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…)

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…)

Holders of more than 1 billion shares of Bank of America stock voted against the election of two of their directors.  1.19 billion ballots were cast against Virgis Colbert, and 1.47 billion were voted against the election of Charles Rossotti. There are slightly more than 10 billion shares outstanding.  About 1.6 billion shares, held by brokers, were not voted.  Colbert holds five directorships: Miller, Lorillard, Stanley Black & Decker, Manitowoc, and B of A.  If you have ever been to New Britain, Connecticut, you will have a lot to say about Stanley Tools.  Rossotti is former commissioner of the IRS, and currently an advisor to the Carlyle Group.  Perhaps voters remember how the Carlyle Group defaulted on 16.6 billion in mortgage-backed securities.  Most were subprime issues owned by a British firm. Its owners include George H.W. Bush and, at one time, the Bin Laden brothers.

I think the price of Pacific Capital‘s common stock should provoke some attention. Although the bank recently agreed to let Gerald Ford buy 225 million shares of common stock at a price of 20 cents per share. Today, the shares are trading for over $2.  Ford also agreed to buy preferred shares.  Maybe the market thinks the deal won’t happen. I don’t see how existing shareholders can stop it, since they have already approved the issuance of new shares.

Jackson Hewitt’s new deal to get an extension on its credit line with Wells Fargo has one problem: it is a subprime loan.  Jackson Hewitt is going to pay LIBOR plus 11 percent on that debt.  Moreover, the loan is written to capitalize interest. JTX only has to pay a portion of their interest due. Of that 11 percent plus, JTX will pay 4.5 percentage points. In all, JTX estimates that debt service will be between $20 and $22 million per year.  Does that smart? Not really. Jackson Hewitt’s operating income for the last four quarters is laughable.  They have lost $230 million from operations.  On top of that, they were only paying about $18.3 million per year in interest.