|
August 23, 2007
|
|
AFSA Issues Media Comment on CA Senate Hearing on Foreclosures
House Committee to Hold Credit Hearing, Mulls Legislation
House Financial Services Committee Holds Field Hearing in Minneapolis
Cerberus: Inside the Wall Street Power-House
Big Player Moves in at GMAC
Mozart for Masses: CIT Funds $25 Seats for NYC Opera
An Unlikely Supporter of Card Reform
Obopay Hits a Target It Didn't Sight: The Unbanked
10,000 Worldwide Card Transactions Occur Every Second: How Hard are They Being Watched?
Proposals From the Stump
Troubled Loans Increase 49 Percent at Federally Regulated Thrifts
Illinois Tries New Tack Against Predatory Loans
More Consumers Seek Bankruptcy Protection
Applying to Be a U.S. Citizen? Need a Loan?
Changes in Student Loan Programs Complicate Paying for College
Profiting From the Unbanked
What BHPH Operators Should Learn From Subprime Mortgage Crisis
Justice Department Reaches Settlement With Two Philadelphia Car Dealerships Regarding Alleged Race Discrimination in Auto Lending
Another Headache for Detroit
AFSA Issues Media Comment on CA Senate Hearing on Foreclosures
In a statement issued to the California media, AFSA thanked Chairman Michael Machado, California’s Senate Banking Finance and Insurance Committee, for holding an August 21st hearing on foreclosures. The association said it shares the public concerns about rising rates of foreclosure and is committed to working with policymakers to find solutions. AFSA members have put into place a number of practices to minimize foreclosures among borrowers and help them remain in their homes. To see the full media statement, please go to the AFSA Web site.
Back to Top
House Committee to Hold Credit Hearing, Mulls Legislation
In a news release this week, House Financial Services Committee Chair Barney Frank (D-MA) announced the committee will hold an oversight hearing September 5th. The hearing titled, “Recent Events in the Credit and Mortgage Markets and Possible Implications for U.S. Consumers and the Global Economy,” will seek to question regulators and industry representatives about the effects of the recent credit crisis. Witnesses at the hearing will include officials from the Treasury Department, the Federal Reserve Board and representatives from the mortgage banking industry, the release stated. In addition to Frank, other committee members, including North Caroline Reps. Mel Watt and Brad Miller, are expected to introduce legislation in September to limit certain subprime mortgage practices.
Back to Top
House Financial Services Committee Holds Field Hearing in Minneapolis
AFSA staff attended a packed House Financial Services Committee field hearing in Minneapolis the other week. The hearing on the effect of predatory lending and foreclosures in the twin cities was overseen by Chairman Barney Frank (D-MA), freshman Committee Member Keith Ellison (D-MN from Minneapolis) and non-Committee Member Betty McCollum (D-MN). The room at the Minneapolis Public Library was filled beyond capacity with standing room only.
Ellison introduced legislation (HR 3081) that would limit points, fees and charges and prohibit no-doc mortgages, steering, pre-payment penalties on adjustable rate mortgages, and impose various other restrictions with certain exclusions. At the Minneapolis hearing, Frank stated that almost all the principles of Ellison’s bill will be encompassed in the final vehicle in the House Financial Services Committee. Frank also stated that a bill will pass out of the Committee this year.
For questions on the House Financial Services Committee field hearing in Minneapolis, please contact Danielle Fagre Arlowe at dfagre@afsamail.org or 952.922.6500.
Back to Top
Cerberus: Inside the Wall Street Power-House
Fortune (08/20/07) Vol. 156, No. 4, P. 37; Benner, Katie; Colvin, Geoff; Burke, Doris
Cerberus Capital Management is making major headlines thanks to its buyout of Chrysler from former parent Daimler. Whether this purchase will prove profitable for Cerberus remains to be seen. But if Cerberus is able to turn the struggling auto company around it would not be the first time. Cerberus has a portfolio that churns out revenues of over $60 billion every year. Much of this success is attributed to the risk-centric approach to investing taken by company owner Stephen Feinberg. Although finance and consumer-lending businesses make up most of Cerberus' portfolio, the company has proved time and time again that it will take on undervalued assets from real estate to auto companies. Still, experts speculate the most attractive part of the Chrysler deal for Cerberus was the controlling interest it acquired in GMAC last year. Even with the help of GMAC, though, Chrysler could go bust. A number of factors including solvency, upbeat sales, and union behavior will have to favor Chrysler if it is going to survive.
