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“GEN Y” Consumers - What Banking Services Do They Want

Posted by Bobbe Sigler on Fri, May 16, 2014

Generation Y consumers primarily look for mobile services and rewards programs when shopping for a new bank, according to a December 2013 study, conducted by Harris Poll among more than 1,000 U.S. adults.

The study found that Generation Y adults (those between age 18 to 34) with a checking account are more likely to say mobile banking is at least somewhat important when choosing a bank (78 percent) than those in the 35-54 age group (66 percent) or those ages 55 and up (44 percent).

Gen Y images

Members of Gen Y are also more likely to believe customizable rewards are at least somewhat important (86 percent versus 73 percent of 35-54 year olds and 63 percent of those ages 55 and up) and that cash back options are at least somewhat important (88 percent versus 74 percent and 67 percent, respectively). A recognizable brand name is also more important to Gen Y adults (81 percent say it’s at least somewhat important) than it is to those ages 35-54 (68 percent), the study found.

While 72 percent of Gen Y adults say banking locally is at least somewhat important to them, roughly one-quarter of those same people who have a checking account but do not bank with a community financial institution say they don’t use one because they don’t believe a community bank or credit union will offer the same benefits they’re getting at their current bank. Additionally, 30 percent of these Gen Y consumers say they don’t use a community bank or credit union because they’ve never thought about it.

Are these study results indicative of the U.S. market or does it extend further?

In the eleventh annual World Retail Banking Report (WRBR) released in 2013 by Capgemini more than one-quarter of the countries in the WRBR's Voice of the Customer survey reported a decrease of more than 10 percent in the share of customers with positive experiences, a reversal from the prior year when increases of more than 20 percent were prevalent.

According to the report, since Gen Y consumers make up anywhere from one-quarter to one-third of the population in many markets, catering to their tastes is a key for banks. "This group's expectations of how banks should serve their customers, particularly via digital platforms, are significantly higher than those of the general population thanks to their prolific and sophisticated use of technology," the report adds.

For the first time, the report measured the impact of positive experiences on a number of behaviors linked to increased profits. Specifically, the report found that customers with positive experiences are more than three times more likely to stay with their bank than those who have negative ones. Customers with positive experiences are also three to five times more likely to refer others and purchase another product, the report finds.

In North America, Gen Y consumers are significantly less likely to have a positive experience with their bank, the report found. Only 41.7 percent in North America of those between 18 and 34 years cited positive experiences with their bank, compared to 63.4 percent of those of other ages, a difference of 21.7 percent. In other regions, positive experiences for Gen Y lag those of other age groups by anywhere from only 7 percent to nearly 10 percent.

This downward shift underscores the challenges banks are facing in meeting the evolving demands and high expectations of digitally-savvy Gen Y customers. The balance between traditional channels and the need to address the Gen Y customers will require a transformation for many banks. The new reality - Banks are no longer a branch or a place where customers go, but a collection of services that take place, anywhere, anytime.

Topics: banks, Banking, Gen Y, Mobile Services, Rewards Programs

Banks, Small Business and Risk

Posted by Wendell Brock on Thu, Sep 16, 2010

In the recently passed legislation, the Dodd Frank Law, the FDIC is given the mandate to change the way it assesses deposit insurance premiums from banks, mostly based on risk. This will greatly impact small businesses, by limiting their access to capital through loans. Perhaps as much or more than the recent health care bill will.

First the Law

The law “defines a risk-based system as one based on an institution’s probability of causing a loss to the Deposit Insurance Fund (the Fund or the DIF) due to the composition and concentration of the institutions assets and liabilities, the likely amount of any such loss, and the revenue needs of the DIF. …allowing the FDIC to establish separate risk-based assessment systems for large and small members of the Deposit Insurance Fund.

