A new report (pdf) issued today by seven consumer advocacy groups provides data to refute assertions that blame the Community Reinvestment Act for the subprime crisis.

The report, ‘Paying More for the American Dream,” is the third annual report produced by the group.

The report documents the source of high cost loans made in 2007, divining their origination by type of lender.  The report shows the cost of lending on home mortgages issued by banks and thrifts operating in locations where they were obligated by the CRA.  It then compares that lending against banks and thrifts operating outside of their assessment areas.  For example, Wells Fargo operates in its assessment areas whereever it has deposits.  In San Francisco or Sacramento, they had a CRA obligation in 2007.  However, they had no such obligation in Raleigh, North Carolina in 2007.  Beginning with their acquisition of Wachovia, however, they will also have an obligation in Raleigh.

Then it compares the performance of those two groups with that of independent mortgage companies.  This includes institutions like IndyMac or Ameriquest.  Many of these lenders have gone out of business.

The report makes a few key findings:

• In low and moderate-income communities, depositories with CRA obligations originated a far smaller share of higher-cost loans than lenders not subject to CRA.
• CRA currently imposes no explicit obligation to serve communities of color. So, while lenders covered by CRA were less likely to make higher-cost loans in communities of color than lenders not covered by CRA, banks with CRA obligations still made a disproportionate share of their higher-cost loans in communities of color.
• Lenders not covered by CRA made the vast majority of higher-cost loans in the seven metropolitan areas examined. In all of the metropolitan areas examined, lenders covered by CRA had a much larger presence in the overall lending market than in the higher-cost lending market.
• CRA only applies to banks in the areas where a bank has a branch presence (the banks’ “assessment areas”). In all seven cities, CRA-regulated lenders acting outside their assessment areas originated a higher percentage of higher-cost loans than CRA-regulated lenders acting inside their assessment areas.

The full report is available here.

Republic Bank (RBCAA) of Louisville reported its earnings today.  First quarter earnings jumped by 16 percent, to $1.24 per share.  Given that its stock is currently trading between $21 and $22 per share, that’s indicative of a stock that could be undervalued.

A closer look at the results shows that most of its income came from one source.  The firm’s tax refund solutions business provided $20.9 million of the banks $25.8 million in profits.  Outside of that, results were mixed.  Mortgage banking surged, but it still made less than $3 million.  Banking outside of mortgages actually declined by 74 percent, to just over $2 million.

The tax refund business provides short-term liquidity to tax preparers that provide their clients with refund anticipation loans.  Most of the individual loans last from between 9 and 15 days.  For the filers, the costs might consist of between $40 and $120.  Republic doesn’t see all of that money, but they are able to generate a steady stream of dollars.  Its actually somewhat recession resistant, as in times like these, more people qualify for the Earned Income Tax Credit.  Moreover, more qualifiers are able to qualify for larger refunds, too.

Notice how Republic Bank gives incentives to tax preparers to provide RALs.

One of the downsides of this business, from the perspective of shareholders, is that it can’t be captured again until the first quarter of next year.  Thus, the $1.24 in earnings is likely to shrink by a significant margin for the remaining quarters.

Perhaps a larger problem is the possibility of some kind of government intervention that puts a wrench in this line of business.  One possible change would be for the IRS to slow down the response time on the debt indicator.  Right now, preparers using RALs are able to get refunds back to clients in one day.  Otherwise, e-filing is likely to require at least a week and perhaps longer.  If the debt indicator turnaround time was lengthened, the marginal value to consumers would shrink.

The debt indicator solution could be achieved without legislative change.  It could merely be enacted through administrative preference.  That makes Republic vulnerable.  It would put a stake in the heart of their earnings.

That fix might not occur, but the earnings remain tied to the TRS.  Moreover, the regulatory wolves are at the door.  In February, the FDIC issued a cease-and-desist order against Republic for its management of the RAL program.

A shareowner proposal to be presented this week at General Electric’s annual meeting reveals one of the devilish details about executive pay.

The IUE-CWA’s pension fund wants General Electric to cease the practice of giving dividend payments to senior executives on shares that they do not own.  In this system, senior executives get dividends on share options that hold but that they have not yet exercised.

The IUE-CWA’s rub is not that executive officers do not deserve compensation.  Instead, they are seeking an alignment between compensation and performance.  Short of a decision to cease the payment of dividends on common stock, this dividend policy guarantees that GE executive officers will be paid handsomely irrespective of share price.

In some instances, these options generate substantial dividend payments.  The IUE-CWA estimates that since January 2006, GE’s five senior officers have collectively been paid $12.5 million in dividends or in like payments.

GE defends the practice, noting that divident payments serve to link income generation with stock ownership.  That is a fine principle, but in creating that standard, GE dodges the notion of linking pay to – ahem – performance.

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This blog entry is not a recommendation for shareholders to vote, or even to vote in a certain manner, on their proxy.

There is nothing quite like a loan that you don’t have to pay back.

At least, that is what a few of the top executives at Wells Fargo must be thinking to themselves: Dick Kovacevich, Richard Levy and James Strother are all recipients of Wells’ special loan program for executive officers.  Wells discontinued the program on June 30th, 2002, but officers who already had loans under the “Relocation Program” were not required to pay back the outstanding principal.

Kovacevich received his $995,000 loan in 1998.  Levy received $325,000 in 2002. And Strother received $310,000.

In 2008, the group made interest and principal payments of $0.  That’s a pretty good deal.

Interestingly enough, these loans seem to have to do with moving costs then they do to the position of the loan applicant.  Levy, for example, moved from New Jersey to California in 2002, whereas Kovacevich moved from Minnesota to SF four years later.  Presumably, distance and inflation mean that Levy had a higher moving bill.  There’s also the likelihood that the cost of selling a home might be more, if only due to realtor’s fees.  Then again, Wells was also willing to buy the home of an officer under this program. Oh, and they were also pretty much willing to pay most of the mortgage costs on the new home, too.

The details on this are fairly complicated.  They are described on page 38 of this year’s proxy.  The explanation seems to provide the specifics, but they avoid the larger truth – that this serves to undermine the SEC rules on salaries.  The SEC allows officers to have any salary that their company decides, but taxes are not deductible for salaries above $1 million.

Moreover, new rules after 2002 only sweetened the deal.  Now, the company will buy (through a third party) the home that an officer sells in order to relocate (at appraised market value).  They will also pay the taxes on any amounts received by an officer for relocating.  Also, they pay all transaction costs (closing costs, realtor fees, titling, et al).

Stephen Colbert, the talk show host and Presidential candidate, has found a new whipping boy: Congressman Louis Gutierrez’s new Payday Loan Reform Act (HR 1214).

Here’s Colbert with his take on the bill.

He makes a few good points:

• We’re talking about reform from an Illinois Congressman!
• anemic regulation will be, well, anemic.  And it will be Federally sanctioned.
• interest rates of 400 to 800 percent are perfectly appropriate when you get a 2000 percent raise on your next paycheck.
• Gutierrez’s top campaign supporter was QC Holdings ($10,100 in contributions.)