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Smart Phone Underwriting

Adam Rust's picture

Posted June 25, 2012

For the last two decades, underwriting has been driven by credit scoring. The ingredients that influence a credit score have been fairly static for some time. They depend upon the utilization of credit, your repayment history, the types of credit that you have already, the length that you have kept those accounts open, and how recently you have opened other credit accounts.

That approach may soon change.

The Shameful Legacy of Wells Fargo Finance: A Guest Editorial

Adam Rust's picture

Posted July 22, 2011

- Editor's Note: This is a guest editorial by Peter Skillern. Mr. Skillern is the Executive Director of the Community Reinvestment Association of North Carolina. His comments also appear in a story published in today's Charlotte Observer.

I am an advocate who for 20 years has petitioned for lenders to be held accountable for unfair and illegal loan practices.  Yesterday, the Federal Reserve fined Wells Fargo $85 million and ordered up to $200 million in restitution to borrowers. The penalty is meant to address violations made by Wells Fargo Finance, which was a mortgage loan

OCC Re-Opens Door to Credit on Debit Cards

Adam Rust's picture

Posted June 8, 2011

The Office of the Comptroller of the Currency (OCC) issued a proposed rule that will allow credit products to return to debit cards.

I have suspected that the credit issue was far from resolved. The Office of Thrift Supervision (OTS) issued a directive last fall that forced MetaBank to pull its i-advance product. I-advance was a short-term credit product offered to customers that attached a regular direct deposit to their debit cards. The costs were

Wells Fargo Calling: We've Got a New Interest Only ARM for You!

Adam Rust's picture

Posted November 3, 2010

The more things change, the more they stay the same.

Wells Fargo is moving the customers it inherited from legacy Wachovia over to the full-fledged Wells accounts. Wells has always believed in selling mulitple products to each customer. In this 2010 presentation made to the Sloan School of Business at MIT, Wells claims to have sold an average of 6.47 products to each banking customer.

Still, the speed at which Wells has utilized my new status as a Wells customer is surprising. I got my first sales call this morning. What's even more surprising is what kinds of products they are offering.

It is easy to confuse subprime for a description of a borrower, when really, the term should describe a product. A loan is subprime. A person is not subprime.

It must be that it also easy to forget what happened in 2008. At least, Wells must have forgotten. Judging from a phone call that I got today, there must be some kind of amnesia spreading throughout San Francisco.

Wells is pushing interest-only adjustable rate home equity loans.

Why HMDA Data Needs to Change

Adam Rust's picture

Posted August 26, 2010

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

Put Net Tangible Benefit in HMDA

Adam Rust's picture

Posted July 13, 2010

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

GM: Take Our Car Loans, Please

Adam Rust's picture

Posted June 24, 2010

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

Buy Here Pay Here Goes Public

Adam Rust's picture

Posted May 27, 2010

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

What to Do about Goldman Sachs

Adam Rust's picture

Posted April 27, 2010

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."

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