All Articles Tagged "lending practices"
Banks Seek Immunity for Mortgage Misbehavior
(Wall Street Journal) — Efforts to reach a settlement that would end the long-running probe of foreclosure practices are snagged over whether banks will get broad legal immunity from state officials for mortgage-related claims. Federal and state officials are seeking penalties of $20 billion to $25 billion from Bank of America Corp., J.P. Morgan Chase & Co. and other financial firms under investigation since last fall. The banks are pushing hard for a deal, but they have insisted on a wide-ranging legal release from state attorneys general. ”They wanted to be released from everything, including original sin,” said a U.S. official involved in the discussions. The legal protection sought by the banks included loan origination; securitization and servicing practices; fair-lending procedures; and their use of the Mortgage Electronic Registration Systems, an industry-owned loan registry that often acts as an agent for owners of mortgage loans, people familiar with the discussions said.
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When Loans Depend on a Deposit
(Businessweek) — A bank should not make your loan approval contingent solely on whether you open an account with them, but it’s not unusual for them to request that you establish a depositor relationship. In this case, the nonprofit endowment fund could help boost your local bank’s capitalization and give it easier access to the loan collateral if your window-cleaning business defaults. If you’re uncomfortable moving the endowment money to the bank, talk to some other local banks about their lending practices and see whether you might qualify for an SBA loan guarantee.
Are Restaurants as Risky as Some Claim?
(Wall Street Journal) — In the past decade, more government-guaranteed loans have gone to full-service restaurants than any other industry – 34,138, to be exact. The limited-service restaurant industry, including drive-in, take-out and fast-food establishments, came in second with 25,288 loans. The dollar amounts were also impressive. Loans to full-service restaurants topped $8.15 billion, falling just shy of the $8.25 billion that the hotel sector received, according to the National Association of Government-Guaranteed Lenders, a lobbying organization that collects data on loans backed by the Small Business Administration. Limited-service restaurant loans totaled $5.03 billion. Restaurants are commonly known for being risky ventures, so why do risk-averse banks disburse so many loans to them? After all, restaurants carry a terrific deal of overhead – roughly two-thirds of each dollar earned is allocated to food, beverages and labor, according to the National Restaurant Association. And then there’s the added expense of rent and utilities.
Gov't on the Hunt for Redlining
(Businessweek) — Community activists in St. Louis became concerned a couple of years ago that local banks weren’t offering credit to the city’s poor and African American residents. So they formed a group called the St. Louis Equal Housing and Community Reinvestment Alliance and began writing complaint letters to federal regulators. Apparently, someone in Washington took notice. The Federal Reserve has cited one of the group’s targets, Midwest BankCentre, a small bank that has been operating in St. Louis’s predominantly white, middle-class suburbs for over a century, for failing to issue home mortgages or open branches in disadvantaged areas. Although executives at the bank say they don’t discriminate, Midwest BankCentre’s latest annual report says it is in the process of negotiating a settlement with the U.S. Justice Dept. over its lending practices. Lawyers and bank consultants say regulators and the Obama Administration are scrutinizing financial institutions for a practice that last drew attention before the rise of subprime lending: redlining.
Calling on Banks to Do More for Neighborhoods
(Crain’s) — The City Council held a hearing Monday morning before an overflow crowd on the recently introduced “Responsible Banking Act,” which would create a ranking system of banks based on how responsive they are to the credit needs of the city’s neighborhoods. The hearing was followed by a gathering of Council members, advocates and community residents on the steps of City Hall. “This is a bill that already has a lot of support,” said Benjamin Dulchin, executive director at the Association for Neighborhood and Housing Development, which helped create the bill. The measure was introduced last month by the chair of the Finance Committee, Councilman Domenic Recchia (D-Brooklyn) and Councilman Albert Vann (D-Brooklyn) with the support of Council Speaker Christine Quinn.
Mortgage Lenders Want More Money Up Front
(Wall Street Journal) — The down payments demanded by banks to buy homes have ballooned since the housing bust, forcing many people to rethink what they can afford and potentially shrinking the pool of eligible buyers. Last week, the Obama administration called for gradually raising down payments to a minimum of 10% on conventional loans, meaning those that can be bought or guaranteed by mortgage giants Fannie Mae and Freddie Mac. And mortgage data show that private lenders are already pushing sharply higher the required down payments, mainly to mitigate their risk as home prices continue to fall.
The median down payment in nine major U.S. cities rose to 22% last year on properties purchased through conventional mortgages, according to an analysis for The Wall Street Journal by real-estate portal Zillow.com. That percentage doubled in three years and represents the highest median down payment since the data were first tracked in 1997. The move to force home buyers to lay out more cash is driven mostly by banks, who have found that larger down payments discourage delinquencies by increasing the buyers’ exposure to loss and reducing the impact of declining prices. Many home buyers placed little, if anything, down during the boom.
Banks Reach Out to Small Firms
(Wall Street Journal) — Natalie Smith, the manager of a U.S. Bancorp branch in an Albertsons supermarket in Milwaukie, Ore., is going to unusual lengths to make small-business loans. Last year, she cornered an eye doctor near the entrance, following him around until she learned he needed a commercial real-estate loan and equipment financing. When he wasn’t loaded down with groceries, the doctor came back to meet with Ms. Smith, getting two loans for a total of $250,000. Since June, her branch has made about a dozen small-business loans, ranging from $30,000 to $500,000 apiece. “It is impossible to know who is going to be in our stores,” Ms. Smith said. Banks and borrowers are having a hard time igniting a rebound in small-business lending, which is lagging behind recent increases in loans to other types of companies and consumers. Last week, the Federal Reserve said 10% of large U.S. banks reported easing loan terms for small businesses in the past three months, compared with nearly 20% for medium-size or large companies. According to a January survey by the National Federation of Independent Business, 91% of small businesses aren’t interested in borrowing or have had all their credit needs met already.
Home Equity Lending Makes a Comeback
(Smart Money) — Once every homeowner’s answer to a cash shortfall, the ability to borrow against your home equity all but disappeared a few years ago right along with, well, home equity. But now, at a growing number of banks around the country, home equity loans and lines of credit are back – and so are the pitfalls that go with them. After more than three years, some lenders are cautiously re-entering the second mortgage market. The effect hasn’t registered in the national statistics yet, but regional banks are reporting significant increases. In the Midwest, Associated Bank issued nearly three times more home equity loans in the second half of 2010 compared to the same period the year before.
Haiti’s Mobile Money Revolution
(The Root) — NPR reported over the weekend on a development in Haiti’s slow earthquake recovery: “mobile money” networks that allow cell phones to serve as debit cards, and more. In a country where we use Smartphone apps for everything from Twitter to “Words With Friends” to photography, this might not seem too exciting. But in the earthquake-ravaged nation, it’s huge. In fact, USAID has handed over millions of dollars to help get these systems up and running because they’ll allow aid groups to distribute food vouchers electronically, saving valuable time and resources.
Firms With Collateral Gain an Edge
(Wall Street Journal) — For small businesses, collateral is taking center stage when it comes to grabbing the attention of banks as they begin to loosen their purse strings. Companies that hold tangible assets like buildings or other types of property are getting a first look by banks, even when their cash flow and creditworthiness aren’t as strong as businesses with less collateral. BoeFly.com, which connects lenders to borrowers, says many of the 570 institutions that use its service are favoring loan applications from restaurants, hotels, manufacturers, retailers and real-estate companies, all of which are typically asset-heavy. “That doesn’t mean they’re getting the loans, but they are getting a look,” says BoeFly Chief Executive Bobby Tannenhauser.
