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Obama Administration Pushes Banks to Make Home Loans to People with Weaker Credit
Washington Post (04/02/13) Goldfarb, Zachary A.

The Obama Administration is aiming to extend home loans to individuals with weaker credit by urging the Justice Department not to hold banks and lenders accountable if those loans later default. President Obama and his economic team have stated that too many people are missing out on the return of the housing market, particularly younger borrowers and first-time homebuyers. Opponents argue that the housing bubble was caused by exactly the same type of lending the administration is proposing.

Between 2007 and 2012, the purchase of new homes by people who have credit scores between 620 and 680 – which in the past was considered a decent score – fell by 90 percent. “If the only people who can get a loan have near-perfect credit and are putting down 25 percent, you’re leaving out of the market an entire population of creditworthy folks, which constrains demand and slows the recovery,” said Jim Parrott, a former senior adviser on housing for the White House’s National Economic Council.

The administration points to younger borrowers who move out of their parents homes but then are forced to rent as opposed to buy because they either do not have a credit history or have weak credit. This, in turn, affects home sales and construction of new homes. Since the 2008 financial crisis, the government has taken a more pronounced role in determining who should be permitted to get credit and the rules surrounding mortgage lending generally. Banks and lenders have been playing it safe so as not to run afoul of government regulations.

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SGA White Paper Examines Lending Zoning Ordinances

On April 3, the AFSA State Government Affairs Committee released a new white paper on municipal zoning ordinances that attempt to restrict the growth of payday and title loan lenders, but are sometimes written so broadly that they have major unintended consequences on traditional installment lenders. The paper highlights the important differences between payday loans and traditional installment loans, which are less expensive, based on the borrower’s ability to repay the loan, and help borrowers build credit histories.

These ordinances often include provisions restricting the number of establishments that can exist in the municipality and/or prescribing how far outlets must be from each other and places such as schools, churches and residential areas. The paper identifies the 224 municipalities that have zoning ordinances and highlights those that contain language that may result in the ordinances affecting installment lenders. The paper also outlines states that are considering legislation relating to local zoning ordinances and discusses the impact of these ordinances on state regulators, communities and the industry, which is forced to comply with a patchwork of regulations.

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Inside the Beltway
CFPB Takes Enforcement Actions against Mortgage Insurers
American Banker (04/04/13) Blackwell, Rob

On April 4, the Consumer Financial Protection Bureau (CFPB) took enforcement actions against four mortgage insurers - Genworth Mortgage Insurance Corp., United Guaranty Corp., Radian Guaranty Inc., and Mortgage Guaranty Insurance Corp. – citing that the companies made illegal kickbacks.

"Illegal kickbacks distort markets and can inflate the financial burden of homeownership for consumers," said CFPB Director Richard Cordray. "We believe these mortgage insurance companies funneled millions of dollars to mortgage lenders for well over a decade. The orders announced today put an end to these types of arrangements and require these insurers to pay more than $15 million in penalties for violating the law."

All four companies have agreed to pay a total of $15.4 million in fines and are barred from entering into mortgage reinsurance arrangements for ten years. The settlement must still be approved by a court.

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Regulators Closer to Supervising Nonbank Financial Companies
The Washington Post (04/03/13) Douglas, Danielle and Yang, Jia Lynn

On April 3, the Federal Reserve approved a final rule that would allow the government to more strictly regulate the activities of nonbank companies. Under the new rule, nonbanks could be placed under significantly increased scrutiny if they are considered “systematically important,” which is defined as a company that derives at least 85 percent of its profits from financial activities.

The Financial Stability Oversight Council has been in the final stages of determining which companies would be singled out for additional oversight and is likely to announce their findings within the next few weeks. “The Fed has taken a very broad view of the types of activities covered in the definition, which gives [regulators] a good deal of discretion,” said Karen Shaw Petrou, managing partner of consulting firm Federal Financial Analytics.

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CFPB Partners with New York City on Consumer Protection Program
American Banker (04/02/13) Witkowski, Rachel

The Consumer Financial Protection Bureau (CFPB) is partnering with Mayor Michael Bloomberg and New York City to educate consumers about financial products and responsibilities through its Cities for Financial Empowerment program. . Since it began in 2008, the program has expanded to assist nearly 20,000 New Yorkers reduce their debt by $10 million.

CFPB Director Richard Cordray said in a joint announcement with Bloomberg, "We need all hands on deck to protect consumers in the financial marketplace. Cities have a special role to play, and New York City has embraced that responsibility." The program is already expanding to five other cities through the Bloomberg Philanthropies. The cities received a total of $16.2 million.

"Through its network of Financial Empowerment Centers, our Department of Consumer Affairs has given tens of thousands of low-income New Yorkers professional, free, and confidential advice about managing their financial lives and helped protect consumers from those who try to take advantage of them when their financial lives are in crisis,” said Bloomberg.

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OCC Mortgage Delinquencies Drop to Lowest Level in 4 Years
American Banker (04/02/13) Berry, Kate

The percentage of mortgages that are considered delinquent has dropped nearly 6 percent from a year ago and 10 percent from the fourth quarter.  According to the Office of the Comptroller of the Currency (OCC), just 4.5 percent of mortgages are now considered seriously delinquent. The agency cites a recovering economy for the decrease in delinquencies. The number of new foreclosures also dropped by two percent, another signal that the housing market is improving.

