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No on SB 5899: Payday loans don't solve crisis, they create one …

EDITORIAL


(March 13, 2015) – Remember two years ago, when the Republican-controlled Washington State Senate brought our state to the brink of a government shutdown?

The Senate had a list of ideological policy bills upon which they demanded House action before they would agree to an operating budget. After two overtime sessions, cooler heads finally prevailed and Gov. Jay Inslee signed a deal just hours before the budget cycle ended on July 1, prompting The (Everett) Herald to editorialize, “Ideology and partisanship, especially in the Senate, supplanted pragmatism.”

Good times… good times.

One of those 2013 ideological policy bills is back in 2015, and the more solidly Republican-controlled Senate just sent it to the House. It’s SB 5899, which would relax consumer protections against short-term high-interest payday loans that push low-income working families deeper and deeper into debt. The bill would replace the state’s limited payday loans with “installment loans” that would allow up to a year’s worth of interest and fees.

Washington’s current law limits payday loans to $700 per loan and no more than eight loans per year. Borrowers are charged a $95 fee and typically must pay it off in two weeks. Under SB 5899, a $700 loan would cost borrowers up to a total of $1,195 in principal, interest and fees if paid off in six months, and up to a total of $1,579 if it took a full year.

Organized labor and other advocates for low-income working families have joined anti-poverty and consumer groups in opposing SB 5899. Why? Because payday loans don’t solve a financial crisis, they create one. Borrowers often must take a second loan to pay off the first, and so on, leading to a spiral of debt that sucks them dry.

It also harms the economy.

A 2013 study by the Insight Center for Community Economic Development found that the national burden of repaying payday loans in 2011 led to $774 million in lost consumer spending, the loss of more than 14,000 jobs, and an increase in Chapter 13 bankruptcies. The study found that each dollar of interest paid to payday lenders subtracted $1.94 from the economy due to reduced household spending, while only adding $1.70 to payday lending establishments. It’s an anti-multiplier effect. For every dollar of interest paid in payday loan interest, the economy lost a quarter.

Remember last fall’s election, when voters were demanding greater access to short-term high-interest loans? Neither do we.

The 2015 legislative session was supposed to focus on last fall’s big campaign issues: funding basic education and transportation, addressing income inequality, and making sure our tax dollars (and tax incentives) are efficiently spent. How did promoting payday lending get in there again?

It began last fall, all right. But it didn’t come from the public, it came from Seattle-based payday lender MoneyTree.

Jim Brunner of The Seattle Times wrote an explosive story last week outing Moneytree as leading the full-court lobbying press to relax payday lending laws. He reports that the effort began last fall when the company and its executives, who traditionally direct their political contributions to Republicans, “sought to strengthen ties with Democrats, boosting donations to Democratic legislator campaigns in last fall’s elections, and quietly employing a well-connected Seattle public-affairs firm that includes the political fundraiser for Gov. Jay Inslee and other top Democrats.”

On Tuesday, a heroic effort was made by most of the Senate’s Democratic minority caucus to stop SB 5899 or amend it to lower the interest and fees payday lenders can charge. But those efforts were thwarted, and after a passionate debate that lasted more than two hours, the bill passed the Senate, 30-18, with Democratic Sens. Brian Hatfield, Steve Hobbs, Karen Keiser, Marko Liias, and Kevin Ranker joining all Republicans (except Sen. Kirk Pearson) in voting “yes.”

Now it heads over to the House, where its companion bill died without a floor vote after Wednesday’s cutoff deadline. The question is, given Moneytree’s… outreach… to Democrats, will it again die in their House? Will it again become embroiled in end-game budget negotiations to try to force its passage?

We hope not.

We agree with state Attorney General Bob Ferguson, who sent a letter to legislators opposing the bill, saying our state’s payday-lending system includes important safeguards for consumers “and does not need to be overhauled.”

We also agree with The (Tacoma) News Tribune, which wrote that payday lenders’ efforts to pass SB 5899 “have nothing to do with helping poor people and everything to do with their bottom line. Lawmakers should see this legislation for what it is and reject it. If it passes, Gov. Jay Inslee should veto it.”


The Stand is the news service of the Washington State Labor Council, AFL-CIO.

