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Rules are coming on payday loans to shield borrowers

“},{“source”:”fptoday”,”title”:”Key component of Obama’s 2016 budget”,”url”:”http://news.yahoo.com/obama-budget-offers-contrasts-long-shot-deals-gop-100719314–politics.html”,”imageUrl”:”http://l2.yimg.com/bt/api/res/1.2/NSUnMYvM1le8lg1zH9_HDw–/YXBwaWQ9eW5ld3M7Zmk9ZmlsbDt3aWR0aD0zMDA7aGVpZ2h0PTEyMDtweW9mZj0zMDtxPTc1/http://l.yimg.com/nn/fp/rsz/020115/images/smush/roads_635x250_1422811680.jpg.cf.jpg”,”summary”:”The president will propose a six-year, $478 billion public works program to Congress.”,”originalImage”:{“url”:”http://l.yimg.com/nn/fp/rsz/020115/images/smush/roads_635x250_1422811680.jpg.cf.jpg”,”width”:”635″,”height”:”250″,”ratio”:39.4},”providerName”:””,”trending”:false,”uuid”:”49af11dc-3b18-365a-ab93-9b84a77d5429″,”shareCount”:916,”commentCount”:4331,”contentType”:”STORY”},{“source”:”fptoday”,”title”:”Egypt frees jailed reporter after more than 1 year”,”url”:”http://news.yahoo.com/egypt-releases-australian-al-jazeera-reporter-143201493.html”,”imageUrl”:”http://l1.yimg.com/bt/api/res/1.2/JRPIKOeqDiDc3DW1gjJKug–/YXBwaWQ9eW5ld3M7Zmk9ZmlsbDt3aWR0aD0zMDA7aGVpZ2h0PTEyMDtweW9mZj0zMDtxPTc1/http://l.yimg.com/nn/fp/rsz/020115/images/smush/greste1_635x250_1422809726.jpg.cf.jpg”,”summary”:”Al-Jazeera journalist Peter Greste was arrested in 2013 and sentenced to at least seven years in prison.”,”originalImage”:{“url”:”http://l.yimg.com/nn/fp/rsz/020115/images/smush/greste1_635x250_1422809726.jpg.cf.jpg”,”width”:”635″,”height”:”250″,”ratio”:39.4},”providerName”:””,”trending”:false,”uuid”:”b27acb7d-ca60-3a43-b5b9-2c941c062747″,”shareCount”:1085,”commentCount”:159,”contentType”:”STORY”},{“source”:”fptoday”,”title”:”Likely defense strategy in Boston bombing trial”,”url”:”http://news.yahoo.com/marathon-bombing-defense-likely-focus-dead-brother-172004330.html”,”imageUrl”:”http://l.yimg.com/bt/api/res/1.2/FjUWJGJGYpF2_TB2a_9jww–/YXBwaWQ9eW5ld3M7Zmk9ZmlsbDt3aWR0aD0zMDA7aGVpZ2h0PTEyMDtweW9mZj0zMDtxPTc1/http://l.yimg.com/nn/fp/rsz/020215/images/smush/Tsarnaev-brothers4ipad_635x250_1422858252.gif.jpg.cf.jpg”,”summary”:”The best chance to save the life of suspect Dzhokhar Tsarnaev might be to focus on his dead brother.”,”originalImage”:{“url”:”http://l.yimg.com/nn/fp/rsz/020215/images/smush/Tsarnaev-brothers4ipad_635x250_1422858252.gif.jpg.cf.jpg”,”width”:”635″,”height”:”250″,”ratio”:39.4},”providerName”:””,”trending”:false,”uuid”:”b3822436-6cc1-3c49-ba10-353a0368427f”,”shareCount”:1149,”commentCount”:693,”contentType”:”STORY”},{“source”:”fptoday”,”title”:”Huckabee likens being gay to drinking, swearing”,”url”:”http://news.yahoo.com/huckabee-gay-marriage-cnn-video-184025713.html”,”imageUrl”:”http://l1.yimg.com/bt/api/res/1.2/n_3fFHpvm1_HA3fxpyGakg–/YXBwaWQ9eW5ld3M7Zmk9ZmlsbDt3aWR0aD0zMDA7aGVpZ2h0PTEyMDtweW9mZj0zMDtxPTc1/http://l.yimg.com/nn/fp/rsz/020115/images/smush/huck_635x250_1422821497..jpg.cf.jpg”,”summary”:”Possible presidential hopeful Mike Huckabee calls homosexuality a lifestyle choice but gay marriage a “biblical issue.””,”originalImage”:{“url”:”http://l.yimg.com/nn/fp/rsz/020115/images/smush/huck_635x250_1422821497..jpg.cf.jpg”,”width”:”635″,”height”:”250″,”ratio”:39.4},”providerName”:””,”trending”:false,”uuid”:”d4544d90-26d5-3756-90ea-9952ef2c9806″,”shareCount”:1504,”commentCount”:7658,”contentType”:”STORY”},{“source”:”fptoday”,”title”:”Obama