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FHFA’s Stand against Eminent Domain Plans Likely to Prevail
American Banker (08/08/12) Borak, Donna and Berry, Kate

In a notice to the Federal Register, the Federal Housing Finance Agency (FHFA) criticized plans by some local governments to use eminent domain to refinance underwater mortgages, stating the "resulting losses from such a program would represent a cost ultimately borne by taxpayers" and that it could "have a chilling effect on the extension of credit to borrowers seeking to become homeowners and on investors that support the housing market.” The agency, which oversees Fannie Mae and Freddie Mac, said it would take action to protect the operations of the government-sponsored enterprises and prevent additional costs to the taxpayer.
Gideon Kanner, a professor at Loyola Law School, predicts that the FHFA will prevail, because it is "a federal agency and the Feds can take the property of a state or city, but the state or a local entity cannot take federal property.” Also, loans owned by private lending institutions would have to satisfy two main requirements for eminent domain seizures – having a public purpose and providing just compensation to the mortgage owner, according to Anthony Della Pelle, an attorney at McKirdy Riskin. The notice is open for comment until Sept. 7.
San Bernardino County, Calif. and two other Calif. cities, Fontana and Ontario, as well as Chicago, Ill., are also considering eminent domain plans. Jaret Seiberg, a senior policy analyst at Guggenheim Partners, expects at least one community to use eminent domain and many municipalities to follow, even with the FHFA’s warnings, particularly if it is perceived to have helped voters. San Bernardino County officials say they are open to the FHFA’s input and are holding a public meeting on the proposal on Aug. 16. "The more input we can get from agencies such as FHFA and anyone else will help us make an educated decision. The county and its partners have not decided which approach to take in assisting struggling homeowners,” said a county spokesman.

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Missouri Rate Cap Ballot Petition Fails to Collect Enough Signatures

Missouri Secretary of State Robin Carnahan determined on Aug. 7 that the initiative petition to institute a 36 percent interest rate cap on payday, title, installment and consumer credit loans in the state had an insufficient number of valid signatures to be placed on the ballot in November’s election. The petition fell short of the required signatures in one of the six required congressional districts, by a margin of less than 300 signatures in the 1st Congressional District in St. Louis.
AFSA has long considered the initiative to be too broad and likely to negatively impact traditional installment loans alongside its payday target, leaving moderate- to low-income families without access to small-dollar credit.

Proponents of the ballot initiative are expected to challenge the finding and claim that legitimate signatures were improperly invalidated.

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NCSL Summit Covers Array of State Issues

AFSA staff attended the National Conference of State Legislatures’ (NCSL) Legislative Summit, Aug. 6-9 in Chicago and hosted its annual AFSA reception for legislators and their staff, AFSA members and NCSL staff at the popular Italian restaurant Gino’s East.
Sessions at the NCSL Summit included an election preview highlighting voter opinion of the current presidential candidates as well as their strengths and weaknesses; an overview of recent Supreme Court decisions with implication on states; and a discussion on voter ID and the challenges states face as they implement such laws. Senator Dick Durbin gave a brief welcome to meeting attendees and urged support for his internet sales tax bill, the Marketplace Fairness Act.
Next year’s Legislative Summit will be held in Atlanta, Aug. 12-15.

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New Member Welcome

AFSA welcomes back Active Member Southern Management Corporation and welcomes new Business Partners Foley & Lardner LLP, PaymentVision, and Summit Direct Mail.
Southern Management Corporation operates as a commercial finance company, providing fully amortizing installment loans, related credit insurance, and ancillary products to individuals. Founded in 1997, Southern Management Corporation is based in Greenville, S.C., with branch operations in Alabama, Georgia, Oklahoma, South Carolina, Tennessee, and Texas.
With approximately 900 attorneys in 21 offices, Foley & Lardner LLP provides business and legal insight to clients across the country and around the world. The firm’s headquarters are in Chicago. website
Based in the Washington, D.C., metro area, PaymentVision is a financial services company and payment processor servicing 2,000 financial institutions and corporate billers across the nation. website
Summit Direct Mail, located in Louisville, Ky., specializes in the creation and production of response-generating direct mail marketing promotions. website

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Inside the Beltway
AIG, Other Insurers in U.S. Consumer Bureau Probe
Dow Jones Newswires (08/05/12) Randall, Maya Jackson

The Consumer Financial Protection Bureau (CFPB) has issued subpoenas to several firms as part of an investigation into whether companies’ mortgage insurance practices comply with the Real Estate Settlement Procedures Act (RESPA). Details of the Bureau’s subpoenas to obtain documents and answers to written questions were disclosed in the August filings of several insurance firms. The Bureau is examining the arrangements between mortgage lenders and their own reinsurance subsidiaries, which take on a portion of the mortgage insurers’ risk in exchange for a portion of the premiums, “to determine whether mortgage insurance premium ceding practices” comply with RESPA, said insurer PHH Corp.
Captive reinsurance practices are also being scrutinized by state insurance commissioners, attorneys general and the U.S. Department of Housing and Urban Development, although the agency withdrew its subpoena after the Bureau’s demand for information was sent. “Various regulators, including the CFPB, state insurance commissioners and state attorneys general may bring actions seeking various forms of relief, including civil penalties and injunctions against violations of RESPA,” said MGIC Investment Corp. in its filing, adding that many states prohibit paying for the referral of insurance business. “While we believe our captive reinsurance arrangements are in conformity with applicable laws and regulations, it is not possible to predict the eventual scope, duration or outcome of any such reviews or investigations nor is it possible to predict their effect on us or the mortgage insurance industry.”

