At a summit on small business credit innovations held at the Federal Reserve Bank of New York earlier this month, executives from high-cost alternative lenders responded to criticism of their business loan pricing. Asked whether their average loan's 54% APR was fair, Andrea Gellert of alternative lender OnDeck responded that, “APRs somewhat distort the true economic costs and the cost-return relationship on the loan. If I buy that inventory for a dollar and sell that inventory for $2 in a six-month period, that’s a 200 percent return. So my 54 percent cost makes absolute sense.” Industry executives argue their loans should be judged by customer satisfaction, pointing out that their high renewal rates show the loans are serving borrowers.
OneUnited Bank is piloting revamped branches featuring roaming staffers armed with iPads loaded with real-time information about their walk-in customers. Staffers can see the customers' recent calls, open loan referrals and recent transactions. That information allows the bank's sales representatives to quickly identify each person's financial needs and to make relevant suggestions. The new branch model employs the recently introduced Salesforce 1 for Financial Services customer relationship management software. OneUnited Bank introduced the software late last year to monitor the success of its Unity Visa Card, a product aimed at helping customers build strong credit scores.
The Senate Banking Committee has approved a White House-supported bipartisan measure to overhaul Fannie Mae and Freddie Mac on a 13-9 vote. But analysts say that is short of the majority needed to compel Senate Majority Leader Harry Reid (D-Nev.) to bring the bill up for a floor vote. It is an open question whether the Johnson-Crapo bill will become the base from which legislative efforts resume in the next Congress, or if Sens. Brown, Schumer or Shelby will seek to start anew. Liberal lawmakers have felt less urgency to advance an overhaul given the new direction towards maintaining the organizations' roles being charted by FHFA Director Mel Watt.
Southern Bancorp is rolling out a new quarterly publication, Mission News, which reports on the bank's community impact. In this issue: How Southern Bancorp helped the Clarksdale, Miss. Municipal School District become one of five districts nationwide selected for a $10 million U.S. Department of Education Race to the Top grant; the revitalization and entrepreneurship initiatives enacted by Southern Bancorp and the U.S. Department of Housing and Urban Development in Helena, Ark.; and a financing effort that helped a local coffee shop expand while giving new life to a historic 1890's-era building.
The CDFI Fund has released a new list of certified CDFIs showing a substantial increase in the size of the CDFI banking sector. The new list counts a total of 96 CDFI banks, up from 77 at the end of 2013 -- an increase of almost 25%. In a single month, between March and April 2014, the number of CDFI banks increased by 13 institutions. The total number of certified bank holding companies is now 57, an increase of 6 since March. To see the new list of certified CDFIs in excel format, click here.
Melvin L. Watt, the new director of the Federal Housing Finance Agency, has announced a significant shift in strategy for Fannie Mae and Freddie Mac which will preserve their role in mortgage financing rather than roll it back. Under Watt's policy, Fannie and Freddie will keep the current limits on the size of loans they guarantee rather than reducing them as previously proposed. The director also loosened rules obligating banks to “buy back” distressed loans. The mortgage financiers will now allow two delinquent payments in the first 36 months after their acquisition of a loan and eliminate automatic repurchases when a loan’s primary mortgage insurance is rescinded.
An analysis of federal filings has found that the five banks with the most branches in Wal-Mart stores ranked among the top 10 U.S. banks in fee income as a percentage of deposits. Among the 6,766 banks included in the study, just 15 had fee income higher than loan income—including the five top banks operating at Wal-Mart. The high fee income results from the increasingly common practice of customers intentionally overdrawing their accounts, choosing to incur the fees for quick cash. "It's cheaper than a payday loan," said Anna Proctor, a Walmart customer who often overdrafts. If her overdraft and fee were calculated as a loan, the APR would be over 300%.
Six Democrats whose support is crucial to passing the Johnson-Crapo Freddie and Fannie reform bill agreed not to vote for the proposal in a private meeting. The senators were concerned that the structure of the re-insurer intended to replace Fannie and Freddie would be unworkable and that the bill lacked sufficient support for affordable housing goals. Senate Banking Committee Chairman Tim Johnson (D-S.D) and Senator Mike Crapo (R- Idaho) still have the backing of six Democrats and six Republicans on the 22-member committee. However, Senate Majority Leader Harry Reid (D-Nev.) has said the bill needs more support from Democrats before he will bring it to the floor.
The CDFI Fund has opened the application period for the CDFI Bond Guarantee Program. The program is intended to support CDFI lending and investment by providing a source of long-term, patient capital to CDFIs. Up to $750 million in total bond guarantee authority is available in this round. The minimum guarantee size is $100 million. Application materials are available on the CDFI Fund’s website. Qualified Issuer applications must be submitted by June 23, 2014. Guarantee applications must be submitted by June 30, 2014. The CDFI Fund will hold a series of application workshops on the CDFI Bond Guarantee Program in Detroit June 2-3, Washington June 10-11 and San Francisco June 17-18.
U.S. Federal Reserve Governor Daniel Tarullo has called on regulators to revamp a variety of new bank rules, including carving out exemptions for mid-sized banks. Tarullo said regulators should amend their rules to explicitly exempt community banks from the Volcker rule. He also criticized the regulatory approach of Basel III, which allows banks to judge the riskiness of their assets. Tarullo advocated instead for the stress-testing approach administered by the Fed, although he expressed concerns that Dodd-Frank's mandates are needlessly subjecting midsize, low-risk banks to those exams.