May 28, 2023

Mortgages: Refinancing, Despite a Rate Rise

As of the end of June, refinancing activity represented 64 percent of all mortgage applications, the lowest volume since May 2011, according to the Mortgage Bankers Association.

The rise in rates by “better than a point” since early May has effectively killed off a lot of the refinancing business, in what amounts to a “purely an interest-rate-driven decision,” said Keith T. Gumbinger, the vice president of, a financial publisher. But getting into a new mortgage still makes sense for some categories of homeowners.

The most obvious candidates are borrowers whose rates are 5.5 percent or higher. The rate for a 30-year fixed-rate mortgage has lately hovered around 4.5 percent; the 15-year fixed rate is around 3.5 percent.

Borrowers who couldn’t refinance when rates were lower because their homes were barely worth what they owe may be better positioned now, Mr. Gumbinger said. “Maybe you didn’t have a deep enough equity position before,” he said, “but with home prices rising — in some places, up 10 percent over last year — market forces may be more favorable for you, even with the rise in rates.”

He noted that although the federal Home Affordable Refinance Program, or HARP, was set up to help underwater borrowers refinance, not everyone qualifies. So some borrowers could still be “sitting on a loan in the sixes or sevens.”

Borrowers with a variable-rate mortgage that is about to go up might consider refinancing if they plan to stay in the house for a long time, said Gary Schatsky, a financial adviser and lawyer in New York. Also, those with “a good chunk” of their equity in a home equity line of credit, and no likelihood of paying it off in the short term, could possibly benefit from consolidating, depending on the closing costs, he added.

If refinancing just doesn’t make sense, there are other ways to reduce the amount of interest paid. One strategy is to pay more toward the principal every month than required, lowering the balance upon which interest is figured. offers two online calculators to help borrowers figure out how much they can save. The prepayment calculator asks how much you can afford to send in each month, and then calculates how much interest you would save over the life of the loan. The lower-rate calculator asks what interest rate you would prefer to your current rate, and then calculates how much you would need to prepay each month to save an equivalent amount of interest.

Borrowers considering a prepayment strategy should remember, however, that they will lose some liquidity. They might also think about whether the money might be better applied elsewhere (i.e., life insurance and cash reserves).

“You have to not need the money for a prolonged time in the future,” Mr. Schatsky said. “And if you can afford the larger payments, you might want to look at a 15-year mortgage because shorter-term rates are still extraordinarily low.”

Some lenders also offer biweekly payment programs. By having half of your mortgage payment deducted every two weeks, instead of making one monthly payment, you will effectively make an extra month’s payment every year.

“If you start doing this at the beginning of the loan,” Mr. Gumbinger said, “you can trim your loan down to 23 years.” But many lenders charge fees for automated biweekly billing; a disciplined borrower could achieve the same goal by simply cutting one extra check each year, he pointed out.

Article source:

Mortgages: Loan Modifications, Proactively

Under a new Streamlined Modification Initiative announced by the Federal Housing Finance Agency, mortgage servicers must now offer borrowers who are 3 to 24 months delinquent a plan to help avoid foreclosure.

Unlike the Home Affordable Modification Program, an earlier government initiative known as HAMP, this one carries no burdensome documentation requirement. Borrowers may be approved without providing any proof of financial hardship.

The elimination of paperwork coupled with a proactive approach should benefit borrowers, said Timothy M. Dwyer, the chief executive of Entitle Direct, a direct-to-consumer title insurance company. “All it takes is for the borrower to make that new payment and they’re in the trial period of the program,” he said. “It can’t be any more simple than that. There’s not even a requirement that you sign something, send it in and have it approved.”

Borrowers must make three monthly payments on time before the modification becomes permanent. The program applies to loans owned or guaranteed by Fannie Mae or Freddie Mac. The start date was to be July 1, but an agency spokesman said Fannie and Freddie had already begun the program. It expires Dec. 31, 2015.

The program applies to primary residences, investment properties and second homes. Borrowers may have up to 20 percent equity in the property.

The intention is to get distressed borrowers into modified loans early enough to keep them out of foreclosure. The formula used to calculate the new payment is the same as for standard modifications under Fannie and Freddie, said Diane Cipollone, the director of the Fair Lending Training Program for the National Fair Housing Alliance. That formula is not based on income and affordability, so not all borrowers will necessarily find that the new payment amount makes an appreciable difference in their financial circumstances.

