October 4, 2007
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AFSA Monitoring Clinton’s “Homeownership Preservation Act”
Democratic Leadership Announces Plan to Stem Foreclosures
Joint “Mortgage Loans” Brochure Updated
Teens Get Instruction in Finance From Wells Fargo
Countrywide Plans to Fight for Clients
Looking Back to Landlines on Bill-Pay
Merchants Respond to Questions About Impact of Interchange Fees
Study Warns of Card Regulation Impact
Growth of Prepaid Expected to Continue
Bankruptcy 'Tweak' Could Save 600,000 Homes
National Homeowner Crisis Resource Center Launched to Assist Americans in Danger of Losing Their Homes
Viewpoint: Why Now's a Great Time to Court the Unscored
Frank Floats Bill, Industry Doesn't Balk
Privacy: Banks Balk at SS Number Privacy Bill
High-Priced Student Loans Spell Trouble
Tummy Tuck Loan? You Bet
BMW Group Financial Services Launches up2drive.com
Here Are Top 10 Automotive Financing Trends and Events
Who's Ready, Willing to Buy?
Part 2: What BHPH Operators Should Learn From Subprime Mortgage Crisis
AFSA Monitoring Clinton’s “Homeownership Preservation Act”
Senator Hillary Clinton (D-NY), one of the frontrunners in the presidential race, has introduced the “American Homeownership Preservation Act,” which AFSA is carefully watching. Among other things, the legislation would:
Ensure full disclosure of mortgage broker compensation to homebuyers; require federal registration for mortgage brokers; Eliminate prepay-ment penalties; Establish a $1 billion fund to assist state programs that help at-risk borrowers avoid foreclosure; Expand the Fannie Mae and Freddie Mac foreclosure prevention efforts; and
Increase mortgage fraud investigation and prosecution efforts.
According to a news release on the senator’s Web site, its aim is to “crack down on unscrupulous mortgage brokers, help prevent foreclosures, and promote affordable housing initiatives.” AFSA expects that Senator Chris Dodd (D-CT) will write any mortgage-related legislation moving through the Senate Banking Committee. Clinton’s position in the presidential race, however, means her legislation will attract media attention.
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Democratic Leadership Announces Plan to Stem Foreclosures
On Wednesday, AFSA staff attended a news conference hosted by Speaker of the House Nancy Pelosi, Senate Majority Leader Harry Reid, Representatives Barney Frank and Carolyn Maloney, and Senators Chris Dodd and Charles E. Schumer at which the Democratic leadership offered a plan to stem the number of foreclosures. Its provisions included: increased funding for foreclosure prevention; temporarily lift portfolio caps on Fannie Mae and Freddie Mac; and call on the President to appoint a special advisor to oversee and coordinate the federal government’s response to the current situation in the mortgage market.
In response, AFSA issued a media statement expressing appreciation for the Democratic involvement and calling upon Congress to enact tax relief for homeowners facing foreclosure, reform the Federal Housing Administration (FHA) and provide a temporary increase in the loan limits for Fannie Mae and Freddie Mac. For additional information, please contact Bill Himpler, AFSA executive vice president for federal government affairs, at bhimpler@afsamail.org or 202-466-8616.
To read the media statement, go to the AFSA Web site.
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Joint “Mortgage Loans” Brochure Updated
AFSA, the AFSA Education Foundation (AFSAEF) and the American Association of Residential Mortgage Regulators (AARMR) announced the availability of an updated version of Mortgage Loans, a joint brochure to help educate both first-time and veteran homeowners, as well as second mortgage holders and those refinancing a loan. To read the joint news release announcing the brochure, please go to the AFSA Web site.
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Teens Get Instruction in Finance From Wells Fargo
Dallas Morning News (10/01/07) Yip, Pamela
Increasingly, banks are working with high schools to launch on-campus branches that help teach young people about managing their finances. Wells Fargo, for example, opened an on-campus bank in 2006 at Mesa High School in Mesa, Ariz., that employs former students. Students are taught about the risks of credit card use and how to start saving early and on a continual basis. Wells Fargo has also started a Teen Checking Account for individuals age 13 to 17 that lets parents set spending limits as well as limit ATM withdrawals. Such student checking accounts usually have an adult as a co-owner who supervises how the student spends money. Alerts are issued if the account is overdrawn. The bank also has an interactive tool called Hands on Banking that provides basic information for children, teens, and adults about managing money and setting financial targets.
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Countrywide Plans to Fight for Clients
Los Angeles Daily News (09/29/07)
Recently, Countrywide instituted a new program called "America's Open House." The program was designed to help consumers find and use the best of the company's 197 mortgage financing options. Countrywide was hard hit by the recent credit crisis, but this program was the first step to moving forward by helping educate qualified buyers. As part of the program, Countrywide sent out 7,000 loan consultants armed with calculators to help determine pre-approval and a Realtor's survival kit to aid realtors and show the company's appreciation for their work.
