More and more, it seems like any changes to the Community Reinvestment Act that come out of a new CFPA will be limited to data collection requirements. That is a missed opportunity. Still, if updates to the CRA can repair the framework for data, that is still a plus.

Everyone knows that HMDA data could be better. It doesn’t really offer a means to separate the prime loans from those that are subprime. There is one clue: since 2004, the data has included information about interest rates. Even that data is limited, though. It isn’t sensitive to adjustable rates that reset. Moreover, the exotic loan terms that are the feature of so many subprime loans are also ignored. There is no indicator for a stated income product, or for a balloon, or for an unusual loan term. In general, if it isn’t a practice that was characteristic of the mortgage market in 1985, then it isn’t in HMDA.

This frustrates bankers and policy wonks alike. Bankers cringe when prime loans are indistinguishable from subprime.

I spoke with the head of the mortgage division at one of the larger banks in the country yesterday. I put the question to him. “If you could change one thing (more…)

An issue is emerging in the Motor City: can General Motors wean itself off of subprime financing? The classic GM customer was a credit guzzler. How many GMs were purchased in the last decade on the heels of a cash-out refinance? That won’t work any more. GM’s credit rating has fallen way below investment grade, and there’s little thirst for a chance to drink from a firehouse of sub-prime asset-backed securities.

Someone else has got to be the one saying “approve, approve, approve.”

Woodrow Wilson once said “what’s good for GM is good for the country, and vice versa.” Maybe the unsaid rejoinder (more…)

Buy Here Pay Here is going public!

Drive Time, a Buy Here Pay Here BHPH chain with 80 dealerships in 13 states, is going to raise $200 million through an initial public offering of stock.Jeffries and Stephens are the lead managers. The IPO says that it will trade under the ticker “DTA.” Read the prospectus that they submitted to the SEC here.

Drive Time sells cars and offers in-house financing through their DT Acceptance Corp. “We’re the nation’s largest auto financing company,” said my prospective dealer. Last year, Drive Time sold more than 40,000 cars and generated more than $29 million in profits. Buyers also get oil changes and other maintenance with their purchase.

Drive Time says that it will use the majority of the money to pay off outstanding debt. DT has about $1 billion in debt.  That includes some high cost subordinated debt:  DT has $38.1 million in subordinated debt outstanding (to Verde and to one of its  with a 22 percent (more…)

Will today’s hearings before Senator Levin’s subcommittee on Capitol Hill with Goldman Sachs actually lead to some kind of change?

Goldman Sachs executives testify before the Senate Permanent Subcommittee on Investigations.

The Senators are having a good time grandstanding.

• Sen. McCaskill: “It is pure gambling. You are the gambler. You are the house….you have less oversight than a pit boss in Las Vegas…what worries you is a bad article in the Wall Street Journal. Not a regulator.”
• Sen. McCain: “It is unethical, and the American people will have their judgment.”

(more…)

Harrington Bank, a new thrift from Chapel Hill, North Carolina, runs against the current. In 2008, when most banks were restricting credit and making only prime loans, Harrington continued with a policy of providing loose credit and high cost, subprime mortgages.

In 2008, when only about 11.6 percent of mortgages were made at sub-prime interest rates, fifty-seven percent of Harrington’s loans were high cost.  That is an outstanding difference, particularly for a small bank with an OTS charter. Harrington is not a fly-by-night lender working through mortgage brokers.

Harrington did not deny even one application for a mortgage loan in 2008, according to their 2008 Home Mortgage Disclosure Act (HMDA) data.

Harrington serves real estate investors.  More than 65 percent of their loans went to such borrowers. That is in contrast to the larger market, where fewer than one in seven loans went to a non-owner occupant borrower.

The larger story here has to do with the myth that surrounds small banks. Small banks have a favorable reputation.  I’m not sure if they deserve it.  I hear it all the time.  They state they never participated in the sub-prime lending era.  They talk about their ability to provide personal service to their customers.  They say that they know their communities better than those big banks.

Many investors seem to agree with that broad blanket statement.

Still, the story at Harrington Bank shows that this is not always true.

(more…)