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Addressing the Credit Needs of the Unbanked
The Huffington Post (10/07/11) Himpler, Bill

When Nobel Prize winning economist Mohamed Yunnus recently appeared on MSNBC's Morning Joe to promote his micro-lending work, he received a warm reception. The House of Representatives’ Financial Services Committee also held a hearing to address the need for access to affordable credit among the unbanked.
Many have called for banks to offer small dollar loans. However, Robert Mooney, the FDIC's deputy director of consumer protection and community affairs, testified at the hearing that a FDIC pilot program of 31 banks that offered loans of up to $2,500 was not profitable, as reported in American Banker.
So what's the answer? Himpler asked in this op-ed. The micro-lending model has been around and working quite successfully for more than 100 years. “A staple of consumer credit, the personal installment loan is available in thousands of finance company branches across the country.” The personal installment loan features: a payment plan structured as monthly payments over a set period of time, providing a pathway to get out of or avoid the cycle of debt; a fixed rate; underwriting based on the consumer's ability to repay; transparent and simple terms; performance reported to the credit bureaus; and effective regulation in the states for decades.
Himpler suggests that Congress promote “the safest consumer credit product out there – the personal installment loan –  which has been provided by America's consumer finance companies for generations” rather than trying to push banks into the small dollar loan business where they have no experience.

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AFSA Supports Bill to Repeal Durbin Amendment

Following Congressmen Jason Chaffetz (R-UT) and Bill Owens (D-NY) introducing a bi-partisan bill to repeal the Durbin Amendment, which limits debit card interchange fees, AFSA issued a statement to the media supporting the bill. “Consumers are the big losers in the battle over debit interchange fees,” stated AFSA President & CEO Chris Stinebert. “Government-imposed price-controls circumvent market mechanisms, and are already producing higher costs and reduced benefits to consumers.”
Read more about the Chaffetz-Owens bill here.

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Inside the Beltway
FSOC Starts with Size in Effort to Target Systemic Nonbanks
American Banker (10/11/11) Davidson, Kate and Wack, Kevin

On Oct. 11, the Financial Stability Oversight Council (FSOC) approved a proposal that would subject nonbank financial firms with more than $50 billion in total consolidated assets to additional evaluation for designation as systemically important. The companies must also meet one of five other criteria, including whether the company has $20 billion of outstanding loans borrowed and bonds issued or a 10 percent ratio of short-term debt to total consolidated assets. “We’re trying to take a comprehensive approach to looking at where risk is in the system,” said Treasury Secretary Timothy Geithner, who chairs the council. “This is one of the tools, it’s one of the most important tools, but it’s not going to be the only tool we’re going to be relying on,” he added. The proposal outlines a three-stage designation process. First, the council will identify the companies that meet the uniform thresholds. Then, they will examine the company primarily through available public and regulatory information. Third, the FSOC will inform the firm they are being considered, request additional information and provide them with an opportunity to respond to the council’s consideration. The council then has 60 days to vote on whether or not to designate the firm, but must have at least a two-thirds majority. The FSOC will also review the potential impact of a firm’s financial distress on the economy based on its size, “substitutability” and interconnectedness. Federal Reserve Chairman Ben Bernanke is in support of the proposal. “It provides more clarity, is more quantitative, and in fact is based on data in the public domain,” he said.

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GSEs Long in Limbo and Deeper in Trouble
American Banker (10/11/11) Garver, Rob

Three years into government conservatorship, Fannie Mae and Freddie Mac have no clear path to the future and their uncertain status is creating challenges for the GSEs. Being in limbo makes it difficult for the GSEs to recruit and retain qualified employees. The resulting loss of institutional knowledge could lead to poor loan underwriting.
"Without direction on the future of the enterprises, as the length of the conservatorships extend, real risks exist beyond the normal business risks associated with guaranteeing new mortgages," said Ed DeMarco, acting director of the Federal Housing Finance Agency, in a recent speech. But as the GSEs’ primary regulator, DeMarco must tread carefully with warnings so as not to undercut the industry’s perceptions of the GSEs. Fannie, Freddie and the Federal Housing Administration guarantee approximately 90 percent of new U.S. mortgages. While winding down the entities could reduce market uncertainty, Congress has been slow to act. Hearings have been held on the GSEs’ fate, but few bills have been introduced to reform the housing market. And experts don’t expect that to change any time soon. Peter Wallison, the Arthur F. Burns Fellow in financial policy studies at the American Enterprise Institute, does not expect Congress to take any action to resolve the GSEs' status before the 2012 presidential election.

