FDIC

Safe Deposits, Safe Advice: The FDIC's Consumer News

Melissa Koide — Wed, 11 Mar 2009 18:07:00 -0400

The FDIC just issued a special edition of its Consumer News, focused on managing your money in good times and bad. In addition to offering useful tips for borrowing wisely, protecting against fraud, and spending less, the newsletter recommends tips for saving and in particular, creating an emergency savings fund. To read these and other suggestions, click here.

Consumer News was created is to provide reliable and timely finance advice to consumers, and the FDIC is looking to share this resource more widely. To subscribe to Consumer News yourself, go here.

Hats off to the FDIC, and please share this resource with your friends and colleagues.

Asset Building Event: Responsible Homeownership (Featuring FDIC Chairman Sheila Bair)

Mark Huelsman — Mon, 15 Dec 2008 16:29:00 -0500

As 2008 draws to a close, over 2 million families have already lost their homes or are facing foreclosure. Many homeowners in need of relief are wondering if help will be on the way anytime soon.

"We are doing everything we can to be responsible," said Aoah Middleton, who started missing mortgage payments when her five-year-old daughter was diagnosed with cancer in 2006, to the New York Times. "Banks are getting helped. Rich people are getting helped. Why isn't there anyone to help me?"

As policymakers struggle for solutions to revive the economy, FDIC Chairman Sheila Bair has stood out in the search for creative policy decisions to keep people in their homes. She's been called "the consistent voice of reason" by CNN, adding that she has "loudly and courageously... thrust the corrosive issue of foreclosure to center stage."

Join us this Wednesday, December 17^th, for what promises to be a stimulating discussion with Chairman Bair. The event will also feature groundbreaking research from the Center for Community Capital at The University of North Carolina that provides a roadmap for making responsible homeownership work, especially among lower-income families.

Discussants will include Eric Stein (President, Center for Community Self-Help), Mark Willis (Visiting Scholar, Ford Foundation), Reid Cramer (Research Director, Asset Building Program), and Ellen Seidman (Director of Financial Services Policy, Asset Building Program).

Some Good News: An IndyMac Update

Ellen Seidman — Wed, 08 Oct 2008 22:01:00 -0400

In the midst of all the market turmoil, one innovative program to deal with the underlying housing and mortgage issues is moving ahead smartly. You will recall that, fast upon the heels of its takeover of IndyMac, the FDIC announced an aggressive program to modify loans owned or serviced by IndyMac to prevent avoidable foreclosures. Initially, the FDIC wrote almost 5,000 borrowers and proposed to modify their loans and reduce their payments-all they needed to do was send back a check in the new payment amount, sign a modification agreement, and grant permission to check the borrower's tax return. (Where the tax return information does not conform to information in IndyMac's files, the FDIC requires further verification of borrower income.) One of the best aspects of the program for borrowers is that the letter they received included a specific new payment amount, not just an invitation to call their servicer.

So far IndyMac has sent out thousands more modification proposals and, to date, the FDIC has gotten more than a 70% response rate to these mailings. Several thousand loans have now been restructured. The FDIC has worked within IndyMac's existing servicing agreements and with the owners (or trustees for owners) of mortgages IndyMac was servicing to allow quite aggressive modifications, including deferral of principal until the property is sold or refinance-a strategy that prevents a borrower newly relieved of excessive mortgage obligations from getting back into trouble by releveraging. Next up, working with non-profits to do outreach to 19,000 borrowers who the FDIC believes will be harder to reach.

What's particularly exciting about this is not only that borrowers and their communities are being saved and the FDIC and its insurance fund are meeting their least-cost obligation, it's also serving as a model. When Bank of America announced a settlement with 11 state Attorneys General on Sunday in which it pledged to modify mortgages at a cost of $8.4 billion, it was following the FDIC's lead. Really. A government agency showing the private sector how to do something constructive. I suspect we'll see a good deal more of that in the next several years.

Taking a Chance on the Bailout

Sam Sherraden — Wed, 01 Oct 2008 23:08:00 -0400

The Federal Deposit Insurance Corporation (FDIC) insures bank deposits up to $100,000 per individual per bank. But, in the second quarter of 2008, only 63% of bank deposits were insured leaving $2,574bn in uninsured deposits in US banks. As faith in the financial system slides, some fear that a failure to put in place a larger guarantee on deposits could result in a run on banks. The revised bailout bill the Senate is voting on tonight includes a measure to temporarily increase insurance on deposits from $100,000 to $250,000.

Snapshot asks, if the new bailout package fails, will depositors lose more confidence and pull their uninsured deposits?

