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Community Reinvestment Act

February 23, 2010

If we had a vibrant economy where delinquincies were receding and employment was roaring back (NOT!), it would make sense that banks would take on a little more risk.  The evidence is clear, though.  We have  recovery in share prices, but the budgets of households are not back where they were. Credit card charge-offs are up, and unemployment is still high.

That is why it seems odd that some of our largest banks have decided to offer a new payday-loan product.  US Bank, Wells Fargo, and Fifth Third are three banks that are rolling out short-term loan programs where APRs exceed 120 percent.

Did I mention that each of these banks was given a huge TARP investment? True, US Bank and Wells have already repaid their TARP funds, and Fifth Third indicates that it intends to do the same in the next quarter.

I think the appearance of these new products reveals how this credit crisis is hurting middle America. Consumers don't want to use loan products like payday loan-priced advances on their next paycheck.  They would prefer to use credit cards (interest rates of as much as 29 percent) or a line of credit (perhaps 12 percent.) These new payday products cost at least 120 percent. People aren't dumb. They are taking this bad deal only because banks aren't offering something more reasonable.

Let's review the new payday products.

Fifth Third's Access Now: "when you need money but you don't have time to wait." The cost is simple - $1 for every $10 advanced.  Funds are repaid with the next direct deposit. If your

October 23, 2009

CRA-NC is organizing a tour to the nation's capital.  We're bringing housing counselors from all over the state.  The counselors are angry.  They are tired of getting the run-around from servicers.  They see the press about HAMP's 500,000 loan modifications.  They aren't seeing that on the ground.  Maybe that is because they are trying to get real modifications - not ones that merely extend the life of a loan, or reach a modification agreement that actually results in a higher monthly payment.

We're going to bus people from Durham, Rocky Mount, Winston-Salem, and Rich Square.  The Durham bus holds 55, and the other buses are taking about 15 people.

The Modify This Tour takes place October 29th.

October 22, 2009

I just reached a contract to purchase a home.  In doing so, I had a chance to survey loans from about 10 lenders.  While there is no change in the homogeneity of interest rate pricing, I was surprised to see incredible variations in origination fees.

About the deal: I bought a home with the intention to utilize it as an investor property.  It is a modest brick three-bedroom in a quiet neighborhood.  I got a distress price, in my mind, because it was being sold by two heirs that needed their money quickly.  The house itself is in fine shape.  It won't require a 203 loan.  The home cost $83,000 after the sellers threw in $2,000 for closing costs.  Was it a distressed price?  Well, I believe so.  The county assessment, conducted in May 2008,

October 16, 2009

Today's Miller-Moore amendment makes more sense than would first appear.  The new rule, coming out of the House Financial Services Committee, exempts most financial institutions from new regulatory review by the proposed CFPA.

Banks with assets under $10 billion, and credit unions with assets under $1.5 billion, would not be examined by the CFPA.  It seems like a cave-in, right?  What's up with the lobbyists giving up on so much work from those 8,000 clients? What's up with helping the country prevent another meltdown?

Advocates initially responded with some frustration.  The National Community Reinvestment Coalition published a

October 2, 2009

The Federal Financial Institutions Examination Council (FFIEC) released the new Home Mortgage Disclosure Act records for 2008 this week.  The data, referred to as "HMDA data," covers 14.2 million mortgage loan applications and another 2.9 million mortgage loan purchases on the secondary market.  Want to see what I am talking about? You can download the data here.

The HMDA data is released to help citizens understand how banks and other lenders are working in their neighborhoods.  It was legislated through the Home Mortgage Disclosure Act, and it dovetails within the broader aims of the Community Reinvestment Act.

New legislation is on the table in DC that would counter the shortcomings of this data.  HMDA is broken. 

September 18, 2009

The latest round of exam scores are out for the OCC's Community Reinvestment Act examinations.  Surprise!  Everyone is a winner! The OCC handed out all A's and B's.  Wouldn't you love to take that class?  Last month, they handed out all A's and B's, too!

This time, five banks got outstanding, and thirty got satisfactory.  No one earned a score that would require any kind of a strategic plan to improve their service.

One large bank, Fifth Third,  dropped from Outstanding! to Satisfactory.  The OCC decided not to examine any of Fifth Third's service, investment, or lending for North Carolina.  That is in spite of the fact that Fifth Third acquired First

September 16, 2009

Rep. Cleaver...."I"...raises his hands..."I am having a really weird time in Congress....I am having a lot of weird experiences that I didn't expect..."

More time passes.

"It seems to me like we are  not supposed to ingore indisputable facts."

More time passes. He then makes a point.  He says that the law states, in its exact language, that the law is supposed to support sound lending.  He says he will yield to anyone on the planet who can say it differently.

A man in a gray suit gets up.  He appears to have something to say.  Frank does not want to recognize him.  Cleaver is

September 16, 2009

Taylor is back.  A passing comment can't be ignored - it is so opaque - but also significant.  He comments, "in my neighborhood, Roxbury, where I grew up..."

That's a telling comment because Roxbury is in Barney Frank's district.  Taylor represents NCRC in DC, but he actually lives in Boston, in Frank's district.

Rep. Marchant wants to talk about extending CRA to new institutions.  This is a hot subject.  Credit unions and insurance companies may get a CRA obligation.  It seems very likely that if CRA Modernization passes, that it would extend coverage to independent mortgage companies.

Rep. Marchant (R-Tx): "Is it your opinion that even if the CRA was properly enforced under current law, would it bring enough money to neighborhoods?"

Taylor: it is not well enforced.

The Mass. Commissioner of Banks points out that while no state-chartered institutions are currently not meeting their requirements under the Mass. state law, some did not always reach that level.  And, he says, credit unions have not

September 16, 2009

Rep. Hensarling is up to examine the testifiers next.  He is having fun with words:

  • If banks are not required to make unsustainable loans, are they required to make sustainable loans?
  • If the CRA is simple, then why is it, in the view of small banks, expensive?  (Earlier, he mentioned how banks spend between $20,000 and $90,000 reporting on CRA.)

Taylor asks him why he is mixing up lending based on race with lending based upon income.  It's a pretty good response.

Other questions:

  • Why is Josh Silver looking off to the right? What is over there?
  • Where are the rest of the Congressmen?  The first three rows of seats are largely empty.

White is back, courtesy of a question for Rep. Neugebauer.  He wants to do it through funding from taxpayers.  He thinks

September 16, 2009

A few reactions to the first round of testimony on the CRA Modernization Act hearings, going on right now in the House Financial Services Committee.

It is interesting how facts can provoke some very reactions.  Congressmen for and against the CRA bill seem to be citing the same facts, but then coming to different conclusions about that means for making policy in the future.

fact: 99 percent of banks are meeting the standards for complying to the CRA, according to exams. This is true.  In 2008, more than 2000 banks were examined.  About 25 were given some kind of sanction.  The question this seems to provoke is where there is a difference. Rep. Hensarling, Rep. Neuberger, and Rep. Royce assert that this means that the Act is being served. Waters points out that Countrywide, a lender not regulated by CRA, was writing a lot of subprime loans.

fact: Acorn was caught on tape in Baltimore with some real shenanigans. True.  Rep. Hensarling leads with this news, and asserts that it is an example of why CRA is wrong-headed.  Rep. Frank and Waters both seem to feel that this is a stretch.  Frank leaves ACORN out to dry.  He doesn't appear to want to push back on the meaning of what ACORN did,

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