Auto Borrowers More Likely to Pay Back Loans

September 16, 2011 – In spite of a tough economic climate, auto loan borrowers are proving that they are able to make their loan payments on time.

A study from TransUnion credit and information management company released in August shows that the national rate of borrowers who are 60 or more days past due on their loan payments, known as the auto delinquency rate, decreased in the second quarter of 2011.

The rate was 0.53 percent last year but now sits at 0.44 percent, in the seventh straight quarter in which the delinquency rate has dropped – even with auto loan size increasing. Although rates are usually expected to be lower in the early quarters of the year, the company’s studies have seen a year-to-year decreasing trend.

“Over the last seven quarters – on a year over year basis – we have seen delinquencies trend downward as consumers continue to pay down debt,” Automotive Vice President for TransUninon’s financial services business unit Peter Turek said. “With auto sales improving, more auto loans are opened by consumers placing downward pressure on auto delinquency rates.”

He added that the auto market has not felt as large of a hit as other loan industries. “A consumer’s ability to repay is also helped by the recent low interest rates for new and used car loans, making purchase decisions and monthly payments more affordable,” Turek said.

In general, auto loans have a lower delinquency record because cars can be more quickly and easily repossessed than a home. As a result, borrowers are more likely to make these payments before other financial obligations. TransUnion estimates that the rate will continue to decrease during the rest of the year.

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Citigroup Sells Private Student Loan Company

September 16, 2011 – Continuing its forage into the private student loan industry, Discover Financial Services announced early this month that it plans to purchase $2.5 billion in private student loans from Citigroup.

This move, announced on Sept. 1 and set to go through by the end of the month, comes after Discover purchased Citigroup’s 80 percent share of its private loan business, The Student Loan Corp, in January of this year and a large volume of accounts from the company’s portfolio – an acquisition totaling $4.2 billion.

In addition, Sallie Mae purchased $27 billion of SLC’s federal student loans and assets and Citibank also purchased $8.7 billion. SLC is a top-three originator of private student loans in the U.S. and has more than 50 years of experience in the industry.

In this sale, Citigroup retained $8.7 billion in unguaranteed assets, although it says it plans to continue to shrink those assets over time. For Citigroup, the newest portfolio sale is part that initiative, which involves shrinking its “bad bank” assets, or City Holdings unit, of which the SLC was a part.

Most of the new portfolio is comprised of school-certified loans for students at a four year college and about 80 percent of the loans have already entered repayment. Student loans are often less risky for lenders because students are more likely to pay them back. Discover reported that it only wrote off 0.51 percent of loans on an annualized basis in the second quarter of this year.

In its last fiscal year, Discover reported that it made almost $5 billion in private student loans. It says it expects to become the nation’s third largest originator of private student loans this year.

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Subprime Auto Loans Rise Since Financial Crisis

September 19, 2011 – A borrower’s poor credit score might no longer keep him or her from getting a new or used car loan. After becoming more cautious as a result of the financial crisis of 2008, auto lenders are now showing that they are more willing to lend to subprime borrowers.

On Tuesday, August 30, Experian Automotive announced the results of its study on auto lending in the second quarter of 2011. The study reported that the rate for subprime new vehicle loans increased by 22.4 percent from 2010, from 18.21 percent to 22.29 percent.

“Even with a tepid economic recovery in the first half of the year, automotive lenders were willing to increase their level of risk,” Experian Automotive Director of Automotive Credit Melinda Zabritski said in a press release. “This was good news for automotive manufacturers, as nearly half of all consumers fall into non-prime, subprime and deep subprime risk categories. Providing loans to these risk tiers opens the market to significantly more prospects.”

The area that saw the greatest increase was in new car loans for borrowers in the highest risk category, deep subprime, which soared 44.1 percent from 1.48 to 2.13 percent. In addition, the average credit score for both new and used auto loan borrowers decreased by an average of 8-10 points and the average time period for loan repayment extended by one month.

