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September 4, 2008
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AFSA and Trades Submit Joint Comment Letter on HMDA Reporting Changes
Upcoming Webinar Will Provide Insight on Escrow Requirement
MoneySKILL Student Enrollments Soar for the 2008-2009 School Year
Daimler Financial Stands Strong, 13 Months After Daimler AG Sold Most of Chrysler to Cerberus
Popular Announces Substantial Sale of Loan and Servicing Assets of Its U.S. Mortgage Unit, Popular Financial Holdings, to Goldman Sachs
GMAC to Lay Off About 5,000 Workers
Report Says Security Boosts Payment Cards Market
GO-Tags May Replace Cash and Credit Cards
Cash Diet: More Consumers Passing on Plastic
And They Could Call It Frannie
Some Struggling Homeowners Find Way to Dodge Foreclosure
Project Helps Black Banks Seek Deposits Nationwide
Federal Student Loan Efforts Finding Fair Share of Takers
Viewpoint: Nonprofits Valuable Allies in Serving Unbanked
High School Teachers Say Students Need More Preparation for Financial Decisions
The Proper Perspective for Collection Success
FDIC: Securitized Auto Loan, Lease Charge Offs Up Slightly; Banks May Have to Pay Higher Premiums
AFSA and Trades Submit Joint Comment Letter on HMDA Reporting Changes
On Aug. 29, AFSA, along with other financial services trade associations, submitted a comment letter on the Federal Reserve Board’s (FRB) proposed amendments to the rules for reporting pricing information for higher-priced loans under the Home Mortgage Disclosure Act (HMDA).
The trade associations wrote that they support use of a mortgage-based index as the benchmark for rate-reporting and conformance of the HMDA and Home Ownership and Equity Protection Act (HOEPA) triggers. This method would help reduce the variation in reported rate information that has resulted from changes in the financial markets rather than changes in mortgage lending patterns. The associations also recommended adjusting the benchmarks for particular market segments, including jumbo loans, loans with mortgage insurance, and FHA loans. Without such adjustments, the associations argued, not only will HMDA data misclassify loans as “higher priced,” but prime loans will be treated as subprime loans under the HOEPA rules. Finally, the letter emphasized that the industry needs additional time to implement these changes.
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Upcoming Webinar Will Provide Insight on Escrow Requirement
AFSA will host a webinar on Sept 16 at 11:30 am EDT on the new escrow rules for all “higher-priced mortgage loans” as required under the Federal Reserve Board’s (FRB) recent amendments to Regulation Z (Truth in Lending) that were adopted under the Home Ownership and Equity Protection Act (HOEPA). The webinar will address the details of the escrow rule, how the requirements match those under RESPA and state law, and the limited exceptions to this rule.
The webinar will be led by Robert Cook, Partner, Hudson Cook, Tim Meredith, Partner, Hudson Cook, and Rebecca Myers, Associate General Counsel, CitiFinancial. Sponsored by Overby-Seawell, the webinar is open to members and non-members. Register for the webinar, “New Federal Escrow Requirements” here.
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MoneySKILL Student Enrollments Soar for the 2008-2009 School Year
MoneySKILL student enrollments for the 2008-2009 academic school year are off to a strong start. More than 5,000 students have been enrolled in the curriculum since August 1 by teachers from 36 states as well as the American School in Japan. This number is a 100 percent increase over enrollments from the same period last year. The rise in enrollments can be attributed to both the constant updates and enhancements the AFSA Education Foundation makes to the curriculum and the 30-plus teacher training workshops the foundation offered nationwide this year on using MoneySKILL with students.
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Daimler Financial Stands Strong, 13 Months After Daimler AG Sold Most of Chrysler to Cerberus
Detroit Free Press (09/03/08) Snavely, Brent
Daimler Financial Services Americas LLC President and CEO Klaus Entenmann said he is proud of the unit’s performance a year after its separation from Chrysler Financial. Over the past 13 months, almost 90 percent of Daimler Financial’s employees in North and South America have relocated to new offices after the sale of 80.1 percent of Chrysler LLC to Cerberus Capital Management LP. The transaction was “extremely fast,” said Jeremy Gump, vice president of human resources. “There were a lot of things that went on behind the scenes.” Many employees expressed concerns about losing contacts and colleagues, but were assured by Gump and Entenmann that the company intends to remain in Michigan for good. In August, Chrysler Financial discontinued the lease option to its dealers and their customers, reflecting the fact that “the availability of credit for the typical U.S. consumer has been hard to come by given what happened over the last 12 to 13 months,” said Terry McEvoy, a banking analyst at Oppenheimer & Co. For its part, Daimler Financial is not shying away from leases, which account for nearly 50 percent of the company’s retail and commercial truck business in the United States. According to Entenmann, “in the luxury market, it’s very clear that the customers have a choice and their preference on the luxury side is that they prefer leasing.” Daimler Financial’s global contract volume increased 4 percent during the second quarter to $88.6 billion, with growth most probably coming from outside the United States, said John Blair, CEO of Automotive Lease Guide Inc.
