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Fed's Duke Raises Fears About New Mortgage Rules
American Banker (05/09/13) Witkowski, Rachel

Federal Reserve Board Governor Elizabeth Duke warned that the new regulations on mortgages, while providing important protections for consumers, may have an adverse effect on lenders. She argued that the new rules will reduce the availability of credit to weaker borrowers and cause an increase in the cost of servicing underperforming loans.

Duke went on to note that lenders who offer loans that fall outside of the Qualified Mortgage ( QM) - requirements, will face higher processing and servicing costs because they will ultimately face an increase in litigation and foreclosure losses. Additionally, she argued that lenders offering non-QM rule mortgages may face a harder time securitizing their loans because investors will require a high premium on the loans.

"The ability to hold lenders accountable for poorly underwritten loans is a significant protection for taxpayers," Duke said. "However, if lenders are unsure about the conditions under which they will be required to repurchase loans sold to the GSEs, they may shy away from originating loans to borrowers whose risk profiles indicate a higher likelihood of default." Though Duke spoke extensively about the QM rule, she refused to touch on the Qualified Residential Mortgage rule, which has not yet been finalized by regulators.

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New Member Welcome

AFSA is pleased to welcome two new Active Members, CIC Funding LLC and Volvo Car Financial Services.

CIC Funding LLC is a specialty finance company that purchases discounted individual auto and light truck loan notes, as well as whole portfolios, from franchise and independent dealerships, finance companies, banks, and credit unions. The company is based in Doral, Florida.

Volvo Car Financial Services is a wholly owned subsidiary of Volvo Car Corporation providing affordable and competitive financial services products to Volvo consumers and Volvo retailers in the United States. The company is headquartered in Rockleigh, New Jersey and has been offering services since 2011.

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National and State News
Southern California Home Sales Hit 7 Year High
National Mortgage News (05/15/13) Swanson, Jann

California home sales prices hit a 58-month high in April, which was likely brought on by demand and increased investor activity. The number of sales also saw a solid increase last month statewide, particularly in Los Angeles, San Diego, Ventura, Riverside, Orange, and San Bernardino counties, where sales rose 4.1 percent.

The survey, by company DataQuick, noted that the increases could be seasonal in nature, but that they showed strong growth nonetheless. The median price for homes and condos crept up to $357,000, a figure which has continued to increase for the last 13 months. Those housing markets which were hit particularly hard by the financial crisis are seeing some of the most astonishing gains, including many areas of California. These affordable markets have seen a dip in sales numbers recently as a result of a lack of supply for homes, which has caused price figures to tick upwards.

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Americans Resume Deleveraging Household Balance Sheets
Mortgage News Daily (05/14/13) Swanson, Jann

American households have continued the now five year trend of reducing their overall household debt exposure, according to a new report released on May 14 by the Federal Reserve Bank of New York. According to the report, American households have reduced their overall debt by nearly $110 billion in the first quarter of 2013 as compared to the previous quarter. Overall household debt was $11.23 trillion in the first quarter. Overall mortgage debt represents $7.93 trillion, down from $8.03 trillion in the third quarter of last year.

Overall, mortgage delinquency rates fell from 5.6 to 5.4 percent quarter-over-quarter and consumers who had new foreclosure notations on their credit reports fell to 12.5 percent or 184,000. The report notes that the reduction in debt is led primarily to consumers reducing their debt portfolio in both mortgages and credit cards.

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Auto Loan Delinquencies, Repossessions Rise
Automotive News (05/15/13) Thurlow, Andrew

Fueled by an increase in subprime loans, auto loan delinquencies and repossessions climbed in the first quarter of the year, according to a new report by Experian. Repossessions rose to .05 percent and those loans delinquent by thirty and sixty days rose by 1 and 17 percent respectively.

"Obviously, we never want to see a rise in delinquencies or repossessions, but when you compare the current findings with previous years, they are still lower than the recession-level rates," said Melinda Zabritski, Experian's senior director of automotive credit. Many banks, credit unions and captives saw repossessions fall, but finance companies have seen an increase by just over 50 percent. The increase is caused by increased lending to consumers who are traditionally more prone to repossession and delinquency. Repossession rates remain far below the 2008 high of .72 percent.

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Freddie Makes Streamlined Loan Mods Available Nationwide
National Mortgage News (05/13/13) Collins, Brian

A program that was originally slated to begin on July 1 of this year has been moved up to become effective immediately. Freddie Mac will offer borrowers who are 90-120 days delinquent on their mortgages to enter into a three-month trial payment system, which will require no additional paperwork or documentation. The system would allow servicers to more rapidly offer loan modifications to underwater borrowers.