“The payment that results merely has to be equal to or less than the unmodified payment,” Ms. Cipollone said.

One category of borrowers likely to benefit from the streamlined program includes those who fell behind because of “a big interruption in income or some unexpected expense, and but for the arrears, they’re back on track,” she said. Under the modification formula, the arrears are added to the loan balance and the term extended to 480 months. The interest rate is currently about 4 percent.

Borrowers who are “underwater” — or owe more than their homes are worth — will not pay interest on up to 30 percent of the unpaid loan balance. The program does not allow for a reduction in the principal balance, however.

The solicitations being mailed to borrowers will also include information about HAMP. Borrowers may apply for a HAMP modification and still begin making payments under the streamlined program, Ms. Cipollone said.

HAMP may save more money for qualifying homeowners because the payment is based on 31 percent of gross monthly income. But Ms. Cipollone says it is restricted to loans originated before Jan. 1, 2009; the streamlined program applies to loans held for at least a year.

Mr. Dwyer said it would be interesting to see if the new program was any more effective than HAMP at keeping people in their homes. A report from the special inspector general for the Troubled Asset Relief Program found that homeowners who received HAMP modifications in 2009 defaulted at a rate of roughly 40 percent.

Article source:

Mortgages: Financing for Foreigners

During the financial crisis, risk-wary lenders were less likely to extend financing to foreigners. The pool of lenders offering such financing is still limited, but their foreign loan business is up.

HSBC, the multinational bank based in London, reports that its volume of home loans extended to foreign borrowers in the United States has tripled since 2010. “It’s just the ability to get that money at such a low interest rate that is really driving all these applications,” said Joe D’Alessio, an HSBC mortgage consultant who works with high-net-worth clients.

With a presence in 81 countries and territories, HSBC has a big appetite for foreign customers and offers some of the most attractive mortgage terms. Financing is available for up to 70 percent of the purchase price, up to a maximum of $3 million.

Interest rates tend to be slightly higher on loans to foreigners, Mr. D’Alessio said, but the rate on a five-year adjustable mortgage is still in the mid-2 percent range.

HSBC’s terms are stiffer on apartments in buildings that are nonwarrantable (meaning they don’t meet Fannie Mae’s financing guidelines). In these cases, the bank may require 50 percent down.

“But that doesn’t seem to deter buyers,” said Mr. D’Alessio, who has worked with clients from Britain, Hong Kong, Turkey, Japan and Brazil. “They are usually coming and looking for all-cash deals. Then they find out they can borrow, and so they take advantage of it.”

Borrowing also gives foreigners more buying power. Some choose to “buy a larger property that might have a higher rate of return in the next few years,” he said.

Foreign interest in investing in New York is driven in part by the perception that property here is a bargain compared with that in other global cities, said Ace Watanasuparp, the president of DE Capital Mortgage, an affiliate of Wells Fargo.

A recent report by Knight Frank ranked New York the eighth-most-expensive city for residential property. Going by average price per square foot, New York has an edge over Monaco, Hong Kong, London, Geneva, Paris, Singapore and Moscow. The report notes that growth in high-quality housing in New York is also a draw.

Through Wells, DE Capital offers financing for foreign buyers, but the program is “not an aggressive one,” Mr. Watanasuparp said. Loan amounts are capped at $1 million, and borrowers must put at least 40 percent down.

First Choice Loan Services, a subsidiary of First Choice Bank, has seen an “uptick” in inquiries from foreign nationals in the last few months, according to Jason Auerbach, a divisional manager. The company will lend foreigners up to 65 percent of the purchase price. But such loans are carefully scrutinized by the bank before approval.

“We will also generally ask them to keep a small escrow account with us so we feel that we are definitely protected,” Mr. Auerbach said.

Other lenders that work with foreigners include the Bank of Internet and Apple Bank.

Still, currency remains king for many foreign buyers. Alen Moshkovich, a sales agent with Douglas Elliman Real Estate, says the vast majority of the foreigners he works with — most recently buyers from Brazil, Russia, China, Venezuela and Israel — continue to pay in cash.

For the superwealthy, any savings obtainable from financing is insignificant, Mr. Moshkovich said. More important, he said, “cash gives them more purchasing power, in terms of negotiating deals, and a quicker closing.”

