Here's the response I received to my complaint to the FTC about Citibank cancelling my home equity line of credit.
Guess I won't hold my breath waiting for help from these folks. My immediate response to this message? 1. Self-serving. ("See how wonderful we are?") 2. Doesn't sound like they act on only one complaint--they wait to see a "pattern." Lame, lame, lame.
So if you have had a HELOC cancelled, e-mail the FTC and complain!
Dear Jeanne Sather:
Thank you for recent correspondence. The Federal Trade Commission acts in the public interest to stop business practices that violate the laws it enforces. Letters from consumers and businesses are very important to the work of the Commission. They are often the first indication of a problem in the marketplace and may provide the initial evidence to begin an investigation. The Commission does not resolve individual complaints. The Commission can, however, act when it sees a pattern of possible violations developing.
The information you have provided will be recorded in our complaint retention system. This computerized system enables us to identify questionable business practices that are generating numerous complaints and may be in violation of the law.
Thank you for providing information that may be used to develop or support Commission enforcement initiatives.
Sincerely yours,
Consumer Response Center
Saturday, May 31, 2008
Tough Assignment: Find College Loans
By ROBERT TOMSHO
June 1, 2008
College students and their parents are scrambling to line up student loans for the fall amid fears that the broader credit crisis might put the squeeze on such lending.
How bad could it be? That depends on what kind of loan you're looking for.
Late last month, the Bush administration took a big step toward heading off problems with federally guaranteed student loans made by banks and other private-sector lenders. Using authority recently granted by Congress, the federal government plans to purchase and invest in such loans, freeing up capital so lenders can make new loans.
But this initiative -- which will last only one school year -- isn't a fix-all for a complex loan market that is hard to sort out even in the best of economic times. For instance, loans not backed by the government could still be in short supply.
Here's a guide to the different kinds of student loans:
Backing from Uncle Sam
The federal government is the biggest player in the market, having made or guaranteed about $109.4 billion in student loans during the 2007-2008 school year. The debt includes Stafford loans for undergraduates, PLUS loans for parents and graduate students and consolidation loans for graduates who want to combine and refinance previous loans. Borrowers get these federal loans through one of two channels.
Under the "direct loan" program -- which accounted for about 16% of federal student loans during the current school year -- students and families borrow directly from the government, with colleges doing some of the initial paperwork.
The catch is that your college has to participate in the direct loan program for you to apply. About 1,050 schools are active direct loan schools; another 800 or so have direct loan authority but don't use it.
The direct loan program has not been in jeopardy during the current credit crunch. In fact, seeking certainty for their students, more than 280 schools have applied to join it this year.
The concerns have revolved around the government's other lending channel, the Federal Family Education Loan Program, or FFELP, which is used by about 4,500 schools. About 7.5 million borrowers took out more than $91.8 billion in FFELP loans during the current school year.
Under FFELP, banks and other private-sector lenders make the loans and the government guarantees up to 97% of their value, so that a lender takes on very little risk if a borrower defaults. To encourage lenders to take part, the government also pays them a subsidy on each loan.
Those subsidies have been one source of trouble. Last fall, Congress cut them roughly in half, in the aftermath of ethics scandals and investigations involving lenders' financial ties to schools.
While their profits from subsidies were being clipped, lenders were facing problems on another front. Most FFELP lenders package some or all of their student loans into securities that they sell to investors, which generates cash they can use to make more loans.
In normal economic times, those so-called asset-backed securities, or ABSs, seemed like a good investment bet given that they contained student loans guaranteed against default by the U.S government.
But in recent years, lenders have also been marketing ABSs containing subprime mortgages made to borrowers with poor credit histories. As that market collapsed in a wave of foreclosures, investors began backing away from all kinds of ABSs, including those containing FFELP loans.
Help for FFELP
Early this year, lenders large and small began either curtailing or ending their participation in FFELP, saying they could no longer make such loans at a profit. SLM, commonly known as Sallie Mae and the nation's largest student lender, was threatening to pull out of FFELP but opted to remain after the Bush administration unveiled its liquidity plan on May 20.
Most observers think the plan will stem the exodus of FFELP lenders and ensure that there won't be any major shortages of those loans for the fall.
Areas of Concern
The biggest area of concern for the fall is alternative student loans, which don't involve the federal government and are strictly between the borrower and the lender.
Though they typically involve higher interest rates and fewer consumer protections, alternative loans have taken off in recent years as lending limits on some federal loan programs have failed to keep up with college costs. Families took out an estimated $17.1 billion in alternative loans in 2006-2007, up from $1.57 billion a decade earlier, according to the latest figures from the College Board.
Like FFELP loans, many alternative loans are packaged into ABSs, for which there is little demand. In April, Bank of America, a major lender, said it would stop making alternative loans.
Some people believe the government's plan to buy some FFELP loans from lenders will reassure private investors and make them more likely to buy ABSs containing government-backed and maybe also private student loans.
Meanwhile, the private lenders have been tightening credit standards and boosting interest rates.
Credit agencies rate consumer creditworthiness on a 300-to-850 point scale known as a FICO score. Mark Kantrowitz, publisher of FinAid.org, a financial aid Web site, says borrowers with scores in the 620-point range used to be able to get an alternative loan. This year, some lenders will require at least 700 points, he says.
In hard economic times, foreclosures and bankruptcies could also create problems for parents trying to land a federal PLUS loan, which involves a credit check. And parents accustomed to tapping into home equity lines of credit to help pay for college may have to seek other sources, such as alternative loans.