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National and State News
Vacant Minneapolis Properties Assessed Huge Annual Fees
Star Tribune (08/08/12) Rao, Maya

In an effort to prevent dilapidated abandoned properties, Minneapolis has employed a tactic used by many other cities nationwide – charging owners of vacant properties annual fees. However, the fees, which can total as much as $7,000, are dramatically higher in comparison to other cities, whose fees range from $100 in Atlanta to $1,100 in St. Paul. The fees have drawn a backlash, including at least nine legal challenges filed against the city over its vacant building policies. The city has defended the escalating fees, which were raised after the city studied the issue in 2007 and found the cost of maintaining a vacant building was more than triple the $2,000 the city was charging. Not everyone in the city pays the full vacant fee. Many buildings move off the registry because they are voluntarily reoccupied, the owner enters into an agreement to restore the property, it is lost through tax forfeiture or it is voluntarily demolished.
A Hennepin County District Judge ruled the city has the authority to enact a vacant building ordinance. Lawsuits filed against the city have disputed the city’s reasoning that the fee covers the cost of property upkeep. In May, Larry Naber – a property owner who challenged the ordinance – won a victory after the court found the city erred in assessing his property in the program; however, it did not address whether the fee was reasonable or constitutional. Naber contended that while the home was vacant, the nuisance conditions the city found did not justify the property’s inclusion on the vacant property list. Another lawsuit filed by a property owner argued the fee was excessive and included calculations determining the city had overbilled hundreds of owners because the cost of maintaining the property was much less than the fee. "We concluded the only way to get anywhere is a lawsuit," said his lawyer Mark Kallenbach. "The city is not all wrong. There are properties that need attention; there are properties that need to be taken down. I just have a difficult time believing [the cost] is $7,000."

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Recession Generation Opts to Rent Not to Buy Houses To Cars
Bloomberg (08/08/12) Fairchild, Caroline

Americans aged 20 to 34, who are entering adulthood during a weak recession with a jobless rate above eight percent and student loan debt around $1 million, are avoiding making large purchases like homes and cars in order to save money and stay flexible. This generation “is scared of commitment, wants to be light on their feet and needs to adjust to whatever happens,” said Cliff Zukin, a professor who has studied the effects of the recession on recent college graduates. “What once was seen as a solid investment, like a house or a car, is now seen as a ball and chain with a lot of risk to it.” This fear of investments poses a threat to retail sales, according to Candace Corlett, president of WSL Strategic Retail, as this age group is comfortable with buying used items and borrowing from friends rather than buying new.
Young consumers are seeking ways to have what they want at a lower cost, and new technology is meeting this need by offering more opportunities to rent items like furniture, high-end fashion and even cars by the hour. Stricter lending practices and higher requirements for down payments on houses and cars have also prevented young consumers from buying, said economist David Blanchflower. According to Jeffrey Lubell, executive director for the Center for Housing Policy, this shift to renting could have a negative effect on young people’s futures. “What you are seeing is a delay in all the kinds of decisions that require a long-term financially stable future,” Lubell said. “That’s home purchases, that’s marriage and that’s having kids.”

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Experian: Q2 Auto Loan Delinquencies, Repossessions Drop
SubPrime Auto Finance News (08/08/12)

Experian Automotive's second quarter credit trend analysis found that consumers continued to make their auto loan payments on time, reducing the average delinquency rate across all lending institutions. "Consumers continue to do an excellent job of paying back their vehicle loans in a timely fashion, and that's good news for everyone in the industry," stated Melinda Zabritski, director of automotive lending for Experian Automotive.

According to Experian, the 30-day delinquency rate in the second quarter was 2.52 percent, compared to 2.59 percent a year ago. The 60-day delinquency rate was 0.58 percent, compared to 0.60 percent a year ago. Vehicle repossessions dropped to 0.43 percent from 0.59 percent, which equals a 27.9-percent year-over-year drop. "Both 30- and 60-day delinquencies are at historic lows, and the percentage of money at risk has dropped as well," Zabritski said. "This gives lenders needed stability, which filters through the auto industry to consumers in the form of easier-to-obtain loans."

Experian’s analysis showed that total loan balance portfolios rose for all types of lending institutions in the second quarter, reaching $682 billion, as compared to $646 billion a year earlier. However, overall loan balances still are below pre-recession levels. "Since the automotive loan industry is highly interdependent between banks and retailers, this continued strong performance for loan portfolios is good for automotive retailers and consumers alike," Zabritski said.

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Lenders Look for Alternatives to Repossessing Homes
Associated Press (08/09/12) Veiga, Alex

Despite a six percent increase in the number of homes that received an initial notice of default in July compared to last year, bank home repossessions have continued to fall, dropping 21 percent from a year ago and continuing the decline that has occurred every month for the last two years. "Lenders are much less likely now than they were even a year ago or two years ago to repossess a property after they've started the foreclosure process," says Daren Blomquist, a vice president at RealtyTrac. Lenders are much more likely to look for alternatives such as a short sale, loan modification or refinancing because completing the foreclosure process has the potential of opening the banks up to liability if accused of improper procedures.
The rise in the number of homes entering the foreclosure process are mostly from mortgages dating back to the housing bubble years and are not a signal that a new crop of homeowners are in distress or missing payments, he added. An associated increase in the number of homes that end up on the market at a much lower price than other properties could decrease the values of nearby homes. The amount of homes receiving foreclosure notices generally increased in judicial foreclosure states as many of the homes in those states were left in limbo because of the foreclosure abuse allegations. Foreclosure activity fell significantly in Arizona and California, two non-judicial foreclosure states.

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August 9, 2012

Forward To A Colleague

GoldPoint Systems
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