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.
Proposals by economists John Cochrane and Martin Wolf envision the elimination of fractional reserve banking in order to neutralize risk that resulted in the Great Recession. Wolf focuses on the risks introduced by the "private money" created as a byproduct of lending. He favors a system in which the government is given a complete monopoly on money creation. Cochrane argues that banks should be 100% funded by equity and that a tax should be placed on run-prone short-term debt. Krugman writes that Wolf and Cochrane's proposals each underestimate the complexity of regulating such a model and questions the assumption that banking problems were the root cause of the crisis.
Several national companies that offer small loans at high interest rates have agreed to refund money to more than one thousand Vermont borrowers. The agreement is the result of a lawsuit brought by Vermont Attorney General Bill Sorrell. Vermont is one of 15 states that restrict payday loans, but that hasn’t stopped dozens of unlicensed national lenders from offering the products. Sorrell says settlements reached with three of the lenders and one payment processor will result in refunds exceeding $1 million for borrowers and will stop the companies from issuing any more loans in the state. Vermont is the only state with a law addressing the third party processing companies.
FDIC officials have presented a new white paper exploring how the use of mobile phones could broaden banking access to unbanked and underbanked borrowers. The paper noted that 68% of unbanked adults have access to a cell phone, of which 49% are smartphones. "MFS is likely to be a more useful financial tool for the underserved if ways can be found to reconcile and meet the underserved's needs for electronic transactions with their need for paper payments or cash," the report said. Among the study's recommendations were steps to bridge the delivery of mobile financial services with the traditional payment methods underbanked consumers use, such as checks, money orders and cash.
Virginia Community Capital has partnered with Goldman Sachs on the 10,000 Small Businesses education program, a nationwide initiative offering small business owners training from business experts and peers as well as classes at Babson College. Program participant Merissa Sachs owns personalized clothing vendor Marketing on Main Street. "The personal interaction with Goldman Sachs professionals, Babson professors and my peers was a significant benefit," she says. "I think of Babson as a CEO on my advisory board; I can turn to them at anytime for advice and guidance."
The CDFI Fund has opened the FY 2014 application period for the Bank Enterprise Award Program, making up to $18 million in awards available to eligible banks and thrifts. Application materials are available on the CDFI Fund's website. The award application consists of two parts. The first part must be submitted through Grants.gov by 11:59 p.m. EDT on June 2 and the second part must be submitted through myCDFIFund by 5:00 p.m. EDT on June 4. The CDFI Fund will also be conducting three informational webinars: two focusing on the BEA Program application materials and the award process to be held April 29 and May 6 as well as a third focusing on the CDFI Information Mapping System April 29.