says ‘deflate-gate’ did not help Patriots”,”url”:”http://news.yahoo.com/obama-predicts-super-bowl-will–be-close—says–deflategate–did-not-help-patriots-223820913.html”,”imageUrl”:”http://l2.yimg.com/bt/api/res/1.2/49P2uZgFGGUfEgHdL2AfzQ–/YXBwaWQ9eW5ld3M7Zmk9ZmlsbDt3aWR0aD0zMDA7aGVpZ2h0PTEyMDtweW9mZj0zMDtxPTc1/http://l.yimg.com/nn/fp/rsz/020115/images/smush/obama-super-bowl_635x250_1422832141.jpg.cf.jpg”,”summary”:”The president doesn’t believe the underinflated footballs altered the outcome of the AFC title game.”,”originalImage”:{“url”:”http://l.yimg.com/nn/fp/rsz/020115/images/smush/obama-super-bowl_635x250_1422832141.jpg.cf.jpg”,”width”:”635″,”height”:”250″,”ratio”:39.4},”providerName”:””,”trending”:false,”uuid”:”ee3cefd3-acf9-3869-bd62-127a8f27cf97″,”shareCount”:1794,”commentCount”:1430,”contentType”:”STORY”},{“source”:”listid”,”uuid”:”52c76590-d1fc-11e3-beff-baacba90c312″,”title”:”Conflict in Ukraine”,”url”:”http://news.yahoo.com/photos/ukraine-launches-first-major-offensive-against-the-pro-russia-forces-1399036740-slideshow/”,”imageUrl”:”http://l2.yimg.com/bt/api/res/1.2/bs3f0XT.AzSw2uenSFI5nA–/YXBwaWQ9eW5ld3M7Zmk9ZmlsbDt3aWR0aD0zMDA7aGVpZ2h0PTEyMDtweW9mZj0zMDtxPTc1/http://media.zenfs.com/en_us/News/Reuters/2015-01-29T225246Z_1010576512_GM1EB1T1SM801_RTRMADP_3_UKRAINE-CRISIS-EU.JPG.cf.jpg”,”originalImage”:{“url”:”http://media.zenfs.com/en_us/News/Reuters/2015-01-29T225246Z_1010576512_GM1EB1T1SM801_RTRMADP_3_UKRAINE-CRISIS-EU.JPG.cf.jpg”,”width”:”3500″,”height”:”2333″,”ratio”:66.7},”providerName”:”Yahoo News”,”trending”:false,”shareCount”:440,”commentCount”:67,”contentType”:”SLIDESHOW”},{“source”:”listid”,”uuid”:”693ed9b0-a7ea-11e4-bff7-d65ec21acd9a”,”title”:”Behind the mask – revealing the trauma of war”,”url”:”http://news.yahoo.com/photos/behind-the-mask-revealing-the-trauma-of-war-1422558596-slideshow/”,”imageUrl”:”http://l.yimg.com/bt/api/res/1.2/lM045_Pjfxr.jMS8X17Jqg–/YXBwaWQ9eW5ld3M7Zmk9ZmlsbDt3aWR0aD0zMDA7aGVpZ2h0PTEyMDtweW9mZj0zMDtxPTc1/http://l.yimg.com/os/publish-images/news/2015-01-29/be9e8020-a7e7-11e4-be18-cb8fc3fd9912_healing_soldiers_MM8266_ngm_0215_006.jpg.cf.jpg”,”originalImage”:{“url”:”http://l.yimg.com/os/publish-images/news/2015-01-29/be9e8020-a7e7-11e4-be18-cb8fc3fd9912_healing_soldiers_MM8266_ngm_0215_006.jpg.cf.jpg”,”width”:”1601″,”height”:”1600″,”ratio”:99.9},”providerName”:”Yahoo News”,”trending”:false,”shareCount”:1998,”commentCount”:56,”contentType”:”SLIDESHOW”},{“source”:”listid”,”uuid”:”f8d12b90-a8cc-11e4-bd3f-929618feb0e1″,”title”:”The 150th Anniversary of the Thirteenth Amendment”,”url”:”http://news.yahoo.com/photos/the-150th-anniversary-of-the-thirteenth-amendment-1422655903-slideshow/”,”imageUrl”:”http://l3.yimg.com/bt/api/res/1.2/ZONp8Ld_SSvAQtXLuOl29g–/YXBwaWQ9eW5ld3M7Zmk9ZmlsbDt3aWR0aD0zMDA7aGVpZ2h0PTEyMDtweW9mZj0zMDtxPTc1/http://l.yimg.com/os/publish-images/news/2015-01-30/69eccae0-a8c4-11e4-988c-237581d4da33_AP799900444357.jpg.cf.jpg”,”originalImage”:{“url”:”http://l.yimg.com/os/publish-images/news/2015-01-30/69eccae0-a8c4-11e4-988c-237581d4da33_AP799900444357.jpg.cf.jpg”,”width”:”2874″,”height”:”2228″,”ratio”:77.5},”providerName”:”Yahoo News”,”trending”:false,”shareCount”:1019,”commentCount”:73,”contentType”:”SLIDESHOW”},{“source”:”listid”,”uuid”:”5bb24170-a8c5-11e4-baa9-6fe06d1e0680″,”title”:”Photos of the day – January 30, 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[…]