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Looking Back to Landlines on Bill-Pay
American Banker (10/02/07) P. 1; Wolfe, Daniel
A new service aimed at giving shoppers who do not have or are skeptical about using credit cards the ability to make purchases online is a smart option but may not appeal to a large market, experts say. Etelcharge.com allows customers to make purchases up to $60 a month and adds expenses to the user's landline phone bill. Experts say the service, which is currently available only in Texas, Oklahoma, Arkansas, Kansas, and Missouri, appeals to a small base that already has a variety of options, including prepaid cards, and would exclude the 13 percent of Americans without a home phone and the largely mobile-phone-using foreign worker community. PaymentOne offers a similar service that allows customers' purchases to be added to their mobile, land, or broadband bills, but does not assume risk for merchant users, unlike Etelcharge.
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Merchants Respond to Questions About Impact of Interchange Fees
PRNewswire (10/01/07)
On Oct. 1, the Merchants Payments Coalition (MPC) submitted a report to members of the House Judiciary Committee's Antitrust Task Force regarding allegations of Visa and MasterCard's hidden credit card interchange fees. The issue was raised by Rep. Ric Keller (R-Fla.) at a recent hearing on credit card interchange before the Antitrust Task Force. MPC's report revealed that both Visa and MasterCard fail to post their complete operating rules on their Web site, and that Visa requires merchants to sign a non-disclosure agreement if they want to see more comprehensive rules. The report also revealed that credit card company rules make cash discounts extremely difficult to offer. Visa, for instance, has attempted to characterize some cash discounts as a prohibited surcharge on credit card use, and has threatened to fine merchants $5,000 a day for offering cash discounts. Furthermore, the report found that merchants are not part of the process when interchange rates are set, and cannot negotiate interchange rates with Visa or MasterCard. In addition, while interchange fees pay for rewards programs offered by credit cards, the fees require all consumers to pay for rewards irrespective of whether they take advantage of them or not. MPC's report also revealed that contrary to the claims of Visa and MasterCard, merchants have not advocated price controls, either in testimony before Congress or in meetings with members of Congress. Visa and MasterCard also implement an "honor all cards" rule even though they fail to provide merchants with the information necessary to know the exact interchange rate being charged when a card is presented at the register.
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Study Warns of Card Regulation Impact
American Banker (10/01/07) Jalili, Michael H.
A new study by the Washington-based Competition Policy Associates argues that government crackdowns on credit card fees and interest rates would be harmful to the majority of borrowers. Instead, the study recommends government prevention of deceptive advertising and lending practices as well as better disclosure of rates and fees.
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Growth of Prepaid Expected to Continue
ISO & Agent Weekly (09/28/07) Vol. 3, No. 31, P. 1; Boyer, Meghan
The number of prepaid card transactions will reach 7 billion by 2010 and have a value of $178 billion, up from 4.3 billion transactions worth $113 billion in 2007, predicts Aite Group LLC. Growth in prepaid card volume will occur in both the branded card segment and the private-label card segment, though the branded card segment is expected to grow more quickly, says Aite Group's Gwenn Bezard. The expected growth in prepaid card volume will likely be fueled by a number of factors, including issuers and distributors moving into emerging markets such as rebate and loyalty programs, developing new products, and targeting unbanked and underbanked consumers. In addition, tailored products moving into the prepaid market should help to fuel growth, says Teri Llach of Blackhawk Network, one of the largest third-party distributors of prepaid cards. But industry observers warn that the increased growth in the prepaid card market will create more competition among major players. This increased competition means that aggregate numbers will grow rapidly, though same-store sales will decline, says Ralph Bianco of U.S. Bank, one of the largest issuers of branded prepaid cards.
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Bankruptcy 'Tweak' Could Save 600,000 Homes
CNNMoney (10/01/07) Sahadi, Jeanne
The Center for Responsible Lending (CRL) is leading an effort to revise the bankruptcy code, but critics of the proposal say the move could adversely affect the market for mortgaged-backed securities. CRL is lobbying Congress to amend the bankruptcy law, specifically Chapter 13 regulations. The group wants Congress to rework Chapter 13 bankruptcies so that bankruptcy judges can lower mortgage debt. A new House bill would endow bankruptcy judges with the authority to lower the principal debt and the interest rate on the loan. Loan modification would be mutually beneficial to lenders and homeowners, CRL argues, because lenders could collect more than they would receive in a foreclosure. But opponents say the proposed amendment could negatively influence the market and change the perceived risk of mortgage debt investors. "If enacted, [the House bill] could have a de-stabilizing effect on the mortgage markets, which are now begging to stabilize," says Financial Services Roundtable President and CEO Steve Bartlett.
