Loans digger

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Federally regulated savings and loans set aside a record $7.6 billion to cover losses on problem loans in the first quarter as they felt the brunt of the housing market’s downturn.

The Office of Thrift Supervision said Tuesday that the nation’s 831 thrifts lost $617 million in the quarter, down from a profit of $3.61 billion in the same quarter a year ago. It was an improvement from the fourth quarter of 2007, when thrifts lost $8.75 billion.

The agency’s director, John Reich, said thrifts have aggressively been setting aside reserves to cover loan losses.

“This forceful response to the housing market crisis continues to depress industry earnings, but it also strengthens institutions to withstand future challenges,” Reich said in a statement.

Thrifts set aside $5.5 billion for loan losses in the previous quarter and $1.2 billion in the first quarter of 2007.

The agency regulates major lenders, including Seattle-based Washington Mutual Inc. and Sovereign Bancorp Inc. of Philadelphia and Countrywide Bank, owned by Countrywide Financial Corp.

Agency officials said thrifts are being more closely examined to gird against over exposure to declining markets or troubled areas such as construction and real estate loans. This intensified scrutiny inevitably creates tension between regulators and lenders, Reich said.

Thrifts differ from banks in that they are required to have at least 65 percent of their lending in mortgages and other consumer loans.

The amount set aside for problem loans soared in the first quarter to more than 2 percent of average assets, about six times from 0.33 percent a year earlier. Charge-offs, or loans written off as not being repaid, rose to 0.93 percent of average assets from 0.28 percent a year earlier.

Troubled assets — loans that are 90 or more days past due — continued to soar, rising to $31.1 billion in the first quarter, up from $11.9 billion in the same quarter last year.

As a percentage of total assets, troubled assets rose to the highest level since the early 1990s. They came in at 2.06 percent of assets for the quarter, up from 0.80 percent in the same quarter of 2006, but below the peak of 3.8 percent in 1990.

Nevertheless, Reich told reporters he saw “some stability returning to the marketplace,” citing positive signs such as a tapering off of skyrocketing delinquency rates and favorable interest rate conditions for lenders. But he declined to estimate an arrival time for the return of profits.

By ALAN ZIBEL

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Millions of dollars in bad loans caused by China’s massive earthquake will be written off in an effort to help disaster victims, the nation’s bank regulator said Saturday.

“If borrowers suffered huge losses that cannot be covered by insurance, or if the insurance or guarantees are not enough for the debts, the loans should be regarded as bad loans and written off in a timely manner,” it said.

The move was aimed at reducing the debt burden of the region ravaged by the earthquake, the China Banking Regulatory Commission said in a statement posted on its website.

Premier Wen Jiabao Saturday said more than 80,000 people may have been killed by the May 12 earthquake, which left 5.47 million people homeless and scores of towns and villages in Sichuan province destroyed or badly damaged.

The commission also ordered banks to write off bad credit card loans whose holders and guarantors died or went missing in the quake and who have no other assets to pay back the loans.

It was not immediately clear how many loans would be written off, but according to Xinhua news agency the Agricultural Bank of China estimated it was facing up to six billion yuan (863 million dollars) in bad loans linked to the quake.

The government has struggled to alleviate the financial burden caused by the quake and issued a series of measures in recent days.

The commission earlier ordered Chinese banks to open credit lines of 82.7 billion yuan (11.9 billion dollars) and extend loans worth 6.5 billion yuan for relief and reconstruction.

Besides allocating up to 2.5 billion yuan (357 million dollars) in personal allowances to quake victims, the government also ordered tax relief and loan extensions for bank borrowers in quake-hit areas.

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The Missouri Higher Education Loan Authority board authorized its management yesterday to take advantage of a newly announced federal Department of Education program that would allow the Missouri agency to borrow money from the U.S. Treasury to lend directly to students or to use in purchasing student loans.

MOHELA Executive Director Ray Bayer said the federal program could help MOHELA meet demand for loans during this fall’s student borrowing season.

Bayer said that without the federal program, MOHELA had about $450 million in cash available for loans, although the demand volume from borrowers as well as lenders who want to sell loans to the agency might be between $800 million and $1 billion.

