The Government Accountability Office says banks can't effectively offer small-dollar loans. (Photo Credit: CC BY-ND/DRScoundrels)

There is a “tremendous demand” for unsecured personal loans in the U.S., says FDIC Chairwoman Sheila Bair. This means small-dollar loans are attractive to consumers and to mainstream financial institutions like banks and credit unions. Banks have tried to get in on the same day loans origination action – but not without complications, says a Government Accountability Office report.

Payday loan alternatives – and the banks that can’t deliver them

Due to more stringent terms and fee structures, payday loan alternatives offered by most banks and credit unions are a completely different animal than personal loans from a small lending outlet. The GAO suggest that the Dodd-Frank Act and other FDIC changes in recent months may increase traditional financial institutions’ willingness to offer same day loans, but the results may not be what banks expect:

“Recent statutory and regulatory changes and FDIC initiatives may encourage more institutions to offer small-dollar loan alternatives to payday loans or expand their availability, but many consumers may still chose to use payday loans for their wide availability and relative lack of eligibility,” says the GAO report.

A two-year FDIC pilot program illustrated that without the involvement of charitable organizations or government subsidies, banks and credit unions have been unable to popularize payday loan alternatives. Extensive underwriting requirements also tended to exclude the customer base that most wanted access to personal loans.

Same day loans will not exclude you from a government job

The notion that taking out same day loans is harmful to one’s financial reputation is disproved in the Government Accountability Office report. Federal agencies like the Department of Homeland Security, Transportation Security Administration and even the Federal Bureau of Investigations put applicants through an intense employment screening process that includes a thorough financial history. Credit reports are run and other financial evaluation tools are used.

According to the GAO, screening agencies stressed that whether or not applicants to high security clearance positions had used short term loans was not a determining factor in the hiring process. The presence of risky patterns of financial behavior is important, however, which underscores the important of financial responsibility – for government employees and consumers in general. If banks and credit unions could ever free themselves from the policy maze and judge same day loan applicants over a more broad range of financial responsibility, perhaps the institutions could sell personal loans directly to consumers.

Sources

Community Financial Services Association of America

Government Accountability Office

Don’t live beyond your means, even with payday loans

The private microfinancing site 40Billion.com offers commercial paper, traditionally a tool for large corporations, to small businesses. Image: CC The Truth About/Flickr

The online private microlending and social networking company 40Billion.com announced new short-term loan options for small businesses Monday. Using unsecured promissory notes, commonly called commercial paper, small and medium-sized businesses can finance opportunities through 40Billion.com for up to nine months. A week earlier, the microlender launched integrated social networking tools, enabling its members to use LinkedIn and Facebook accounts to help raise money.

A new short-term loan option

Commercial paper has been used for more than a century, mostly by large corporations wanting to raise quick, cheap working capital. Now 40Billion.com is offering the commercial paper option to small and medium-sized businesses that wish to borrow from $5,000 to $1 million for up to 270 days. Commercial paper is an unsecured promissory note to meet short-term financing and cash flow needs. In certain situations, commercial paper can be an affordable alternative to a traditional bank line of credit.

Why commercial paper?

According to 40Billion.com, commercial paper offers several advantages over traditional bank loans. Commercial paper is unsecured, meaning it doesn’t create a lien on the borrower’s assets. The discount rate is negotiated through 40Billion.com with investors seeking to diversify and earn a quick return. Businesses with strong Social Business Rating System (SBRS) scores and good relationships can get affordable rates. SBRS is 40Billion.com’s proprietary rating system that evaluates businesses on criteria other than traditional credit scores. The broad range of maturity, from 15 days to 270 days, provides flexibility for a variety of short-term cash needs such as payroll, inventory and marketing.

Social network financing

Founded in 2008, Atlanta, Ga.,-based 40Billion.com claims to have facilitated more than $30 million in loans between investors and entrepreneurs.The company said it helps its members find new customers and financing resources via social networking. 40Billion.com users can log in with LinkedIn or Facebook. The financing site automatically displays the users profile from either of those social networks. Users can also import contacts from e-mail programs. The integrated social networking tools in 40Billion.com also suggest new contacts that members may know through past associations or similar interests.

Sources

Information Week

News Wire Today

40Billion.com

For those who can qualify at their local bank or real estate office, current mortgage rates mean low interest loans. Image from Wikimedia Commons.

People looking to purchase a home can get some low interest loans if they act soon. Current rates on mortgages are beginning to rebound from record lows, so there’s no time like the present. The only snag might be qualifying for financing.