Article source:

You’re the Boss Blog: The S.B.A. Wants to Encourage More Small Loans

The Agenda

How small-business issues are shaping politics and policy.

For the last several years, the Small Business Administration has attempted to expand its loan-guarantee programs by making them available to bigger businesses. But with the 2014 budget that the White House sent to Congress last week, the Obama administration is trying to solve a problem at the other end of the spectrum: how to induce banks to make smaller loans, to smaller businesses.

S.B.A.-guaranteed general business, or 7(a), loans for $150,000 or less have fallen from $3.5 billion in 2007, and about 24 percent of all such loans guaranteed by the agency, to $1.4 billion in 2009. Of course, 2009 was the pit of the recession, and S.B.A.-backed lending — if not all lending — had dropped to its lowest level in recent memory. But while the agency’s loan programs have since fully recovered, the total lent in these small loans has remained flat, and constituted just 9 percent of the 7(a) program, the S.B.A.’s biggest, in 2012.

The new budget for the S.B.A. would waive the agency’s fees for guaranteeing loans of less than $150,000, and this follows recent efforts to streamline one program to encourage more small loans. But some observers in the S.B.A.-lending industry doubt these moves will be sufficient.

S.B.A. officials trace the decline in smaller guaranteed loans to the collapse of a loan program known as S.B.A. Express, a 7(a) variant that allows lenders to use personal credit scores rather than business fundamentals as the basis for approving loans. The big banks that participated in S.B.A. Express started racking up huge losses in the program even before the recession hit, and many gave up on the smaller loans. Then, in 2010, the S.B.A. shuttered a separate loan program, Community Express, that focused on providing small loans to borrowers in struggling communities. A replacement initiative known as Small Loan Advantage has been considered too cumbersome, at least until recently, to win over lenders.

That has largely meant that borrowers have had to turn to the traditional 7(a) program, with its extensive, and expensive, underwriting requirements for banks. Those obligations are the same regardless of the size of the loan, making bigger loans more profitable for lenders than smaller loans. Moreover, banks that sell those loans on the secondary market make more money on bigger loans. “Premiums on the secondary market are at an all-time high, and that may have given bankers a reason to make larger loans rather than smaller loans,” said Arne Monson, whose firm, Holtmeyer Monson, helps small banks make S.B.A. loans. Finally, most small loans go to new businesses, Mr. Monson said, and banks are still shying away from these riskier borrowers.

Last week, Jeanne Hulit, an associate S.B.A. administrator, acknowledged these problems. “As the banks have re-entered the market in lending, they’re really looking at the business metrics and the business’s ability to repay the debt,” she said. “And if you’re going to do that kind of analysis, it’s just as costly to analyze a $1 million loan as a $100,000 loan. So clearly the banks were using their resources to lend to more established businesses, with a more predictive ability to pay.”

The S.B.A.’s solution to the small-loan drought is to waive the fees it charges banks for guaranteeing these small loans — both the one-time fee it charges at the time of the loan (percentages vary with the size of the loan) and the annual fee of .55 percent of the guaranteed portion of the loan (it would be waived for at least one year). For a loan of $150,000 with a term of more than one year, the initial fee is 2 percent of the amount the agency is guaranteeing, which amounts to $2,550. (On larger loans, the inital fee can approach 3.75 percent.) The Obama administration says that the agency can afford to do this and still get by on a smaller overall budget for 2014 because S.B.A. lending has gotten less risky with an improving economy and requires a smaller taxpayer subsidy. The proposal would require Congress’s approval.

In addition, Ms. Hulit said, “we’re doing a lot of things to streamline the transaction costs for small-dollar loans.” In particular, she said, the S.B.A. has adapted its own business credit-scoring model for making preliminary decisions about borrowers in the Small Loan Advantage program. For loans that get an early green light, banks can skip 100 pages of paperwork that normally accompany a loan application. “Lenders can cut the time required to process loans of this size by up to 60 percent, and in some cases, save as much as four full business days in processing times,” said an S.B.A. press secretary, Emily Cain.

Still, it is unclear whether eliminating the guarantee fees will spark much new lending, since banks are able to pass those onto the borrowers, and tend to roll them into the loan itself. Back in 2008, bankers contacted by The Agenda (in an earlier incarnation) expressed skepticism that a fee holiday, proposed at the time by Senator John Kerry, would do much to jump-start lending. Rohit Arora, chief executive of Biz2Credit, a business-loan broker, said he doubted the current proposal would do more than perhaps make the loans more palatable to borrowers. “From our experience,” he said, ” we have seen that streamlining the paperwork and the decision-making is more important.”