[…]

U.S. Federal Housing Administration to tap $1.7 bln in taxpayer funds

* FHA needs the cash to maintain required capital cushion

* Shortfall stems from loans backed from 2007 to 2009

* Republicans say FHA was irresponsible propping up market

* White House predicted $943 million draw in April

* Obama administration officials see finances improving

By Margaret Chadbourn

WASHINGTON, Sept 27 (Reuters) – The U.S. Federal Housing Administration said on Friday it will draw $1.7 billion in cash from the U.S. Treasury to help cover losses from troubled loans, marking the first time in its 79-year history that it has needed aid.

The agency, which offers mortgage lenders guarantees against homeowner defaults, told Congress it does not have enough cash to cover projected losses on the loans it backs. It said it needs the subsidy to shore up its insurance fund to maintain a required capital cushion.

While the FHA had been expected to draw from the Treasury, the cash infusion, which Republicans have dubbed a bailout, will heighten the political tension over the government’s pervasive role in the mortgage market.

Taxpayers have already propped up mortgage finance giants Fannie Mae and Freddie Mac to the tune of $187.5 billion, although those government-controlled companies are now profitable and will have returned $146 billion in dividends to the Treasury by the end of the month.

Including Fannie Mae and Freddie Mac, federal housing agencies support about nine in 10 new U.S. mortgages.

The calculations indicating the FHA will need a draw are based on data from December 2012 that were used to craft President Barack Obama’s budget proposal.

FHA Commissioner Carol Galante said the agency determined it needed cash based on loan performance assumptions made in December that did not capture recent improvements.

“In the next few months we expect updated data and economic forecasts to reflect what we already know to be true – the health of the (FHA insurance) fund has improved significantly,” she told lawmakers in a letter.

The cash infusion marks what could be considered a book end to the 2007-2009 financial crisis, which was sparked by a burst U.S. housing bubble that sent home prices tumbling.

White House officials projected in April that the FHA would face a shortfall of $943 million in the fiscal year that is drawing to a close, and some analysts predicted an improving housing market might allow it to avoid tapping what is essentially a credit line it has with Treasury.

The FHA said it has more than $30 billion in cash and investments on hand to pay potential claims, but that it does not have enough to meet a legally required 2 percent capital ratio, which is a measure of its ability to withstand losses.

The FHA has not met its capital ratio since 2009, but the ratio only sank below zero this budget year.

“Although this one-time transfer of funds from the Treasury is legally necessary, it’s important to note that FHA is far from bankrupt,” said Representative Maxine Waters, a California Democratic who supports programs that help low-income borrowers.

Since the cash draw from Treasury will not be disbursed by the FHA, it will not impact how quickly the government runs out of money to pay its bills under the nation’s $16.7 trillion debt ceiling. In addition, the Treasury has the authority to take the $1.7 billion back once the FHA rebuilds its reserves.

HIGHER RATES HURT

The FHA said in April that it needed to see if an increase in insurance premiums on the loans it backs and rising home values would close its funding gap.

But a spike in interest rates reduced the volume of new FHA-backed loans, tempering the hoped-for increase in premium-related income and worsening its projected shortfall.

Senior Obama administration officials said nearly $70 billion in losses were due to loans issued between 2007 and 2009 as the U.S. housing bust deepened, and that they expected the agency’s finances to improve in coming months.

Metrics of the current portfolio show that the money the agency is recovering on foreclosed properties is improving and early payment defaults are down dramatically.

“It is estimated that the improvement in recovery rates alone is worth more than $5 billion … which would far exceed the amount of the mandatory appropriation,” Galante said in her letter.

After an independent audit in November found that its insurance fund could face losses as high as $16.3 billion, the FHA raised the amount it charges borrowers to insure mortgages against default and tightened underwriting. The changes, coupled with rising home prices, helped shrink the projected gap.

Loans originated in the past few years have been performing better. The number of loans seriously delinquent, or 90 days past due, at the end of July was 15 percent below the level of a year earlier and the lowest point in almost three years.

“From a practical perspective the only thing a FHA draw would increase is the political rhetoric surrounding the issue, and our sense remains that FHA reform is unlikely to become law in the medium-term,” said Isaac Boltansky, a policy analyst with Compass Point Research and Trading.