Bayer said presumably MOHELA would borrow “hundreds of millions” of dollars from the federal government under the program. One condition of the loans, however, is that student borrower benefits would not be permitted. The excluded benefits include, for example, lower interest rates for certain student groups such as teachers and social workers. Bayer said loans funded with education department moneys cannot include such borrower benefits.

The U.S. Department of Education made an announcement Wednesday that it would make money available to lenders of student loans who had been adversely affected by disruptions in credit markets.

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Wells Fargo & Co. has raised the credit requirements for people seeking some types of home loans, the company confirmed Friday.

The San Francisco-based bank will require higher credit scores for potential home buyers seeking loans that cover 95 percent or more of a home’s value. The bank didn’t give further details.

Wells Fargo (NYSE: WFC) has also eliminated some cash-out refinancings for clients with loans that represent more than 80 percent of their home’s price. A statement from the company said the measure was undertaken “in response to market and industry changes.”

The bank last month reported that its profit fell 11 percent, in part because of a higher number of delinquent loans.

Wells Fargo is one of Hawaii’s biggest commercial and residential lenders. The bank funded 4,200 residential mortgages worth $1.36 billion in Hawaii from July 2006 to July 2007, according to PBN research.

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More banks are dropping their federally backed student loan business, citing default rates and subsidy cuts that make it too risky to continue.

Students at for-profit colleges are some of the hardest hit, but financial aid officers say there’s still help out there; it just takes more looking.

“It has been a frustrating couple of weeks,” said Laura Beatty, who administers financial aid for SAE Institute of Technology in Nashville, a 200-student audio engineering school.

The school was notified last month that SunTrust, the school’s primary federal loan provider, would drop students from its program on June 1.

Fifteen lenders have placed some sort of restriction on student loans or loan consolidation in Tennessee since Jan. 1, accounting for about 15 percent of the lenders that serve the state.

“Most of those are small lenders,” said Levis Hughes, associate executive director for Tennessee Student Assistance Corp. “To my knowledge, we have not had any schools say they are unable to get funding.”

SunTrust spokesman Hugh Suhr wrote in an e-mail that the bank did not disclose which schools it dropped from its program “in keeping with our policy of not discussing our client relationships.”

SAE Nashville was able to find another lender to offer federal loans this week, Beatty said.

Unlike private loans that banks make to other customers, federally backed student loans have a set, typically lower interest rate.

Lenders say they’re dropping federally backed loans due to the credit crunch and subsidy cuts by Congress, which used some of those funds for increased Pell Grants.

51 lenders halt loans
According to the National Association of Student Financial Aid Administrators, 51 lenders nationwide have suspended federally backed loans from the Federal Family Education Loan Program.

“We’ve determined that there were just some schools where the loans were not going to be profitable enough to warrant continuing them,” said Chase bank spokesman Tom Kelly.

Chase began restricting federally backed loans and consolidation of student loans in Tennessee May 1.

For-profit college students defaulted at a rate of 8.2 percent in 2005, nearly twice the rate of public school students and more than three times that of private school students.

In 2005, SAE Nashville had a 20 percent default rate. That figure will probably drop to about 13 percent for 2006 loans, Beatty said, as more students use federal loans at the school.

Federal assistance may be on the way for lenders who can’t back the capital for federal loan requests, thanks to legislation passed earlier this month.

U.S. Secretary of Education Margaret Spellings sent a letter to lenders Wednesday outlining the federal government’s temporary ability to purchase loans this year from struggling lenders.

Spellings also indicated the department could double its $15 billion Direct Loan program if necessary and would provide advances to guaranty agencies like TSAC to make emergency loans to students if no other lenders are available.

In the meantime, perhaps the greatest disservice to students will be the frustration of balancing multiple lenders, Hughes said.

“It may cause some aggravation for students,” he said. “It’s nice to have either consolidated statements or a consolidated loan, but that’s not really happening right now.”

Contact Colby Sledge at 259-8229 or ccsledge@tennessean.com

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The gears of the mortgage market are starting to unlock for borrowers needing big loans. In expensive markets such as Washington, that covers most people looking to refinance or move up from an entry-level home.

Just in the past two weeks, interest rates on the new “conforming jumbo” mortgages — for amounts between $417,000 and $729,750 — have come down enough to make a difference to borrowers. And mortgages allowing down payments of just 3 to 5 percent are coming back to the market for borrowers who have good credit.