(click for web site)
Back to Top
Big Player Moves in at GMAC
TheStreet.com (08/20/07) Worden, Nat
As GMAC's chief operating officer, Alvaro de Molina will run GMAC's mortgage business, Residential Capital, as well as GMAC's global finance, commercial finance, and risk functions. De Molina steps into the newly created position after having left his role as Bank of America's chief financial officer in December 2006 for a stint at Cerberus Capital Management. The international credit fiasco has thrown Cerberus' home lending unit into chaos; recently, Cerberus attained a majority stake in GMAC and is establishing de Molina there to run Cerberus' finance businesses. Residential Capital's credit rating was decreased to junk status in August 2007 by Moody's Investors Service and Fitch Ratings. GMAC admitted that its mortgage business is facing hard times, but promised investors that the company possesses sufficient liquidity to survive. Industry experts assert that de Molina is the right person to handle Residential Capital's subprime lending turmoil. "It's hard to find a more accomplished financial expert and dynamic personality than Al," states Jefferson Harralson of Keefe Bruyette & Woods.
(click for web site)
Back to Top
Mozart for Masses: CIT Funds $25 Seats for NYC Opera
Bloomberg (08/16/07) Romano, Mary
CIT Group this year is expanding its sponsorship of "Opera for All" at Lincoln Center. Instead of paying $120 for tickets, orchestra seats will cost select non-subscribers just $25 thanks to CIT. Fifty orchestra seats will be sold at the lower price for each of the City Opera's 110 performances. The tickets will be sold online and via Centercharge rather than at the box office to appeal to a wider and younger demographic. Among this year's performance highlights are "La Boheme" and "Don Giovanni."
(click for web site)
Back to Top
An Unlikely Supporter of Card Reform
American Banker (08/20/07) Kaper, Stacy
Rep. Barney Frank (D-Mass.) and other Democrats on the House Financial Services Committee have found an unlikely ally in their efforts to reform the credit card industry: the committee's top Republican, Rep. Spencer Bachus of Alabama. Although Republicans are traditionally more sympathetic to business interests, Bachus' rhetoric and behavior suggests that he is deeply concerned about the credit card industry, and he is pushing for tough legislation. On Friday, Bachus met with card issuers to discuss issues such as payment allocation, pricing, billing, and bill processing. Bachus' push for reform in the credit card industry worries many card issuers. Since Bachus is the Republican leader on the House Financial Services Committee, what he decides to support could sway other Republicans to his side. In addition, if he is able to get a tough bipartisan bill through the House, the Senate could pass stringent legislation as well, lobbyists say.
(click for web site)
Back to Top
Obopay Hits a Target It Didn't Sight: The Unbanked
American Banker (08/20/07) Wolfe, Daniel
When it launched its mobile payment system in April of last year, Obopay targeted young people who wanted to use their cell phones to send money to their friends, according to Obopay CEO Carol Realini. Although Obopay has proven to be popular among these users, the system has also become an unexpected hit with another group of consumers: those who are underbanked. Roughly a quarter of Obopay's users use the systems as a prepaid payroll card by funding their Obopay accounts through direct deposit from their employers, Realini said. Users can then make purchases with a MasterCard debit card that is tied to their Obopay account and authorize person-to-person transfers to one another with their phones. Although Obopay has been successful in the underbanked market, the company is still trying to increase its use among young people, which is still its main target market. As part of that effort, the company will launch a tool to allow online, peer-to-peer payments later this month.
(click for web site)
Back to Top
10,000 Worldwide Card Transactions Occur Every Second: How Hard are They Being Watched?
Transaction World (08/07) Vol. 7, No. 8, P. 25; Romeo, Jim
The credit card industry will have to change some of its practices following the recent revisions to the Federal Reserve's "Reg Z" (Truth in Lending Act). For example, credit card issuers will now have to give cardholders 45 days notice before changing their account terms. The credit card industry is currently required to give consumers 15 days notice before making changes to the terms of their accounts. Issuers will also now be required to display a so-called "Schumer box"--a table that explains all the charges a consumer is liable for--on credit card solicitations and on documents given to cardholders when their account is opened or its terms are changed. Meanwhile, the issue of interchange fees is getting increased attention at both the state and federal levels. The Senate Banking, Housing, and Urban Affairs Committee plans to hold a hearing on interchange practices before the end of the year. At the state level, nine states have introduced legislation to control interchange fees.
(click for web site)
Back to Top
Proposals From the Stump
Washington Post (08/23/07) P. D1; Birnbaum, Jeffrey H.