But here, too, it is hard to know whether banks are responding to the procedural changes. Mr. Arora said that the S.B.A.’s claims about reducing paperwork are overstated, in part because banks, out of habit, continue to insist on gathering all of the tax returns and financial statements required of a standard 7(a) loan. And with good reason, said Mr. Monson — if a loan goes bad, a bank better have a fully documented loan file or it may not be able to collect its guarantee. “When we perform the service for our client banks,” Mr. Monson said, “it is not streamlined.”

Many more banks now participate in the Small Loan Advantage program, but that could be simply because the agency has opened the program up to many more banks. And though lending through the program has spiked, that may reflect another change the agency made: It raised the program’s loan limit from $250,000 to $350,000. In fact, total lending at $150,000 or less across all the 7(a) programs has actually fallen slightly from the first six months in 2012.

To bring smaller loans back into the fold, the S.B.A. seems to have its work cut out for itself.

Article source:

Today’s Economist: Casey B. Mulligan: Forgiveness Formulas


Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

In an ideal world, collecting debts would be as simple as asking debtors to pay their obligations when they are able to. But in reality most businesses have found that they need to obtain other assurances, such as collateral or the option to shut off services to a delinquent payer. Otherwise it is too easy for debtors to claim hardship and walk away without paying.

Today’s Economist

Perspectives from expert contributors.

On the other hand, many families and other debtors do experience genuine hardship. In those cases it can be compassionate and even efficient to at least partly forgive the debts of people who have fallen on hard times. Many economists see loan defaults as (sometimes) an efficiency-enhancing form of risk-sharing.

Even the most hard-hearted lender may choose to partly forgive loans because too much lender effort is required to elicit full payment. Just as you cannot squeeze blood from a stone you cannot get much revenue from someone who does not have it.

One approach would be for lenders to develop and disclose a “forgiveness formula” that would clearly define “hard times” and indicate precisely what kind of forgiveness is possible. The advantage of forgiveness formulas is that distressed borrowers can be certain where they stand with the lender and can readily evaluate whether they were treated “fairly.”

Forgiveness formulas are also consistent with the idea that agreements should be clearly specified in writing, so the parties to the agreement fully understand each other and never have to argue about what the agreement really meant. Carefully specified written agreements are sometimes found in employment relationships, tenant-landlord relationships and even marriages.

This is the approach that the Federal Deposit Insurance Corporation took during the George W. Bush administration to restructure home mortgages that had fallen under water (that is, when home prices had fallen so much that selling the home would no longer provide enough proceeds to pay the mortgage in full). Borrowers were told what new mortgage terms would be affordable and under what net-present-value conditions those terms should be considered acceptable to lenders.

The clarity of forgiveness formulas is also their weakness, because they make it easier for debtors to “game the calculation” and can ultimately make loans more costly for borrowers who pay in full. The Internal Revenue Service has long been secretive about its procedures for auditing returns and restructuring delinquent tax payments, and the Treasury maintained that approach when it became involved with restructuring home mortgages (the Congressional Oversight Panel discusses this matter on Page 41 of this report).

Hospitals are also known to partly forgive medical debts incurred by the uninsured, while they make no accommodation for many others. Some states require hospitals to explain in writing how they go about discounting charges for hardship patients (as we can see in New York’s policy), but you might guess that hospitals worry that patients will game those calculations in order to pay less.

One advantage of health reforms that get more people on health insurance is that by getting people to pay for their health care before they get sick, the reforms reduce the number of cases in which clear forgiveness has to be traded off with formula gamesmanship.

Article source:

Bucks Blog: Why Borrowers Use Payday Loans

People use payday loans to avoid borrowing from family and friends, and to avoid cutting back further on expenses. But they often end up doing those things anyway to pay back the loan, a new report finds.

The average payday loan — a short-term, high-interest-rate loan typically secured by a borrower’s future paycheck — requires a repayment of more than $400 in two weeks, according to a new report from an arm of the Pew Charitable Trusts. But the average borrower can only afford a $50 payment, which means that borrowers end up rolling over the loan and adding to their debt. The Pew report found that borrowers typically experience prolonged periods of debt, paying more than $500 in fees over five months.