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National Homeowner Crisis Resource Center Launched to Assist Americans in Danger of Losing Their Homes
National Foundation for Credit Counseling (10/01/2007)
The National Foundation for Credit Counseling has unveiled a new Web site to help keep families from losing their homes to foreclosure. When homeowners point their Web browsers to the Homeowner Crisis Resource Center, they will find a self-diagnostic tool, called the Mortgage Reality Check, that will enable them to assess their financial situation. When Mortgage Reality Check suggests that a family may be at risk of losing its home, the tool also recommends steps to take so the family can avoid foreclosure. The Homeowner Crisis Resource Center, which can be found at www.HousingHelpNow.org, also offers a substantial amount of homeowner information and financial tools. Homeowners will find a toll-free hotline (866) 557-2227 and an online locator that can be used to gain direct access to a certified housing counselor. The new resource comes at a time when foreclosures rose 58 percent over the first half of the year, and as approximately 2 million homeowners face resetting mortgages rates within the next 18 months.
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Viewpoint: Why Now's a Great Time to Court the Unscored
American Banker (09/28/07) Tescher, Jennifer
Banks need to leverage the timing of the subprime mortgage meltdown to their advantage and begin soliciting the business of underbanked consumers, according to this opinion piece. As banks and thrifts delve further into the credit markets, research suggests that the percentage of originations to nonprime customers has risen. However, the failure of so many independent mortgage companies gives banks a unique opportunity to serve the credit needs of consumers left in their wake. What banks have to do is figure out whether they want to take on the credit risk. The proliferation of new underwriting tools should help determine whether the unbanked or underbanked consumers can be put in the subprime category. Lenders can begin the process by cultivating financial relationships with the underbanked segment, the commentary says.
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Frank Floats Bill, Industry Doesn't Balk
American Banker (09/28/07) P. 1; Kaper, Stacy
A summary of the anti-predatory lending bill that will soon be introduced by House Financial Services Committee Chairman Barney Frank (D-Mass.) was given to representatives of the mortgage industry at a briefing on Sept. 26, and while they would not comment on particular provisions until the exact language is issued, most believe a compromise is possible and are satisfied with Frank's willingness to include them in the process. Consumer groups are involved as well, although they appear to be pushing for stricter measures than what are being proposed. Frank's legislation likely will force lenders to obtain full documentation from borrowers, underwrite loans at the fully indexed and amortized rate, and abide by debt-to-income ratios or other objective criteria as well as prohibit prepayment penalties, single-premium credit insurance, mandatory arbitration, and yield-spread premiums. Additionally, the measure would define high-cost loans as those with points and fees equivalent to 5 percent of the mortgage amount, implement state licensing and registration requirements for originators, and enhance disclosure rules. The most controversial aspects of the bill probably will be provisions that force originators to determine which loans best meet borrowers' needs and that hold lenders, assignees, and securitizers liable for problem loans.
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Privacy: Banks Balk at SS Number Privacy Bill
Bank Technology News (10/07) Conrad, Lee
Two federal initiatives to curtail the use of Social Security numbers are opposed by some bank groups that fear such efforts would impair their operations. A bill endorsed by the House Ways and Means Committee aims to prohibit both the private and public sectors from buying, selling, or exhibiting Social Security numbers. The Federal Trade Commission is also in the process of reviewing the private sector's use of Social Security numbers and devising alternative methods for uses deemed unwarranted. Some in the banking industry assert that consumers and banks benefit from the current utilization of Social Security numbers, but Avivah Litan of Gartner contends that stolen Social Security numbers are responsible for the majority of new-account bank fraud.
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High-Priced Student Loans Spell Trouble
Associated Press (09/30/07) Gordon, Marcy
The cost of a college degree has increased nearly 100 percent in the past 10 years, which has triggered a surge in expensive student loans that could have a substantial long-term impact on the American economy. Numerous families and individual students have opted for private loans, and many next-generation workers will face so much debt that they will have to make big sacrifices--limit vacations and delay home purchases, for instance--to pay loans off on time. Private student loans totaled over $17 billion in 2006 versus $4 billion in 2001, while outstanding student borrowing leapt from $38 billion to $85 billion between 1995 and 2006. Lawmakers are also hearing more and more complaints about how private loans are marketed, and in August the Senate Banking Committee passed a measure that would require less opaque disclosure of rates and terms on private student loans, as well as mandate a 30-day comparison shopping period following loan approval. A revision to bankruptcy law in 2005 allows lenders to garnish wages of people who fail to pay off their loans.