Overall, the total percent of subprime auto loans made in this last quarter was 40.8 percent, up from 37.2 percent at this time last year. In 2007, before the financial crisis, this rate was 46.2 percent.

This recent increase, Experian Automotive experts suggest, marks an increase in the risk lenders are willing to take on auto loans to increase their business – especially in a lagging economy. Some experts also suggest that auto loans are easier to grant to subprime borrowers because repossessing a vehicle is much easier than foreclosing a home.

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Moody’s Downgrades Big Banks

September 21, 2011 – Borrowers looking for a personal loan from their bank may see some changes in the banks from which they can receive one, as Moody’s Investors Service downgraded three big banks’ ratings yesterday. Stock declined early today as a result of the downgrade.

The affected banks, which were placed on review in June, are Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. Experts say it is too early to tell what effect these ratings will have, but Moody’s says they are a result of the federal government’s perceived inability or unwillingness to back a failing bank with federal funds in the event of a crisis.

“It is … more likely now than during the financial crisis to allow a large bank to fail should it become financially troubled, as the risks of contagion become less acute,” a Moody’s press release said. “Moody’s is therefore lowering the amount of support it incorporates into Bank of America’s ratings to levels reflected prior to the crisis.”

Bank of America’s long-term debt rating went from Baa1 to A2 and its short-term debt rating from Prime-2 to Prime-1. Wells Fargo’s long-term went from A2 to A1 and its short-term remained at Prime-1. Citigroup’s long-term rating remained at A3, but Moody’s downgraded its short-term debt from Prime-2 to Prime-1.

In their statements regarding the new ratings, the banks said that the downgrade will not have a huge impact and does not indicate a failure in their banking system.

“The action does not affect Wells Fargo’s unsupported ratings, which were affirmed today at A2 for WFBNA and A3 for WF&Co. that have been increased three times since 2009, most recently on December 6th 2010. Our short-terms ratings were not a part of this review and were again affirmed at Prime-1 today,” Wells Fargo’s statement said.

A Citigroup statement agreed that the numbers did not reflect the bank’s current condition.

“It does not accurately reflect the significant progress Citi has made since Moody’s last rated Citi more than two-and-a-half years ago,” the statement said.

Moody’s said that the downgrades do not reflect the banks’ credit quality.

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Payday Lender Settles After FTC Files Action

September 21, 2011 – One scam that many payday lenders use to target consumers is by illegally requiring employers to take money out of the borrower’s wages to pay back the loan. The Federal Trade Commission (FTC) seeks to end this activity by frequently charging these companies in court.

One such case occurred near the beginning of the month against South Dakota lender Padyday Financial, LLC, which operates Big Sky Cash and Lakota Cash. This company sells short-term, high interest, unsecured payday loans of between $300 and $2,525 throughout the U.S. It was charged with allegedly illegally garnishing consumer wages when they failed to pay the balance on a payday loan with the company.

Garnishing wages, according to the U.S. Department of Labor, is when “an employer is required to withhold the earnings of an individual for the payment of a debt in accordance with a court order or other legal or equitable procedure.” Private companies like payday loan stores need a court order, while government agencies do not.

The FTC’s case states that Payday Financial, LLC, sent documents that were similar to those used by federal agencies to ask employers to take these funds out of borrowers’ paychecks when they failed to repay their loans.

According to a press release from the FTC, “the complaint further alleges that the defendants have violated the FTC’s Credit Practices Rule by requiring consumers taking out payday loans to consent to have wages taken directly out of their paychecks in the event of a default, and have violated the Electronic Funds Transfer Act and Regulation E by requiring authorization for electronic payments from their bank account as a condition of obtaining payday loans.”

This is not the first of such charges levied by the FTC. For example, in September of last year it accused Ecash and GeteCash and the defendants settled in the case.

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Consumer Protection Groups Seek to Protect Military Personnel from Car Dealerships

A collection of consumer protection groups and advocates, including House Rep. John Campbell of California, are seeking to prohibit car dealers from preying on military personnel when administering new car loans and handling existing car loans.