“Over the long-term, institutions that pose higher long-term risk will pay higher assessments when they assume those risks. …should provide incentives for institutions to avoid excessive risk.” (the information quoted is found in the following paper about the new score card produced by the FDIC located at:  The new assessments will be based on a performance score, which will be comprised of three main elements: 1) CAMELS Score, 30%; 2) Ability to withstand asset-related stress, 50%; and 3) Ability to withstand funding-related stress 20%. It is the asset-related stress that has the regulators concerned and if an institution has too much risk in that category, it will also affect the CAMELS rating, as the regulators will perceive that management is not doing their job – that of taking care of the bank.

The banker’s number one job now it to make sure that the bank never becomes a problem bank, that may cause the regulators to pay on deposits; everything else is now ancillary to that goal.

Small Businesses

All small businesses are risk rated, based on their credit score, (or the owners credit score), which becomes the basis for easy or difficult access to credit at a financial institution. At times bankers make loans to small businesses, because they understand the business, the risk associated with the business and they know the owner, even though the credit may be simply o.k. (not great, but not terribly bad either).

This new way of assessing deposit insurance will now cause the banker to ask the question – how will this loan affect the bank’s portfolio and ultimately it’s DIF assessment? As bankers ask this question more loans will be turned down. This is not to say, that all loans should be written as applied for, but as the bell curve moves towards safety, it will certainly leave a larger percentage of good small business loans unfulfilled and business owners without the much needed capital to continue in business or to grow. And we all know that when small businesses don’t continue, or fail to grow, then lay-offs occur and unemployment lines increase.

Did Congress and the regulators think this one through completely? Is there a better way to asses risk?

Topics: Bank, FDIC, banks, Regulations, FDIC Insurance Fund, Loan Grading, Risk Management, Bank Regulations, Growth, small business

Small-dollar Loan -- Pilot Study Results Are In

Posted by Wendell Brock on Wed, Jul 07, 2010

Creation of Safe, Affordable and Feasible Template for Small-Dollar Loans

Small-dollar loan pilot

The Small-dollar Loan Pilot Project was a study to find if it is profitable for banks to offer small-dollar loans to their customers. Small-dollar loans were created as an option to expensive payday loans, or heavy fee-based overdraft programs.  This study opened up opportunities for small-dollar loans to be more affordable.    

Small-dollar loans have created a way to maintain associations with current costumers and opportunities to attract unbanked new customers.

Goals: The main goal the FDIC had in mind for small-dollar loans was for banks to create long-lasting relationships with their customers using the product of small-dollar loans. Many banks had another goal in mind in addition to the FDIC’s goal. Some banks wanted to become more profitable by producing the product while other banks produced the product to create more goodwill in their community. 

Where and how the study started: The FDIC found 28 volunteer banks with total assets from $28 million to nearly $10 billion to use the new product, offering of small-dollar loans. All were found in 450 offices in 27 states. Now, in the pilot study there have been over 34,400 small-dollar loans that represent a balance of $40.2 million. 

Template for small-dollar loans: Loans are given with an amount of $2,500 or less, with a term of 90 days or more. The Annual Percentage Rate is 36 percent or less depending on the circumstances of the borrower. There are little to no fees and, underwriting follows with proof of identity, address, income, and credit report to decide the loan amount and the ability to pay. The loan decision will usually take less than 24 hours. There are also additional optional features of mandatory savings and financial education.  

Long loan term success: Studies found that having a longer loan term increased the amount of success in small-dollar loans. This allowed the customer to recover from any financial emergency by going through a few pay check cycles before it was time to start paying the loan back.  Liberty Bank in New Orleans, Louisiana offered loan terms to 6 months in order to avoid continuously renewed “treadmill” loans.  The pilot decided that a minimum loan term of 90 days would prove to be feasible.

Often the bank will require the customer to place a minimum of ten percent of the loan in a savings account that becomes available when the loan is paid off.

Delinquencies: In 2009 the delinquency rates by quarter for small dollar loans were 6.2 in the fourth, 5.7 in the third, 5.2 in the second, and 4.3 in the first.