Low interest rate mortgage loans available

Banks want to get anyone they can get to buy a home, or at least anyone who can qualify for the financing. Higher credit scores are usually required these days, though that isn’t always the case. People looking to get low interest loans for purchasing a home are better off acting sooner rather than later. Current rates on bank loans for homes are at all time lows for fixed rate mortgages, according to USA Today. The market rate for the 30-year fixed mortgage is currently at 4.77 percent, down from 4.86 percent from a few weeks ago. The market rate for a 15-year fixed mortgage is 4.13 percent. The 15 year fixed mortgage rate is down from 4.20 percent a few weeks ago.

Rebound from record lows

If there is a time to get a loan for a home, it’s now. Mortgage rates are rebounding after epic lows, as the housing industry took a downward turn over the course of 2010. Fewer people were buying homes after tax credit expired, and fewer people felt confident enough to buy, despite values being slightly down from Arizona to Alabama and all points in between. The market rate for 30-year fixed hit 4.17 percent in November of 2010, the lowest interest rate in 40 years. The rate for 15-year fixed home finance loans hit 3.57 percent in November, the lowest since 1991. Those who can come up with the instant cash for a down payment should do so soon.

Rates will rise eventually

The adage “What goes up, must come down” and vice-versa applies to a lot of things. Buying low and selling high is what many homeowners aim to do, and with mortgage rates so recently having been at record lows, there’s no time like the present.

Sources

USA Today

Small business lending in Scottsdale, Ariz., has been about as dry as the Sonora Desert. (Photo Credit: CC BY-SA/Wars/Wikipedia)

Convincing banks to write short term loans for any size business has been difficult lately. Large-scale operations with multiple sources of capital can subsist, but small businesses like those in Scottsdale, Ariz., need short term loans in order to operate and expand. The Arizona Republic reports that banks and businesses have very different views of the current small business lending climate.

Scottsdale short term loans enable companies to hire

The hiring freeze is largely responsible for the sluggish economic recovery, but without Scottsdale short term loans, many Arizona businesses cannot afford to expand or make new hires. Bank loans have been few and far between for small businesses throughout Arizona, a part of the vicious cycle of financial dysfunction. Lack of consumer confidence reduces the demand for products and services, which in turn translates into lesser returns for businesses. Lesser returns result in fewer jobs offered, which keeps the cycle of consumer doubt going in perpetuity.

“Businesses don’t see the economy coming back, so they’re not investing,” said senior economist Eugenio Aleman of Wells Fargo Securities. “But lending to business is the key to the economic recovery.”

Underwriting procedures have become more strict

Forced by new federal laws to behave in a more responsible fashion, banks across the U.S. are tackling the stream of defaults and bad loans on the books by following more strict underwriting procedures for small business lending. While some good news has come out of Arizona’s economic climate – corporate borrowing rose by about 1.7 percent in 2010, compared with the previous year – household borrowing has fallen for 10 straight quarters. Even the corporate short term loan increase is below the historical average, reports the Arizona Republic. Banks in Scottsdale and beyond see the short term loan drop as a product of both the downturn in product demand and a lack of creditworthiness for those companies interested in small business lending.

Scottsdale short term business loans, straight from Texas

Many small businesses in Arizona have found that bank loans have not been forthcoming from Arizona banks. Thus, they’ve looked elsewhere. Kent Craven, the Arizona area developer for Sport Clips Haircuts, told the Republic that despite solid growth, franchisees had to obtain short term loans from a Texas bank because Arizona banks wouldn’t sign off. While local lenders were desired, they simply weren’t providing Scottsdale businesses with short term loans.

Sources

Arizona Republic

Bank of America has just set aside some cash to compensate Freddie and Fannie for bad guaranteed loans the bank is responsible for. Image: MoneyBlogNewz/Flickr/CC-BY

Bank of America has reached an agreement to compensate Freddie and Fannie for selling them toxic guaranteed loans. The largest bank in the nation will pay more than $3 billion to the troubled mortgage houses. B of A is expected to take a loss on the deal.

Bank of America to make amends for bad guaranteed loans

Bank of America has finalized an agreement to compensate Freddie Mac and Fannie Mae for toxic mortgage assets sold to the two mortgage houses, according to MSN. Not all of the bad guaranteed loans were sold to Freddie or Fannie by Bank of America, however. The settlement is largely over loans that were originated by Countrywide, which was purchased by and merged into Bank of America in 2008. Prior to that, Countrywide had been one of the largest loan lenders in the nation for mortgages. Of all people who bought a home from New York to San Diego and all points in between before the 2008 mortgage crisis, about one in five got their home loans from Countrywide. Bank of America took over responsibility for all Countrywide assets, including settling with Fannie and Freddie.