While many of the scams that car dealerships use to prey on military personnel are the same used on basic consumers, this collection of consumer protection groups feel service members are particularly vulnerable.

Angela Martin, a military veteran who teaches financial readiness classes for military personnel, shed light in a recent press release published by Rep. Campbell on why this population is so vulnerable to auto loan scams:

  • Service members are a transient population by nature. They move often and wherever their work takes them. As a result, when an issue arises with a car dealer, they are unable to return to that same dealership to remedy the situation. Like a restaurant that gives poor service when its primary target is tourists, car dealerships know they can lack on service and integrity when administering car loans to customers who will not or cannot return.
  • Because service members move states so frequently, the Attorney General is less likely to assist members in pursuing legal action against a dealership that has wronged them since the case would likely deal with a party in another state.
  • Respect for and by authority figures is vital to a service member’s career, and car dealerships exploit that fact. When a service member falls behind on a car loan payment, some dealerships call the member’s commanding officer and request he demand payment from the member.
  • Service members’ loans can be paid directly by the military through use of the military’s “allotment” system. The allotment system distributes a member’s funds to other organizations before distributed to the member himself. Many dealerships require themselves to be set up to a member’s allotment system so that they get paid before the member even receives the cash.

Rosemary Shahan, an advocate who runs Consumers for Auto Safety and Reliability, says “dishonest cars-sales practices have become so severe that military deployment manuals list car financing as the most frequent obstacle to [service members’] financial readiness,” according to the release from Rep. Campbell.

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FHFA Announces Changes to Refinance Program for Underwater Homeowners

In an effort to grant relief to the nation’s foreclosure epidemic, the Federal Housing Finance Agency (FHFA) along with President Obama announced changes at the end of October to the Home Affordable Refinance Program (HARP).These changes are meant to encourage underwater homeowners to refinance their homes at today’s low interest rates.

President Obama made an appearance in Las Vegas, the nation’s foreclosure capital, to introduce the changes to the program and offer encouragement to struggling homeowners across the country.

Calling our Congress “increasingly dysfunctional,” the president remarked, “Where they won’t act, I will,” according to a report from the Washington Post.

So long as homeowners’ loans have not been previously refinanced, have a loan-to-value (LTV) ratio higher than 80 percent, are backed by Fannie Mae or Freddie Mac and have not been late on a payment in the last six months (and only one late payment in the last year), they can proceed to apply for a refinance under the FHFA’s revised program.

Since the housing bubble implosion, interest rates have continued to follow a downward trajectory. But with lenders’ unwillingness to refinance upside-down mortgages, homeowners began to relinquish their homes to lenders and turn to the often cheaper route of renting property.

What began as a trickle led to a deluge of defaults, as homeowners began to walk away from their homes in droves.

A DataQuick report on California’s foreclosures illustrates this trend with alarming statistics. In 2005, the tail-end of the housing boom, there were fewer than 20,000 Notice of Defaults (NODs) filed. Within three years, the average number of NODs filed was well over 100,000. And that number has continued with terrifying resolve as 2011’s 3rd quarter statistics were released last month revealing 70,000 NODs have already been filed this year with one more quarter still remaining.

The FHFA recognizes this problem and is currently seeking a way to bring both the interests of homeowners and lenders together under the revised HARP refinancing rules.

The changes to HARP hope to encourage homeowners to apply for and obtain a refinance by changing the requirements applicants are expected to satisfy. These changes include removing the 125 percent LTV ceiling for Fannie and Freddie-backed fixed-rate loans, eliminating the risk-based fees associated with refinancing into shorter-term mortgages, and relieving borrowers of the obligation to get certain approvals, warranties, and appraisals of their properties.

In addition to removing many of the hurdles prospective refinancers had to jump, the FHFA is extending the end date for HARP to Dec. 31, 2013, for all loans originally made on or before May 31, 2009.

While the new refinance program will not solve the housing crisis by itself, it does hope to help nearly 10 percent of the nation’s underwater homeowners to refinance their mortgages.

