of Education proposal that would mandate colleges list a minimum of three loan firms as preferred lenders, which would protect against incentives by any one lender to obtain sole designation from a school as a preferred lender.
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Curbs on Military Payday Loans Cover Narrow List of Products
Wall Street Journal (04/10/07) P. A7; Paletta, Damian
New military payday loan restrictions would only cover a short list of products. Under the Pentagon proposal, lenders would not be allowed to charge service members more than 36 percent annual interest on payday loans and other loans that carry high fees such as tax-refund anticipation loans or loans that use a borrower's car title as collateral. The new interest-rate cap would not apply to credit cards or home-equity loans. The proposal comes a year after Congress passed legislation that endowed the Pentagon with powers to fine financial institutions that provide military personnel with payday loans. Since then, the banking industry has lobbied to restrict the variety and number of lenders and products that would fall under the law.
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Banks Seen Missing Opportunity to Make Money
Buffalo News (04/07/07) P. D6; Epstein, Jonathan D.
The National Community Reinvestment Coalition (NCRC) studied bank location and services in 25 major U.S. cities and discovered a gap between the number of branches in white, wealthy neighborhoods and the number of branches in minority or low-to-moderate income areas. Banks contend that, as businesses, they must bring in a certain amount of commerce to stay afloat, but NCRC maintains that the ignored neighborhoods are "ripe for expansion," for though the average income is lower, the neighborhood's overall income may be higher due to population density. The study also found that a fifth of all U.S. households are not connected to a credit union or bank, and many more are likely "underbanked." Individuals in such communities turn to pawn shops, check cashers, and other expensive, "predatory" financial providers, explains NCRC President John Taylor. NCRC calls on banks to not only serve these communities, but also to create customized services, like free accounts and small consumer loans. Programs providing financial education and assistance building assets would also help families and neighborhoods escape from poverty. NCRC commended Cleveland's KeyCorp bank, which has established branches in poorer neighborhoods and has a "KeyBank Plus" program offering check cashing with low fees, a program that is both cost-effective and popular. Finally, NCRC denounced regulators for failing to comply with the federal Community Reinvestment Act (CRA). Taylor believes the discrepancy in bank access stems from "widespread regulatory failure," as officials are required by the CRA to assess branch placement as well as effectiveness in meeting low-income customer needs.
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NADA Urges Senate to Make Insurance Data on Flooded, Totaled, Stolen Vehicles Available to Consumers
PRNewswire (04/11/07)
The National Automobile Dealers Association (NADA) Wednesday petitioned the Senate for stricter car title disclosure rules in the fight against car title fraud. Introduced by Sen. Trent Lott (R-Miss.), the NADA-supported S. 545 bill would require insurers to create electronic records for stolen, totaled, and flood-damaged vehicles upon payout. Used-car buyers would then have access to the vehicles' VIN-based histories through searchable databases. NADA criticizes the insurance industry for underreporting declarations of total loss, pointing out that a vehicle's total-loss history is the "most important piece of information that consumers can use to make an educated assessment," says David Regan, legislative affairs vice president for NADA. Contradictory state title disclosure systems also contribute to the problem. Heightened transparency is more important than ever, because many cars damaged by Katrina flooding are being restored and resold without disclosure of the car's history of damage.
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Should You Refinance Your Auto Loan?
Delaware Online (04/09/07) Nathans, Aaron
For those wondering whether refinancing an auto loan is a good way to cover a small budget gap each month, experts provide a variety of opinions and suggestions. Cynthia Somma, AAA's financial services marketing regional manager, supports the process and explains that if the borrower has been making regular car loan payments, his or her improved credit score may prompt a different lender to offer a better interest rate. Extending the car's loan period is another way to lower monthly payments, says Somma. The majority of Brian Jones' auto refinancing customers received an "exorbitant rate" at a car dealership. Jones, Rategenius.com's vice president, claims that his company's average client slices 3.67 percent off their current interest rate, for a monthly savings of $63 dollars. Most area auto dealers are skeptical about auto loan refinancing; Frank Ursomarso of the Union Park dealerships in Wilmington, Del., contends that most lenders are unable to improve on manufacturer incentives like low-interest loans. Finding a better rate through refinancing is also difficult because cars, unlike houses, decline in value over time. Ursomarso recommends trading an old automobile in for a new one with better financing. To avoid the need for car loan refinancing altogether, experts recommend that buyers compare rates, apply at multiple dealerships, and buy cars that align with their economic scenarios.
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Finance 101
Denver Post (04/08/07) Features, J.
Americans Well-Informed on Automobile Retailing Economics has been set up to help the average consumer gain financial insight about purchasing a car. For first-time owners or anyone who has not bought or leased a vehicle recently, the organization's Web site at autofinancing101.org will provide helpful information.