REVERSE MORTGAGE IMPACT

The FHA has said its cash needs were mainly driven by losses from reverse mortgages, which allow homeowners age 62 or older to withdraw equity and repay it only when their homes are sold. The agency, which is expected to spend $2.8 billion this year insuring reverse mortgages, backs 90 percent of such loans.

It has already announced new guidelines for potential reverse mortgage borrowers, including lower limits on the amount seniors can withdraw, higher mortgage insurance fees and tougher vetting of applicants. Those changes, however, do not go into effect until Tuesday.

Republicans have argued the FHA needs to take more aggressive action to protect taxpayers, including reducing maximum loan limits and raising minimum down payments.

The Obama administration contends some of those steps would undermine the agency’s mission to provide credit to first-time home buyers and needy communities.

The FHA has played a critical role supporting the housing market by insuring mortgages for borrowers who make down payments of as little as 3.5 percent. The FHA insures about $1.1 trillion in mortgages and now backs about one third of all new loans used to purchase homes, up from about 5 percent in 2006.

[…]

PayDay Loans Online Mag For ProAdvice and Finance News …

President Barack Obama promised to focus on immigration reform, energy policies and improving economic growth in his second term. The president is still trying to avoid the spending cuts and tax increases connected with the fiscal cliff.

President Obama won his re-election bid last November after a campaign where he painted himself as an advocate for the middle class. He promised in the interview with NBC’s Meet the Press that he will try to pass a gun control in the first year of his second term.

Immigration reform has been a sensitive subject for the president. He failed to fulfill his pledge to revamp the system during his first term in office. Latino voters were a vital part of the coalition that helped him win his re-election. This could soften the political opposition from Republicans who want to get more votes from that particular demographic group.

Supporters of immigration reform believe that the 11 million undocumented foreigners in the United States should be given a way towards citizenship. But those who oppose the motion believe that it would reward people who broke the law by coming to the US illegally.

Republicans want stronger measures to keep illegal immigrants from coming into the United States from Mexico. Supporters from both sides of the table want more effective way of verifying legal workers in an economy where businesses want to hire non-US workers from low paid farm workers to professionals in the technology sector.

Negotiations are still ongoing with regards to the fiscal cliff. President Obama pledged that he will take steps to improve the economy’s recovery rate. Most observers believe that the high level of unemployment would prevent the president from winning a second term. The jobless rate peaked at 10 percent in 2009 right after the recession but it dropped at a steady pace to 7.7 percent in November.

[…]

Obama has bigger bankroll than Romney for sprint to Election Day

Published: September 20, 2012

Updated: 09:49 pm

WASHINGTON — President Barack Obama has about $88 million available to spend for the presidential campaign’s final stretch, giving him a sizable cash-on-hand advantage over Republican rival Mitt Romney.

Obama filed monthly finance documents today with the Federal Election Commission. The documents show his campaign spent more than $83 million last month as he battled for an advantage in the tightly contested race.

Obama and the Democratic National Committee raised about $114 million in August. That gave Obama a narrow edge over Romney and Republicans after having trailed the GOP in fundraising for three straight months.

The combined cash on hand for Obama and the DNC is slightly more than $125 million.

At the end of August, Republican Mitt Romney had about $50.4 million to spend on the final months of the campaign, though reports released today showed he owed $15 million on a loan taken that month.

Romney took out a $20 million loan in late August, in the days before his campaign had access to funds they had raised for the general election because he was not yet the official nominee. The new reports show he paid back $5 million before the end of August.

Romney won’t have to release his September fundraising data until next month. Campaign officials have said he paid back an additional $4 million on the loan this month.

The loan helped Romney pay for mailings, staff salaries and TV advertising — and it helped his finances appear healthier on paper. It boosted his total receipts to $86.6 million from the $66.6 million the campaign otherwise took in. Romney in fact spent almost as much as he raised during the month of August.

The loan boosted his cash-on-hand total from $35.4 million to $50.4 million.

Romney couldn’t spend money raised for the general election until becoming his party’s nominee in late August. He used general election money as collateral for the loan.

[…]

Obama, 'Solyndra' Players Raise Cash

SAN FRANCISCO — At an exclusive re-election fundraiser tonight, President Obama hobnobbed with 60 of his wealthiest supporters, including two figures at the center of the Solyndra loan controversy.