Expected loss for largest national bank

It is expected that Bank of America, the largest bank in the nation, will file a $2 billion loss for the fourth quarter of 2010. The bank has set aside more than $3 billion for Freddie and Fannie for Countrywide mortgages and others sold to the mortgage houses. B of A has already bought more than $11 billion in bad bank loans from the two houses, with around $2.7 billion left. Still, Bank of America probably won’t need a cash advance to see the agreement to the end.

Mortgage houses still owed

Numerous large banks still owe Freddie Mac and Fannie Mae some considerable sums, as toxic mortgage assets sold to the two have to be either bought back or compensated for. The government still runs the two companies.

Source

MSN

More people got bank loans and bought houses in November, but sales are still sluggish overall. Image from Wikimedia Commons.

The number of people getting bank loans for houses is increasing. Existing home sales crept up over November for the third increase in four months. However, sales are far below the levels that were seen last year.

More homes being sold and bank loans taken out for purchases

The housing market is still struggling to recover, but there are glimmers of hope in that the number of people taking out bank loans or going to a loan company to purchase a home is increasing, according to USA Today. The seasonally adjusted rate of existing home sales increased to a rate of 4.68 million units per year. The increase for November home sales was the third increase in the rate of home sales in four months. Western states had the largest increase, as sales in the West increased by 11.7 percent, though areas like Nevada and Arizona are still struggling. The Midwest had a boost of 6.4 percent. The Northeast and the South had the smallest increases, rising by only 2.7 and 2.9 percent, respectively.

The bad news

Despite an increase in home sales and more people willing to take out personal loans to buy a home, it isn’t all good news. Home sales over the past year, as opposed to just the past few months, are still dismal. November home sales for 2010 were actually a big drop. About 30 percent fewer homes sold in November 2010 than in November 2009. It’s harder to get a loan, and few people feel safe enough to buy. Home sales are on pace to record the lowest levels in sales since 1997. Applications for mortgage loan modification and new loans dropped in November, but that may be due to few people wanting to buy so close to the holidays.

Not the greatest signs

The real estate industry is still struggling to regain its footing, and the supply of available homes, more than nine months worth, is still more than it should be in a healthy market. However, as long as gains keep getting posted consistently, it will get there eventually.

Sources

USA Today

Some people think the installment loans lent in the bailouts weren't worth it, but Treasury Secretary Tim Geithner disagrees. Image from Wikimedia Commons.

In the financial crisis of the last few years, billions of dollars in installment loans to huge firms were lent in bailouts. Many have preached loudly about the waste involved and corporate favoritism. However, it may not cost as much as some think.

Rage at installment loans to big business

In 2008, the financial world was in turmoil, and the government moved to get some installment loans out to head off a collapse. Billions were lent to banks and investment houses from New York, New York, to Kansas City, Missouri, and the largest domestic auto manufacturers were given some enormous advance cash bundles to keep them afloat. Conservatives and liberals alike have raged about the bailout loans, but Treasury Secretary Timothy Geithner thinks the outrage is unfairly directed his way, according to the New York Times. Though officials, of course, don’t go out of their way to agree with their critics, he has a point.

Emergency loans could turn a profit

The emergency loans made to huge businesses could be justified. Geithner has maintained that the $25 billion estimated as losses by the Congressional Budget Office are estimates. He also has maintained losses will only come from bank loans and mortgages gone bad, but everything else will turn out. For instance, if the Treasury holds onto shares in GM and sells them over time, the loans GM received could eventually turn a profit on the long term. Citigroup, which received more than $45 billion in aid, turned a profit of more than $10 billion for the taxpayers already.

Proof will be in the pudding

Though it certainly seems ridiculous to only aid to the parties that created the economic problems in the first place when the people that have been hurt could use the help more, there may be an upside after the fact. If the profits realized from bailing out huge firms are more than the losses of bailing out Fannie and Freddie, then a rational basis for bailouts in dire straits will have appeared.

Sources

New York Times

The number of people underwater on bank loans for homes they bought is declining, but not fast enough. Image from Wikimedia Commons.

Fewer people are getting under water on the bank loans on their homes. Underwater is when a person ends up owing more to the mortgage company than the home is worth. However, part of it is thanks to the number of foreclosures.

Fewer bank loans are getting underwater

The number of people under water on their homes — owing more in bank loans than the home is worth — is diminishing, according to USA Today. Underwater mortgages have become a problem for a lot of American homeowners, who went out to get a loan for a home, only for the value to plummet. Recreational and retirement hot spots like Nevada, Arizona and Florida were hit  hard, with greater numbers of foreclosures and real estate values dropping through the floor.In some urban areas, such as Chicago, the rate of foreclosures has’t been as bad as in other cities, especially in metro areas that are still heavy industrial centers.

