News
As the peer-to-peer lending industry matures, the big financial firms peer-to-peer had set out to bypass have come to dominate the industry's investor pool. More than 80 percent of the loans issued on peer-to-peer marketplace Prosper went to those firms. The big players’ entry runs counter to the original notion of the sector as a populist alternative to the high stakes world of Wall Street. The original investors are now outgunned by the cash-rich, algorithm-wielding financial firms. Like high-frequency trading, peer-to-peer lending has become a game of speed. The dynamics taking shape — high demand for riskier loan categories, hedge funds leveraging and securitizing their investments — have inspired comparisons to the mortgage crisis.
The Federal Reserve Bank of San Francisco's latest issue of Community Investments focuses on the theme of collective action -- the model of change in which various sectors coordinate efforts and share resources in pursuit of social, economic and environmental goals. Articles included explore best practices for building cross-sector partnerships, methods of structuring coalitions, findings from the Department of Housing and Urban Development's Sustainable Communities Initiative and several case studies of applied collective action initiatives in California.
In remarks to the Independent Community Bankers of America 2014 Washington Policy Summit, Fed Chairwoman Janet Yellen addressed the regulatory challenges they face. She said the Fed would "tailor" the regulator's oversight of community banks to ensure they don't face an unfair burden. Yellen also said the Fed is working to use technology make examinations of community banks less disruptive and burdensome. She also adressed the role she sees for community banks in the economy. "I believe a healthy financial system relies on institutions of different sizes performing a variety of functions and serving different needs," Yellen said.
Urban Partnership Bank CEO William Farrow discussed bank regulation in an interview with Bloomberg. According to Farrow, the regulations “have created a series of challenges” for community banks. He discussed the “fear factor” community development banks feel that any mistake will prompt severe regulatory repercussions. But labor costs for compliance officials can be high in the current competitive market. Technological necessities also pose big challenge as bank must ensure their third party vendors are also compliant. Farrow says Urban Partnership so far has had more than 70 regulatory-related visits, requiring the attention of employees who otherwise would be serving customers.
A collaboration of public and private partners in Mississippi County, Arkansas, including Southern Bancorp, has culminated in the unveiling of the county’s first Delta Bridge Project Strategic Plan. The Delta Bridge Project is a community-led initiative aimed at revitalizing the county’s social and economic sectors. “We’re excited to be part of this new phase in Mississippi County’s social and economic growth,” said Steve Jones, Senior VP of Programs for Southern Bancorp Community Partners. “Southern Bancorp has seen the impacts firsthand that the Delta Bridge Project can have on a community, from increasing opportunities for youth to building stronger economic development supports to creating a safer place to live."
In a report on the Community Development Capital Impact (CDCI) Program, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) urged the Treasury to tighten oversight of recipients. CDCI injected $570 million into 84 CDFI-certified banks and credit unions serving minority and low income communities. The inspector general's report faulted the Treasury for not doing enough to ensure that these lenders were using their federal money to boost lending to local businesses. The report found that eight banks and credit unions have never returned surveys reporting on how they used the funds. In nine instances, institutions missed dividends or interest payments, but six of those lenders are now current in their payments.
The Western Independent Bankers Association has named Community Bank of the Bay winner of its annual Community Bank of the Year award. The award highlighted the San Francisco Bay Area bank’s newly redesigned Bay Area Green Fund, which attracts capital and deposits that are exclusively loaned to local environmentally sustainable projects and companies. The association also praised the bank’s sponsorship of local nonprofit Mindblown Labs, which has included three years of free office space. Mindblown teaches underserved students at two Oakland high schools app development, helping them learn valuable skills and make money on the apps they create. Mindblown’s latest game, Thrive N Shine, is a financial literacy app geared toward teenagers and college-age youth.
Prospects of passage have dimmed for the Johnson-Crapo housing finance reform bill as the Senate Banking Committee postponed its vote on the legislation. Committee Chairman Johnson (D-S.D.) and ranking member Mike Crapo (R-Idaho) wanted to secure at least 16 "yes" votes on the 22-member panel to pressure Senate Majority Leader Harry Reid to let the measure come up on the Senate floor. The bill would replace Fannie and Freddie with an agency that offers a government guarantee on home loans. If the bill cleared the panel and Senate, it would need to be reconciled with a House bill, the most likely of which would scale back the government's involvement much more sharply. It is unclear when the committee will meet on the bill again.
Mortgage rates are likely to rise under any plan that would overhaul Fannie and Freddie. Lawmakers face a key dilemma: requiring successors to Fannie and Freddie to hold more capital could reduce the risk of future taxpayer losses, but would also raise borrowing costs. The Senate bill would require successors to maintain a 10% capital cushion. Fannie estimates that would cause rates to rise by around 0.5 and 1 percentage points from current levels, though borrowers with weaker credit could see rates rise by more than 3 percentage points. Freddie estimates rates will rise by 0.1 and 0.6 percentage points. Because any overhaul would be phased in over many years, borrowers wouldn’t see an immediate price spike.
Top Obama administration officials defended a bipartisan bill to overhaul the mortgage-finance system as the best—and possibly only—chance to settle the firms' fate. "One shouldn't wait until there's a crisis to deal with this. We ought to deal with it now," Treasury Secretary Jacob Lew said. Shaun Donovan, secretary of the Department of Housing and Urban Development, dismissed critics as self-interested on Monday. "They are making a lot of money off the old system," he said. Fannie and Freddie aren't allowed to lobby. In memos to their regulator that were made public last week after they were sent to lawmakers, they detailed concerns warning that the bill's higher capital standards could sharply raise borrowing costs.