The 2008 presidential candidates are weighing in on the credit crunch in the home-finance sector, with Democrats offering the bolder proposals. While Sen. Barack Obama (D-Ill.) and former senator John Edwards (D-N.C.) have called for a fund to help keep borrowers from losing their homes to foreclosure, Sen. Hillary Rodham Clinton (D-N.Y.) favors more "face-to-face financial counseling" about mortgage risks and better disclosures for new homeowners. Senate Banking Committee Chairman Christopher Dodd (D-Conn.) argues that prepayment penalties for subprime mortgages should be barred and that Fannie Mae and Freddie Mac should be able to buy more mortgages for their portfolios. As for the GOP presidential candidates, former New York City mayor Rudolph Giuliani does not support broad intervention by the government; Sen. John McCain (R-Ariz.) wants to avoid a costly bailout by providing aid only to those consumers who have been victimized by abusive lenders; and former Massachusetts governor Mitt Romney says "bad actors" should be penalized.
(click for web site)
Back to Top
Troubled Loans Increase 49 Percent at Federally Regulated Thrifts
Wall Street Journal (08/22/07) P. A2; Paletta, Damian
The nation's 836 federally regulated savings-and-loan associations, which are responsible for 25 percent of mortgages originated, were saddled with more distressed loans in the second quarter than they have seen since 1993. According to statistics from the Office of Thrift Supervision, the volume of loans at least 90 days delinquent jumped 49 percent at these companies to $14.2 billion from $9.5 billion a year ago. Officials noted that despite the pressure the thrifts are feeling from the housing and liquidity markets, strong earnings and capital have kept them generally healthy. However, the number of troubled loans in the portfolios of savings-and-loans, which specialize in prime and jumbo products, indicates that subprime mortgages are not the only loans feeling the pain right now.
(click for web site)
Back to Top
Illinois Tries New Tack Against Predatory Loans
Wall Street Journal (08/21/07) P. A1; Merrick, Amy
While Illinois is one of at least 30 states with laws on the books that ban or restrict certain loan terms, fees, or practices, it attempted last year to curtail mortgage foreclosure rates by also requiring borrower education. However, a pilot program launched in 10 Zip codes--many of them in poor and/or minority communities--triggered an outcry. Mortgage industry professionals warned that the mandate for borrowers of alternative loan products to consult with a HUD-approved counselor before closing would dry up lending in the targeted neighborhoods; while community activists, religious leaders, and others criticized the rule as discriminatory. The pilot subsequently was rescinded, but Illinois legislators this month passed a new law--taking effect in July 2008--that expands the program to the entire Cook County area as a way of removing any perceptions of redlining against minorities or low-income residents.
(click for web site)
Back to Top
More Consumers Seek Bankruptcy Protection
SubPrime Auto Finance News (08/21/2007) Reed, Jennifer
According to the Administrative Office of U.S. Courts, bankruptcy filings climbed 48 percent in the first half of the year compared to 2006 figures. When broken down, Chapter 13 filings fell from 41.25 percent in 2006 to the current percentage of 38.35. Chapter 7 filings, on the other hand, rose 45 percent, and Chapter 11 filings rose 14.47 percent. Tennessee and Indiana led the pack in Chapter 13 and Chapter 7 filings, respectively.
(click for web site)
Back to Top
Applying to Be a U.S. Citizen? Need a Loan?
American Banker Online (08/20/07) Jackson, Ben
The cost of applying for U.S. citizenship rose approximately 70 percent as of July 31. All eligible candidates for citizenship will now have to pay a $675 fee to apply. This rate hike is encouraging many lenders to reach out to prospective citizens. Although such small loans offer little hope of major financial profit, banks are hoping to use them as a way to expand their customer base, particularly in Hispanic communities. Experts recommend bankers looking to start or expand citizenship loan programs work with community organizations to encourage local participation.
(click for web site)
Back to Top
Changes in Student Loan Programs Complicate Paying for College
Kansas City Star (08/18/07) Meyer, Gene
Federal legislators are preparing to make major reforms to student lending, changes that some consider to be the most sweeping since the 1944 GI Bill. The proposals come in response to allegations made in 2007 of conflicts of interest, favoritism, and poor oversight of the nation's student loan industry. Many of the budget proposals currently before Congress offer more upfront assistance for students. However, the changes also promote cutbacks to--or eliminations of--supplemental aid programs that help make college feasible for qualified students. The Federal Family Education Loan Program will be affected by such budget cuts, despite the fact that 80 percent of middle-income families depend on the program for reasonably priced loans, according to Kevin Bruns of America's Student Loan Providers. Supporters of the legislation contend that the modifications will make student lending more efficient, but critics argue that it will drive many small lenders out of business and ratchet up borrowing costs at lenders that survive. Other authorities assert that applicants will simply need to work harder to locate good financial aid packages, and will have to accept that borrowing will be involved.
