Editor’s note: This is an account, written by a local businessman, about how a small town was able to keep a bank. Lake Lure, North Carolina is a forested community in the mountains of Western North Carolina.

They once had two banks. In 2010, one branch closed as part of an effort by a regional community bank to shore up its balance sheet. Last year, following the acquisition of their other local bank (Carolina First) by Canadian banking giant TD North, they received the word that their bank would be closed. TD North suggested that customers that still wanted the services of a branch bank should drive 20 miles to Hendersonville, North Carolina.

The New York Times recently chronicled the scores of small towns, mostly poor, that are losing their banks. Lake Lure is not a poor town.  Lake Lure is endowed with a lot of great things: It has plenty of natural beauty which attracts plenty of tourists. Over the years, it has become a retirement destination for many seniors. Its down town never lost its vitality.

Lake Lure didn’t take the news and just roll over. Instead, they created a team of local leaders that included businessmen, the local town government, a state park, the grocery store, and some bankers. They filed a complaint with the Office of the Comptroller of the Currency – the primary regulator of the US operations of TD North, and they petitioned to speak directly with the leaders of the bank.

Keeping our Bank Open Here’s how we did it in a small NC mountain town.
by Bill Frykberg
President LogFinish.com Lake Lure NC

Lake Lure is a small mountain town in the Foothills of the Blue Ridge Mountains. We have been
served by a commercial bank for the past 60 years. During the Winter of 2011 we got caught up in the wave of downsizing that is effecting banking nationwide. First in December 2010 a small regional “watch list” bank Mountain First announced that it was closing its Lake Lure branch. (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…)

The Federal Reserve must not read much. Why else would they act as if a few more details in Home Mortgage Disclosure Act data would constitute a privacy concern?

You may been reading the recent series in the WSJ about privacy in the digital age. The basic message is: there is no privacy. Here are a few of the tidbits:

• Upon visiting a web site, those companies can pull your data in 1/5th of a second. The price is about 1/10th of one cent. They use that data to suggest a product choice. One visitor (their example is a rural working class senior citizen) is encouraged to buy a $250,000 life insurance policy. Another (college-educated high income suburbanite) is prompted to look at a $2 million policy). The possibilities for steering people into sub-prime loans are pretty obvious.
• You can remove cookies, but you cannot remove “beacons,” which serve as data aggregators. They can cross-tab your visit histories with information in the other beacons that are already on your computer.
• There is little or no anonymity. Most sites collect specific data so specific that even without a name, the identity is clear: address (from your last online purchase), age, gender, marital status, health concerns (WebMD!), income, zip code, travel interests, and education.  These sites can claim that they do not reveal personal information if they do not pass on your name.

All of this should be considered in the context of how the Federal Reserve is implementing the data directives from Congress that were included in the Dodd-Frank Bill. Congress wants that information to be out there, but the rule-making process will ultimately determine how fully those instructions are implemented.

Precedent for New Data

In the wake of the subprime crisis, people are asking what could be done to give regular people a better chance to understand and comment on problems with mortgage markets. For years, data has been available for the asking to anyone that wanted to analyse how loans were being made. Many people have an interest in knowing what is going on. It isn’t just a few wonks. All kinds of people, from homeowners to local governments to neighborhood associations, are known to go to HMDA data for information about their markets.

Unfortunately, that data has fallen behind the times. We know what constitutes a “risky” mortgage – all of those exotic deals that are waiting to cause trouble. That would include the option-ARM, or the loan with the huge balloon payment, or when a lender never checked on the income of a potential borrower. These things were all too common, and now they are the common culprits in our mortgage crisis. “If only we could have known about this,” is a common refrain. People want to stop “the fire next time.” They want better data.

Unfortunately, the Federal Reserve is pushing back. There are a few essential points to their argument, but they all boil down to this: we don’t want to let consumer information get out into the public.

As if.

(more…)

A new study shows that African-American and Latino borrowers were much more likely to get subprime loans, even after important underwriting criteria have been taken into account. A few years later, subprime loans are six times more likely to fall into foreclosure. The authors conclude that the short and tragic lifespan of subprime products should compel legislators to draft a CFPA that protects housing wealth, and indirectly, our nation’s economy.

“Foreclosure in the Nation’s Capital: How Unfair and Reckless Lending Undermines Homeownership” gathers loan data from 2004 to 2007 in the Washington, DC metro area. A unique feature of NCRC’s research is that it has linked HMDA data, a common source for many mortgage studies, with loan performance data available through a proprietary set of servicing records.

Foreclosure Trends in Washington, DC. (NeighborhoodinfoDC)

The chart at left shows trends in foreclosures in DC on a quarterly basis. The blue line represents the inventory of foreclosed homes.  From a low in 2006, DC now has more foreclosed homes than at any time in the last ten years.  Moreover, these numbers may be false positives. It is possible that with a glut of pre-existing REO properties on the market, that lenders have been holding off on starting new foreclosures.

The research used a (ALERT: Data talk ahead!) logistic regression model to identify subprime loans.  No one factor made a loan subprime in their definitions.  Instead, a set of loan terms, borrower credit, and interest rates were used as independent variables that contributed to a nominal label of prime or subprime.

Key findings include:

• African-Americans and Latinos were 80 and 70 percent more likely, respectively, to get a subprime loan than were white borrowers, after controlling for the credit score, income, loan-to-value, and neighborhood characteristics.
• Mortgages made to African-Americans and Latino borrowers were 20 and 90 percent, respectively, more likely to enter into foreclosure.
• Loans purchased by the GSEs were half as likely to enter foreclosure as those held by private MBS investors.
• The most telling loan terms for gauging subprime: the presence of either a balloon payment (72 percent subprime) or a prepayment penalty (54 percent subprime).

Other data points confound what might be expected.  For example, the share of subprime loans was highest in moderate-income (more…)

The Office of the Comptroller of the Currency has just released its latest CRA exam results. The news is hardly surprising – everyone passed!

In fact, of the 35 banks evaluated, 4 were given an “outstanding” and 31 were recognized as satisfactory. There were no “needs to improve” or “substantial noncompliance” ratings.

Grade inflation has run amok at the OCC for some time.

The OCC gave an outstanding rating to First National Bank of Audrain, located in Mexico, Missouri. This is in spite of the fact that FNB Audrain made no loans (zero) to low-income borrowers. There were plenty of low-income people in Mexico, Missouri. The OCC reports that it can characterize 16 percent of families in the area as low-income. FNB of Audrain made no loans in low or moderate income census (more…)