Unless I am mistaken, H&R Block will share in much of the risk for its refund anticipation loans during the upcoming tax season.

Block has a relationship with HSBC for its refund products.  Block’s customers are delivered to HSBC for refund loans.  HSBC advances the customer cash based on the expectation that they will have a refund.  In the past, that expectation was backed up by the IRS debt indicator. HSBC won’t have that kind of certainty next year.

My reading of Article IV, Section 4.5, part (a) of this filing, made in March 2010, is that Block will have to refund to HSBC on their losses from RAL advances that cannot be collected.

Tax refunds are going to be very risky without the debt indicator. Last year, a high percentage of refund loans were turned down. Many people have outstanding liens, either for child support or back taxes or for unpaid student loan debt. The debt indicator caught those returns. Now, it’ll be an unknown.

Block shareholders should be paying attention to this situation. HSBC might be one of the world’s largest financial institutions. Block is not.

For many reasons, the nature of how tax preparers enable their clients to get an advance on their expected tax refunds is changing.

Earlier this month, the IRS announced that it will not offer the debt indicator for the upcoming tax season. Advocates were ecstatic about this event. Absent of some notice about the tax position of a RAL consumer, the new normal in RAL underwriting triggers all kinds of problems for this product. It makes the product more more risky. Given that most of the active players in this field are relatively small banks (MetaBank, Ohio Valley Bancorp, Republic Bank of Kentucky), the new rules should make regulators look twice. There are new (more…)

The latest delinquency survey from the Mortgage Bankers’ Association re-states the story that everyone has know for some time – that late payments and foreclosures are still high and that many of them are for prime loans made to borrowers that are now unemployed.

The New York Times read the report, which states the both delinquencies and foreclosures dropped by a matter of a few basis points, and concludes that “Foreclosures Fall, but Rise in Delinquencies Causes Some Concern.” True enough, there is a rise in delinquent loans relative to one year ago, but we’re off by 21 bps from last quarter.

More than a few people have told me that banks are putting off on putting loans into foreclosure. This could be attributed to a number of things. Most often, I hear that both (more…)

The Dodd-Frank bill will require lenders to disclose more data about their lending, but the fundamental problems with HMDA remain largely unresolved. Dodd-Frank says that it will collect, and then disseminate, the following new categories within an updated HMDA by no later than 2012:

• age of borrower
• borrower credit score
• total points and fees payable at origination
• the spread between the loan’s interest rate and the corresponding treasury note of similar maturity
• value of the collateral pledged against the loan
• non-amortizing loan features
• length before loan reset (months)

Those are some good ideas. I think that there is going to be a substantial discussion about (more…)

One of the problems with the enforcement of the Community Reinvestment Act has been the inability of examiners to create standards that can distinguish the level of effort made by different banks and thrifts. The problem isn’t just with the ratings, although they are certainly guilty of this sin. It lies in the construction of examinations, as well.

Community development loans are one of the most significant ways that a bank can extend credit that would otherwise not be available. Loans for (more…)