About 41 percent of borrowers say they need a cash infusion to close out their payday loan debt. Typically, they get the money from the sources they tried to avoid in the first place, like family and friends, selling or pawning personal items, taking out another type of loan, or using a tax refund.

“Payday loans are marketed as an appealing short-term option, but that does not reflect reality. Paying them off in just two weeks is unaffordable for most borrowers, who become indebted long-term,” Nick Bourke, Pew’s expert on small-dollar loans, said in a prepared statement.

The Community Financial Services Association of America, a group representing payday lenders, countered that the Pew report lacked context. “Short-term credit products are an important financial tool for individuals who need funds to pay for an unexpected expense or manage a shortfall between paychecks,” the association said in a statement. “In our current economy and constricted credit market,” the statement continued, “it is critical that consumers have the credit options they need to deal with their financial challenges.” The typical fee charged by association members, the statement said, is $10 to $15 per $100 borrowed.

Payday loans and similar “bank deposit advance” loans, which are secured by a direct deposit into a bank account, are coming under increasing scrutiny from federal regulators.

Once confined to storefront operations, payday lenders are increasingly operating online. This last week, The New York Times reported that major banks, like JP Morgan Chase, Bank of America and Wells Fargo, had become behind-the-scene allies for the online lenders. The big banks don’t make the loans, but they enable the lenders to collect payments through electronic transactions.

(On Tuesday, though, Jamie Dimon, the chief executive of JPMorgan Chase, vowed to change how the bank deals with Internet-based payday lenders that automatically withdraw payments from borrowers’ checking accounts.)

The loans are typically viewed as helpful for unexpected bills or emergencies. But the Pew report found most payday borrowers are dealing with persistent cash shortfalls, rather than temporary expenses. Just 14 percent of borrowers say they can afford to repay an average payday loan out of their monthly budgets.

The findings are based on a telephone survey as well as focus groups, Information about borrowers’ experiences with payday loans is based on interviews with 703 borrowers. The margin of sampling error is plus or minus 4 percentage points.

Even though borrowers complained that they had difficulty repaying the loans, most agreed that the terms of the loans were clear. So why do they use such loans? Desperation, according to the report: “More than one-third of borrowers say they have been in such a difficult situation that they would take a payday loan on any terms offered.”

Have you ever used a payday loan? How did you pay it back?

Article source:

DealBook: In Deal, Bank of America Extends Retreat From Mortgages

Correction Appended

Bank of America bought Countrywide in 2008.Kevork Djansezian/Associated PressBank of America bought Countrywide in 2008.

9:00 p.m. | Updated

Bank of America is continuing a large-scale retreat from its costly expansion into the home mortgage market, a shift that concentrates more power in the hands of its biggest rivals and leaves fewer options for some home buyers.

The bank, which already has sharply scaled back in making mortgages, on Monday sold off about 20 percent of its loan servicing business as part of its agreement to pay the housing finance giant Fannie Mae more than $11 billion to settle a bitter dispute over bad mortgages.

The payment resolves claims that Bank of America made bad mortgages before the financial crisis that home buyers had a hard time repaying, and then sold those troubled mortgages to the government. When borrowers defaulted — sometimes within months of taking out a mortgage — the taxpayer-supported Fannie Mae suffered immense losses.

Related Links

Less competition in the mortgage market could hurt consumers, potentially raising the costs of borrowing. The problems at Bank of America have cut down its mortgage ambitions; it accounts for 4 percent of the nation’s mortgage market, a slide from just over 20 percent in 2009, ceding market dominance to Wells Fargo and JPMorgan Chase.

“This is part of a broader consolidation of banks and that is something that we should all be very, very concerned about,” said Ira Rheingold, executive director of the National Association of Consumer Advocates. “Anything that leads to less competition can only be bad for consumers.”

Brian Moynihan, chief of Bank of America.Win McNamee/Getty ImagesBrian Moynihan, chief of Bank of America.

Also Monday, Bank of America and nine other lenders agreed to an $8.5 billion settlement with banking regulators to resolve claims of foreclosure abuses that included flawed paperwork and bungled loan modifications. While the two agreements were separate, they represented one of the biggest single days for government settlements with United States banks, totaling $20.15 billion, and illustrated the extent of the banks’ role in the excesses of the credit boom, from the making of loans to the seizure of homes.