How to be most successful when producing small-dollar loans: The FDIC is reporting that the participating banks have found much success through small-dollar loans. But the most success came from long term support from the bank’s board, and the senior management. It is critically important to have strong support coming from senior management.

The small-dollar loan pilot has proven to be a great addition to bank’s loan portfolio, the FDIC hopes that it will spread to banks outside the pilot.

Profitability may depend on location: The FDIC has found the most successful programs are in banks located in communities with a high population of low- and moderate-income, military, or immigrant households. Banks in rural areas that did not have many other financial service providers also saw feasibility because of the low amount of competition.

Improving performance: Automatic repayments are a way to improve performance for all products not just the small-dollar loans.



Topics: Bank, FDIC, banks, Pay Day Loans, Banking, Bank Risks, Small Dollar Loans, Bank Executives, Loans, market opportunity, bank customers, Bank Asset

Third Quarter 2009 FDIC Banking Profile

Posted by Wendell Brock on Wed, Nov 25, 2009

FDIC member institutions' earnings improved this quarter to a modest $2.8 billion, which is significant over last quarter's net loss of $4.3 billion and third quarter of 2008 of $879 million. Loan loss provision continued to affect the profitability of the industry as banks continued to cover their bad assets. Growth in securities and operating income helped the industry realize the profit, with 43 percent of the institutions reporting higher profits this quarter over the same quarter last year.  Just over one in four banks reported losses this quarter of 26.4 percent, which is slightly up from 24.6 percent a year ago.

Net Interest Margin, ALLL

Net interest was higher this quarter, rising to a four-year high of 4.6 billion. The average net interest margin (NIM) was 3.51 percent, slightly higher than last quarter. Most banks, 62.1 percent, reported higher NIM than last quarter; however only 42.2 percent had an NIM increase year over year. Provisions for loan and lease losses increased and total set aside, remained over $60 billion for the fourth straight quarter, rising to $62.5 billion. While the quarterly amount banks set aside was only 11.3 billion, $4.2 billion less than the second quarter, it was 22.2 percent higher than last year. Almost two out of three institutions, 62.6 percent, increased their loan loss provisions.

Net Charge Offs Remain High

Loan losses continued to mount, as banks suffered year over year increases for 11 straight quarters. Insured institutions charged off a net of $50.2 billion this quarter, a $22.6 billion increase or an 80.5 percent increase compared to third quarter of 2008. This is the highest annual charge off rate since banks began reporting this information in 1984. All major categories of loans saw significant increases in charge offs this quarter, but losses were largest amongst commercial and industrial (C&I) borrowers. While noncurrent loans continued to increase, the rate of increase slowed; noncurrent loans and leases increased $34.7 billion or 10.5 percent to $366.6 billion, which is 4.94 percent of all loans and leases. This is the highest level of noncurrent loans and leases in 26 years. The increase of noncurrent loans was the smallest in the past four quarters.

Eroding reserves

The reserve ratio increased as noncurrent loans increased, however the spread continued to widen. While the industry set aside 9.2 billion, 4.4 percent in reserves, which increased the reserve level from 2.77 percent to 2.97 percent. This increase was not enough to slow the slide - it was the smallest quarterly increase in the past four quarters and the growth in reserves lagged the growth of noncurrent loans, which caused the 14th consecutive quarterly decline in this ratio from 63.6 percent to 60.1 percent.

Loan Balances Decline Deposits Are Up

Loan and lease balances saw the largest quarterly decline since the industry started keeping track of these numbers in 1984; they fell by $210.4 billion or 2.8 percent. Total assets fell for the third straight quarter; assets at insured institutions fell by $54.3 billion, which follows a decline of $237.9 billion in the second quarter and a $303.2 billion decline in the first quarter. Deposits increased $79.8 billion or 0.4 percent during the third quarter, allowing banks to fund more loans with deposits rather than other liabilities. At the end of the quarter deposits funded bank assets was 68.7 percent, the highest level since second quarter 1997.