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Popular Announces Substantial Sale of Loan and Servicing Assets of Its U.S. Mortgage Unit, Popular Financial Holdings, to Goldman Sachs
MarketWatch (08/29/08)
Popular Inc. plans to sell around $1,170 million in loans and mortgage servicing assets of its U.S. mortgage subsidiary Popular Financial Holdings to certain Goldman Sachs affiliates. The deal, which should be wrapped up in the fourth quarter of this year, will provide over $700 million in additional liquidity and considerably lower Popular's U.S. subprime assets.
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GMAC to Lay Off About 5,000 Workers
Washington Post (09/04/08) P. D3; Veiga, Alex
GMAC Financial Services plans to reduce the number of employees at its mortgage lending division, Residential Capital (ResCap), by 60 percent due to lingering problems in the mortgage and credit markets. The Fort Washington, Pa.-based unit will lay off about 5,000 workers, including some who work for its Business Capital Group--a unit that originates loans for home builders. GMAC also will shutter all of its 200 retail offices but plans to continue to use such brands as Ditech or GMAC Mortgage Direct to originate and service loans. "We're not going to have a retail presence where customers walk in the door," says spokeswoman Jeannine Bruin, but "we are very much still originating loans and servicing the customer."
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Report Says Security Boosts Payment Cards Market
Access Control & Security Systems (09/02/08)
Security concerns have spurred the adoption of a number of new electronic payment technologies, concludes Global Industry Analysts' new report, "Payment Cards: A Global Outlook." One of the technologies that is getting increased attention is contactless payment cards. These cards offer better security than conventional magnetic stripe cards as well as faster transaction times. Although the falling cost of producing contactless cards is expected to provide a boost to the market for contactless debit cards and RFID smart cards, many merchants will likely remain hesitant to adapt their point-of-sale (POS) systems to accept contactless cards until more consumers use the technology. Another technology that offers improved security over magnetic stripe cards is smart cards. Unlike contactless cards, merchants are expected to upgrade their POS terminals to accept smart cards, since a growing number of consumers are using the technology. Experts say the increased acceptance of smart cards among merchants will likely spur the conversion of magnetic stripe credit and debit cards to chip-based smart cards.
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GO-Tags May Replace Cash and Credit Cards
Business Week (08/28/08) Hamm, Steve
First Data's GO-Tags are small chips that can be affixed to almost any object, essentially transforming that object into a payment card. The GO-Tag facilitates a rapid transaction, completing a sale in about one second, using First Data's networks for traditional credit and debit cards. "The ultimate goal is to eliminate the need for cash in our stores," says Blockbuster CEO James W. Keys, whose company recently became a First Data customer. The GO-Tag effort is designed to accommodate First Data CEO Michael Capellas' agenda to expand aggressively into mobile e-commerce, which he believes could swell the company's coffers by more than $100 million next year. GO-Tag and similar equipment are already broadly deployed in Korea and Japan, and analysts predict the technology will find rapid acceptance in the United States in the coming years. The scanners are achieving critical mass in the United States because merchants value them as a way to increase sales and reduce costs. First Data demonstrated the GO-Tag technology at the Democratic National Convention in Denver. "This is a strong beginning," says Mercator Advisory Group analyst George Peabody.
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Cash Diet: More Consumers Passing on Plastic
New Jersey Star-Ledger (08/27/08) Todd, Susan
A growing number of consumers are using cash to pay for purchases instead of credit cards. MasterCard CFO Martina Hund-Mejean says analysis of the firm's most recent quarterly earnings revealed that the use of credit cards increased only 0.7 percent versus the second quarter of 2007, though debit card use soared 15.8 percent. "The slowdown in the U.S. economy has had an affect on our growth in the U.S.," she says. Some consumers restrict their credit card use so that they do not have to pay interest, notes Economic Outlook Group executive director Bernard Baumohl. Currently, more may be choosing cash over plastic in an effort to "get their households in order," he says.