While costly, analysts said, the settlements may reduce legal uncertainties for lenders and spur more banks to compete for home loan business.

In its agreement with Fannie Mae, which the government controls, Bank of America will pay the agency about $3.6 billion to compensate for faulty mortgages and $6.75 billion to buy back mortgages that could have resulted in future losses for the government. The bank also agreed to sell to other firms the right to collect payments on $306 billion worth of home loans.

“Bank of America is sending a clear message that the bank only wants to be the mortgage lender to a select, small group of people,” said Glenn Schorr, an analyst with Nomura.

Bank of America has been battered by a steady stream of losses after its 2008 purchase of Countrywide Financial, the subprime lender that has come to symbolize the reckless lending practices of the real estate bubble. Before Monday, the $4 billion Countrywide acquisition had cost Bank of America more than $40 billion in losses on real estate, legal costs and settlements. Most of the loans covered in the Fannie Mae settlement were issued by Countrywide from 2000 to 2008.

“These agreements are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses over time,” the bank’s chief executive, Brian T. Moynihan, said in a statement.

Bank of America said it expected the settlement to depress its fourth-quarter earnings by $2.5 billion. Its shares, which doubled in 2012, on Monday essentially closed flat at just over $12.

While the settlement will resolve all of the lender’s disputes with Fannie Mae, which weighed on the bank, Bank of America still faces billions of dollars in claims from investors and federal prosecutors.

While the mortgage market is consolidating in the hands of a small number of banks, the housing market is showing signs of recovery. The Federal Reserve has spent hundreds of billions of dollars to stimulate the economy, driving down interest rates on 30-year mortgages to 3.34 percent. In the last year, this has helped lift house prices from their lows and prompted a boom in refinancings. At the same time, though, even borrowers with strong credit complain about onerous checks and backlogs in the application process. This suggests banks are still struggling to efficiently follow the higher standards introduced since the financial crisis.

Nearly all mortgages that banks make right now are transferred to the government, which guarantees that they will be repaid.

Most analysts agree that mortgage rates would be lower if banks were competing more vigorously for business. Because the settlements could ease legal uncertainties surrounding mortgage lending, a wider array of banks might be encouraged to lend more, eating into the market share of giants like Wells Fargo.

“Every one of these puts a little more distance between the banks and their subprime problems,” said Guy Cecala, publisher of Inside Mortgage Finance, an industry publication.

Wells Fargo made 30 percent of all new mortgages in the first nine months of 2012, far ahead of the second-place JPMorgan, which accounted for 10 percent of the market, according to figures from Inside Mortgage Finance. In 2007, Wells Fargo originated 11 percent of new mortgages.

“The markets are actually more competitive than ever,” said Vickee Adams, a spokeswoman for Wells Fargo Home Mortgage. She says smaller banks are making gains in some of the nation’s biggest urban markets.

Some mortgage analysts said the settlements did not provide the level of legal clarity that the banks crave. “We haven’t done enough listening to the banks,” said Christopher J. Mayer, a professor at Columbia Business School. For instance, he says, the banks need clearer rules on when they have to take back loans they have sold to government housing entities.

But a big problem may be that many banks are too poorly run to compete, a situation that may not quickly change even with greater legal clarity. Bank of America’s servicing operations have struggled for several years.

“It may be that Bank of America decided that it wasn’t good enough at servicing,” said Thomas Lawler, a former chief economist of Fannie Mae and founder of Lawler Economic and Housing Consulting, a housing analysis firm.

The bank is looking to refocus beyond the mortgage business. To that end, Bank of America agreed to offload the servicing rights on two million loans with an outstanding principal of $306 billion. Those rights were scooped up by specialty mortgage servicing firms, including Nationstar Mortgage Holdings and the Newcastle Investment Corporation, which collect payments from borrowers.

Jerry Dubrowski, a spokesman for Bank of America, said, “The strategy is simple: to focus on our core retail customers, to be able to provide an entire array of products and services to them, in which mortgage is an integral product, but not the only product.”

Correction: January 8, 2013

An earlier version of this article omitted one element of the settlement between Bank of America and Fannie Mae, and summaries of the article in some sections of consequently understated the total amount of the two mortgage-related settlements announced Monday. It is more than $20 billion, not $18.5 billion.