Parents to grads: Those student loans are your problem

Bloomberg Memo to graduates: Get used to working.

Hey kids, don’t come begging us for cash when you can’t pay off your student loans. Love, Mom and Dad.

According to a survey released Wednesday by Discover Student Loans , as student loan debt nears record highs, more parents are just saying no when it comes to helping their kids pay off student loans.

While 58% of parents in 2013 said they were very likely or somewhat likely to help out with student loan payments, just 52% said that this year — the lowest percentage since the survey began three years ago (it was 55% in 2012); the national survey was of 1,000 adults with teens planning to attend college. Danny Ray, the president of Discover Student Loans, says it isn’t clear why fewer parents say they want to keep their wallets closed. Perhaps, he says, parents have more confidence that their kids can do it on their own. Or it could be that parents are simply — after all the headlines about kids graduating and moving back home — ready to cut the cord.

This is coming at a time when college costs are rising at a rapid clip — in the past 10 years, the average real rate of in-state tuition at a public four-year school was 4.2% per year, far higher than inflation — a trend that experts expect to continue.

Already, student-loan debt is at record highs: At the end of last year, outstanding student-loan debt hit $1.08 trillion, up $114 billion over the course of 2013, according to the Federal Reserve Bank of New York. What’s more, currently, more than one in 10 student loans are more than 90 days delinquent — a higher rate than for auto loans, credit cards or mortgages.

Turning down their children’s requests for money may be a smart move, since parents will need to pour most of their extra money into retirement savings.

A survey released last year by the National Institute on Retirement Security shows that households with teens, college-aged kids and older are vastly under-saved for retirement. Households where the head of household is 45 to 54 that have saved anything for retirement only have balances of $60,000, and those with heads of household that are 55 to 64 that have retirement savings have only saved $100,000. In both cases, this is well below what’s needed for retirement, according to many financial experts. A survey by Aon Hewitt, for example, finds that Americans will need roughly 11 times their final working salary in retirement, so someone with a $50,000 salary (that’s the median in America) would need $550,000 upon retirement. (Plus, the Aon Hewitt survey finds that, in actuality, workers are only on track to save 8.8 times final pay.)

See also: Your kids will never let you retire

The silver lining? For grads who are struggling to pay down student loans — and parents who want to help their kids in some way, even if it’s not by writing a check for their student loans — there are solutions.