“The bottom line is rates are lower than they were,” said Kevin Connelly, a vice president at BB&T.

Last week, for example, BB&T was offering 30-year, fixed-rate mortgages for a conforming loan, which is for $417,000 or less, at 6 percent interest with no points, a type of prepaid interest. A conforming jumbo cost only one-quarter of a percentage point more, 6.25 percent. Loans for amounts beyond $729,750, now called “jumbo jumbo” loans, were at 7.25 percent.

That 1-point difference is enough to matter in anyone’s budget: On a $729,000 mortgage, the lower rate saves $484 per month.

Before you jump on one of these loans, though, check out FHA mortgages. Insured by the Federal Housing Administration, these loans are available for as much as $729,750, the same cap as on conforming jumbo loan amounts.

FHA’s loan-amount cap has been raised through the end of the year so that the program can be more widely used in expensive areas, including ours.

Yes, the frumpy, old FHA program is now an attractive tool for most Washington area home buyers and refinancers. The beauty of the FHA program is that borrowers can still make a down payment of as little as 3 percent. Last week the interest rate on an FHA conforming jumbo was an attractive 6.38 percent.

“FHA has really, really been taking off,” said Jim Foley, senior vice president of George Mason Mortgage’s Bethesda branch. “You can have a lower FICO [credit] score; 620 and above is what they’re looking for.”

Major housing legislation that’s being debated in Congress would make permanent the higher loan limits for both the conforming jumbos and the FHA program, with annual revisions as home prices change. But it’s by no means a sure thing that the legislation will pass, and President Bush has threatened a veto.

As the law stands now, the higher limits will vanish as of Jan. 1, so don’t dawdle.

Other good news for borrowers: Fannie Mae is removing its demand for higher down payments in areas it considers “declining markets,” which includes most of the Washington area. Beginning June 1, Fannie will again accept mortgages with as little as 3 percent down.

Read the rest of this entry »

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So this article is directed at the self-serving, self-dealing politicians that comprise most of the Ohio Legislature.

Because they have voted for a de facto ban of payday loans in Ohio. They did this despite:

1) Receiving 30,000 letters from payday loan borrowers telling them not to vote for this bill;
2) 2,500 payday loan employees chanting outside the Capitol telling them not to vote for this bill;
3) Multiple hours of testimony from the nation’s top economists, top policy analysts, payday lenders, borrowers, and mom-and-pop entrepreneurs telling them not to vote for this bill;
4) The fact that the bill will cost 6000 Ohioans their jobs during a recession;
5) The fact that the bill will cost Ohio millions in unemployment compensation as well as tax revenue
6) That the bill will cost associated vendors countless millions.

What these politicians did was simply to ignore what everyone had to say. They ignored what their constituents said. They ignored what some really, really smart people said.

They told 6000 Ohioans, in an open forum, “We do not care that you are going to lose your job”.

They told thousands of Ohioans, “We do not care if your grandmother needs emergency medicine, that your car needs repairs so can get to your job, or that you just need to make ends meet this week and are a little short.”

They told dozens of small businessmen who put everything they had into their stores, “We do not care if you go bankrupt”.

They told everyone even remotely involved in the payday loan industry in Ohio, “We do not care that we are taking away your choices”.

What they told all these people, and even those Ohioans who had never heard of a payday loan, “We only care about being re-elected or holding another elected office”.

“We only care about ourselves”.

In other words, the politicians who were voted in to allegedly represent the people of Ohio and act in their best interest have totally and utterly betrayed their voters. They put in earplugs as their fellow human beings desperately begged for their jobs, or to hold onto the one outlet that gave them a loan on nothing more than a promise to repay.

How cynical. How shameful. How sad.

For the legislative process. For Ohio. For America.

So here’s the deal: If you want to keep payday loans in the state, call or Email the Speaker of the House, Senate President, and the Governor (contact info below), and respectfully tell them you want real reform. You want the reasoned, middle road. You want payday lenders to earn their $15 per hundred borrowed, you want a two-week loan period with one 60-day payment plan per calendar year, and you want a database so people can only have one loan out at a time.

