The time for a decision on ShoreBank may be coming soon.

A few rumors are circulating that the FDIC is ready to make a decision about ShoreBank, the famous Chicago community development lender that helped to define the field of community capitalism.

ShoreBank created a model of making loans in low-and-moderate income neighborhoods in the South Side of Chicago. ShoreBank ignored many of (more…)

The Federal Housing Administration has decided to rethink how it protects itself with a new guidance last month. The new rules have implications not just for borrowers, but also for private mortgage insurance companies.

The new rules, known as the Loan Level Pricing Adjustments (LLPA – pdf here), say that most FHA borrowers will now have to pay an upfront premium of 150 basis points on the amount of their FHA loan. Subsequently, they will be expected to pay another 50 basis points each year. That second charge is paid with the monthly payment.

One analyst at a private mortgage insurance company called me to tell me how much of a difference this will make for his company. He paints a tough picture for the market in the last year: the private firms were being squeezed by the low rates at FHA and the high origination fees built in to (more…)

The Federal Reserve will hear the first round of testimony next Thursday on the construction and dissemination of data provided for by the Home Mortgage Disclosure Act. The meeting will be held at the Atlanta branch of the Federal Reserve. Three other meetings are scheduled in the following weeks for Washington, DC, Chicago, and San Francisco.

HMDA data is freely distributed each fall through the Federal Financial Institutions Examination Council (FFIEC). The (more…)

In its application to the FRB of SF, Green Dot says that its business plan for its acquisition of Bonneville Bank does not include any intent of offering credit to consumers that use its debit cards.  I hope that this is true. High-cost credit lines are the biggest problem with the cards at MetaBank. When combined with direct deposit, these credit lines provide the financial structure for a new iteration of payday lending.

I know what Green Dot says. At the same time, I don’t have peace about it. One of the things that worries me is the membership of their Board of Directors.

Michael Moritz, a Managing Member of Sequoia Capital, purchased more than 1.1 million shares of Green Dot in December 2008.  Sequoia makes early stage investments in companies, include firms in financial services. Mr. Moritz is one of the members focused on that sector. Sequoia itself has positions in Green Dot.  It also has a position in Think Cash. Think Cash provides short-term loans over the internet.  According to Think Cash, interest on those loans ranges from 87 percent to 334 percent. ThinkCash operates three firms, including Pay Day One.  Think Cash also operates Elastic, provider of emergency loans. Elastic’s loans are funded through a relationship with Urban Trust Bank.  Frank Hannah is a principal in Urban Trust Bank, along with Robert Johnson of the BET Network.  Urban Trust is also one of the financial institutions that serves the Rush Card.

I do not expect that any of the above individuals will dispute the connections that I have pointed out, and I would also doubt that they would have any qualms about the nature of this kind of consumer credit. Make no mistake about it, these people are very good at what they do. They have done it before, and I don’t see why they wouldn’t continue with their passion. These people are truly excellent at payday lending, buy here pay here lending, and other forms of high cost consumer credit. Our society has room for all kinds of excellence – Excellence in Education, Excellence in Broadcasting, even Excellence in Payday Lending.

Though they are excellent, these are not the guys that I want in the room with Wal-Mart. Wal-Mart could transform how the unbanked approach the payments system. So, if Wal-Mart is hanging out with these guys, it bears watching. If you are concerned about the finances of low income people, then this ought to get your attention.

It only takes a few banks to make an exotic form of credit take wings across the country. Four or five banks have funded refund anticipation loan lending for years. Payday lending was largely funded by just a few banks, too.  Maybe Green Dot has no interest in offering high cost short term credit through its prepaid cards. Maybe. Of course, I’m a bit skeptical. My message to the Federal Reserve would be simple: trust, but verify.

The Green Dot story is big news today. The New York Times discusses it in Andrew Ross Sorkin’s blog, Deal Book. The American Banker has its own article. The news even got picked up in London by The Financial Times.

Regional Gulf Coast banks, particularly those operating as portfolio lenders, are already suffering.Yet while most of the press on the environmental damage has focused on Louisiana, the real damage for banking is likely to be located among community banks in Florida.

Barron’s recently identified three “top” Gulf Coast banks: MidSouth Bancorp, Iberia Bank, and Teche Holding. Those would not be the only institutions at risk. Regions has always been an active partner with real estate developers in Alabama, Georgia, and Florida. BB&T had a big presence in Florida. This year, it added to that when it acquired the assets Colonial Bank. Synovus owns scores of small town banks throughout the area. (more…)