Graduates should begin by looking into the variety of repayment options available to them like consolidation or income-based options, says Monterey, Calif.-based financial planner Catherine Hawley. Earlier this month, Obama announced an extension of the Pay As You Earn program, which will give as many as five million more Americans the ability to cap their student loan payments at 10% of their income . This joins other income-based repayment options — which take into account your income when determining your debt repayments — as good ways for cash-strapped students to make their student loan debts more manageable. And grads who lose their jobs or face other serious financial hardship may want to consider a deferment or forbearance, which allow you to put off paying student loans for a period. However, Abby Harper, spokesperson for Upromise by Sallie Mae (SLM) , cautions that a forbearance should be a last resort, as interest continues to accrue on the loans. The U.S. Department of Education has calculators and other tools to help you look into your repayment options, or you can call your loan servicer.

For parents who are under-saved for retirement, writing a no-strings-attached check to help the kids with student loan debt often isn’t the best answer.

Instead, parents should sit down with their kids and help them make a budget to pay down the debt and look into loan repayment options with them, says Ray; sometimes that will allow your kid to stay afloat financially. If that isn’t enough, parents may want to consider letting a child live with them again — with rules, says Hawley. That means you should outline what the child’s financial and other obligations are to the household (chores, applying for jobs at a certain frequency, etc.) and the repercussions for not meeting them. “You have to be very clear about the expectations both financial and otherwise,” she cautions.

More from MarketWatch:

Parents, you’re saving for college all wrong

Should you move to Detroit?

5 stores where you should never pay full price

Catey Hill covers personal finance and travel for MarketWatch in New York. Follow her on Twitter @CateyHill.

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Payday Lending, Bank Overdraft Protection, and Fair Competition at …

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As a reaction to the financial crisis that began in 2008, President Obama signed into law the 2010 Wall Street Reform and Consumer Protection Act, commonly referred to as the Dodd-Frank Act.1 A centerpiece of the new law was the creation of the Consumer Financial Protection Bureau (CFPB), which was established in response to the perception that the federal consumer protection regime had failed with respect to financial products and the belief that these regulatory failures contributed to the financial crisis. But the CFPB’s mandate goes far beyond mortgages and other financial products that were at the heart of the recent recession and reaches all consumer credit products, including small-loan products such as payday loans and pawnshops as well as nonlenders such as mortgage brokers and debt collectors.

In the wake of the financial crisis and the subsequent political response, short-term consumer lending products such as payday loans, bank overdraft protection, and pawnshops have grown in both popularity and regulatory scrutiny.2 The crisis-induced recession, the retrenchment in retail banking, and the consequences of many of the regulations enacted in the period since the recession began have reduced access to mainstream consumer credit products such as credit cards, home equity loans, and mortgages, thereby increasing demand for alternative credit products. The CFPB’s mandate to advance the goal of heightened consumer protection is multifaceted. The one on which we focus here is Dodd-Frank’s requirement to “enforce Federal consumer financial law consistently for the purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive.” 3 Dodd-Frank further requires the CFPB to implement a regulatory regime that treats comparable products consistently, regardless of whether they are offered by a bank, a nonbank lender, or some other provider of consumer financial products.4 The CFPB, in turn, has interpreted this mandate to require it to “[p]romote fair competition by consistent enforcement of the consumer protection laws in the Bureau’s jurisdiction.” 5

In short, in pursuing its rulemaking, enforcement, and research capabilities, Dodd-Frank requires that the CFPB not provide a competitive advantage for one product over rival products simply because the rival products happen to be offered by different institutions through different distribution channels. As the architects of Dodd-Frank recognized, providing unequal regulatory treatment to similar products could harm consumers by pushing them to choose among various competing products based on their degree of regulation rather than on their relative economic benefits.6 In fact, in light of the explicitness of this mandate, failing to take account of this requirement to preserve fair competition could expose the CFPB to litigation risk in the future.

Continue reading

[…]

CFPB Now Accepting Payday Loan Complaints

November 14, 2013 – Posted by Patrick McNeil

Last week, the Consumer Financial Protection Bureau (CFPB) began accepting complaints from borrowers who encounter issues with payday loans.

Payday loans are generally for $500 or less and provide a quick route to credit for consumers who may otherwise not qualify, though many must be fully repaid in a short period of time. In fact, payment is often due when the borrower is next paid, and many lenders require advance access to borrowers’ checking accounts.