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And They Could Call It Frannie
New York Times (09/02/08) P. C1; Sorkin, Andrew Ross
There is talk on Wall Street and within Fannie Mae and Freddie Mac about the government-sponsored enterprises (GSEs) merging, though most observers do not expect such a move. However, they point out that eliminating redundancies would reduce operating costs by $1.2 billion per year--which would generate upwards of $19 billion in value--while increased leverage and buying power would shave approximately $300 million per year off foreclosure costs. According to Leader Capital CEO John Lekas, "The market will know that both entities combined will have much more consistent, stable margins." Still, Congress would be hesitant to approve a deal that would result in massive layoffs; and lawmakers would have to rewrite legislation that created the GSEs and deal with concerns about a monopoly.
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Some Struggling Homeowners Find Way to Dodge Foreclosure
USA Today (09/03/08) Armour, Stephanie
The Hope Now Alliance says it helped more than 181,000 borrowers in June and more than 522,000 in the second quarter by orchestrating mortgage workouts, but these figures do not include borrowers who avoided foreclosure on their own or sought help from organizations that do not belong to the alliance. Experts say a number of borrowers are making last-minute arrangements to keep their homes, such as obtaining hardship loans from their 401(k) accounts, securing better-paying jobs, working part-time or renting out rooms to tenants. Solutions through lenders include working out repayment plans for the past-due amount, shifting to a fixed-rate mortgage from an adjustable-rate loan, and obtaining a temporary drop in the monthly payment. A survey by Freddie Mac and Roper Public Affairs & Media indicates that 57 percent of borrowers behind in their mortgages do not know that lenders offer alternatives to foreclosure, down slightly from 61 percent three years ago.
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Project Helps Black Banks Seek Deposits Nationwide
American Banker (09/03/08) P. 7; Kuehner-Hebert, Katie
The Washington, D.C.-based organization BlackElectorate.com is convincing investors to save their money in African-American banks so that these institutions can fund community development. Savings rates are generally low in urban African-American neighborhoods, but Cedric Muhammad, head of the Black Bank Initiative, thinks communities and members can both benefit from better banking. "If we strengthen the financial institutions" in inner-city communities, "we can really foster financial literacy and community development," explains Muhammad. A successful prototype for the Black Bank Initiative is the OneUnited Bank in Boston. In 2006, OneUnited began offering online-only savings accounts to promote savings among African Americans, the bank's target audience. Analysts think the success of this product helped the bank increase its income by six-fold between 2007 and 2008 and bring in higher-than-average returns on assets and equity, considering the bank's size. With stable funding from savings accounts, OneUnited has the power to give loans for mortgages, churches, and small businesses, says Robert Patrick Cooper, senior attorney for OneUnited Bank.
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Federal Student Loan Efforts Finding Fair Share of Takers
American Banker (09/03/08) P. 10; Berry, Kate
Two new programs from the Department of Education effectively backstop lenders in order to ensure the availability of student financial aid money. One program gives the department the authority to buy back student loans from lenders. So far the department has amassed $897 million in loans from various lenders, including Sallie Mae, Nelnet Inc., and Edamerica Inc. In the other program, the department gives funds to lenders in exchange for a portion of the accrued interest. Both programs fulfill President Bush's Ensuring Continued Access to Student Loans Act, though apart from the programs it is unknown whether students have had difficulty acquiring financing. College admissions officers criticize the new system for relying on risky commitments from Wall Street investors, and for enabling potential abuse if lenders dole out federal money to students at a higher interest rate. "Our priority in establishing these programs … is to make sure students have access to loans in the 2008-2009 school year" and to encourage lenders to carry on the Federal Family Education Loan Program, said David Dunn, chief of staff to Secretary of Education Margaret Spellings.
