The Dodd-Frank bill requires lenders to retain a five percent risk-retention in loans sold to the secondary market.  It is an idea driven by the lessons that we learned from the financial crisis. Give banks a moral hazard by making them hold some skin in the game. It is hoped that they would then respond by not making unsustainable loans.

The bill gives regulators some time to decide how to implement that requirement. The Dodd-Frank bill does offer some guidance. The Merkley Amendment sets an expectation that lenders will hold a five percent stake in any ”qualified residential mortgage.”   A “QRM,” as it known, needs risk retention.  An exempted loan does not.

First Thoughts

This is a classic example of a rule that could have unexpected consequences. At first glance, it seems like common (more…)

It is a big problem that Americans are not saving enough, and it ought to be important when people gauge the logic of making unsecured credit available at any price.  

There is an argument out there that has been propogated by advocates of payday lending, buy-here pay-here car lenders, and other high cost credit products. Here is one example, from an interent payday loan broker:

Some of us live from paycheck to paycheck, and when an emergency happens in between, we’re really messed up because we’re broke. It is at these times that a quick payday loan is like a miracle. What if you chip a tooth or suddenly need two new tires? If with insurance, you still need to pay the dentist something, and there’s no tire company that is just going to give you free tires.

 You need money, and you need it quick. Payday advance lenders can have money in your bank account in a few hours at the most. It is so easy to qualify. All you need is a computer with Internet access. There is no faxing here. You sign everything electronically, and the money is yours. There is no need to cash a check because the money is directly deposited into your account. It’s practically like a Christmas present….Take it all in stride even if your money is short. Don’t get all crazy; just relax. A quick payday loan can fix everything.

Except that a payday loan doesn’t fix anything.

Our economy isn’t what it used to be. Even when there are plenty of jobs, many people are just barely getting by. There are too many jobs that only pay $9 per hour. On the cost of living side, the news is even worse. Health care costs continue to go up for everyone. Many families are burdened by the high cost of college tuition. Even though incomes have stagnated, prices for big purchases have not. It costs $25,000 to buy a no-frills midsize American sedan.

The other day, a financial planner laid it out for me. He put it this way:  a successful retirement is one where you don’t have to put yourself at the mercy of the generosity of the government. I couldn’t disagree with his logic, even if his judgment of “success” was a bit dour. I often think of a successful retirement in terms of a long period of of (more…)

Now we have news that the nation’s largest mortgage originator, Countrywide, systematically skipped over the basic framework of how property is legally identified and represented in their transactions.

This administrative lapse could cost Bank of America billions of dollars, according to Daily Finance.

A team leader from B of A’s Mortgage Litigation department testified at a New Jersey hearing that it was “customary for Countrywide to maintain possession of the original note and related documents.” That is a surprise, (more…)

An associate passed along a test that he uses when he trains volunteers at Voluntary Income Tax Assistance sites: 

A refund anticipation loan is equivalent to:

• a) Getting Your Money Now!
• b) Paying a lot To Get Your Money Now!
• c) Costing low income North Carolinians $63 million a year!
• d) All of the above.

The Debt Indicator is

• a) Provided by the IRS to indicate a debt obligation to Uncle Sam
• b) What banks use to underwrite RALs.
• c) What the IRS will not provide in 2011.
• d) All of the above.

The North Carolina Refund Anticipation Loan Act

• a) Requires tax preparers who originate RALS to register with the NC Commissioner of Banks
• b) Requires tax preparers to prominently display the cost of RALS
• c) Ignored by more than 1 in 4 tax prepares providing RALS
• d) All of the above.

Tax preparation firm Jackson Hewitt has until Saturday to meet the terms of its line of credit agreement with Wells Fargo.

Wells Fargo stipulated that JTX needed to have full funding for its refund anticipation loan (RALs) offerings for the upcoming tax season.  Currently, Jackson Hewitt has funding lined up with Republic Bank of Kentucky (RBCAA). Republic said that it expects to impose new underwriting criteria. That could mean that fewer consumers will be able to get a RAL in the first place.

The mystery in all of this is Wells. The event of default is a condition that gives Wells the ability to pull (more…)