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Examiner Guidelines Issued
American Banker (10/11/11) Collins, Brian

On Oct. 7, the Conference of State Bank Supervisors (CSBS), American Association of Residential Mortgage Regulators (AARMR) and National Association of Consumer Credit Administrators (NACCA) issued guidelines to mortgage examiners on how to test state-licensed nonbanks for violations of the Federal Reserve’s loan origination compensation rule, which was introduced to protect consumers against unfair and abusive loan originator compensation practices. “The purpose of the guidelines is to provide the examiner with a standardized set of procedures to reviewing institutions for basic compliance with the rule,” the state regulators said. The new rule prohibits “dual compensation” of the mortgage broker and “steering” borrowers into loan products that would increase their compensation. The regulators’ guidance advises examiners on how to test for dual compensation, such as reviewing samples of Department of Housing and Urban Development settlement statements, loan documents and payroll records. They also provide two basic tests for determining steering, and suggest actions like reviewing similar loans made by the loan originator to determine if they received higher compensation, if the examiner suspects steering. While the regulators recognize the guidelines cannot provide instructions for every scenario that may arise from the complex rule, they used extensive industry outreach to develop examination tools to determine compliance with “bright line areas” of the rule, said John Ryan, President and CEO of CSBS. “We want to [ensure compliance with the rule] in a way that protects consumers while creating greater certainty and limiting regulatory burden for those providers we regulate.”
The state regulators’ press release may be viewed here.

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National and State News
Supreme Court Declines to Review MERS Challenge
DSNews.com (10/12/11) Franks, Krista

The U.S. Supreme Court denied a writ of certiorari in Gomes v. Countrywide, refusing to reconsider a California court’s ruling, which upheld MERS’ right to initiate non-judicial foreclosures. Ehud Gersten, Gomes’ foreclosure attorney, has stated that MERS’ foreclosure actions were not legal and that it “does away with land laws” when initiating foreclosure actions. He hoped the Supreme Court would make a national ruling in the case, thus ending state-by-state discrepancies in MERS cases. In a statement about the Supreme Court’s denial of the case, Janis Smith, MERSCORP’s VP of corporate communications, stated that “Courts in California have ruled consistently that MERS’ legal standing as beneficiary gives MERS the authority under state law to take action on behalf of the owner of the note.” She added that “the MERS business model has been upheld by numerous courts around the country, and is operating in all 50 states.” MERS issued a policy update in July stating that they will no longer initiate foreclosure actions.

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Credit-Card Issuers Circling Subprime Borrowers Again
The Wall Street Journal (10/11/11) Johnson, Andrew R.

Credit-card issuers are once again looking to subprime borrowers as they search for ways to grow their businesses in order to compete. They are still approaching the market with caution, however, by offering those borrowers small credit lines with higher rates, according to analysts. The issuance of new credit cards to subprime borrowers was up 64 percent from a year ago, Equifax data shows. The number of subprime cards remains much less at 5.4 million than the 14.7 million that banks issued in the first half of 2007. Michael Koukounas, senior vice president of special client services at Equifax, attributes banks’ increasing confidence in their ability to manage customers across the risk spectrum to significant declines in late payment and loan-loss rates. He stated that recent vintages of card loan originations are performing at a pre-recession level. Credit card issuers may also look into targeting subprime consumers because most of the companies that lent exclusively to those borrowers previously have scaled back due to new regulations. The Credit Card Accountability, Responsibility, and Disclosure Act (CARD Act) limited lenders’ ability to raise interest rates, late fees and up-front fees it charges to borrowers in the first year of opening an account. While most credit card issuers have seen significant improvements in delinquency and charge-off rates, they still are struggling to increase receivables because consumers remain reluctant to take on more debt. August’s Federal Reserve data showed consumer revolving debt, comprised mostly of credit-card loans, falling $2.2 billion from July to August.

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Easier Credit, Leasing Boost U.S. Sales Outlook
Automotive News (10/12/11) Henry, Jim

Greater credit availability is the biggest single contributor to why light-vehicle sales for 2011 are expected to be around 12.6 million, which is one million units higher than 2010, said a J.D. Power and Associates forecaster. The return of leasing and fewer customers with negative equity also contributed to the increase, as both factors relate to higher used-car values. Publicly traded dealership groups have reported that they are having an easier time getting consumers financed, although the market for subprime loans has taken a bit longer to recover. Auto sales in 2011 were negatively impacted by the housing market, fuel prices, higher vehicle prices, lower incentives and exceptional events like natural disasters. According to Beth Ann Bovino, an S&P senior economist, the risk of a double-dip recession that could hurt auto sales has also increased this year, up about 25 percent since March.

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October 13, 2011

Forward To A Colleague

Carleton, Inc
Life of the South
GoldPoint Systems
Counselor Library
Allied Solutions
ParaData Financial
Balboa Insurance
Wells Fargo Preferred Capital
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