(click for web site)
Back to Top
Profiting From the Unbanked
Time (08/16/07) Hamilton, Anna
A new kind of financial services provider is emerging to serve the 40 million "unbanked" Americans via alternative financial organizations that unite the security of a bank with the convenience of a check casher. These businesses provide lower fees for cashing checks, as well as affordable consumer loans and debit cards. By doing so, such companies hope to access the $10 billion garnered in fees annually by payday lenders, check cashers, and pawn shops. Most unbanked are American-born, though a growing number are immigrants; both groups tend to be poor, and therefore unable to pay the minimum balance many banks require to open an account. The unbanked's demographic is described by some as the domestic market's "last frontier," and banks are competing to win their business. Wells Fargo is the first bank to acknowledge the Mexican Matricula Consular identification card, and has established 1 million accounts for U.S.-based Mexican nationals over the last six years. In addition, more and more banks are offering inexpensive check cashing as a method of transitioning people to standard bank accounts. Indeed, one of the biggest challenges is getting the unbanked to trust banks. Banks, too, must reconsider their operational approach, as check cashers generate their revenue through many small, fee-producing transactions, whereas banks traditionally earn interest on long-term deposits. Experts say banks need to improve at fitting their business to the true needs of the population; overdraft fees, for example, are a major concern for the unbanked. Moreover, both banks and check cashers will soon have to vie with new competitors, like Wal-Mart, which will offer check cashing at a low flat rate within its stores this year.
(click for web site)
Back to Top
What BHPH Operators Should Learn From Subprime Mortgage Crisis
SubPrime Auto Finance News (08/21/2007) Shilson, Ken
There has been consistent worry in the financing sector that the subprime mortgage crisis indicates a subprime auto loan problem in the future. Experts are hopeful that defaults in the subprime mortgage market may actually raise the number of consumers turning to the subprime auto market. If the buy-here, pay-here industry maintains good underwriting practices it will have no need to fear lending fallout. To minimize underwriting risk, there are a few essential steps participants in the subprime auto market need to take. First, underwriters must be well-versed in best practices. A consistent underwriting procedure, including thorough customer background checks, should be a part of any subprime lender's standard policy. Closely monitoring lending portfolios can also help head off mistakes before they become major problems. Finally, patience and accountability must be maintained, even at the cost of short-term gains.
(click for web site)
Back to Top
Justice Department Reaches Settlement With Two Philadelphia Car Dealerships Regarding Alleged Race Discrimination in Auto Lending
PR Newswire (08/21/07)
The Justice Department has settled two separate complaints against two Philadelphia-area car dealerships regarding allegations of racially biased lending practices. The Justice Department charged Springfield Ford and Pacifico Ford with breaching the Equal Credit Opportunity Act (ECOA) by imposing consistently higher markups on auto loan interest rates to African-American customers, when compared to the interest rates offered to analogous white customers between 1999 and 2002. As per their settlement agreements, Springfield Ford will compensate overcharged African-American customers up to $94,565, plus interest, and Pacifico Ford will pay up to $363,166. The two dealerships have also pledged to abide by the same policies for establishing markups for all customers; only factors in keeping with ECOA will affect those procedures. In addition, both car dealerships will train rate-setting personnel in equal credit opportunity. These two cases are the first of their kind to be filed by the Justice Department to allege discrimination by an auto dealership under ECOA.
(click for web site)
Back to Top
Another Headache for Detroit
Business Week (08/20/07) Vol. 4047, P. 14; Kiley, David
A study by Brent Ambrose of Penn State's Smeal College of Business reveals that the odds of loan default correlate to not just the borrower's credit history, but also the make of the car. Ambrose found that owners of European and Japanese cars are 50 percent and 56 percent, respectively, less likely to default on their loans than owners of American cars. Ambrose's study reviewed 7,000 auto loans secured between 1998 and 2003, a time when Detroit aggressively pushed 0 percent financing deals and long paydown periods of six years to seven years. Far less of such lending, which draws borrowers with weak credit, was done by foreign auto manufacturers and their dealers. Ambrose contends that banks should therefore charge substantially higher interest rates to those seeking loans for American cars, to balance the higher default risk. Car manufacturers, in turn, should increase prices to compensate for the higher risk, asserts Ambrose. However, in such a scenario, cash-paying customers would be financing customers with poor credit.
(click for web site)
Back to Top
Abstract News © Copyright 2007 INFORMATION INC.
|
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.
|