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Viewpoint: Nonprofits Valuable Allies in Serving Unbanked
American Banker (08/29/08) P. 11; Tescher, Jennifer; Gordon, Sarah
Center for Financial Services Innovation director Jennifer Tescher and nonprofit relationship manager Sarah Gordon say in a contributing editorial to the American Banker that the "landscape of financial providers catering to the underbanked has grown and changed dramatically in recent years." They state that if banks wish to compete, they would be smart to seek out nonprofit groups as possible partners. Tescher and Gordon note that community-based nonprofits are dependable collaborators. They write that being on the ground provides them with a unique perspective, due to their close contact and good relationships with underbanked customers. In addition, Tescher and Gordon state, community-based nonprofits have an accurate interpretation of the preferences and mandates of underbanked clients, and frequently serve as reliable advisers. Tescher and Gordon add that nonprofits can provide a more flexible atmosphere for trying out products and tactics, thereby creating scalable offerings. More often, nonprofits are advertising themselves to private-industry providers as marketing and distribution paths that can effectively infiltrate the market. Tescher and Gordon point out that an increasing amount of regional nonprofits are establishing completely new means of delivery via one-stop financial centers that provide basic and personal advice, frequently combined with additional social services, such as job training or English courses.
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High School Teachers Say Students Need More Preparation for Financial Decisions
PRNewswire (09/03/08)
According to a new public opinion survey by AWARE, 97 percent say schools should teach vehicle financing and other financial literacy topics; 72 percent of teachers say students who are old enough to purchase a vehicle are ill-equipped to handle the car-buying process because of a poor understanding of personal finances. The teachers identified several topics they thought were of particular importance including acquiring a student loan, negotiating and financing a vehicle purchase, and negotiating and acquiring financing for a home. "A recent survey by the Jump$tart Coalition shows that financial literacy scores among high school youth have actually declined in the past two years, and with so many of these students eager to get their first set of wheels it isn't surprising that more than nine out of 10 of teachers feel that vehicle financing is an important subject to teach in the classroom," said Eric Hoffman, a spokesperson for AWARE. "Teaching personal finance topics in school is a great way to ensure bright financial futures for these young adults."
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The Proper Perspective for Collection Success
SubPrime Auto Finance News (09/02/2008) Walsh, David
To achieve collection success, collections agents must first understand that consumers experience a range of emotions when they receive collections calls, including embarrassment, anxiety, and anger, writes CenterOne Financial Services director of training David Walsh in this opinion piece. Under the Fair Debt Collection Practices Act, consumers are protected from abusive collections practices, which is why many agents are aware of what not to say to customers. However, very few firms actually train workers on the right things to say. Collections professionals should never use aggression to achieve their goals, and should always focus the conversation on ways to find a solution to the debt problem. Collections professionals should empathize with customers and their unique situations, respectfully telling them the amount due and the past due date, and then offering a variety of solutions to remedy the situation. Furthermore, collections professionals' performance should be tracked to ensure they are successfully finding solutions to consumer debt problems and accounts are on their way back to normal. Managers should listen to active calls and provide consistent and periodic training, Walsh concludes.
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FDIC: Securitized Auto Loan, Lease Charge Offs Up Slightly; Banks May Have to Pay Higher Premiums
SubPrime Auto Finance News (08/28/2008) Reed, Jennifer
Maximum credit exposure for auto loans dropped from $405 million in the first quarter of 2008 and $555 million in the second quarter of 2007 to $352 million in the second quarter of 2008, according to the Federal Deposit Insurance Corp.'s (FDIC) Quarterly Banking Profile. Securitized auto loans and leases 30-89 days overdue came in at 2.2 percent in the second quarter, an increase from 1.9 percent in the first quarter and 1.6 percent in last year's second quarter. Securitized auto loans and leases 90 days or more past due stayed at 0.3 percent, the same as in the first quarter, but a minor increase from 0.2 percent in the same timeframe in 2007. Securitized auto loans and leases charged off came in at 0.9 percent, up from 0.4 percent in the first quarter and 0.5 percent in last year's second quarter, but still less than 1.3 percent in last year's fourth quarter. Commercial banks and savings institutions insured by the FDIC recorded net income of $5 billion in the second quarter, $31.8 billion less than the $36.8 billion reported in the second quarter of 2007. Furthermore, the FDIC stated its "problem list" contains 117 institutions, an increase from 90 at the end of the first quarter. The FDIC said increased provisions for loan losses are responsible for the decline in industry earnings. In October, the FDIC will review a proposal to refill the agency's Deposit Insurance Fund, according to FDIC Chairman Sheila Bair. The plan "likely will include an increase in the premium rates that banks pay into the fund," she said. "And we'll be proposing changes to the current assessment system that will shift a greater share of any assessment increase onto institutions that engage in high-risk behavior to encourage and reward safer behavior."
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Abstract News © Copyright 2008 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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