FDIC - Quarterly Banking Profile Q2 2008
Bloomberg - FDIC Seeks Authority to Raise Deposit Insurance Limit
IMF - Deposit Insurance and Crisis Management
Roubini - Roubini Sees `Silent' Run on Banks

FDIC Practices What it Preaches: IndyMac Loan Modifications Are On Their Way

Ellen Seidman — Wed, 20 Aug 2008 20:22:00 -0400

This afternoon FDIC Chairman Sheila Bair and her team took the next important step in making good on their promise to treat borrowers whose loans are held or serviced by IndyMac as the Chairman has urged other banks to treat their borrowers. Simply put, the FDIC announced a blanket loan modification program, under which the loans of borrowers in default or having trouble making their mortgage payments will be automatically modified into fixed rate loans whose terms will be set so that housing debt consumes no more than 38% of the borrower's income.

Many of the loans covered will be Alt-A loans, the kind that enabled borrowers to pay no interest for the first few years of the loan, leading to payment shock when that period ended that can far exceed the already substantial shock on a sub-prime loan that resets from, say, 7% to 10%.

Most of the loans will be modified into fixed rate loans for the remaining term of the loan at the interest rate of similar-term conforming loans (currently about 6.5%). If that still yields too high a payment, the loan will carry a lower interest rate for 5 years, and then will gradually increase to the conforming rate. The modifications come with no fee or other charges.

The critically different thing about this plan is that it's automatic. The FDIC is conditionally modifying the loans before the borrower even says "help!". All the borrower needs to do to seal the deal is to send in a check for the new loan amount and a verification of the borrower's current income. And this is no "pilot" program: the first round of modification letters will go to 4,000 people.

This step on the FDIC's part is apparently based on the joint premises that (i) when an Alt-A (or indeed, a sub-prime) borrower gets into trouble, the trouble is very big and cannot be resolved without a major restructuring of the loan; (ii) foreclosure, especially in the California markets in which most of IndyMac's loans are located, is almost always a far worse proposition economically for the bank (and the FDIC), as well as for the borrower, than getting principal on the loan repaid; and (iii) the borrowers at issue will be both willing and able to live up to their new obligation. As yet, there's no indication the program will include reductions in principal. Given the ups and downs of the housing market in general and in California in particular, that may be an important limitation on the program's success in avoiding foreclosures.

Nevertheless, this is a bold and important move on the FDIC's part. If it succeeds, it will not only demonstrate that Chairman Bair has had it right all along (which undoubtedly will make her feel somewhat better about the fact that her proposals have not gotten the traction they should have), but more importantly, it will set the stage for all those other banks to follow suit. See "Indy Mac's Next Role: Modification Test Case," American Banker (Aug. 14, 2008). It will be critical that the FDIC keeps us fully informed of what it is doing, and what the results are, including the extent to which there are re-defaults. And it will also be helpful if the FDIC's examiners in other banks don't discourage any other institution that wants to, from emulating the mother ship.

Who's Missing from the Payday Loan Debate?

Ellen Seidman — Mon, 28 Jul 2008 00:28:00 -0400

Saturday's Washington Post carried an article with the hopeful headline "Credit Unions Slowly Fill Void as Payday Lenders Leave D.C." In January-before Ohio enacted its anti-payday lending law, before the Arkansas Supreme Court interpreted that state's laws to effectively ban payday lending-the District of Columbia capped interest rates on short-term loans at 24%. That meant that traditional payday lending was out of business.

While the article's headline was hopeful, what followed showed the difficulty these bans face. Credit unions are indeed trying to fill the gap, not just in the District, but nationally. And the Federal Deposit Insurance Corporation (FDIC) has a small-dollar loan pilot underway with 31 banks around the country (although none in the District).

But the article reports that whereas in 2006, the two largest payday lenders in the District made 260,000 loans, so far District credit unions have made only "a few hundred." More troubling, two credit union executives interviewed said that the loans are "not something we really make money on," but rather an on-ramp to "traditional banking products," but "it's hard to get persons to talk to our financial counselor so that we can get their financial status in a better position." Officials at the District's Department of Insurance, Securities and Banking added that some District residents are getting their payday loans in Virginia or on the internet.

Going around a payday lending ban is not limited to the District. New York has long prohibited payday lending. Yet, in a recent study of two low-income communities in New York City by the City's Office of Financial Empowerment, 9% of the respondents "reported accessing a formal or informal loan with a term of less than one month provided by a friend or family member, Internet or telephone-based business, loan shark, or local business." As the study's authors noted, this is a rate similar to the access rate in states where payday lending is legal.

All this suggests that while banning payday lending might be a good start, more is needed if lower income consumers are to really be able to rid themselves of high-price short-term debt. The credit union and FDIC programs are small but important steps toward both creating a good alternative product and encouraging-or requiring-users to build savings as part of the product, so that emergency needs can be reduced and, if they occur, satisfied with savings rather than high-priced credit.

But two parties are missing from the scene, the only parties who could take the alternatives to scale. Namely, the large banks and the payday lenders themselves. Unlike credit unions and many of the banks in the FDIC pilot, large banks and large payday lenders are publicly traded corporations. Their shareholders can't be very happy right now-bank shareholders for reasons that are well known, shareholders of payday lenders because state after state is destroying their business model. Maybe it's time for these parties to come to the payday alternative table. With good, scaleable and sustainable alternatives.