Troubled Banks Increase

The number of reporting insured institutions at the end of the quarter was down to 8,099  from 8,195; there were fifty bank failures and forty-seven bank mergers. This is the largest number of banks to fail since fourth quarter of 1992, when 55 banks failed. The number of banks on the FDIC's problem list increased from 416 to 552 at the end of the second quarter.

During the quarter, the number of new banks chartered was three.  This is the lowest level since World War II. This begs the question on what is the best way to get new capital into the banking industry. Should we recapitalize the existing banks including those in trouble? Or, should we start fresh with a new bank that can build a new, clean loan portfolio?

Another Item

CREED - a 501(c)3 nonprofit has started a Crowdfunding project/contest to help a small business - Look at the opportunity to be a part of something truly great! We will follow this closely as we are strong supporters of CREED.


Topics: Interest Rates, FDIC, banks, Community Bank, FDIC’s, Loans, Bank Capital, CREED, capital, equity capital, De Novo Banks, Noncurrent loans, community banks, Crowfunding

New Guidance Allows Greater Use of Built-In Lossesin Bank M & A Deals

Posted by Wendell Brock on Wed, Dec 17, 2008

From Hunton and Williams, LLP

The Treasury Department and the IRS have issued favorable guidance under Internal Revenue Code Section 382 for banks engaging in merger and acquisition activities, as well as certain capital raising efforts. Given the current state of the economy, banks engaging in such transactions are likely to hold financial assets that have decreased in value. Traditionally, bank investors’ and acquirers’ use of these unrealized losses after an acquisition would be significantly limited. Under the new guidance, no such limitation would be imposed. This shift is no doubt part of a larger policy initiative to encourage the capitalization and acquisition of troubled banks in the wake of the current financial crisis.

Code Section 382 generally imposes limitations on the use of existing unrealized losses and net operating loss carryforwards against income earned after a corporation has had a change in ownership of 50 percent or more. The policy behind this rule is to prevent the development of a market where taxpayers could buy and sell tax losses. This loss limitation rule effectively prevents one corporation from buying another corporation with significant losses for the primary purpose of using those losses to offset the acquiring corporation’s future taxable income.

Generally, unrealized losses and net operating loss carryforwards can be used after an ownership change only up to the amount of the “Section 382 limitation.” The Section 382 limitation is equal to the fair market value of the corporation on the date of the ownership change multiplied by the long-term tax-exempt rate, which is published each month by the IRS. (4.65 percent in October 2008.) Notice 2008-83, however, provides that for a bank, losses on loans or bad debts that are recognized after an ownership change will not be treated as built-in losses or deductions that are attributable to periods before the change date. Practically speaking, the impact of this new rule is that acquiring banks may be able to fully utilize any unrealized losses held by target banks if the acquisitions are otherwise properly structured.

In addition, the Treasury Department and the IRS have relaxed the presumption of a tax avoidance motive for contributions made within two years of an ownership change. These “anti-stuffing” provisions attempt to disallow the arbitrary inflation of a corporation’s value when capital contributions are made in anticipation of a change in ownership, as increases in value would result in a higher limitation amount under Section 382. Currently, any contribution made within two years of a change in ownership is presumed to be part of a plan for the avoidance of tax
and is subtracted from the value of the corporation for purposes of calculating the Section 382 limitation, thus reducing the amount of losses that can be utilized after the change date. Notice 2008-78 removes this presumption altogether and provides four safe harbors under which contributions will not be deemed to be part of a plan for the avoidance of tax. This notice also makes it clear that failure to fall within one of the safe harbors is not evidence of a plan for tax avoidance. This change in the antistuffing rules is not limited to banks.