Foreclosures played a part

The decline in underwater mortgages has been slight, only 0.5 percent. A large portion of the reduction in people paying installment loans for more than a home is worth is likely due to the sheer number of homes that have been foreclosed, taking numerous mortgages off the books. There have been some incentives offered from the government, but talking loan lenders into reducing debt when many a loan company  is struggling is a tough sell.

Home values likely to stay down

It is likely that the housing market is not going to be at its best for some time. Record number of foreclosures, and fewer people confident enough to purchase a home or able to qualify for the financing  due to tougher restrictions on credit, will work against the housing industry’s favor. However, growth has been slowly taking place, and a slower recovery than desired has appeared to be the most likely scenario.

Sources

USA Today

The Federal Reserve, and chairman Ben Bernanke, have released data on which institutions received installment loans in the bailouts. Image from Wikimedia Commons.

The Federal Reserve has opened up the books on which companies received installment loans in the bailouts. There weren’t too many huge surprises, but the amount of instant cash wired out was staggering. The Fed lent more than $3 trillion in total.

Huge installment loans from the Federal Reserve

The Federal Reserve, headed by chairman Ben Bernanke, was a heavy player in the bailout programs, which lent trillions in installment loans to various banks and investment houses as part of the bailouts. Since it is a loosely federal organization, it does have to disclose some data. Recently, the information about which companies received large money loans from the Fed was released. Between 2008 and 2009, when the Troubled Asset Relief Program, or TARP, was going full tilt, nearly 21,000 different banks, investment houses and companies received loans from the Federal Reserve, according to the Washington Post. In total, those loans totaled more than $3 trillion. Controversial recipients were a number of overseas banks, such as the Development Bank of Korea, which borrowed billions. Deutsche Bank of Germany, and UBS of Switzerland also borrowed heavily from the Fed.

Trillions more in short term loans

The Federal Reserve also lent out an even larger amount of short term loans, though lending overnight loans for banks is within the scope of the Reserve as a lender of last resort. However, the overnight short term loans were not exactly the size of typical short term loans, like payday loans; more than $9 trillion went out in overnight lending, according to CNN. The interest assessed to most entities that were borrowing money from the Fed ranged between 0.5 to 3.5 percent interest, which is far less than most personal loans, to be sure.

The silver lining

The Federal Reserve has a lot of control over the supply and value of American currency, and the amount of money it lent is staggering. However, the Federal Reserve has already been repaid by most of the entities it lent money to and managed to turn a profit on the loans.

Sources

Washington Post

CNN

Unless one wants small loans, the credit market's incredibly high credit rating requirements leave many grasping at straws when they need financing. Image from Wikimedia Commons.

Demand for bank loans for housing is very low, even though rates are at the lowest in decades. It’s great for those with perfect credit scores, but small loans until payday may be the only credit available for a lot of people for some time.

Demand for mortgage loans drops

The bottom fell out of the real estate market, and it has been scrambling to get back to health ever since. There were some signs of life following the homeowner tax credit, but since it expired, demand for bank loans has stayed low. In fact, according to USA Today, the percentage of Americans counted as homeowners is at the lowest level in more than a decade. The 66.9 percent of Americans that own their homes, or have secured financing through a loan lender to buy a home, has not changed all summer, indicating that people either don’t want, or can’t get a loan to buy a house. It is no surprise that the only people who can get financing have near perfect credit.

Small loans might be all that is left

Small loans like payday loans or cash advances may be the only source of credit left for many people. It’s a growing segment. The payday lending industry began sometime in the late 1980s, and by the early 2000s, had more locations open than McDonald’s or Starbucks. Credit is something that will always be in demand, including a loan until payday, even if states are starting to regulate payday loans out of business.

Recovery will take some time

The only credit segment in the economy that is still booming is for small loans for people with bad credit. Payday lenders only started because mainstream finance wouldn’t touch the people they sought to extend a hand to. It may take awhile before things are back to normal. You can read more in the Payday Loan Facts and Statistics Report on Personal Money Market.

The United States' income gap is growing. (Photo Credit: ThinkStock)

The income gap in the United States continues to widen. It’s this gap that makes any real chance of economic recovery for the U.S. next to impossible, argues Steven Pearlstein in a recent op-ed piece for the Washington Post. Pearlstein argues that the Republican method of dealing with the disparity has been to ignore the problem, and the current administration appears to be using the same playbook.

GOP ‘Pledge to America’ doesn’t mention income gap

To illustrate how wide the income gap has become in the U.S., go back to 1976. Then, a third of income went to the upper crust. Fast-forward to  a 15-year run leading up to 2007 that featured the top-earning households sopping up well more than 50 percent of pretax dollars each year. Now, “virtually all of the benefits of economic growth have gone to households that, in today’s terms, earn more than $110,000 a year,” says Pearlstein.

From where did the gap originate?