Article source:

Bucks Blog: Hurricane Sandy and the Need for More Paperwork for Mortgages

Homes on the New Jersey coast damaged by Hurricane Sandy.ReutersHomes on the New Jersey coast damaged by Hurricane Sandy.

A colleague whose home is located in an area affected by Hurricane Sandy thought he had signed the final papers last week for a refinance of his mortgage. But on Wednesday, his lender said that because his home was in a declared disaster area, he’d have to provide additional documents.

That might not be the easiest thing to do, since getting documents may be a challenge for those in areas without power.

A Bank of America spokesman, Kris Yamamoto, said that due to “G.S.E. guidelines and our policy, and depending on the category of the disaster area,” there may be additional requirements to process a loan, like an inspection or certification on the property. (The term G.S.E. refers to government-sponsored enterprises like Fannie Mae or Freddie Mac, which are major buyers of home loans.)

He also said that if the processing of a loan is delayed because of a bank site’s being temporarily closed, and the interest rate lock expires during that time, the customer would continue to qualify for their previous interest rate.

A Chase spokeswoman said she was looking into my inquiry. Meantime, she said, Chase is automatically giving many borrowers affected by the storm a seven-day extension on an interest rate lock if they were scheduled to close on a mortgage this week. (She said the extension applied to Connecticut, Delaware, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia and the District of Columbia.)

Wells Fargo didn’t immediately respond to an e-mail request for information about how the storm was affecting loan applications.

Do you have a home loan or refinance pending? Has the storm affected your application?

Article source:

You’re the Boss Blog: Drilling Down: The Impact of a Very Small Loan


A weekly roundup of small-business developments.

This week’s Dashboard roundup of small-business news includes a link to an article about a new program introduced by the New Jersey Department of Labor in partnership with the nonprofit Intersect Fund, a microlender. With loans as small as $500, the program will support small-business development in poor and distressed areas of the state. We decided to contact Rohan Mathew, one of the founders of the Intersect Fund, to learn more. A condensed version of the conversation follows.

When was the Intersect Fund founded?

The Intersect Fund was founded in 2008 and made its first individual loans in 2010. In two years since then, we have made 160 loans totaling more than $290,000.

What’s different about your fund?

Microbusinesses are a big market — there are 25 million in the U.S. — but the microlending industry remains small. We made more loans in our second year of lending than the four other New Jersey microlenders combined. I see our primary competition as credit cards, loan sharks, subprime auto lenders, friends and family, and in many cases inaction — deciding against making an investment to grow the business.

We try to differentiate ourselves with a quick and easy process with few hassles — even if we decline your application, we do it promptly and with dignity — and great customer service. Our borrowers have a single point of contact rather than a 1-800 number, so they are able to develop a relationship.

Our most significant constraints for growth are finding great people to grow our staff and access to affordable capital.

How do you expect to achieve a return on investment on a $500 loan?

Because we are a nonprofit, we are able to consider not only the financial R.O.I. but also the social R.O.I. We also have a very high number of repeat borrowers, so even though the $500 loan may be a loss leader, it can lead to a larger loan which has more favorable economics.

There’s a phrase we’ve coined internally — the just-right-amount loan — which means that we try to put entrepreneurs in a loan amount that’s a good fit for their current situation. Sometimes this means we are only able to accomplish one of a borrower’s goals instead of the 10 she came to us with. We determine our loan amounts with an eye toward not taking on undue risk for the borrower, making sure the loan can be repaid in a short amount of time, and financing the investments that will generate the greatest return for the business.

Once, we made a $350 loan to a seamstress who lived on $800 a month of public assistance along with sporadic business income. Rather than just declining her due to her poor credit history and low income, we found a loan amount that was right for her that allowed her to register her informal business and obtain a secured credit card to purchase supplies.

How do you raise capital?

We have a program for individuals to invest up to $100,000 with us for a minimum term of two years and receive a return of 1 to 3.5 percent. We liken it to a “C.D. with a conscience,” allowing investors to earn a return while knowing their money is doing some good.

Who is your ideal client?

We primarily target existing businesses that are unable to access mainstream financing due to the informal nature of the business, limited or no credit history, or language barriers. Our ideal client is looking for a small amount of money — around $5,000 — for a specific purpose. We target sole proprietors with one or no employees that operate in traditional, bread-and-butter industries — i.e., beauty salons, cleaning services, caterers — that are not capital-intensive or ultracompetitive. These businesses may not grow into million-dollar businesses, but they are more than able to make a good living for the owner.