No threats to these gentlemen. Give them a chance to do the right thing. They know in their hearts it’s the right thing, but once something becomes political, facts don’t matter anymore.

If they do the right thing, Ohioans will rejoice. Literally. The politicians will realize they have served the will of the people and that can never be taken away from them. They can stand up before anybody and say, “I did the right thing. I made a mistake, but I realized it was wrong and fixed it. That should be enough for you to re-elect me.”

That’s a stand I’d be proud of my representative for taking.

But if they don’t do the right thing…

If they let this go through….

There’s going to be Hell to pay. Literally. The politicians will realize that by betraying the people’s trust that they have reaped the whirlwind.

How so?

The people of Ohio will strike back. Hard. The politicians who rammed this legislation through will be made to recognize that if you betray the people’s trust, it comes with a hefty price.

They’ll be hit where it hurts. They took something from us. They took our trust and threw it in the crapper. They took our votes, said, “Thank you!”, and proceeded to defile them by acting against our best interest even though we were screaming in their face that we didn’t want them to do anything of the kind.

So if they don’t do what’s right, we will take something from them and show them how it feels.

We will engage in civil disobedience. It’ll be targeted at those members of Ohio Assembly who voted for HB 545, as well as those in the Senate, who are up for elected office. In this day and age, it’s easy to make life miserable for those who are in office and those seeking to stay in office. And we will.

It’s not a pleasant course of action, but let’s remember….

They started it.

Because if they screwed over the folks on this one, what are they going to do for an encore?

Senate President Bill Harris
Statehouse
Room #201, Second Floor
Columbus, Ohio 43215
Telephone: 614/466-8086
Email: SD19@mailr.sen.state.oh.us

Speaker Jon Husted
77 S. High St
14th Floor
Columbus, OH 43215-6111
Telephone: (614) 644-6008
Fax : (614) 719-3591
Email Address: district37@ohr.state.oh.us

Gov. Ted Strickland
Governor’s Office
Riffe Center, 30th Floor
77 South High Street
Columbus, OH 43215-6108
Phone/Fax
Fax: (614) 466-9354

The phone number to call is 614-466-2000.Tell the operator you want to weigh in on House Bill 545 and you will be given instructions

by Matthew Mayer in Ohio News

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Months after many eager homeowners starting gearing up to refinance their mortgages, interest rates for Bay Area-sized mortgages are finally falling.
Lower rates may at last bring the savings many owners and would-be home buyers have been looking for since February, when Congress passed an economic stimulus bill that aimed to deliver lower rates on mortgages of up to $729,750 in high-priced parts of the country.

Borrowers who last week would have been quoted a 7 percent rate for a 30-year mortgage of $500,000 could find a rate of about 6 percent on that loan by Friday. That difference could save a homeowner more than $300 a month on mortgage payments.

“People have been waiting for this to happen ever since they signed it,” said Susan McHan of Opes Advisors, a mortgage brokerage in Palo Alto, referring to the stimulus bill.

She and other brokers are pre-qualifying more house-hunting customers, and refinancing the mortgages of clients who could save money because of the rate changes.

“I’ve got approximately 50 loans sitting in a bucket here waiting for this to happen,” said Dennis Steinbach of S&L Home Loans in San Jose earlier this week. “My phone’s been ringing off the hook this morning.”

Many brokers and their clients went through this same exercise back in February - prematurely as it turned out.

“We’re finally going to be able to see the results that were intended from the stimulus package - enabling people to refinance,”

said Todd Flesner of Stern Mortgage, who said he has clients house-hunting from San Mateo County to Milpitas who will benefit from the lower rates.
Cambrian homeowner Jill S., who asked that her last name not be published, said she started shopping for a mortgage recently in part because of falling rates for jumbo loans. She and her husband hope to buy a home in San Jose’s Cambrian Park neighborhood or in Almaden Valley, and rent out the four-bedroom Cambrian house they have owned since 2002.

“Sellers are working with you more and with the rate going down that makes us want to move more,” said Jill, who looked at homes with her real estate agent this week and has gotten rate-quotes from two lenders. “We’re just looking for a good deal, basically, and if we see one we’ll get it. But we’re not in any rush.”