© 2008

Topics: IRS, banks, mergers and Aquisistions, tax laws, bank losses, treasury department

Georgia Banks Struggle with Bad Real Estate Loans

Posted by Wendell Brock on Wed, Oct 22, 2008

A few weeks ago, a writer from The Atlanta-Journal Constitution interviewed me to obtain some background information on the current crisis in the banking industry. The article, entitled "Several Georgia banks in jeopardy" was published on October 19, 2008.

According to The Atlanta Journal-Constitution, twenty-five percent of Georgia's banks are facing dangerously high loan delinquency rates. Further, the statewide delinquency rate as of June, 2008 has increased six times over since June, 2006-amassing a total of $6.6 billion of past-due debt. The rise is primarily linked to the turn-down in housing, an industry that had formerly been a mainstay of the state's economy.

Even as default rates skyrocket, experts acknowledge that high delinquencies alone won't necessarily cause a bank to fail. Another determining factor is insufficient reserves. The FDIC and the Federal Reserve Bank have been actively consulting with several Georgia banks to address reserve levels, lending practices and the management of non-performing loans.

Click here ( to read the full text of the article.

Topics: FDIC, banks, Bank Regulators, Troubled Banks

First Quarter 2008 FDIC Banking Profile Highlights

Posted by Wendell Brock on Thu, May 29, 2008


The results are in for the First Quarter 2008 Banking Profile - and they are not looking good! The squeeze is getting tighter, but, taking a comprehensive perspective, it does look like we'll make it through. Among the first quarter challenges and trends, real estate problems continued to hold down earnings; restatements dramatically shrank fourth quarter, 2007 profits; market-sensitive revenues remained weak; interest rates tightened margins; charge-offs hit a five-year high; noncurrent loans grew; reserve coverage shrank; dividends were cut; growth in credit slowed; interest-bearing retail deposits posted strong growth; and the number of problem banks grew.  The following are some key highlights.

Earnings were hit hard as banks suffered from "deteriorating asset quality concentrated in real estate loan portfolios." Higher loan loss provisions reduced quarterly earnings to $19.3 billion compared to $35.6 billion a year earlier. Insured institutions set aside $37.1 billion in loan loss provisions, four times the $9.2 billion set aside a year earlier. This really hit earnings - return on assets (ROA) was only 0.59 percent compared to 1.20 percent in the first quarter of 2007. The downward trend in profitability was broad; slightly more than half of all insured institutions reported declines in quarterly earnings, however, more than half the $16.3 billion decline in industry net income came from four large institutions.

Industry net income for the fourth quarter of 2007 was restated to $646 million from a previously reported $5.8 billion. This is the lowest quarterly earnings since 1990. First quarter, 2008 was also the second consecutive quarter that lower noninterest revenues contributed to the decline in earnings. The net interest margin checked in at 3.33 percent, compared to 3.32 percent for the first and fourth quarters of 2007. For community banks, those with less than $1 billion in assets, the rate fell to 3.70 percent - the lowest level since the fourth quarter of 1988.

Banks charged off $19.6 billion during the first quarter, 2008, an increase of $11.4 billion over the same quarter in the previous year. This is a five-year high. The first quarter was also the second consecutive quarter of very high charge-offs, following the previous quarter's charge-off total of $16.4 billion. "The average net charge-off rate at institutions with more than $1 billion in assets was 1.09 percent, more than three and a half times the 0.29 percent average rate at institutions with assets less than $1 billion." 

With the high level of charge-offs, noncurrent loans (loans 90 days or more past due) rose by $26 billion in the first quarter, following a $27 billion increase in the fourth quarter of 2007. "Loans secured by real estate accounted for close to 90 percent of the total increase, but almost all major loan categories registered higher noncurrent levels." Total noncurrent real estate construction and development loans increased by $9.5 billion, and 1-4 family residential loans increased by $9.3 billion. 