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GMAC Starts Cooperation With Raiffeisen Leasing International in Order to Expand Business in Central and Eastern Europe
GMAC Financial Services News Release (04/10/07)
GMAC Financial Services and Raiffeisen Leasing International (RLI) have partnered in a venture to represent GMAC in nine Central and Eastern European countries where the company is lacking visibility. Under GMAC's name, RLI will offer lease and retail vehicle financing products, while GMAC will furnish more products and services to support General Motors (GM). In 2006, GMAC financed nearly 47,000 automobiles in the region, exceeding the company's 2000 totals by nearly a fourfold increase. GM Executive Director for Central and Eastern Europe Chris Lacey states, "Many Central and Eastern European markets are continuing to show strong growth, fuelled significantly by large numbers of first-time new car buyers. With a strong financing partner and an excellent dealer network we can help more customers realize their dream of owning their first car."
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New Century's Bid for Financing Granted
Los Angeles Times (04/06/07)
A bankruptcy judge has given New Century Financial Corp., which filed for Chapter 11 on Monday, permission to accept up to $150 million in interim financing that will keep the business afloat. The subprime lender is prepared to assume a debtor-in-possession loan from CIT Group Inc. and Greenwich Capital Financial Products Inc., the latter of which additionally has agreed to pay $50 million for certain New Century loans and residual interest in some trusts. Under its reorganization plan, the company also intends to sell its loan servicing operation for an estimated $139 million to Carrington Capital Management. New Century thrived as the No. 2 mortgage provider for high-risk home buyers but crumbled under the pressure of a wave of defaults by borrowers unable to repay their loans.
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AFSA Concerns Influence Proposed DOD Regulations
On Wednesday, April 11, the Department of Defense (DOD) issued its Notice of Proposed Rulemaking on the "Limitations on Terms of Consumer Credit Extended to Service Member and Dependents." Comments from interested parties must be received within 60 days.
The proposed regulations focus on three consumer credit products: Payday Loans, Vehicle Title Loans and Tax Refund Anticipation Loans. As strongly recommended by AFSA in its comments and meetings with DOD, installment loans, auto loans, and credit cards are not impacted by the proposed regulations. In response to other AFSA concerns about penalties, DOD has proposed a "safe harbor," under which the creditor may require the applicant to sign a statement declaring whether he/she is a covered borrower. A strong emphasis on increased financial awareness, education and counseling programs within the military services also was highlighted.
Over the next several weeks, AFSA will prepare its comments to DOD, and a copy of these will be sent to all members well in advance of the submission deadline. Each member is encouraged to submit their company's comments as well.
Click here to see the proposed rule in the Federal Register. (Scroll down to section titled: "Department of Defense".)
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AFSA Files Amicus Brief in Andrews v. Chevy Chase Bank FSB
AFSA recently filed an amicus brief that asked the U.S. Court of Appeals for the Seventh Circuit to overturn a lower court decision in the above case. The previous decision permitted class-wide rescission for technical violations of the Truth in Lending Act (TILA), and a number of other industry trade groups joined AFSA in filing the brief. The AFSA brief emphasized that Congress has expressed its intent that harmless TILA violations should not lead to massive, unlimited liability, and in this case, the plaintiffs did not suffer actual damages. It also pointed out that in McKenna v. First Horizon Home Loan Corporation, the U.S. Court of Appeals for the First Circuit held that "unrestricted class action availability for rescission claims would open the door to vast recoveries..."
A copy of the brief is available at www.afsaonline.org.
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National Motor Vehicle Title Information System
AFSA wrote a letter of support to the U.S. Department of Justice this week for the private-public initiative to develop the National Motor Vehicle Title Information System (NMVTIS). NMVTIS is based on participation by the states departments of motor vehicles, auto dealers and lien holders. It is a vehicle-titling database and was created by the Anti-Car Theft Act of 1992. The implementation was not, however, funded by the federal government, and currently only 28 states are participating in some manner.
NMVTIS seeks to create an "electronic connection" between state-titling agencies, which would give them the ability to share information on vehicles, regardless of differing state laws. This information will help close the inherent gaps that create an environment ripe for auto theft and fraud. AFSA also encouraged the Department of Justice and Congress to include funding for the full implementation of NMVTIS in the federal budget.
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AFSAEF Urges Borrowers to Reevaluate Finances
The AFSA Education Foundation urged borrowers to use April--Financial Literacy Month as a time to plan ahead and review their finances. Its tips for those experiencing difficulties with their mortgages include: contacting the lender as soon as possible and finding out all the options available.
To view the entire press release, click here.
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Abstract News © Copyright 2007 INFORMATION INC.
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In This Issue:
AFSA Newsbriefs is a weekly executive summary of AFSA initiatives and consumer credit articles. For more information,
please contact newsbriefs@afsamail.org.
AFSA's mission is to protect and improve the consumer credit business, maintain a positive public image, and create a legislative climate in which reasonable credit regulation can and will be enacted. The Association operates in the public interest, encourages and maintains ethical business practices, supports financial education for consumers of all ages, and provides other assistance in related fields on an as-needed basis. The American Financial Services Association has provided services to its members for over ninety years. The Association's officers, board, and staff are dedicated to continuing this impressive legacy of commitment through the addition of new members and programs, and increasing the quality of existing services.
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