Early this year, legislators hoped to help jump-start the stalled housing market by including provisions in the stimulus bill temporarily allowing mortgage financing companies Fannie Mae and Freddie Mac to provide backing for loans much greater than the previous cap for so-called “conforming loans” of $417,000.

Government-sponsored agencies Fannie and Freddie buy bundles of mortgages from lenders, and package the loans into “mortgage-backed securities” for sale on Wall Street.

Those securities typically are viewed as safe investments by Wall Street investors, so the rates for the Fannie-and-Freddie-backed loans are lower than those for the riskier “jumbo” loans of more than $417,000. If Fannie and Freddie could provide financing for larger loans, lawmakers’ logic went, rates for those loans would drop, and more people in high-cost places like California would buy homes, curtailing the housing slump.

In the weeks after the bill was signed by President Bush, Fannie and Freddie raised loan limits for high-costs areas - up to $729,750 in the Bay Area - and the two companies announced new guidelines for purchasing the new “jumbo-conforming” loans from mortgage lenders.

But until last week, rates for loans of more than $417,000 remained stubbornly high at about 7 percent. Meanwhile, rates for loans of $417,000 or less have been hovering around 6 percent. The gap between rates for conforming loans and jumbo loans has been stuck at about a full percentage point since the credit crunch struck last summer.

What happened to finally push rates for jumbo-conforming loans down? Fannie Mae chief executive Daniel Mudd announced last week that the company will purchase jumbo-conforming loans from lenders using essentially the same pricing structure it uses for conforming loans. Freddie Mac has done the same.

“That brought a lot of certainty to what had been a very cloudy picture,” said Greg McBride of Bankrate.com, a financial information company. With more clarity about how Fannie and Freddie would handle their loans, lenders began dropping rates for jumbo conforming loans last week.

“There are decent loans again,” said mortgage brokerage president Susan McHan, “and it’s the first time in a long time.”

In another effort to spur home buying, Fannie Mae announced Friday it would back loans made with as little as 3 percent down payment, even in markets where prices are declining. That announcement reversed a policy set in December, in which home buyers in declining markets were required to have bigger down payments to get a Fannie Mae-guaranteed loan. A potential problem with the new policy is that currently, mortgage insurers won’t sign off on deals with such low down payments.

Contact Sue McAllister at smcallister@mercurynews.com or (408) 920-5833.

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BORROWERS on low-document loans have borne the worst of the impact of the financial crisis, a senior Reserve Bank official has said, even though the loans were of much higher credit quality than their US equivalents.

The comments came as a separate study by Reserve Bank researchers spotlighted the economic sectors most at risk from rising interest rates and tighter bank lending. They found investment in machinery and equipment was just as likely to weaken as property investment.

This was a surprising result given that in the US property is more sensitive to interest rate shocks than the rest of the economy. “One possible explanation is that Australian firms may be more dependent on bank finance than their American counterparts,” the researchers said.

“This certainly accords with the large contraction in machinery and equipment investment in the early 1990s recession in Australia when credit growth to businesses may have been constrained by supply-side considerations.”

The findings are significant given the financial strains on banks that could force them to cut back lending.

But an assistant governor of the Reserve Bank, Guy Debelle, yesterday said Australian banks retained strong balance sheets.

“The strength of the Australian banking system relative to those in a number of other countries, particularly the US, and the strength of the domestic economy more generally, has meant that the impact of the global turmoil has been relatively muted,” Dr Debelle told the Sub-prime Mortgage Meltdown Symposium in Adelaide.

Dr Debelle said the main impact of the financial crisis had been higher borrowing costs.

Since the crisis low-document lenders have independently lifted their mortgage rates by 1.30 percentage points - adding an extra $250 a month in repayments on a $300,000 home loan. The increase is in addition to the two official rate rises this year, which would add a further $100 a month to the cost of the loan.

The average low-document home loan rate is now 12 per cent.

But such loans, issued to borrowers without the paperwork to get a standard mortgage, made up only 1 per cent of outstanding loans in 2007, well below the 13 per cent subprime share in the US, Dr Debelle said.

They were also of much superior credit quality.

Jacob Saulwick

Feeling the Sting of Missed Payments and Losses,
Lenders Move to Tighten Credit Standards

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The turbulent economy is exposing yet another type of credit where bankers let their guard down: small-business loans.

