An ambitious 25-year social mobility study illustrates the strong effect of children's socioeconomic background in their adult lives. Starting in 1982, researchers kept track of 790 Baltimore first graders from diverse social and economic backgrounds as they matured and entered adulthood. Less than half of the group graduated high school on time. At age 28, more than 10 percent of the black men in the study were incarcerated. A mere 4 percent of the first-graders classified as the “urban disadvantaged” had by the end of the study completed the college degree. Just 33 of 314 raised in the low-income category managed to escape it. The only exception was among low-income white boys, whose inherited job networks facilitated entry into solid blue-collar jobs. They earned higher incomes than other urban disadvantaged despite attaining some of the lowest levels of education.
The CFPB has announced that David Reiling, CEO of Minneapolis-based Sunrise Banks, and Monica Thomas, Executive Vice President of Illinois Service Federal Savings and Loan Association in Chicago, Ill. will join the CFPB’s new Community Bank Advisory Council. The Dodd-Frank Act charges the CFPB with establishing the Consumer Advisory Board to advise and consult with the Bureau’s Director on consumer protection, financial services, community development, fair lending and civil rights. “These new members of our advisory board and councils will provide valuable input to help us better understand the consumer financial marketplace,” said CFPB Director Richard Cordray.
San Francisco-based Lending Club Corp. has filed for an initial public offering. The online peer-to-peer lender is yet to determine the number of shares and price range, but expects its initial fundraising target to be $500 million. It said it may use a portion of the IPO proceeds to repay a term loan it used to fund an acquisition earlier this year. Other web-based lenders are expected to follow in Lending Club's footsteps. OnDeck Capital Inc., an online lender to small business, is preparing to file for an IPO that could value the business at roughly $1.5 billion. Executives from Kabbage Inc., another small-business lender, earlier this year indicated an IPO may be on the agenda in 2015.
A new study by the Russell Sage Foundation finds that household net worth declined steadily between 2007 and 2013. Households in the lowest income quartile were hardest hit, losing 60% of their wealth. The culprit, advocates say, has been slow mortgage lending to low income and minority borrowers. Twenty-five percent of Americans' wealth comes from the increased value of homes and nearly 50% for people of color. But since 2007, one-quarter of all Latino and African-American borrowers have lost their homes to foreclosure or are seriously delinquent, compared to 12% of white borrowers. Making matters worse, millions of people who lost their homes will have to wait up to seven years to rehabilitate their score just to be eligible to apply for a mortgage.
Proposed requirements on private mortgage insurers under consideration by the Federal Housing Finance Agency would protect Fannie Mae and Freddie Mac from another financial crisis, but could end up raising mortgage costs for thousands of borrowers according to a new report from Moody's Analytics and the Urban Institute. The report authors say that the new rules would lead borrowers to pay an extra 0.15 percentage point in mortgage insurance premiums. Borrowers with low credit scores who make a 5% down payment could pay an extra 0.7 percentage point. At issue are how much liquid assets insurers should have to hold against their liabilities and what the insurers should be allowed to count as capital. The authors believe mortgage insurers should be allowed to count a portion of future insurance premiums, which the draft requirements don’t allow.
The CDFI Fund awarded 185 organizations more than $195.4 million in the FY 2014 round of the CDFI and NACA Programs. The award announcement included more than $160.8 million in Financial Assistance and Technical Assistance awards to 152 organizations through the CDFI Program, and more than $12.2 million to 33 organizations through the NACA Program. Twelve awardees received $22.4 million in Healthy Food Financing Initiative awards. Eight CDBA members were among the awardees, including BankPlus ($1,750,000), Beneficial State Bank ($1,500,000), Carver State Bank ($306,000), Central Bank of Kansas City ($1,088,666), City First Bank of D.C. ($1,700,000), Community Capital of Va. ($2,000,000), Guarantee Bank & Trust ($1,100,000) and CheckSpring Community Corporation (holding company of Spring Bank, $700,000)
Bronx-based Spring Bank is launching “Borrow and Save,” a credit building product designed to help borrowers bridge income gaps without resorting to payday loans. "Borrow and Save" is a 6 to 12 month loan of up to $1,500 with no minimum credit score requirement. The loan is underwritten on the basis of an individual’s demonstrated ability to cover payments. One quarter of the loan is placed in a free savings account that is available when the loan is repaid. The goal is to help borrowers break the cycle of unsustainable borrowing, improve their credit scores and move toward healthier savings habits.
In a video interview with Forbes Magazine, Beneficial State Bank CEO Kat Taylor discussed the bank's new social impact metrics, its rebranding from OnePacific Coast Bank and the power of community development banking. "If you think about any of the practices in the world that we need to change, they're all enabled and amplified by finance," Taylor said. "Finance -- and the banking system in particular -- is what amplifies the whole money supply and facilitates commerce. It's what allows growth and when we get it right, it's very very good and when we get it wrong it's very very bad. So it seemed particularly important to us to suggest a way of banking that would actually be beneficial."
Consumers are banking less often on desktop computers as an increasing number of people turn to mobile phones, ATMs and even branches to handle their finances, a survey released by the American Bankers Association's finds. The Internet led the pack in the poll, with 31 percent of depositors saying that handling transactions on a laptop or personal computer is their most commonly used method. But that's down from 39 percent in 2013. Meanwhile, mobile banking, branches and ATMs all showed gains. Branches and ATMs ranked second and third. Ranking fourth was mobile banking, which garnered 10 percent of responses, up from 8 percent the prior year. A separate study found that check deposit via smartphone app doubled in 2013 from the previous year.
Alternative lenders that can turn around a deal within a couple of days or offer loans that last just a few months could disrupt lending – but critics warn their flexibility and speed come at a price. Annual percentage rates on the loans can soar above 100 percent, and there can be steep fees and penalties for things like prepayment. Some lenders have even been accused of hiding APRs from borrowers. "125 percent APR for a loan is just not OK in my book," says Mark Pinsky, president and chief executive of Opportunity Finance Network, a CDFI advocacy organization. But alternative lenders counter that APR is not the best way to judge the short-term loans.