There are numerous possible suspects to blame for income inequality in the United States. Globalization that increased the flow of workers, goods and money outside the nation is one possibility. The demand for more educated workers is another. Declining unions, industry deregulation and the rising power of financial markets are others that Pearlman counts as “institutional changes.” But when it comes down to it, Pearlman believes that the income gap has been accepted because American society ultimately decided that such income inequality is OK.

So long as the proper balance is maintained

If there is too high an index of inequality (or too low), America’s economic growth and ability to compete on the global stage becomes apparent. Creating bubbles allows Wall Street to feast while average families live in relative economic famine, where payday loans become the only option for many. Many of these families burdened themselves with debt in order to maintain their lifestyle. Pearlstein doesn’t buy the argument that such families had no choice, but the weight of the debt cannot be ignored.

Ultimately, Pearlstein joins the ranks of those who think more government involvement is the answer. Clearly, change is needed to lessen the gap. “People don’t work hard, take risks, and make sacrifices if they think the rewards will all flow to others.”

Sources

Washington Post

Canada is feeling it, too

New homes are being built, but fewer people can borrow money to buy one. Image from Wikimedia Commons.

Despite dismal outlook, new homes are actually being built. Good news on the economic front, especially real estate, is a welcome change from the dismay that has become the norm. However, the number of people borrowing money for new homes is stagnant. Most new mortgage applications are for loan modification, not finance loans for a brand new mortgage and home. New home starts are one of only a few economic indicators that improved over the summer.

Four month high in home starts

New home construction has hit a four-month high. As of August, new home starts, with seasonal adjustment, have climbed to a rate of 598,000 per year at this pace, according to CNN. It was an increase of 10.5 percent. The bulk of the increase, though, was not in single family homes. New single family home starts marked an increase of 4.3 percent. The rate was adjusted to 438,000 per year. Single family homes are the engine that drives real estate. However, without people feeling secure that more pay days are coming, it is difficult to justify getting bank loans for a new home.

More permits granted

Before developers can build, they must get permits. Permits for new home construction increased as well. For August, there was an increase in permits by 1.8 percent. At this rate, 569,000 permits will be granted by the end of the year. The greatest increase in construction for August though, was multi-family homes. Multi-family dwellings had an increase of 32 percent. However, starts for buildings designed for multiple families are a constantly wavering statistic, so don’t expect to see apartment complexes break out like a virus.

A boost is a boost

Real estate has been one of the most dismal sectors of the economy for some time. Improvement and recovery is starting to happen. This August marked a 2.2 percent increase over last year.

Source

CNN

The auction gavel is due to fall on more homes, as repossessions are skyrocketing. Image from Wikimedia Commons.

The dismal saga of the real estate industry in America continues, and despite the occasional bright spot, there is still plenty of bad news to go around. Sales were boosted for some time by the home buyer tax credit. Foreclosures were barely helped by the loan modification program from the government. Not only did few homeowners actually have their bank loans and homes saved by the program, but repossessions have actually increased. In fact, repossessions increased by 25 percent since last year.

Repossessions skyrocket

The number of repossessions has shot through the roof since 2009. According to a recent report by RealtyTrac, repossessions are higher than have been recorded since the recession began. The number of repossessions in August 2010 was up to 95,364, according to Bloomberg. RealtyTrac has never recorded that large a number of repossessed homes in its existence. The number of repossessed homes, where a homeowner has to vacate the premises and the loan company tries to resell it, have only increased. Since August of 2009, repossessions increased 25 percent.

Foreclosures decrease

However, there is some good news. Overall foreclosure and default notices decreased by 5 percent since July of this year. That being said, there is a difference between foreclosures and repossessions. A foreclosure is when mortgage holders have fallen into default, and the bank begins a legal process to get them out of the homes. There also are ramifications, such as the mortgage holder being responsible for any lost revenue when the home sells. Repossessions are just when the bank or finance company kicks a delinquent homeowner out but doesn’t start any legal proceedings, and just resell the home.

Foreclosure inventory increasing

There is an incredible stockpile of available homes, some at discount prices. It isn’t as if you can buy a home with a small cash advance, but if you can get the financing, a good home can be acquired at a great price. As it stands today, one in every 381 homes in America has received a foreclosure notice.

Sources

Bloomberg

Selling bank loans as securities is not like selling used cars; if securities are defective, the seller must buy them back. Image from Wikimedia commons.

Part of what caused the collapse of the housing market was toxic mortgages. A loan lender or bank would lend a mortgage to a customer and sell the debt as an asset. Sometimes the mortgage went bad because of circumstances, and some were lent to people who shouldn’t have been lent bank loans in the first place. Many of these loans were sold to Fannie Mae and Freddie Mac, and when the assets went bad, Fannie and Freddie went into freefall. Few of these bad loans are being bought back by the banks that sold them.