“Now mortgage servicers can send eligible borrowers their streamlined modification trial period terms as soon as they are ready and borrowers can modify their loans by making the three trial period payments on time,” said the agency, according to a statement released on May 13. The program is already available to victims of Hurricane Sandy and was originally announced in March.

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Key to Saving the Student Loan Market: Hint It's Not Banks
American Banker (05/15/13) Witkowski, Rachel

The Consumer Financial Protection Bureau (CFPB) issued a report late last week that targeted private student loan lenders, which represent between 7 and 15 percent of the student loan origination market. Industry watchers and commentators argue, however, that the report is improperly focusing on the private student loan market and not on the government, where most of the problems lie. While private loan servicer’s products have a default rate near five percent, their government-backed counterparts have a default rate that hovered upwards of 13 percent in 2009, a figure which has industry analysts likening the growing student loan bubble to the mortgage bubble before the financial crisis.

Many in the industry are calling for the Department of Education to make a more consistent plan for dealing with students who may be having trouble refinancing their loans. The private student loan marketplace already has a number of robust refinancing options that government-backed loans do not have. Sallie Mae, which offers both government-backed and private loans, notes that it offers such refinancing options, "More than 90% of our customers are making on-time payments, and for our customers experiencing difficulty, we offer customized assistance, including modifications on more than $1 billion in private education loans."

Looser underwriting standards of federal loans is the primary reason for the higher default rate. The standards were originally envisioned to allow those with little or no income to acquire educational loans, but now have fueled an ever rising default rate. The securitization market has also kept away from the student loan space, thus making it more difficult for the private loan originators to lead on refinancing.

Industry advocates now argue that Congress must step in to allow for easier refinancing options of federal-backed student loans or hold universities to a higher standard when it comes to offering loans in the first place. Currently, universities are removed from federal loan programs if they have terrible default rates, but do not share in the risk of giving loans. One plan circulated by industry advocates would have universities pay a portion of default loans if a certain threshold is met – the plan has the added benefit of not requiring lawmakers to create a relief fund for underwater borrowers as well.

Senator Elizabeth Warren (D-Massachusetts) introduced a bill in the beginning of May that would stop the scheduled increase of student loan interest rates from 3.4 percent to 6.8 percent on July 1. Other members are also concerned about the growing student loan bubble – the Senate Banking Committee was scheduled to take up the issue in a hearing on May 16, but the meeting was postponed.

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Global Lending Services Taps Former Capital One Exec to Be New CEO
SubPrime Auto Finance News (05/10/13)

Global Lending Services has tapped Steve Thibodeau as the new chief executive officer of the subprime auto finance company. Thibodeau was most recently a key executive at Capitol One Auto Finance and was a large part of the effort to grow Capitol One’s market share. "Steve is without question the right person to lead Global Lending Services and we're thrilled he has agreed to become CEO," said Douglas Duncan, chairman and founder of GLS.

The announcement comes after GLS successfully expanded its vehicle finance purchase foot print to nineteen states. The expansion was greatly assisted by GLS’ recent aquisition of Resurgent Auto Finance -. Thibodeau will succeed Gary Lorenz, who has served as CEO since March of 2012.

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Hudson Cook Adds New Partner in Pennsylvania
SubPrime Auto Finance News (05/13/13)

Hudson Cook, LLP is set to open a new office in West Chester, Pennsylvania and to facilitate the opening, has brought a third partner into the firm. Jed Myak, who is admitted to the bar in both Pennsylvania and New Jersey, will open the new location and will focus on consumer finance regulatory compliance. The office will especially focus on mortgage lending and servicing and will provide services to both bank and non-bank providers. "Jed brings skills and knowledge that will fit perfectly in the firm's practice," Hudson Cook chairman Tom Hudson said.

Before joining Hudson Cook, Mr. Myak served as a member of the corporate, finance and capital markets group at Steves & Lee, PC, where he also was a shareholder. He was also worked as counsel to Black Rome, LLP and served as first vice president at MBNA, N.A.

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May 16, 2013

Forward To A Colleague

Allied Solutions
GoldPoint Systems
ParaData Financial
Wells Fargo Preferred Capital
Carleton, Inc.
Life of the South
Black Book
Counselor Library
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.