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Owners Again Borrowing Against Homes as Housing Market Recovers
The Los Angeles Times (02/20/14) Reckard, Scott E. and Khouri, Andrew

As home values dropped during and immediately after the financial crisis, financial institutions essentially stopped lending in the form of home equity lines of credit. Now, banks are returning to the product as home values raise and borrowers become more willing to take some money from their home to purchase vehicles and make home improvements.

In southern California, borrowers took out 47,542 home equity lines of credit in 2013, up 28 percent from 2012. Nationally, home equity lines of credit were estimated at nearly $60 billion in 2013, following a low of $49 billion in 2010 and a record high of $430 billion in 2006. For lenders, lines of credit are more risky because first mortgages are paid off first in the case of default, but due to new mortgage regulations, many home equity borrowers are far more qualified, with high credit scores, and are less likely to default. The most popular use of these lines of credit remains home improvement or expansion, but some borrowers are using the money to purchase other real estate.

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Inside the Beltway
U.S. Chamber of Commerce Calls for Detailed Auto Lending Rules from the CFPB
Automotive News (02/19/14) Henry, Jim

In a letter recently sent to Consumer Financial Protection Bureau (CFPB) Director Richard Cordray, the U.S. Chamber of Commerce pressed the bureau to provide a compliance handbook to vehicle finance companies. The letter called on the bureau to provide specific rules for loans arranged at dealerships as opposed to forcing companies to interpret and apply guidelines tailored to individual lenders made during enforcement actions.

The letter asked the CFPB for a number of clarifications and answers, including standards for disparate impact and liability in indirect auto lending, a definition of “abusive” acts, and a standard for lenders’ liability for the actions of service providers. Instead of piecemeal consent orders, the letter continued, the bureau should follow more traditional and formal rule-making procedures in order to increase transparency and give companies the opportunity to comply with the law.

During the AFSA Vehicle Finance Conference, CFPB Assistant Director Patrice Ficklin disagreed with some criticism that the bureau was not forthcoming enough with information on how lenders should operate. AFSA President & CEO Chris Stinebert noted that if he followed the Ally settlement as a road map, he would be unable to “implement a program based on that agreement.” Ficklin responded that the CFPB has given great detail about its expectations. "While we may not answer every question to the nitty-gritty 'nth' degree ... I think if someone takes the time to carefully read the consent order, they'll be surprised how much is in there," Ficklin said.

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Federal Reserve Inspector General to Probe Renovation Costs at CFPB
The Washington Examiner (02/14/14) Pollock, Richard

The Federal Reserve Inspector General announced that it will investigate why renovation costs of the building occupied by the Consumer Financial Protection Bureau (CFPB) have climbed to more than three times the original estimate. The previous building occupant, the Comptroller of the Currency, estimated the renovations to cost approximately $55 million. The latest CFPB estimate runs in the neighborhood of $145 million.

Rep. Patrick McHenry (R-NC) requested that the inspector general review the plans and "evaluate the budgeting process for the renovations, determine if the renovation expenses were subject to a competitive bidding process and conclude whether these dramatic increases are justified." CFPB Director Richard Cordray has stated that the building is deteriorating and has inadequate electrical, phone and elevator systems. The agency hired Skidmore, Owens and Merrill as architects for the renovation, the same firm that designed the extravagant Burj Kalifa in Dubai.

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National and State News
Americans Ramp Up Borrowing
The Wall Street Journal (02/18/14) Shah, Neil and Chaudhuri, Saabira

A new study conducted by the Federal Reserve Bank of New York shows that Americans are beginning to take advantage of eased lending conditions. Consumers led the largest quarterly increase in credit outstanding late last year since the third quarter of 2007, according to the report. Overall, household debt increased by $241 billion from October to December 2013; that means  more Americans are taking mortgages, making purchases on credit cards and taking advantage of low rates on auto and student loans.

Mortgage debt increased by $16 billion, ending four years of year-over-year declines. Total household debt, now at $11.52 trillion dollars, still remains nine percent below its peak of $12.7 trillion in 2008, but analysts note that the continually strengthening job market, rising stock market and increasing real-estate values likely will translate into increased consumer spending.

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Student Debt May Hurt Housing Recovery by Hampering First-time Buyers
The Washington Post (02/17/14) ElBoghdady, Dina

Applications for new mortgages have decreased by nearly 20 percent in the last four months compared with the same period a year earlier. According to some analysts, student loan debt may be partly to blame. Student loan debt has skyrocketed to more than $1 trillion. The concern is that first-timer buyers, who are the bedrock of a healthy housing system, cannot save for down payments or qualify for financing because their debt burden is too great.