The reserve coverage continues to lose ground after adding $37.1 billion in loan loss provisions. "The industry's ratio of loss reserves to total loans and leases increased from 1.3 percent to 1.52 percent, the highest level since the first quarter of 2004." The growth in reserves was outpaced by noncurrent loans, allowing the "coverage ratio" to slip for the eighth consecutive quarter to 89 cents for every $1.00 of noncurrent loans.

Most institutions cut dividends to preserve capital - only $14 billion in total dividends were paid in the first quarter, down from $12.2 billion from the first quarter of 2007. Of the 3,776 banks that paid a dividend in the first quarter of 2007, 666 paid no dividend in 2008. Those that did pay a dividend, paid 48 percent less, on average. This assisted the banks' ability to bolster their capital levels; tier 1 capital increased by $15 billion and tier 2 capital increased by $10.5 billion.

Loan growth slowed in the first quarter, increasing by only $335.4 billion or 2.6 percent. At the same time, interest-bearing deposits increased by $150.4 billion or 1.8 percent. Savings accounts and interest-bearing checking accounts accounted for more than three-quarters of the growth. Non-deposit liabilities increased by $171.6 billion, or 5.2 percent, led by securities sold under repurchase agreements (accounting for $65 billion of the increase) and trading liabilities (accounting for $63.2 billion of the increase).

The number of banks on the regulators' problem list grew from 77 to 90, while the number of total banks decreased from 8,534 to 8,494 during the first quarter. In this quarter, there were two bank failures, 38 new charters issued, 77 institutions merged into other banks, and two mutual banks converted to stock ownership. With 82 banks converting to Subchapter S Corporations during the first quarter, almost 30 percent of all banks now operate under that structure.

You may download the full report at:

Topics: FDIC, banks, Bank Regulators, Economic Outlook, Credit

The Great Credit Squeeze For Mortgages

Posted by Wendell Brock on Fri, May 16, 2008


FDIC Chairman Sheila Bair at the Brookings Institution Forum, The Great Credit Squeeze: How it Happened, How to Prevent Another; Washington, DC
May 16, 2008

Good morning and thank you for inviting me to speak.

Let me first say that this new study by Martin Bailey, Douglas Elmendorf, and Bob Litan comes at the right time.

It gives a comprehensive overview of how we got to where we are and covers the key issues policymakers must deal with to fix a broken mortgage market and ultimately stabilize housing prices.

Importantly, it connects the dots between some of the seemingly disparate financial developments of the past year. Among these is the direct connection between protecting consumers and safe and sound lending.

It's one of the best volumes I've seen since the one written last year by the late Ned Gramlich on subprime lending.

As a former academic, I can appreciate all the time and energy that went into it.

Housing crisis

Without a doubt, we have some significant challenges ahead of us. And while some credit markets may be stabilizing, families, communities, and the economy continue to suffer.

Frankly, things may get worse before they get better.

As regulators, we continue to see a lot of distress out there.

Foreclosures keep rising as mortgages reset to higher rates, home prices keep sinking, and millions of families continue to struggle with unaffordable mortgages.

I can sympathize with these families.

I've seen hundreds and hundreds of ordinary people at foreclosure workshops desperately looking for ways to keep their homes.

And all of us can see the strain on state and local government budgets and the impact on the banking and financial systems.

And there is more uncertainty ahead.

Data show there could be a second wave of the more traditional credit stress you see in an economic slowdown.

Delinquencies are rising for other types of credit, most notably for construction and development lending, but also for commercial loans and consumer debt.

The slowdown we've seen in the U.S. economy since late last year appears to be directly linked to the housing crisis and the self-reinforcing cycle of defaults and foreclosures, putting more downward pressure on the housing market and leading to yet more defaults and foreclosures.

This is why regulators and policymakers continue to focus on the housing market.

We need to find better ways to help struggling homeowners.

Case for greater government action

Over the past year, federal and state governments, and consumer groups have worked with some success to encourage the industry to modify loans.

But it's just not happening fast enough. Given the scale of the problem, this cannot go on loan-by-loan as it has.

