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Auto loans to subprime borrowers have risen more than 130 percent in the past five years, driven by the same dynamics at work in subprime mortgages during the financial crisis. High rates and steady profits on the loans are attracting investors including some of the nation’s biggest banks and private equity firms. They are then bundled into complex bonds and sold as securities by banks. The loans are typically at least twice the size of the value of the used cars purchased and can come with interest rates above 23 percent. Many of the loans include battered vehicles with mechanical defects hidden from borrowers and recorded incorrect income about the borrowers' income and employment.
Nonbank mortgage lenders pose a risk to Fannie Mae and Freddie Mac because of limited government oversight and weak finances according to a report by the Federal Housing Finance Agency's Office of Inspector General. Small lenders and nonbank mortgage firms often lack the systems or expertise to manage high volumes of mortgage sales, increasing the risk that the GSEs will suffer losses. In recent years, GSEs have purchased more loans from the nonbank lenders as large banks pull back from selling to Fannie and Freddie after getting clobbered with repurchase requests. Last year, 47% of Fannie's mortgage purchases came from nonbank mortgage companies, up from 33% in 2011.
Southern Bancorp has announced that Helena, Arkansas-based boutique Bella is runner-up in their Helena Start-Up Challenge business plan competition. The Helena Start-Up Challenge awards entrepreneurs seed capital to turn their business concepts into start-ups. “Bella was started out of a desire to provide area women with stylish, appealing and affordable clothing," said Jordan Yancey, Bella co-owner. "We also wanted to give back to the Delta community, and starting a business downtown that fills the retail clothing gap is one of the best ways we could think of to do that.” Bella’s owners plan to use the $15,000 in matching funds from Southern to expand their clothing line.
The CFPB has proposed publishing on its website individuals' stories about bad experiences with credit cards and other financial services, prompting quick pushback from banks. The CFPB already posts basic details of consumer complaints but now, the agency wants to include customers' full explanations of what happened. The CFPB said including the narrative would provide more information and help users spot trends with companies or in regions. Companies featured in the complaints would have an opportunity to respond. Banks and other financial service providers have criticized the complaint database, which they say unfairly hurts firms' reputations.
Lawmakers, financial groups and U.S. Postal Service employees met this week to discuss a proposal by the postal agency's inspector general to introduce lending and other services at post offices nationwide. Speakers at the conference included Sen. Elizabeth Warren (D-Mass.), who lauded the idea as a way to provide affordable financial products to the underbanked, and Rep. Darrell Issa (R-Calif.), who raised doubts about the viability of the plan in what he sees as a troubled industry. According to USPS inspector general David Williams, the agency has already started to hear from institutions interested in participating in the potential program.
At a hearing earlier this week, the House Financial Services subcommittee on Financial Institutions and Consumer Credit examined nearly a dozen bills that Republicans say would provide regulatory relief to community banks. At the hearing, community bankers told lawmakers they are being pushed out of business by new rules written in the wake of the financial crisis that are better suited for big banks. Democrats on the panel warned against giving banks a “get out of jail free card.” Republican members also took the opportunity to express concerns with the Justice Department's Operation Choke Point, which they say requires banks to target customers that operate businesses which federal regulators do not like, even if they are not illegal.
Housing finance experts Ellen Seidman, Laurie Goodman and Jim Parrott discuss the history of the stalled Johnson-Crapo GSE-reform bill and the likelihood of further action. Although Johnson-Crapo contained an incentive intended to ensure that the system would serve low income borrowers, progressive members of the Senate Banking Committee were uneasy with the impact of increased risk-based pricing and higher capital requirements on the cost of borrowing. Although consensus emerged on many issues, addressing the concerns of the progressives became incompatible with retaining the bill’s bipartisan support. The experts agreed it was unlikely the bill would make any short-term progress, but consider it possible that administrative action could enact some of the bill's provisions.
First Bancshares of Hattiesburg, Miss., has redeemed the preferred stock BCB Holding in Mobile, Ala., issued to the Treasury Department under TARP's Capital Purchase Program (CPP). The First Bancshares bought BCB on July 1 and redeemed the $2.1 million in TARP stock earlier this week. First Bancshares also assumed a $600,000 promissory note to Alostar Bank. The total consideration for BCB also included $1.3 million in cash and 158,000 shares of common stock valued at $2.3 million.
David Reiling, CEO of Sunrise Banks, appeared on Minneapolis' ABC affiliate to discuss the impact of B-Corporations, which have recently become recognized in Minnesota. B-Corporations are able to consider impact metrics alongside profits when making business decisions. Mr. Reiling expects a flood of applications for B-Corp status "Looking at a public benefit corporation, that corporation is going to take into account not only the shareholder but also the employees, its community, the environment, and its customers," Reiling said.
More than 350 students from suburban Chicago's Streamwood High School have dedicated over 2,240 hours this year to the First Eagle Bank Financial Scholars Program. Through the program, First Eagle Bank sponsors student access to EverFi-Financial Literacy, a web based resource that teaches the basics of personal finance. The course covers a variety of topics including credit scores, insurance, student loans, taxes, stocks, 401k’s and other critical concepts.