According to a CFPB report released earlier this year, this repayment structure and lack of underwriting creates for many consumers a cycle of indebtedness. “To the extent these products are marketed as a short-term obligation,” the report says, “some consumers may misunderstand the costs and risks, particularly those associated with repeated borrowing.”

The Center for Responsible Lending notes that these consumers are disproportionately African American and Latino, and found in a 2009 study in California that “Payday lenders are nearly eight times as concentrated in neighborhoods with the largest shares of African Americans and Latinos as compared to white neighborhoods, draining nearly $247 million in fees per year from these communities.”

Established by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the CFPB began overseeing payday lenders in January 2012, and currently accepts complaints about credit cards, mortgages, bank accounts and services, private student loans, consumer loans, credit reporting, debt collection, and money transfers.

To see what types of payday lending complaints the CFPB is accepting and how to submit them, visit their website here.

Related Posts

Civil and Human Rights Coalition Files Amicus Brief in Fair Housing Case – 11/4/13

Civil Rights Coalition: Appointment of Cordray Is the ‘Right Choice’ for Financial Consumers – 1/4/12

Senate Obstructionists Block Obama Nominees for Financial Protection Agency, DC Circuit Court – 12/9/11

Richard Cordray’s Nomination to Head CFPB Advances – 10/6/11

Civil Rights Coalition Urges Congress to Pass Jobs Act, Help Homeowners – 9/14/11

Categories: Housing & Lending […]

Payday Cash Advance Loans – How the Recession Makes Payday …

Payday Cash Advance Loans are a way for working Americans to access fast cash before their actual payday. When consumers are experiencing short term cash flow problems and don’t have enough cash to meet their financial obligations, payday loans serve as the best method to get fast cash. But they do come with higher interest rates and it is important to pay them back on the due date, usually after a span of two to three weeks.

Getting quick money easily from the comfort of your home makes payday loans all the more attractive during the time of recession. With the influx of the stimulus money into the economy by the Obama government, payday loans have become more accessible and easier to get approved. Also, the government crackdown of retail payday outlets has increased the traffic to online payday lending sites.

Anybody who wishes to apply for a payday loan can do it online. Going directly to a payday lender may be risky for you since you could get trapped into paying a considerably higher rate of interest.

The best way to get the best rate is to approach a multiple lender website that is affiliated with many payday lending companies. These sites let you compare the different rates in the market and get the cheapest rate offered in a few minutes time after you fill out an application form. The application will usually ask for your personal contact information, employment information, and banking information to make sure you will be able to repay the loan if granted.

The applicant needs to be 18 years old or above, hold a US citizenship with a job that provides a steady source of income and a valid savings/checking account. After satisfying these and depending on the availability of funds, the loan gets sanctioned and the money gets deposited to your bank account after both parties agree on the terms of the loan. The intermediary site acts as your personal broker and helps you get the best deal free of cost.

All these have made the payday loan an attractive option to people looking for some quick cash with no delays. However, it is important to repay the loans on the due date, often as a lump sum payment to avoid getting into the vicious circle of soaring interest rates on back to back loans.

The most efficient way to receive multiple quotes and get the best deal on your short term loan, is to utilize a multiple lender website that is affiliated with several payday lending companies. These websites will make the payday loan companies compete over your loan and therefore you are able to choose the one that was able to offer you the best deal. Going through a multiple lender website will save you time and money and they have consistently offered consumers the best market rate available.

[…]

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.

[…]

Goldman plans cash call to repay loan

The Wall Street bank Goldman Sachs last night launched a $5bn (£3.4bn) fundraising in an effort to generate sufficient cash to become the first major institution to pay back emergency bailout money provided by US taxpayers.

In a move that caught the markets by surprise, Goldman brought forward a scheduled earnings announcement to reveal a 13% surge in quarterly profits to $1.66bn, proving itself to be in a healthier financial condition than many rivals.

Through a multibillion-dollar public offering of stock, Goldman hopes to replenish its coffers sufficiently to return $10bn of money from the US treasury’s troubled asset relief programme (Tarp).