Bad loans can be repurchased

It seems fair that if bad mortgages were sold on the market and seriously damaging the companies that bought the bad finance loans, those loans should be bought back. In fact, laws were passed that guaranteed loans had to be bought back by the seller if the loans in question went bad. Freddie Mac and Fannie Mae bought a lot of these mortgages. Because both of those companies are seriously in trouble, and the law is on their side, those toxic assets should be getting repurchased.

No redress of defective assets

However, the toxic assets are not being repurchased. In fact, according to USA Today, more than $11 billion in defective loans were returned by Fannie and Freddie to the institutions that sold them, only for the bank or loan company to refuse to purchase them. Of those defective loans, a third have been waiting to be addressed for at least 90 days. The backing for mortgage loans also was provided for by the Federal Housing Administration and the Veterans Administration.

Banks hurting themselves

A bank or loan company that refuses to buy back these loans is only hurting itself. Fannie and Freddie are being propped up with taxpayer dollars, and businesses as well as individuals pay taxes. That means that the longer the mess drags on, the more everyone has to pay, including bank executives and shareholders.

Sources

USA Today

Just like a placebo, the mortgage modification program seemed like medicine but it was only a sugar pill. Image from Wikimedia Commons.

After the presidential election in 2008, President Obama went on a bit of  a glut when it came to stimulus programs. Among the first announced was a program called Make Home Affordable, which was a mortgage modification program through the Federal Housing Administration. The FHA works with an applicant’s loan lender, and try to find a way to rearrange the loan to the benefit of all involved. However, the cash advance that was drawn from the Treasury for this program may have been ill spent.

Loan modification from Uncle Sam

The way that the Make Home Affordable program works is that a person who wants to modify the bank loans on their home has to apply for the modification. If the application is accepted, the government, working in coordination with the applicant’s lender, sets up a trial program for a few months. The payments and the loan are restructured on a trial basis, to see if the person can still meet their payment obligations. If the temporary modification is successful, then a permanent modification is made. It sounds simple enough. However, the question becomes whether enough modifications become permanent to justify the program.

Fewer than half are successful

According to the Wall Street Journal, less than 50 percent of all such modifications are successful. In August, an audit of the Home Affordable Modification Program, or HAMP, revealed that only 434, 716 successful permanent modifications have gone through so far. There were 616,839 trial modifications that were canceled. That is a lot of fast cash down the drain. Also, the people who apply are already at incredible risk. The average ratio of debt to income for HAMP participants is 63.5 percent. A person has to have a debt to income ratio of 41 percent or lower to get an FHA mortgage, usually the biggest source of bad credit loans for homes.

Some stimulus

This program was intended to help keep people out of foreclosure. Given that about 40 percent of applicants end up back at square one anyway, it might be time that this program was cut, and modification was left to the private market.

Sources

Wall Street Journal

The Federal Reserve won't send interest rates on emergency loans skyrocketing anytime soon. Image from Wikimedia Commons.

Throughout the recession, the Federal Reserve has kept overall interest rates hovering near zero, in order to keep deflation or further inflation from taking place. The 12 regional Federal Reserve Bank directors recently met, and one of the items for discussion was concerning the discount rate on emergency loans. A discount rate is basically the interest rate the Federal Reserve charges on loans to banks, and lately loans lent to banks have been low interest loans. Two Federal Reserve branches wanted rates raised, as recovery is too slow to justify the low rate.

Federal Reserve is keeping rates low

Part of the monetary policy that the Federal Reserve has been pursuing is keeping interest rates low, even on bank loans. Essentially, the bet is that if banks need to borrow money, the access to liquid capital is there and breathing room for a strained banking and finance industry is assured. However, signs of recovery are beginning to show, even though there is every indication that growth in the economy is going to be more modest than hoped, but that a return to more normal conditions seems to be under way.

Two Fed banks want higher rates

According to Bloomberg, directors of two of the 12 regional Federal Reserve banks asked for a slight raise of the discount rate for emergency loans to banks, but by less than one percentage point. The rationale is that recovery is slow, but is occurring, and therefore it is best to raise the rates sooner rather than later. Currently, a fast cash loan from the Fed comes with an interest rate of 0.75 percent. Not only that, but fewer banks are actually borrowing these days.

It won’t happen

It is only the Federal Reserve banks of Kansas City and Dallas that want higher rates, and the raise in mind was slight. It also wasn’t adopted. Bank rates will probably hold low for some time.

Sources

Bloomberg

You think midterms are hard? Try paying off your student loans. Image from Wikimedia Commons.