Solutions must be simple and practical, and quick to implement. And they must be designed to result in limited or no cost to taxpayers.

Congress and the White House are working on proposals that would expand the role of the Federal Housing Administration (which insures mortgages).

These are laudable efforts. They will help certain borrowers.

But the FHA approach has its limitations. And new refinancing options may take more time than we have. We need something that is more immediate.

Home Ownership Preservation Loans

I think the next line of attack should be using low-cost government loans to help borrowers pay down unaffordable mortgages.

We need to take a systematic approach that pays down enough of these mortgages to make them affordable.

And it can be done at zero cost to taxpayers.

The FDIC is calling for up to $50 billion in new government loans that would pay down a portion of the value of over a million existing loans. (The Treasury would sell debt to fund the plan.)

We're calling these new government loans Home Ownership Preservation Loans - HOP loans for short.

Eligible borrowers could get a HOP loan to pay off up to 20 percent of their mortgage.

Mortgage holders would get the cash. As their part of the deal, they would restructure the remaining 80 percent into fixed rate, affordable payments. And they would agree to pay the government's interest for the first five years.

That way, the HOP loans would be interest-free to the borrower for the first five years.

After that, borrowers would begin repaying them at fixed Treasury rates.

This would give borrowers a breather, and dramatically reduce the chance of foreclosures.

As another part of the deal, the mortgage holders would agree that the government would be paid first after any sale or refinancing of the house.

As a result, taxpayers would be protected from any losses, even if the borrower cannot repay the mortgage for any reason.

The plan would leverage the government's lower borrowing costs to significantly reduce foreclosures with no expansion of contingent liabilities and no net exposure to taxpayers.

The HOP loan program has a number of major advantages.

First, it's not a bailout. (That's a very big plus.)

Second, it would help stabilize a huge number of high-cost mortgages, (which would be good for credit markets).

And it would also keep people in their homes, and making their payments (which would slow the decline in home prices).

HOP loans would essentially give borrowers breathing room by reducing their debt burden to a more manageable level.

And they would focus on homeowners who want to stick it out and stay in their homes long-term.

Let me explain how HOP loans would work with a brief example.

Take a look at this projection on the screen.

Loan Restructuring Example - PowerPoint (PPT Help)

For a borrower with a $200,000 mortgage in this example, the HOP loan program would slash the current payment by about $500 to $1,200 a month. (That's a 30 percent reduction.)

After five-years, when it's time to repay the Treasury, the HOP loan payment plus the regular mortgage payment would push the monthly total to about $1,400 a month.

That's still $300 less a month than the original payment.

And it's now five years down the road, giving borrowers time to stabilize their finances and to rebuild some home equity.

There are other advantages.

The HOP program focuses on making unaffordable mortgages affordable. And it has incentives for mortgage investors to qualify borrowers who have a good chance of paying-off a restructured loan over the long term.

It would complement the current FHA proposals now before Congress, which may be most effective for people who are deeply underwater with mortgages worth much more than their homes.

It also works within existing securitization contracts, avoiding costly legal disputes.

Unlike any other current proposal there would be no need to negotiate with the owners of second-liens, such as a home equity loan.

And it can be implemented quickly because it's administratively simple.

In most cases, eligibility can be determined with information readily available from existing records.

No property assessments are required.

So, what about the naysayers?

No matter your political stripes or economic interests, foreclosures, especially preventable ones, are to be avoided.

They cost lenders and borrowers a lot of money.

A modified, performing loan is almost always of significantly greater value to mortgage investors than a foreclosed home.

As for the taxpayer, as I said, this is no bailout at taxpayer expense. The HOP loan program is designed to result in no cost to the government.

The loans and their financing costs would be fully repaid.

What about the speculators?

I was at a foreclosure prevention meeting in Los Angeles a few weeks ago.

The place was filled with hundreds of families wanting to fix their mortgages, with hundreds more lined up around the block.