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Tummy Tuck Loan? You Bet
Detroit News (09/28/07) Kosmetatos, Sofia
To target individuals eager to improve their appearance but unable to afford expensive cosmetic procedures, an increasing number of doctors and dentists is supplying financing for procedures such as tummy tucks and teeth whitening. Industry experts and lenders assert that this type of lending is growing and will likely continue to grow, as it gives the middle class access to elective medical procedures previously available only to the wealthy. The largest participants in the medical loan industry are connected to GE Money and Capital One, and they offer credit cards or installment loans that can be used at participating doctors' offices for medical purposes. CareCredit, a unit of GE Money, is considered to be the largest medical loan lender in the United States and, over the past five years, has grown 50 percent annually. Financing for the procedures varies, though most offers include zero interest options for plans ranging between three months and 18 months. Though such plans can help customers lacking up-front cash, experts caution that high interest rates and fees can harm customers who miss payments or fail to repay the loan within the interest-free period.
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BMW Group Financial Services Launches up2drive.com
PRNewswire (10/02/07)
BMW Group Financial Services is expanding into the direct-to-consumer lending industry with the introduction of its automotive financing Web site, www.up2drive.com. The Web site aims to help consumers through the car buying process by supplying all car finance customers with financing options that were previously available exclusively to BMW owners. Prospective buyers can use the Web site to apply for loans, negotiate with sellers, and determine monthly payments. The Web site is also targeted to individuals attempting to privately sell their cars. After setting an appropriate sale price, individual sellers can use the Web site to describe the car's sale price as a financed monthly payment, as dealers typically do, and to create an "up-4-sale" sign. This patent-pending strategy of engaging both buyers and sellers "has the potential to impact the automobile sales cycle," says Shaun Bugbee, president of up2drive.com. Indeed, the Web site's launch illustrates BMW Group Financial Services' strategy of evolving beyond the standard role of a captive finance company in order to connect with more consumers.
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Here Are Top 10 Automotive Financing Trends and Events
Ward's Dealer Business (10/01/2007) P. 42; Finlay, Steve
BenchMark Consulting International President Walter Cunningham identifies the 10 leading auto financing trends and events. One trend is the stability of the number of national banks indirectly involved in auto financing, while another is the continued growth of "independent" auto financing institutions. Cunningham attests that a "competitive and brutal market" is being created as credit unions expand into the prime auto-financing sector, while dealer application portals "continue to dominate the F&I desk." There appears to be continued momentum in incentivized financing, and the National Automobile Dealers Association's efforts have yielded a higher priority for dealer reserve and consumer education. The continued expansion of electronic processing is proceeding "slowly," while competition and credit ratings are still tough challenges for OEMs/captives. Cunningham points to the sustained evolution of the outsourcing/offshoring transition, while the last trend he notes is the traction gained by auto lease securitizations last year, which rose nearly 100 percent from $7.5 billion to $14.3 billion.
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Who's Ready, Willing to Buy?
Ward's Dealer Business (10/01/2007) P. 14; Finlay, Steve
AutoNation is developing a scoring system that accumulates customer data from a wide variety of sources and feeds it into a computer that rates the likelihood of a customer leasing or purchasing a vehicle, allowing the retailer to more narrowly focus its marketing efforts on likely buyers. AutoNation is the leading dealership chain in the United States with 257 outlets and close to $19 billion in yearly revenues, and director of database marketing and analytics Scott Zientarski reports that AutoNation has 11.5 million customer records. Information AutoNation taps to make its predictions include customer age, income, organizational memberships, service records, current vehicle, and vehicle age. Zientarski says auto-loan data can be particularly helpful for indicating when a household might be eager to make a purchase. AutoNation also pays for information from outside sources, including one company that ascertains whether customers still reside at the same address as when they purchased or serviced their vehicle. Zientarski points out that many people are being kept out of vehicle-buying mode for longer periods because of declining home values, longer auto-financing terms, and degrading credit quality.
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Part 2: What BHPH Operators Should Learn From Subprime Mortgage Crisis
SubPrime Auto Finance News (09/27/2007) Shilson, Ken
Subprime mortgage losses are expected to influence other sectors in the coming year. In the buy-here, pay-here (BHPH) sector, used vehicles always lose value, and as such principal amortization is required to prevent the lender's loan-to-collateral association from falling apart. It is important that sales, credit approval, and certification be kept somewhat separate, as salespeople who get sales commissions are not completely impartial concerning providing credit to a consumer. Furthermore, it is crucial to keep the vehicle in good working order so that consumers will continue paying. Frequently, deferred down payments and repair-note financings are utilized to handle the buying of the vehicle and to fund repairs that occur during the length of the installment deal. These extra or supplemental payments must be kept in mind when underwriting in determining whether the consumer can actually afford the vehicle they are buying, in the same manner that steeper adjustable rate payments should have been taken into account for subprime mortgage consumers. A larger amount of credit-compromised consumers will likely enter the BHPH sector due to the subprime mortgage defaults, and it is recommended that BHPH operators enact a more careful long-term attitude when underwriting these consumers.
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Abstract News © Copyright 2007 INFORMATION INC.
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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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