What is the biggest reason some of your customers fail?

Landlords. We often see entrepreneurs get so infatuated with nice retail spaces in great locations that they end up overpaying. Renting commercial space requires experience and knowledge of the market, so first-time tenants need an adviser to look out for their interests. Sometimes an extra $1,000 to 2,000 a month is the difference between a business making money and losing money.

Do you ever have to sue for payment?

Yes. It doesn’t happen often — 2 percent loss rate — but we are serious about collecting on delinquent loans and will use the courts and repossess collateral if necessary.

Has your business benefited from or been hurt by the slow economy?

The dearth of financing options for small businesses as well as increasing numbers of people that are turning to entrepreneurship has been a boon to our business in recent years. For us, it’s not commercial lending, but rather pullbacks in credit card and auto lending that increase our market opportunity.

Gene Marks owns the Marks Group, a Bala Cynwyd, Pa., consulting firm that helps clients with customer relationship management. You can follow him on Twitter.

Article source:

Euro Crisis Pits Germany and U.S. in Tactical Fight

Chancellor Angela Merkel of Germany defied skeptics and laid the groundwork for a deeper union that she said rights the mistakes of the euro’s birth and puts integration on a stable path for the long term. In the process, she forced German fiscal discipline on Europe as the prescription for combating the ills that afflict the region.

Yet even as the cogs of the European agreement were being fitted into place, President Obama warned in his most explicit comments on the matter to date that the European — read, German — focus on long-term political and economic change was well and good. But any changes, he said, risked coming undone if leaders did not react quickly and powerfully enough to the market forces threatening the euro’s survival in the coming months.

At the heart of the debate is the question of how far governments must bend to the power of markets. Mr. Obama sees retaining the stability of markets and the confidence of investors as a primary goal of government and a prerequisite for achieving any major changes in public policy. Mrs. Merkel views the financial industry with profound skepticism and argues, in almost moralistic fashion, that real change is impossible unless lenders and borrowers pay a high price for their mistakes.

“It’s a battle of ideas,” said Almut Möller, a European Union expert at the German Council on Foreign Relations. “There is a different understanding of how to set up a sustainable economy in a globalizing world. Here there is a major rift.”

It will be difficult to know for weeks, or maybe even in months, which approach is right. But it is clear that the stakes are high, with the health of the world economy, the European Union and perhaps Mr. Obama’s presidential hopes hanging in the balance. Economists have fretted for months that forcing austerity plans on Europe’s troubled economies — while a good long-term solution — could lead to deep recessions in the short term, compromising any chance for effective change.

On a political level, Mrs. Merkel could look back on last week’s meeting of leaders in Brussels and declare, “We have succeeded.” Where her mentor, former Chancellor Helmut Kohl, failed, Mrs. Merkel managed to push through enforceable oversight of government spending that would allow the European Court of Justice to strike down national laws that violate fiscal discipline.

Initial market reaction to the Brussels meeting was positive, but that has happened before as deal after deal has been struck between European leaders. Skeptics say that, economically, Mrs. Merkel, the hard-line austerity queen of Europe, has won a hollow victory, one that will fall apart like every other solution that was proclaimed as lasting but proved to be fleeting.

“If the new arrangement turns out to be too toothless to enforce the rules, we’ll be back to square one,” said Thomas Klau, a political analyst and head of the Paris office of the European Council on Foreign Relations.

Just ahead of Mrs. Merkel’s unexpectedly robust success, Mr. Obama issued his unheeded warning from across the Atlantic. “There’s a short-term crisis that has to be resolved,” he said, “to make sure that markets have confidence that Europe stands behind the euro.”

Mr. Obama is fiercely proud of the record he achieved in keeping not just the United States but also the entire world out of an acute financial meltdown after 2008, presiding over enormous stimulus spending in tandem with unrestrained support from the Federal Reserve. The president and his allies now say that in doing so, they may well have prevented the world from falling into another Great Depression.

By ignoring the short-term threat, American officials say, Mrs. Merkel is unwittingly courting the very threat they so narrowly managed to keep at bay. Strong governments can borrow cheaply, mainstream economists on both sides of the Atlantic argue, and have an obligation to intervene more aggressively than they would in normal times to make up for the slump in private demand.

Article source: