On July 15, 2010 Monroe Bank & Trust announced its intention to participate in the Help for Michigan's Hardest Hit Homeowners program, which will be administered by the Michigan State Housing Development Authority (MSHDA). The program was officially introduced on July 12.
The U.S. Department of Treasury approved MSHDA’s plan to distribute $154.5 million in federal funds that should help more than 17,000 Michigan households avoid foreclosure. In February President Obama announced $1.5 billion in funding for innovative measures to help families in the states that have been hit the hardest by the aftermath of the housing bubble.
MSHDA was selected as one of five state Housing Finance Agencies (HFAs) to share in the Hardest Hit Fund investment and is the first of the nation’s HFAs to implement its plan.
Michigan’s Helping Hardest Hit Homeowners plan is designed to provide:
Mortgage payment assistance for homeowners currently receiving unemployment compensation,
Rescue funds for homeowners who have fallen behind in their mortgage payments due to no fault of their own and who have overcome this obstacle, and
Federal matching funds for principal reductions for homeowners who can no longer afford their mortgage payments as a result of reduced income.
Persons who have loans serviced by MBT can be reviewed for eligibility based on qualification criteria established by MSHDA. Assistance is divided into three distinct programs, depending upon which program best addresses a particular financial situation. Pre-qualification restrictions apply. None of the programs apply for second homes or investment properties.
Unemployment Mortgage Subsidy - Help for unemployed homeowners receiving unemployment compensation.
Pre-qualification Restriction: Unemployed borrowers who have over three months of non-retirement cash reserves, in any form (savings, investments, etc.) which could be applied to mortgage payments are ineligible.
Loan Rescue - One-time assistance for homeowners who have fallen behind in their mortgage payments or real estate taxes due to no fault of their own.
Pre-qualification Requirement: A homeowner pursuing this option must identify a one-time event, now cured, that caused falling behind in your payments.
Principal Reduction - Federal matching funds for principal reductions for homeowners who can no longer afford their mortgage payments as a result of reduced income.
Tom Myers, Executive Vice President and Chief Lending Officer stated, “We are happy to be part of the MSHDA effort for persons holding MBT mortgages who may qualify for this kind of assistance. We recognize that with over 14% unemployment in our area, people are struggling.”
MSHDA is in the process of authorizing loan servicer participation which is expected to take another week. To see when MBT can review a request, go to MSHDA's "Hardest Hit" site at www.michigan.gov/HardestHit or visit www.mbandt.com.
Thursday, July 22, 2010
Thursday, July 15, 2010
The Sixth “C” of Credit
In an earlier article, I wrote of the “3 C’s of Credit”, which many bankers have been taught to consider when making any loan decision. While over the years they’ve morphed into the “5 C’s of Credit”, the basic tenants for making a loan decision continue to include Collateral, Capacity, and Character. The point of the article was that the economic boom of the 1990’s and early 2000’s caused many bankers (and consumers) to forget the importance of Character as a measurement of someone’s ability (or willingness) to repay a loan. The financial crisis that caused The Great Recession reminded us all of the importance of Character; for both consumers and bankers alike.
Bankers are now faced with the increasing reality that there is now a sixth C of credit, called “Compliance”. Over the past two years, the U.S. Congress and bank regulatory agencies have put in place a number of laws and regulations that are aimed at protecting the consumer from abusive practices. While these new regulations are well intentioned, they are primarily new versions of laws that are already in place.
Since 2008, bankers have been mandated to comply with 50 new regulations that require new disclosures for deposit and loan products, internal record keeping, as well as regulatory reporting. The net effect of course is that consumers are faced with increased paperwork and costs when conducting business that affects their personal finances. I once demonstrated for a legislator the changes that have occurred in bank mortgage disclosures by providing a copy of a mortgage closing packet from 1979, comparing that to a current mortgage closing packet. The 1979 packet was four pages long. Today’s packet is easily 45 pages long and more in some cases. It’s easy to see why consumers can be confused and frustrated by the choices they face when conducting personal financial business.
As an example, in early 2009 congress required additional disclosures and detail be provided for property appraisals. The result has been that there are now 3 additional pages of documentation to consider, appraisals take longer to complete, and the cost of an appraisal has increased. It’s hard to believe that most consumers consider this as an improvement when it takes longer to receive the loan they desire and their costs go up as well.