Recently, it was announced that debt from higher education has outpaced debt from credit cards. Current students and recent graduates are obviously not surprised, but for many it comes as a shock. The cost of attending a four-year university has increased dramatically over the last 20 years, and many have had to turn to getting federal loans, bank loans or education loans from other loan lenders. The amount that students are having to borrow is  also increasing, and so is the number of loan defaults. Student debt is fast becoming another obstacle in the pursuit of the American Dream.

Debt increasing for students

It is incredibly likely that college students will have to borrow money to go to a university. According to FinAid.org, 66.5 percent of all students that obtained a bachelors’ degree from 2007 to 2008 had to get loans to pay for school and ended up $22,656 in debt. Public university students, of which 61.1 percent had to borrow, graduated with $19,839 in debt on average. Private schools take a heavier financial toll. Of private university students, 70.6 percent of students at private nonprofit schools and 97 percent at private for-profit schools have to take out loans. Private nonprofit graduates averaged $27,349 and private for-profit students averaged $24, 635 in debt for their educations.

Harder to discharge

Student loan debt is the hardest to discharge. Unlike credit cards or a mortgage, student loans cannot be discharged in bankruptcy. Also, a frustrated borrower cannot get debt settlement relief with student loans. The payments have to be made exactly as demanded; there is no loan modification for student loans. Not only that, but the number of people that default is going up. According to the Chronicle of Higher Education, 20 percent of all loans that had to be repaid since 1995 have been defaulted on. The rate is higher for students of two-year and private for-profit institutions, and the likelihood increases every year post-graduation.

Students pay dearly for their education

The consequences are that students have to put things off longer. Graduate school, or even buying homes and having children are things which must be put off in order to pay down student loan debt.

Further Reading

FinAid.org

Chronicle of Higher Education

Even rich people are feeling the pinch during this recession. Coins are slipping through their fingers like sands in the hourglass. (Photo Credit: ThinkStock)

Spending has stimulated the recent recessionary economy, and rich people have largely been the ones doing the spending. But now the New York Times reports that even the big spenders have roped in their purchases. The Federal Reserve has acknowledged that America’s economic recovery has slowed. If conditions worsen, experts believe that another stimulus may be necessary.

If rich people spend, jobs are created

Demand for goods and services creates the need for additional jobs, and spending – particularly that of the top 5 percent of U.S. income earners – indicates demand. That top 5 percent, which includes those earning $210,000 or more annually, accounts for “one-third of consumer outlays, including spending on goods and services, interest payments on consumer debt and cash gifts,” according to Moody’s. As 60 percent of America’s economic fortunes depend upon consumer spending, that one-third is of super-sized significance. Gallup found that those earning $90,000 or more – their “upper income” classification – spent $145 per day in May 2010. That was up 33 percent more than  May 2009. Unfortunately, the numbers for June 2010 were significantly lower, reports the Times. Rich people spent a mere $119 per day. Were they leaning upon bank loans more than was their custom?

Luxury businesses on the rocks

Early in 2010, luxury business showed strong numbers. As summer set in, reservations at hotels like the Four Seasons and Ritz Carlton fell. Sales at luxury retailers like Neiman Marcus and Saks Fifth Avenue slowed at about the same time. Rich people are spending less and buying less Real Estate in Manhattan and the Hamptons. Sure, those who aren’t rich are forced to be more frugal and use the occasional fast loan, but if rich people stop spending, it’s panic time.

Going where the Dow takes you

Considering their greater level of personal financial investment, rich people look at different indicators than the average person when it comes to evaluating the financial weather. The Dow Jones is a benchmark that means more to those who are extensively invested. When the numbers finally climbed back above 10,000 after being mired in the 7,000s months before, they psychological affect was palpable. Spending rose in all avenues, including car sales. Luxury vehicle dealers did well, but of late, some luxury auto dealers have enacted layoffs of 15 percent of more of sales staff. Even for those rich people who can still afford to spend, the psychological impact of looking like a glutton while the majority of the country pinches its pennies keeps them from spending more, according to studies by the Institute for Policy Studies in Washington.

What is the sign of economic apocalypse?

It could be that “apocalypse” casts too dark a pall, but consider this. Linda Stasiak, a high-end skin care product saleswoman, has found that the one single item that has experienced the top sales increase is the $15.95 tube wringer. It’s designed to squeeze each and every drop out of a tube – because today, even rich people are feeling the squeeze. Fast loans for tube squeezers, anyone?

Sources:

New York Times

Has the recession changed our perception of wealth?

Citgo is trying desperately to raise enough money to continue operations. Image from Flickr.

Given the BP oil spill disaster, it is no surprise that oil-refining company Citgo is having problems getting financing. Originally, the company was looking to raise $1.5 billion by selling bonds. However, the business they are in combined with the fact the company is “exposed” to Venezuela made this sale a flop. Now, the company is turning to $2 billion in bank loans combined with just $300 million in bonds.