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Obama Administration Seeks to Reduce Millions of Student Loans

President Obama recently announced his proposal to reduce the sometimes excruciatingly high monthly payments current students and recent graduates owe on the loans used to pay for their education.

Recognizing the importance of education in a global economy, president Obama said in a news release, “until Congress does act, I will continue to do everything in my power to act on behalf of the American people.”

The administration hopes to live up to this promise by revising the current “Pay as You Earn” student loan payback program. Beginning next year, current students will have the ability to cap their monthly student loan payments at 10 percent of their discretionary income.

However, it is not only current students that are struggling with their student loan payments. Recent graduates, those who are trying to break into the extremely competitive recessionary job market, are finding themselves without any means to payback their student loans.

To tackle this problem, the administration seeks to grant graduates the ability to consolidate student loans at reduced interest rates and to forgive the balance graduates owe after 20 years of making payments on their student loans. This measure will offer a strong helping hand to graduates who have taken on lower-paying jobs.

By consolidating and reducing graduates’ monthly payments, these improvements to the “Pay as You Earn” plan are meant to work in tandem with the Public Service Loan Forgiveness Program, which forgives all student loan debt for public service workers after just 10 years of payment.

Finally, for borrowers who have both a Federal Direct Loan and a Federal Family Education Loan, the Administration will grant an option to consolidate these loans into a single payment. If borrowers accept the offer to consolidate these federal student loans, they will receive up to a 0.5 percent reduction on the interest rate these loans bear.

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HUD Announces Immediate Suspension of Allied Home Mortgage Corporation

The U.S. Department of Housing and Urban Development (HUD) has suspended this month Allied Home Mortgage Corporation from underwriting and originating new home mortgages insured by the Federal Housing Administration (FHA).
Allied is alleged to have been originating and concealing loans from unapproved branch offices.
In addition to suspending the company, HUD has also suggested to debar the company’s president, James C. Hodge, and the company’s vice president, Jeanne L. Stell.
“We will not tolerate mortgage lenders who play fast and loose with FHA’s standards,” said HUD’s General Counsel Helen Kanovsky in a statement.
HUD cited several violations including using unqualified and inadequate staff members, bypassing FHA requirements and knowingly submitting false information to the FHA.
This suspension was brought on just as the U.S. Attorney in Manhattan finished filing a lawsuit against Allied Home Mortgage Company for multiple charges of mortgage fraud in addition to the FHA violations.
Kanovsky finished her condemnation by stating, “These defendants demonstrated a pattern of recklessness and utter disregard for how [the FHA does] business. They’ve harmed the FHA, hurt homeowners, and now they’ll be held to account for their actions.”
Allied Home Mortgage Company’s website has been made temporarily unavailable and instructs those holding Allied loans to call its loan inquiry desk with any questions they may have.

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Sweat Equity Grants to Fund Affordable Low-Income Housing

The U.S. Department of Housing and Urban Development (HUD) announced in October it has allocated nearly $27 million in grants to go toward producing nearly 1,500 homes for low-income families.
This large sum of money, funded by HUD’s Self-Help Homeownership Opportunity Program (SHOP), will be given in the form of “sweat equity” grants. Sweat equity grants award money to individuals or organizations on the condition the recipient will literally work alongside the money in order to obtain the product the grant is funding.
In this case, organizations that receive grant money will be administering new home loans to low-income families.
The homebuyers are required to contribute a minimum of 100 hours of “sweat equity” to the construction of their homes. Sweat equity can be in the form of painting, roofing, carpentry, trim work, dry walling or any other duty homebuyers find themselves capable of doing in contribution to the final product of their own home.
Houses funded by the SHOP grants are expected to stay around $15,000 due to the volunteer and sweat equity work that will be put into them.
HUD secretary Shaun Donovan stated in a release that “These grants are about families devoting their own sweat and labor into their American Dream.”
The four organizations selected to receive SHOP funds are Habitat for Humanity International in Georgia, Tierra del Sol Corporation in New Mexico, Community Frameworks in Washington state and the Housing Assistance Council in Washington, D.C.

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