Foreclosure inventories have spiked in the first quarter by two percent as well, as servicers exhaust all of the modification options available to them in assisting homeowners. "You're seeing a continued and fairly significant drop in loan modification activity that is attributed to the decreasing number of delinquent borrowers and the criteria for receiving a modification under existing programs where the number of people who qualify is limited now," said Bruce Krueger of the OCC.

Servicers use a variety of tools to modify mortgages, including reducing interest payments and extending the life of the loan. Servicers have modified more than 2.5 million loans since 2008.

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Blame Abounds over a Flawed Foreclosure Review
The New York Times (04/03/13) Protess, Ben and Silver-Greenberg, Jessica

The Government Accountability Office (GAO) is set to release a new study of the Federal Reserve’s and Office of the Comptroller of the Currency’s (OCC) handling of the homeowner relief program. The 74-page document alleges that the two governmental agencies made it increasingly difficult for underwater homeowners to efficiently and easily apply for and receive assistance. The Senate Banking Committee is also set to hold hearings to examine foreclosure review processes by both Promontory Financial and Deloitte & Touche.

The allegations come at a time when Washington is reevaluating its heavy use of consulting firms like. Government officials have raised concerned both about the quality of work and the revolving door that exists between regulatory agencies and the consulting firms they hire. Promontory is currently headed up by former comptroller Eugene Ludwig and just hired former U.S. Securities and Exchange Commission chairwoman Mary Shapiro.

The recent allegations surfaced when, despite having only reviewed a miniscule portion of foreclosed mortgage loans, the consultants charged the government nearly $2 billion in fees. The report notes that consultants were given conflicting instructions for how to examine the loans and that regulators burdened the companies with unnecessary questions and metrics. According to the report, regulators stressed timeliness in their communications with the consultants, meaning that possibly thousands of problem loans were completely overlooked.

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National and State News
Texas Payday Loan Law Still Too Weak
My San Antonio (04/02/13) Kilday Hart, Patricia

State Senator Jon Carona (R-Dallas) successfully resurrected a payday loan bill that would provide some uniformity to industry regulations in the state. The bill was effectively stopped by consumer groups earlier this month, citing that local city ordinances provide stronger protections for consumers. The payday and title loan industry argued that it is becoming increasingly difficult to comply with the patchwork of laws that exist from town to town across the state.

“This is a step back for consumer protection in San Antonio,” said Senator Leticia Van de Putte, who was the only member to vote against the bill. “This trumps what is already in place in my district and gives less protection.” Senator Carona added that the powerful payday loan industry would kill any bill that reached to far and that his version addresses concerns of both consumer advocates and members of industry.

The House sponsor of the bill, Rep. Mike Villarreal (D-San Antonio), said he would refuse to advance the bill as written by Senator Carona, citing that it removes too many protections for consumers. This bill is the latest attempt by the Texas legislature to get a handle on the payday loan industry, which gives nearly $4 million each year to Texas state politicians.

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Worcester Considers Foreclosure Mediation Ordinance
The Telegram (04/04/13)

Worcester City Manager Michael O’Brien has asked the city council to endorse legislation that is currently up for debate in the Massachusetts statehouse that would provide for mandatory foreclosure mediation. O’Brien was approached by a group called the Worcester Anti-Foreclosure Team, which is advocating for a city ordinance that would require mediation between lenders and consumers before foreclosure actions can take place. O’Brien contended that the city’s budget is already far too strained to allow for such a plan.

O’Brien has agreed to meet with the group in the next few weeks to determine if something can be done to solve the differences between the consumer group and the city to allow the program to begin. Nearby Springfield enacted a similar program and has seen a drop in foreclosures. Lenders that complete the foreclosure process successfully would be required to renegotiate the terms of the loan; if the mediation Is not successful, they would be permitted to proceed with foreclosure. Violating the ordinance would carry a $300 per day fine.

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GM Financial Finalizes Purchase of Most International Units from Ally Financial
SubPrime Auto Finance News (04/03/13)

According to an announcement on April 3, GM Financial completed a transaction to acquire almost all of the auto finance and financial services holdings of Ally Financial in Latin America and Europe, which includes operations in Germany, United Kingdom, Italy, Sweden, Switzerland, Austria, Belgium, the Netherlands, Chile, Colombia and Mexico.

“Having a strong international auto finance capability will allow us to expand our support of GM's global growth strategy beyond the U.S. and Canada," said GM Financial president and chief executive officer Dan Berce. The international operations will continue to offer a full range of retail and lease financing, dealer loans and related services, while the leadership team and employees will transition to GM Financial with no disruption of service. Ally received approximately $2.6 billion for the holdings. "Completion of this transaction marks another major step in Ally's plans to further strengthen its financial profile going forward and to focus on its core, leading U.S.-based franchises," Ally CEO Michael Carpenter said.

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April 4, 2013

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AFSA Newsbriefs

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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.