Along with JP Morgan and Bank of America, Goldman has made no secret of its desire to be rid of the strings attached to the government funds. These include restrictions on executive compensation, limits to dividend payouts and unprecedented scrutiny from politicians. Goldman executives have complained privately that business under such conditions is becoming “impossible”.

Goldman’s chief executive, Lloyd Blankfein, said the bank’s financial results, which included a 39% rise in trading and investment revenue to $7.15bn, were strong in a climate of frozen credit markets. “Given the difficult market conditions, we are pleased with this quarter’s performance,” he said.

Returning the government’s bailout money is contingent on Goldman passing a “stress test” levied on all major banks by the Obama administration to check their long-term viability.

A Goldman spokesman said the treasury funds were “never intended as permanent capital” and the public wanted the money repaid. “It is entirely appropriate that firms that can repay the money should repay it.”

Banks have become increasingly nervous about a perceived rise in anti-Wall Street rhetoric since controversy arose last month about bonus payouts at the troubled insurer AIG. President Obama has repeatedly warned that a “cultural shift” needs to take place and the financial services industry needs to make sacrifices.

Only a handful of regional banks have repaid bailout funds, including Signature Bank of New York, Old National Bancorp of Indiana and Iberiabank of Louisiana. During a meeting with Obama at the end of March, Blankfein and fellow Wall Street bosses asked for detailed guidance on how they could repay Tarp funds rapidly.

There may be nervousness within the treasury about allowing Goldman off the hook, for fear that banks unable to repay money will be stigmatised and weakened further. Brad Hintz, an analyst at Sanford Bernstein in New York, told Bloomberg News: “The right thing for government officials to do would be to delay the Goldman Sachs repayment until a significant group of banks are able to repay simultaneously under some organised plan.”

During unofficial after-hours trading, Goldman’s stock slipped 1.8% to $127.82 in anticipation of shares being diluted by the fundraising. The Dow Jones industrial average had ended the day down 25 points to 8,057 depressed, in part, by reports that carmaker General Motors has is being pressed by the government to prepare for a bankruptcy filing by 1 June.

Goldman’s better than expected earnings included a doubling in net revenue from fixed-income trading to $6.56bn. Revenue from equities dropped by 20% to $2bn as global stockmarkets fell steeply and the bank’s principal investments division suffered a loss of $1.41bn.

Several rival banks are due to report financial results later in the week and analysts will be watching closely for signs that the worst may be over in terms of the multibillion-dollar losses suffered by Wall Street over the last 18 months.

[…]

The US Government Will Make A Record $51 Billion Off Student Loan Debt This Year

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AP

Student loan debt is now one of the

Obama Administration

‘s biggest cash cows.

The government is poised to pocket a record $51 billion profit from federal student loan borrowers this year, according to a report by the Congressional Budget Office.

That’s roughly 40% higher than the CBO’s original forecast in February, $35.5 billion.

The Huffington Post’s Shahien Nasiripour helps put the new estimate in perspective:

Exxon Mobil Corp., the nation’s most profitable company, reported $44.9 billion in net income last year. Apple Inc. recorded a $41.7 billion profit in its 2012 fiscal year, which ended in September, while Chevron Corp. reported $26.2 billion in earnings last year. JPMorgan Chase, Bank of America, Citigroup and Wells Fargo reported a combined $51.9 billion in profit last year.”

Student debt is second only to mortgage debt in American households, and it’s the only kind of debt that’s steadily increased even throughout the recession. We’re long past the $1 trillion-mark for federal and private student loans combined, but federal loans may break $1 trillion on their own soon enough.

Congress is set to debate whether or not to cap the interest rate on federal subsidized Stafford loans at 3.4% this July, or let them double. Even if they decide to cap it again, the move would only impact about 8 million borrowers.

There are a couple of pieces of legislation making the rounds that would lower interest rates on federal student loans or make it easier for students to refinance their debt. Last week, Sen. Elizabeth Warren proposed the Student Loan Fairness Act to give students the same interest rates on federal subsidized Stafford loans as big banks, 0.75%. A petition supporting her has already garnered 400,000 signatures.

Still, none of these moves would really help today’s student borrowers. Student loans are practically impossible to discharge in bankruptcy, and for those unlucky enough to have borrowed from private lenders, variable interest rates can be crushing over time.

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[…]

Government can be a really lousy venture capitalist

Of all the arguments for the Obama administration’s green-energy loan program, one of the worst is that federal aid leverages private capital.