New mortgage rules may also contribute to the inability of younger borrowers to get financing for a new home. New debt-to-income ratio requirements are designed to protect borrowers from abusive lending practices while providing mortgage lenders safe harbors if they keep the ratio below 43 percent of the monthly gross income of a borrower. Unfortunately, student loan debt disqualifies many borrowers from this requirement.

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Regulators Pressure Mortgage Servicers
The Wall Street Journal (02/19/14) Johnson, Andrew R.

According to sources familiar with the talks, federal agencies and state attorneys general are pressuring numerous banks and financial institutions to settle allegations of poor customer service while servicing mortgages. Consumer Financial Protection Bureau (CFPB) Deputy Director Steve Antonakes remarked during a  Feb. 19 speech that he was "deeply disappointed by the lack of progress the mortgage-servicing industry has made," Rep. Maxine Waters (D-CA) wrote a letter asking regulators to more closely examine nonbank mortgage servicers that have purchased loans from banks.

Iowa Assistant Attorney General Patrick Madigan stated that he fully expects additional settlements soon. Nonbank mortgage servicer Ocwen Financial settled with the CFPB and 49 states in December for 2.1 billion over allegations that it failed to comply with consumer financial protection laws as it purchased loans from banks exiting the mortgage market.

Antonakes also noted in his speech that the CFPB will be closely monitoring how servicing rights are transferred between two companies.

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Late Payments on Credit Cards Go Up
The Associated Press (02/19/14) Veiga, Alex

While the late payment rate remained close to its lowest level in nearly six years, according to a recent study by TransUnion, many Americans took on more credit-card debt and failed to make timely payments in the final quarter of 2013. Credit card accounts that were 90 days overdue or more rose to 1.48 percent in the fourth quarter, and average debt per consumer rose as well, by 1.7 percent to $5,325.

The increase is common in the fourth quarter as consumers stretch budgets to the limit – or blow them altogether – to purchase holiday gifts. The card delinquency rate still remains lower than its peak in 2007 at 2.2 percent, and credit card debt generally is 15.7 percent lower than it was in 2008. In December, it stood at $861.9 billion. According to the report, nearly 40 million fewer credit card accounts are in the marketplace than five years ago, before the financial crisis.

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NoVa Legislators Form Privacy Caucus
The Washington Post (02/20/14) Jackman, Tom

Va. Delegate Rich Anderson (R-Prince William) and Sen. Chap Peterson (D-Fairfax) are heading up a bipartisan group to “protect the privacy and liberty of Virginians against unnecessary intrusion by government agencies and law enforcement.” The politicians are particularly concerned with the continued use of automatic license plate recognition systems by Va. law enforcement. Former Attorney General Ken Cuccinelli noted in an opinion last year that the use and storage of the data violates the Data Practices Act in the state. Immediately following the announcement, the Va. State Police began erasing the data after a 48-hour window.

Several local police departments in Northern Virginia, however, have disregarded the opinion and retain data for six months. Anderson and Peterson put forth legislation to define license plate numbers as personal information, but withdrew the bills because they appeared to be too vague.

Proponents of ALPR use by law enforcement point to many occasions where the technology was critical. A recent arrest of a man in a vehicle led police through a tangled web that, using ALPR data, eventually led them to break a national drug cartel. In July 2010, police used ALPR technology to track down a man who had gone missing for two days. They ran the tag number through an ALPR database, found the vehicle’s last known location and proceeded to search the area. They found the man dehydrated and disoriented.

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State Regulators Form Task Force to Study Changing Landscape in Payment Systems
Conference of State Bank Supervisors

In a Feb. 20 press release, the Conference of State Bank Supervisors (CSBS) announced that it was forming a task force to study changes in payment systems and how those changes can have an impact on consumer protection, state laws and nonbank entities that are regulated by the states. The task force, called the Emerging Payments Task Force, will study virtual currencies, as well as several other recent innovations.  CSBS and the group will contact stakeholders in order to understand how payment systems develop and are used within the financial system.

“State regulators welcome a robust and focused dialogue about the benefits and risks of innovations to payment systems,” said CSBS Chairman and Kentucky Department of Financial Institutions Commissioner Charles A. Vice. “We seek an environment where technological innovation can be developed, but also regulated in a clear manner.” Vice will head up the task force.

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February 20, 2014

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