Bankers tend to get blamed for these changes, which is easy to understand since we’re blamed for nearly everything these days. The consumer only sees how difficult it is to conduct their financial business, and not the root cause. Bankers meanwhile try to find ways of making these transactions easier through automation and training, but the task is increasingly difficult.
The Dodd-Frank Wall Street Reform and Consumer Protection Act has just passed Congress. This 2000 page bill covers a variety of regulatory reform issues, as well as a few that had nothing to do with the financial crisis. The result will be an estimated 5000 pages in new regulations that all financial service providers are required to comply with.
Only traditional banks, however, will be subject to the enforcement of compliance with these new regulations due to the regulatory structure currently in place for banks; the same does not exist for the non-bank providers of financial services. It will entail some 30 new regulations and, as before, many are just new versions of regulations that are already on the books.
While Dodd-Frank is being touted by Congress as the “answer” to the abusive practices that created the financial crisis, it will cause the costs of maintaining basic consumer services to increase, and decrease their accessibility. Checking account products will become more expensive. Access to loans that provide basic needs such as a new home or home improvement will decline. The reality of the new “sixth C of Credit” will affect bankers and their customers alike.
As the effects of these new regulations are realized, it will be important to recognize their true cause. Only true reform will allow consumers to have choices in their financial decision-making, and return to less complicated ways of doing business. Let’s hope that this reform is realized in the years to come, so that the “sixth C of Credit” does not become the dominant factor in conducting business.
Bankers are now faced with the increasing reality that there is now a sixth C of credit, called “Compliance”. Over the past two years, the U.S. Congress and bank regulatory agencies have put in place a number of laws and regulations that are aimed at protecting the consumer from abusive practices. While these new regulations are well intentioned, they are primarily new versions of laws that are already in place.
Since 2008, bankers have been mandated to comply with 50 new regulations that require new disclosures for deposit and loan products, internal record keeping, as well as regulatory reporting. The net effect of course is that consumers are faced with increased paperwork and costs when conducting business that affects their personal finances. I once demonstrated for a legislator the changes that have occurred in bank mortgage disclosures by providing a copy of a mortgage closing packet from 1979, comparing that to a current mortgage closing packet. The 1979 packet was four pages long. Today’s packet is easily 45 pages long and more in some cases. It’s easy to see why consumers can be confused and frustrated by the choices they face when conducting personal financial business.
As an example, in early 2009 congress required additional disclosures and detail be provided for property appraisals. The result has been that there are now 3 additional pages of documentation to consider, appraisals take longer to complete, and the cost of an appraisal has increased. It’s hard to believe that most consumers consider this as an improvement when it takes longer to receive the loan they desire and their costs go up as well.
Bankers tend to get blamed for these changes, which is easy to understand since we’re blamed for nearly everything these days. The consumer only sees how difficult it is to conduct their financial business, and not the root cause. Bankers meanwhile try to find ways of making these transactions easier through automation and training, but the task is increasingly difficult.
The Dodd-Frank Wall Street Reform and Consumer Protection Act has just passed Congress. This 2000 page bill covers a variety of regulatory reform issues, as well as a few that had nothing to do with the financial crisis. The result will be an estimated 5000 pages in new regulations that all financial service providers are required to comply with.
Only traditional banks, however, will be subject to the enforcement of compliance with these new regulations due to the regulatory structure currently in place for banks; the same does not exist for the non-bank providers of financial services. It will entail some 30 new regulations and, as before, many are just new versions of regulations that are already on the books.
While Dodd-Frank is being touted by Congress as the “answer” to the abusive practices that created the financial crisis, it will cause the costs of maintaining basic consumer services to increase, and decrease their accessibility. Checking account products will become more expensive. Access to loans that provide basic needs such as a new home or home improvement will decline. The reality of the new “sixth C of Credit” will affect bankers and their customers alike.
As the effects of these new regulations are realized, it will be important to recognize their true cause. Only true reform will allow consumers to have choices in their financial decision-making, and return to less complicated ways of doing business. Let’s hope that this reform is realized in the years to come, so that the “sixth C of Credit” does not become the dominant factor in conducting business.