Consider Fisker Automotive. In August 2009, this wannabe plug-in electric hybrid car company was hard up for cash to pay suppliers and faced layoffs.

A green-energy loan was the only hope, Fisker executive Bernhard Koehler explained in an e-mail to the Department of Energy — because it would help bring in private money. “We are oversubscribed in this equity round with the DOE support — and nowhere without it,” Koehler pleaded.

A month later, in September 2009, the Energy Department approved a $529 million low-interest loan. Vice President Joe Biden stood before the proposed site of a Fisker plant in Delaware and described the department’s program as “seed money that will return back to the American consumer in billions and billions and billions of dollars of good new jobs.”

Sure enough, private money started flowing in to Fisker by the tens of millions. Apparently, investors liked the idea of a firm that enjoyed access to cheap government funding.

All told, Fisker attracted $1.1 billion in private investment, the vast majority of which took place after it got the DOE loan.

Alas, government loans could not overcome Fisker’s fundamental problem: no experience mass-producing automobiles, let alone the complex battery-powered luxury cars that it proposed to sell for more than $100,000. Today, the company is nearly bankrupt; taxpayers are on the hook for $171 million, and private investors are probably nearly wiped out. (The story is well told, with documents, at www.PrivCo.com.)

So, that’s more than a billion dollars in capital that can’t create jobs elsewhere in the economy — but might have, if the government had not propped up and promoted Fisker.

A committee of the Republican-majority House is searching for proof that Fisker got its loan because of its political connections. It’s certainly true that the Silicon Valley venture capital (VC) firm Kleiner Perkins Caufield Byers was Fisker’s biggest backer, and that KPCB’s lineup includes such Democratic heavies as John Doerr and Al Gore.

I doubt the committee will find a smoking gun, though. This is a story of self-serving groupthink, not a blatant quid pro quo. Fisker’s fool’s gold took in members of the U.S. elite, from Leonardo DiCaprio to KPCB “strategic limited partner” Colin Powell. For the private investors, Fisker was about getting rich while feeling virtuous. For the Obama administration, it was about doing something for green jobs. The former will be held accountable financially; the latter, politically.

That doesn’t make the Fisker debacle a victimless episode or a disaster only in the sense of opportunity cost. State university endowments and charitable foundations had exposure through KPCB investment funds. The College Illinois fund, a state-run prepaid tuition plan used by 30,000 families, sank $10 million into Fisker. It did so at the urging of Advanced Equities Inc. (AEI), a Chicago-based firm that Fisker paid to raise private capital after the Energy Department loan.

AEI did not enjoy a sterling reputation. A 2008 Forbes article portrayed it as an oft-sued operation, notorious for foisting dubious VC deals on its clientele.

AEI raised more than half of Fisker’s private capital. “They are good at what they do,” Fisker board member (and KPCB partner) Ray Lane, no relation, told the Wall Street Journal.

San Diego businessman Daniel Wray typifies the investors AEI pulled in. He spent $210,000 on preferred shares prior to January 2012 — when AEI told him that his stake would be downgraded to common stock unless he ponied up $84,000 more within a week.

Wray is suing, claiming that AEI took him by surprise — though it must be said that such “pay to play” gambits are not unprecedented in the VC biz, especially in “late-stage” start-ups desperate for cash, as Fisker was in early 2012.

Last September, Advanced Equities paid the Securities and Exchange Commission $1 million to settle fraud charges related to its fundraising for another KPCB-backed green start-up, Bloom Energy. Allegedly, one of AEI’s top officials told would-be investors that the CIA had ordered $2 billion of its fuel cells, which it hadn’t. Advanced Equities shut down last year.

Government can efficiently affect energy usage through fuel taxes and basic research. When it intervenes on behalf of specific technologies and specific companies, however, bad things happen — resource misallocation, windfall-seeking, even, sometimes, corruption.

The Fisker debacle proves once again that, in the immortal words of former White House economist Larry Summers, “government is a crappy VC.”

Charles Lane is a member of The Washington Post’s editorial board.

[…]

Neither Party Has Cash for Student Loan Rate Fix

Incoming college freshmen could end up paying $5,000 more for the same student loans their older siblings have if Congress doesn’t stop interest rates from doubling.