Steve Westly, a Silicon Valley venture capitalist, was one of the first to raise red flags about the administration’s support for a $500 million loan to Solyndra, the solar energy start-up that later went bankrupt. ; He wrote directly to senior Obama adviser Valerie Jarrett in 2010 to raise concerns about the company’s viability ahead of the president’s high-profile visit that year.

Matt Rogers, a former senior adviser at the Department of Energy, played a key role in approving Solyndra’s loan as part of the stimulus plan.

Both men were spotted ;by White House print pool reporter Darren Samuelsohn of Politico at the Piedmont, Calif., home of Quinn Delaney and Wayne Jordan, who were hosting the $35,800-a-head event.

Samuelsohn noted that Westly was seen near the pool “juggling lemons, entertaining kids at the party.”

Republicans have seized on Obama’s ties to Westly and Rogers — and the Solyndra loan — as part of their case that the president engages in “crony capitalism.”

“The Obama Administration betrayed American taxpayers when it dumped hundreds of millions of public dollars into Solyndra while ignoring clear warnings about the company’s dire financial situation,” Romney campaign spokesman Ryan Williams said in a statement.

“President Obama’s first term worked out well for his donors who got special access and taxpayer money for their failed ventures,” Williams said. “It hasn’t worked as well for the 23 million Americans struggling for work in the worst economic recovery our country has ever had.”

Before receiving a fast-tracked loan from the Obama administration in 2010, Solyndra had been singled out by both Republicans and Democrats as a promising venture potentially worthy of government investment. The company first applied for a Department of Energy grant under the George W. Bush administration.

[…]

Will Student Loan Reprieve Fall Short?

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Congress may be close to reaching a last-minute deal to stop interest rates on popular federal student loans from doubling – but experts say this reprieve won’t provide enough help for the nation’s many cash-strapped students.

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Rates on subsidized Stafford loans, which are scheduled to jump to 6.8% July 1, would remain at 3.4% for undergraduates under an agreement reached by Senate leaders Tuesday for one more school year. House Republicans will have to agree to the extension in order for it to go into effect, but experts say it’s likely an agreement will be reached this week.

This temporary freeze would help some student borrowers to save thousands of dollars. But experts say if the rates are allowed to double the following year, the impact over the course of most student’s college years would be limited. The proposed deal also excludes graduate students, who as of July 1 will no longer be eligible for this loan. “It’s not the perfect solution, but it’s a step in the right direction and it buys us time to find a longer-term solution,” says Rich Williams, higher education advocate at the U.S. Public Interest Research Group, which has been pushing Congress to freeze rates.

Not everyone would save the same amount. For instance, freshmen, who can borrow up to $3,500 for the year in subsidized Stafford loans, would save $671 to $1,649 over the life of the loan, says Mark Kantrowitz, publisher of FinAid.org. Juniors and seniors (who can each borrow up to $5,500) will save $1,100 to $2,702.

With the nation’s student loan debt topping $1 trillion, Congress came under pressure to address the expiration of the low rate. Consumer advocates, citing mounting tuition bills and an uncertain job market, argued this was not time to allow borrowing costs to soar. Republicans and Democrats agreed in principle to fund the one-year rate extension — which will cost the government around $6 billion – in part by raising premiums for federal pension insurance. In addition, the Senate’s agreement calls for an end to subsidized Stafford loans for undergraduate students who are in college for more than six years. (Currently, there is no limit on how many years an undergraduate can borrow this loan for though the cumulative amount they can borrow can’t surpass $23,000.)

The subsidized Stafford loans are the most popular of all options for student borrowers. Last year, roughly 7.5 million undergraduates and 1.8 million graduate students took out subsidized Stafford loans. The federal government pays the interest on these loans while students are in school. (With other loans, the interest accrues unless the borrower makes payments while in college.)

If Congress does approve the one-year extension, the subsidized Stafford loan will be the most affordable fixed-rate loan. Over the past year, the largest private lenders have introduced fixed-rate student loans with rates as low as 5.75%. If the subsidized Stafford loan rate isn’t frozen, borrowers with top credit scores may qualify for private loans with rates lower than the federal government’s.

[…]