Missed payments and losses on small-business loans are surging at banks throughout the country that were so eager to pad their profits that they essentially threw typical underwriting methods out the window. Some lenders doled out small-business loans as if they were credit cards, relying solely on the personal credit scores of borrowers.

That meant many loans were made without assessing a company’s strategy or finances, even by banks that avoided subprime mortgages. Now the economic slowdown is leaving lenders with little or nothing to collect on many small-business loans in case of default.

Vexed in Vineland

The mistakes already are haunting lenders from Bank of America Corp. to Sun Bancorp, a Vineland, N.J., bank with 70 branches. The problems are expected to spread as business failures mount. Tighter lending standards as banks try to reduce their risk are making life tougher for small-business owners.

“We wanted to give them access to capital faster,” says Thomas Geisel, Sun’s chief executive. “At that point in time, the economy could support it.” Rising charge-offs, including most of the $1.2 million hit Sun took on bad loans in the first quarter, prompted the bank to revert to its traditional underwriting practices.

Borrowers now are required to put up collateral and wait several weeks before finding out if they were approved. Under the loosened loan terms, small-business borrowers could walk into any Sun branch, fill out an “express” one-page application and get as much as $100,000 in 24 hours.

At Bank of America, the largest U.S. bank in stock-market value, about 20% of the $3.3 billion set aside for soured loans in the latest quarter was earmarked for the Charlotte, N.C., bank’s small-business loans.

While bank officials won’t be specific, much of the damage appears tied to the “Business Credit Express” program that Bank of America launched in 2006. It courted small businesses with an aggressive new program that promised big loans with little hassle.

Among the selling points: entrepreneurs could borrow as much as $100,000 through an unsecured credit line even if they had been in business for just one day.

Enticements Offered

At the time, Bank of America held about 22% of bank deposits by U.S. small businesses but only an 8% market share of loans to that group, according to the bank. So bank executives began wooing holders of Bank of America small-business credit cards, encouraging them to seek credit lines and other types of loans.

Entrepreneurs also were enticed with free online payroll services and easier access to health insurance.

Under the new loan program, borrowers seeking less than $50,000 didn’t have to provide financial documentation — the equivalent of “no doc” mortgages that have burned many residential real-estate lenders.

By early 2007, Bank of America’s small-business loan portfolio was up 30% from a year earlier to $14 billion.

It wasn’t long before delinquencies began piling up. “Candidly, we have seen much higher losses than we would like,” Joe Price, Bank of America’s chief financial officer, said at an investor meeting in November.

In response, the bank had started to lower lending limits and increase the amount of time that a company had to be in business to get a loan, he added.

On April 1, Bank of America discontinued the Business Credit Express program and began steering customers to other small-business products, such as credit cards and other lines of credit.

A company spokeswoman says Bank of America remains committed to small-business customers and is focused on “mature, established businesses with good personal credit history.”

National City Corp. says it isn’t tightening underwriting standards for small-business loans despite the Cleveland bank’s acknowledgment last month that its small-business loan portfolio in Florida “is showing some early signs of stress.”

Overall, a survey released this month by the Federal Reserve found that about half of U.S. banks are tightening their standards on loans to small firms, compared with about 30% that reported doing so earlier this year. And nearly two-thirds have raised the rates they’re charging on those loans.

“A lot of the banks, especially the larger ones, are really cutting back,” says Christine Barry, research director at Aite Group, a financial-services consulting firm. “It’s absolutely harder for small businesses to get credit today.”

Money ‘Less Available’

“Money is simply less available,” Lawrie Hollingsworth, chief executive of Asset Recovery Technologies Inc., an eight-employee company in Elk Grove Village, Ill., told a House subcommittee last month. “When it is available, it is at a new premium and cost for less money and more restrictive lending covenants.”

She blames her company’s 50% sales decline last year partly on higher interest rates and trouble getting loans for the small businesses that hire her company for disaster-relief services.

Vanessa Baugh says her lender reined in the home-equity credit line that she has used to finance growth of her jewelry store in Lakewood Ranch, Fla.

As a result, “it would be out of the question for me to expand right now,” she says.

Write to Robin Sidel at robin.sidel@wsj.com and David Enrich at david.enrich@wsj.com