Sound familiar? The same warnings came last year. But now the presidential election is over and mandatory budget cuts are taking place, making a deal to avert a doubling of interest rates much more elusive before a July 1 deadline.

“What is definitely clear, this time around, there doesn’t seem to be as much outcry,” said Justin Draeger, president of the National Association of Student Financial Aid Administrators. “We’re advising our members to tell students that the interest rates are going to double on new student loans, to 6.8 percent.”

That rate hike only hits students taking out new subsidized loans. Students with outstanding subsidized loans are not expected to see their loan rates increase unless they take out a new subsidized Stafford loan. Students’ non-subsidized loans are not expected to change, nor are loans taken from commercial lenders.

The difference between 3.4 percent and 6.8 percent interest rates is a $6 billion tab for taxpayers — set against a backdrop of budget negotiations that have pitted the two parties in a standoff. President Barack Obama is expected to release his budget proposal in the coming weeks, adding another perspective to the debate.

Last year, with the presidential and congressional elections looming, students got a one-year reprieve on the doubling of interest rates. That expires July 1.

Neither party’s budget proposal in Congress has money specifically set aside to keep student loans at their current rate. House Republicans’ budget would double the interest rates on newly issued subsidized loans to help balance the federal budget in a decade. Senate Democrats say they want to keep the interest rates at their current levels but the budget they passed last week does not set aside money to keep the rates low.

In any event, neither side is likely to get what it wants. And that could lead to confusion for students as they receive their college admission letters and financial aid packages.

House Republicans, led by Budget Committee Chairman Paul Ryan, have outlined a spending plan that would shift the interest rates back to their pre-2008 levels. Congress in 2007 lowered the rate to 6 percent for new loans started during the 2008 academic year, then down to 5.6 percent in 2009, down to 4.5 percent in 2010 and then to the current 3.4 percent a year later.

Some two-thirds of students are graduating with loans exceeding $25,000; one in 10 borrowers owes more than $54,000 in loans. And student loan debt now tops $1 trillion. For those students, the rates make significant differences in how much they have to pay back each month.

For some, the rates seem arbitrary and have little to do with interest rates available for other purchases such as homes or cars.

“Burdening students with 6.8 percent loans when interest rates in the economy are at historic lows makes no sense,” said Lauren Asher, president of the Institute for College Access and Success, a nonprofit organization.

Both House Education Committee Chairman John Kline of Minnesota and his Democratic counterpart, Rep. George Miller of California, prefer to keep rates at their current levels but have not outlined how they might accomplish that goal.

Rep. Karen Bass, a California Democrat, last week introduced a proposal that would permanently cap the interest rate at 3.4 percent.

Senate Democrats say their budget proposal would permanently keep the student rates low. But their budget document doesn’t explicitly cover the $6 billion annual cost. Instead, its committee report included a window for the Senate Health Education and Pension Committee to pass a student loan rate fix down the road.

But so far, the money isn’t there. And if the committee wants to keep the rates where they are, they will have to find a way to pay for them, either through cuts to programs in the budget or by adding new taxes.

“Spending is measured in numbers, not words,” said Jason Delisle, a former Republican staffer on the Senate Budget Committee and now director of the New America Foundation’s Federal Budget Project. “The Murray budget does not include funding for any changes to student loans.”

The Congressional Budget Office estimates that of the almost $113 billion in new student loans the government made this year, more than $38 billion will be lost to defaults, even after Washington collects what it can through wage garnishments.

The net cost to taxpayers after most students pay back their loans with interest is $5.7 billion. If the rate increases, Washington will be collecting more interest from new students’ loans.

But those who lobbied lawmakers a year ago said they were pessimistic before Obama and his Republican challenger Mitt Romney both came out in support of keeping the rates low.

“We were at this point and we knew this issue was looming. But it wasn’t anything we had any real traction with,” said Tobin Van Ostern, deputy director of Campus Progress at the liberal Center for American Progress. “At this point, I didn’t think we’d prevent them from doubling.”

This time, he’s looking at the July 1 deadline with the same concern.

“Having a deadline does help. It’s much easier to deal with one specific date,” Van Ostern said. “But if Congress can’t come together … interest rates are going to double. There tends to be a tendency for inaction.”

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