Thursday, July 8, 2010
Is that daylight or a train?
The National Bureau of Economic Research is an independent, non-partisan, private not for profit company dedicated to promoting a better understanding of the economy. It is considered to be the official scorekeeper of economic cycles, and publishes dates and timeframes for all economic cycles in the U.S. dating back to 1854. These published cycles are determined by gathering a variety of economic data, much of which is not accurately available until many months following the period measured. The most recent cycle published by NBER is the last economic expansion that ended in December of 2007, which was finally announced in December of 2008. While many economists have determined that The Great Recession ended in July of 2009, NBER announced in April of this year that while there is positive evidence supporting that view, it is simply too early to determine officially if and when this most recent recession has ended.
In all cases, economists agree that the dynamics of this most recent recession are unlike any experienced since The Great Depression of the 1930’s. It has exceeded many past record measurement factors including the severity and length of high unemployment. And due to severe job losses it is agreed that full recovery will be much slower than normal. In fact, there is no such thing as “normal” these days.
In light of these facts, many forecasters have pointed to positive evidence as a sign that the recession has ended, and continue to seek evidence of a recovery. Recent volatility in the financial markets however has caused some to predict a “double dip” recession or general bear market retreat. The fact is that no one really knows. And no one will know for sure until NBER makes an official announcement sometime in the future, many months after the fact.
It is compelling however for bankers to consider a variety of economic data and forecasts in order to make educated decisions and to develop sound business practices. When unemployment is high, bankers naturally become more conservative in their lending decisions. During times of low unemployment and economic growth, bankers tend to be more aggressive, and competition for new business increases. This is a natural component of the business cycle.
Locally, economic indicators tell us that we should continue to be cautious yet hopeful. Unemployment rates in Monroe and Wayne Counties have shown some improvement, but remain unacceptably high. Property values have remained stable for the past twelve months, but remain at their lowest levels in the past three years. At Monroe Bank & Trust (as well as other local banks) our 30 to 89 day past dues have improved over the past twelve months, yet we continue to work through a variety of non-performing loans.
Of all the data available to us, the last statistic mentioned is one of the most compelling. If past due loans continue to diminish, it will be a positive sign that job losses have ceased, and that an increasing number of consumers are able to meet their financial obligations. Since past dues are always the preliminary stage for non-performing loans, it will also mean fewer loan losses in the future.
At this point, I’m hopeful that that light at the end of the tunnel is actually daylight. Time will tell.
In all cases, economists agree that the dynamics of this most recent recession are unlike any experienced since The Great Depression of the 1930’s. It has exceeded many past record measurement factors including the severity and length of high unemployment. And due to severe job losses it is agreed that full recovery will be much slower than normal. In fact, there is no such thing as “normal” these days.
In light of these facts, many forecasters have pointed to positive evidence as a sign that the recession has ended, and continue to seek evidence of a recovery. Recent volatility in the financial markets however has caused some to predict a “double dip” recession or general bear market retreat. The fact is that no one really knows. And no one will know for sure until NBER makes an official announcement sometime in the future, many months after the fact.
It is compelling however for bankers to consider a variety of economic data and forecasts in order to make educated decisions and to develop sound business practices. When unemployment is high, bankers naturally become more conservative in their lending decisions. During times of low unemployment and economic growth, bankers tend to be more aggressive, and competition for new business increases. This is a natural component of the business cycle.
Locally, economic indicators tell us that we should continue to be cautious yet hopeful. Unemployment rates in Monroe and Wayne Counties have shown some improvement, but remain unacceptably high. Property values have remained stable for the past twelve months, but remain at their lowest levels in the past three years. At Monroe Bank & Trust (as well as other local banks) our 30 to 89 day past dues have improved over the past twelve months, yet we continue to work through a variety of non-performing loans.
Of all the data available to us, the last statistic mentioned is one of the most compelling. If past due loans continue to diminish, it will be a positive sign that job losses have ceased, and that an increasing number of consumers are able to meet their financial obligations. Since past dues are always the preliminary stage for non-performing loans, it will also mean fewer loan losses in the future.
At this point, I’m hopeful that that light at the end of the tunnel is actually daylight. Time will tell.
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