Bond sale fail

Citgo, which is the child company of Venezuelan PDVSA, has been running at a net operating loss for the first quarter of the year. In order to raise quick cash to run the company with, the company tried to sell $1.5 billion in bonds. Bonds are a group of individual little loans, where the company must repay the bond plus interest to investors. Citgos bonds were slated for 2017 maturity, meaning any investor who bought them would have to wait seven years to get paid back. Investors, though, were not interested.

Bank loans to the rescue

Because the pay day of bonds didn’t pan out, Citgo was forced to find other options for money loans. The company turned to banks and private money lenders, and it was able to raise $2 billion. That money is partially from new credit extended to the company, and partially from “extension of existing credit lines.” In other words, these lenders were willing to take on the risk of extending credit to Citgo. These lenders, however, have said that they are planning on turning these loans into bonds — in other words, spreading the risk out among many, many more investors.

Citgo’s operating loss

The operating loss that Citgo had over the last quarter is for many reasons. There is political instability in Venezuela, where Citgo’s parent company lives. Though Venezuela’s state-owned oil company does not do much offshore drilling, the BP oil spill is generally affecting the oil and fuel market. This instability within the market is contributing to companies like Citgo being unable to get financing to continue operations.

Billboards may become a thing of the past (photo by openphoto.net)

Small business owners are looking to installment loans to make it through the rough economy. With industry giants like GM and Chrysler falling into bankruptcy, it’s easy to see how smaller businesses are in precarious financial situations. Part of the problem is cyclical. As business owner Terry Grant, owner of a small chain of dry cleaners in Orlando, Florida, stated, “It’s hard because to get more business we have to advertise; but to advertise we need more business.” Many businesses have the same problem and are looking for ways to afford the advertising needed to reach more customers.

Advertising is being cut from budgets

Unfortunately, every business is suffering and advertising outlets of the past, like magazines, newspapers and radio stations, are also suffering. They are trying their best to give customers small perks in efforts to keep their business. Meg Schaeffer, manager of the sales department of WBRT Radio said, “It’s hard because we want to keep people buying our ad-time, but the first thing people cut in times of trouble is marketing. We are trying to throw in perks and bonuses, but only our most loyal customers are still here.”

Advertising is changing

One popular way to advertise is online. Many small business owners are turning to free advertising online with social marketing and blogging. Nancy Everett, owner of a graphics design firm in Seattle, Washington, stated, “We need free marketing and online tools are the best…all it takes is time and you can create an online buzz about your product quickly and easily.” There are some simple ways of using the internet to build a brand and they are becoming more and more popular as internet usage expands.

Social marketing works

Using Myspace, Twitter, Linkedin and Facebook to market is the simplest way of getting a name out. Each of these social marketing sites boasts millions of users who check in daily to communicate, market, and build their businesses. The key is consistency. Everett confirmed this, adding, “I dedicate two hours every other day of my work week to social marketing and networking. Whether it’s tweeting people or uploading new pictures to Myspace, I make sure that there is activity on my online presence….and I always communicate with those who talk to me.”

Consistent communication is the key

That’s another key for business owners who use online marketing—consistent communication with potential buyers. Many owners realize the importance of using any communication wisely and following up. Everett added, “Even if it’s just to say ‘Thanks’, it’s all about relationships and building them… you don’t know if that one ‘thank you’ will lead to a new contract or job.” By making the most of an online presence, businesses can use funds procured through installment loans, bank loans and grants for running the business, rather than supporting a heavy advertising budget.

Blogging is user-friendly and it attracts business

Blogging is one of the most effective ways of maintaining a user-friendly and pleasant website for a business. Some tips to blogging are:

1.  Always provide fresh content. Marcus Gentry, marketing professor at Pepperdine, stated, “You want to make the customer glad they went to your website. Outdated content won’t help that cause. You need to post something as often as possible to engage your viewers.”

2.  Stay connected to visitors by asking for input, feedback and opinions. One of the best ways of captivating an audience is to ask for their opinions. Business owners should incorporate a “comment” section on their website that gives visitors an outlet.

3.  Owners should use blogs as a way to reach search engines. Blogs can keep a website popular because of the constant addition of content with keywords. There are plug-ins available to create keyword friendly URLs and business owners should find them and use them wisely.

Try social marketing – it’s free!

These are all great ways for business owners to find free advertising and marketing possibilities. In times like these when businesses need installment loans or bank loans and may even have to liquidate assets to stay alive, it’s good to know that marketing does not have to come to a standstill. Marketing and advertising are what will bring new customers in and, hopefully, generate more income.

Apply Below for your Installment Loans!