I saw a lot of anxious, terrified faces.

But I didn't see any loan flippers or condo speculators.

Yes, there are borrowers out there who knowingly overleveraged, hoping to make a quick profit as home prices rose.

But there are also many people who were the unknowing subjects of misleading marketing and inexcusably lax underwriting.

All they wanted was to live in a home of their own. What they got was a mortgage they couldn't repay.

What is accomplished when these good faith borrowers are forced into foreclosure?

  • Another empty house on the market.
  • Another blight on a neighborhood.
  • Another hit to surrounding property values.
  • More erosion of local tax bases.

These foreclosures are hurting us all.

Is the HOP loan program the Holy Grail?

No. But it could help break the logjam.

Too many unaffordable mortgages are causing a never-ending cycle, a whirlpool of falling house prices and limited refinancing options that contribute to more defaults, foreclosures and the ballooning of the housing stock.

And the only way to break this perilous cycle is by a wholesale restructuring of these unaffordable mortgages.


I think it's time we come to grips with the need for more pro-active intervention. And we need to act soon.

The housing crisis is now a national problem that requires a national solution. It's no longer confined to states that once had go-go real estate markets.

Creating additional tools to help borrowers that are cost neutral and are systematically applied makes too much sense to not act upon.

The FDIC has dealt with this kind of crisis before.

Remember the S&L disaster of the 1980s and 1990s?

Fortunately, we're in a much stronger position today. Banks are healthy, and we want them to stay that way.

But we haven't forgotten the lesson. Not by a long shot.

We learned the hard way that early intervention always costs less, and is always better than a policy of after-the-fact clean-up.

I hope that is the path we follow.

And I urge all of you here today to climb on board, help us make the right policy choices, and help restore the American promise.

Thank you very much.

Topics: FDIC, banks, Bank Regulators, Economic Outlook, Credit

CU's React to Banking Overhaul

Posted by Wendell Brock on Sat, Apr 12, 2008

Paranoid CUNA Requests Documents of Banker Involvement in Blueprint ...

WASHINGTON - The Credit Union National Association submitted on April 3rd a Freedom of Information Act (FOIA) request seeking documents and records submitted by banking trade groups in the development of the Treasury Department's "Blueprint for a Modernized Financial Regulatory Structure." CUNA's General Counsel Eric Richards wrote: "[t]he general public and nearly 90 million credit union members have a right to know if special interests have attempted to influence Treasury policy order to eliminate not-for-profit cooperative financial institutions, limit consumer choice in financial services, and deregulate the American depository institution sector in an unsafe and unsound manner."

Topics: banks, Credit Unions

American Banking System to be Overhauled

Posted by Wendell Brock on Fri, Apr 04, 2008

Treasury Blueprint Would Abolish NCUA and NCUSIF

WASHINGTON - Among the long-term recommendations of the Treasury Blueprint would be the creation of a new federally-insured depository institution (FIDI) charter. The FIDI charter would consolidate the national bank, federal savings association, and federal credit union charters and would be available to all corporate forms, including stock, mutual, and cooperative ownership structures. A new prudential regulator, the Prudential Financial Regulatory Agency ("PFRA"), would be responsible for the financial regulation of all FIDIs. In explaining its rationale for a single charter, Treasury wrote "[t]he goal of establishing a FIDI charter is to create a level playing field where competition among financial institutions can take place on an economic basis, rather than on the basis of regulatory differences." The operation of the credit union insurance fund would be assumed by the FDIC, which would be reconstituted as the Federal Insurance Guarantee Corporation.  "Some credit unions have arguably moved away from their original mission of making credit available to people of small means, and in many cases they provide services which are difficult to distinguish from other depository institutions." Treasury Department's Blueprint for a Modernized Financial Regulatory Structure.

By: Keith Leggett, American Bankers Association 

Topics: FDIC, banks, Credit Unions, OCC, OTS, National Banks, Thrifts

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