June 1, 2008
College students and their parents are scrambling to line up student loans for the fall amid fears that the broader credit crisis might put the squeeze on such lending.
How bad could it be? That depends on what kind of loan you're looking for.
Late last month, the Bush administration took a big step toward heading off problems with federally guaranteed student loans made by banks and other private-sector lenders. Using authority recently granted by Congress, the federal government plans to purchase and invest in such loans, freeing up capital so lenders can make new loans.
But this initiative -- which will last only one school year -- isn't a fix-all for a complex loan market that is hard to sort out even in the best of economic times. For instance, loans not backed by the government could still be in short supply.
Here's a guide to the different kinds of student loans:
Backing from Uncle Sam
The federal government is the biggest player in the market, having made or guaranteed about $109.4 billion in student loans during the 2007-2008 school year. The debt includes Stafford loans for undergraduates, PLUS loans for parents and graduate students and consolidation loans for graduates who want to combine and refinance previous loans. Borrowers get these federal loans through one of two channels.
Under the "direct loan" program -- which accounted for about 16% of federal student loans during the current school year -- students and families borrow directly from the government, with colleges doing some of the initial paperwork.
The catch is that your college has to participate in the direct loan program for you to apply. About 1,050 schools are active direct loan schools; another 800 or so have direct loan authority but don't use it.
The direct loan program has not been in jeopardy during the current credit crunch. In fact, seeking certainty for their students, more than 280 schools have applied to join it this year.
The concerns have revolved around the government's other lending channel, the Federal Family Education Loan Program, or FFELP, which is used by about 4,500 schools. About 7.5 million borrowers took out more than $91.8 billion in FFELP loans during the current school year.
Under FFELP, banks and other private-sector lenders make the loans and the government guarantees up to 97% of their value, so that a lender takes on very little risk if a borrower defaults. To encourage lenders to take part, the government also pays them a subsidy on each loan.
Those subsidies have been one source of trouble. Last fall, Congress cut them roughly in half, in the aftermath of ethics scandals and investigations involving lenders' financial ties to schools.
While their profits from subsidies were being clipped, lenders were facing problems on another front. Most FFELP lenders package some or all of their student loans into securities that they sell to investors, which generates cash they can use to make more loans.
In normal economic times, those so-called asset-backed securities, or ABSs, seemed like a good investment bet given that they contained student loans guaranteed against default by the U.S government.
But in recent years, lenders have also been marketing ABSs containing subprime mortgages made to borrowers with poor credit histories. As that market collapsed in a wave of foreclosures, investors began backing away from all kinds of ABSs, including those containing FFELP loans.
Help for FFELP
Early this year, lenders large and small began either curtailing or ending their participation in FFELP, saying they could no longer make such loans at a profit. SLM, commonly known as Sallie Mae and the nation's largest student lender, was threatening to pull out of FFELP but opted to remain after the Bush administration unveiled its liquidity plan on May 20.
Most observers think the plan will stem the exodus of FFELP lenders and ensure that there won't be any major shortages of those loans for the fall.
Areas of Concern
The biggest area of concern for the fall is alternative student loans, which don't involve the federal government and are strictly between the borrower and the lender.
Though they typically involve higher interest rates and fewer consumer protections, alternative loans have taken off in recent years as lending limits on some federal loan programs have failed to keep up with college costs. Families took out an estimated $17.1 billion in alternative loans in 2006-2007, up from $1.57 billion a decade earlier, according to the latest figures from the College Board.
Like FFELP loans, many alternative loans are packaged into ABSs, for which there is little demand. In April, Bank of America, a major lender, said it would stop making alternative loans.
Some people believe the government's plan to buy some FFELP loans from lenders will reassure private investors and make them more likely to buy ABSs containing government-backed and maybe also private student loans.
Meanwhile, the private lenders have been tightening credit standards and boosting interest rates.
Credit agencies rate consumer creditworthiness on a 300-to-850 point scale known as a FICO score. Mark Kantrowitz, publisher of FinAid.org, a financial aid Web site, says borrowers with scores in the 620-point range used to be able to get an alternative loan. This year, some lenders will require at least 700 points, he says.
In hard economic times, foreclosures and bankruptcies could also create problems for parents trying to land a federal PLUS loan, which involves a credit check. And parents accustomed to tapping into home equity lines of credit to help pay for college may have to seek other sources, such as alternative loans.
Are Borrowers Free to Lie?
Lender Held Responsible for Vetting Data on Home Loan
By AMIR EFRATI
May 31, 2008; Page B2
In a ruling that backs borrowers even when they have lied on loan applications, a federal bankruptcy judge held that borrowers who inflated their income to get a loan don't have to pay back a bank because the lender should have noticed a "red flag" about the deceit.
The case, which the Oakland, Calif., judge called "a poster child for some of the practices that have led to the current crisis in our housing market," places responsibility on the lender for vetting information in loan applications.
Inaccuracies in loan documents have emerged as a factor behind the current wave of foreclosure and bankruptcy actions. Mortgage experts say some applications were riddled with inflated credit and income scores that allowed borrowers to qualify for loans that should have been out of their reach.
The Oakland case highlights a debate that has emerged over whether responsibility for homeowners' woes should fall to lenders or borrowers. In the May 23 ruling following a trial, U.S. Bankruptcy Judge Leslie J. Tchaikovsky said that Cleveland-based National City Bank couldn't recover debt from a Pinole, Calif., couple who emerged from bankruptcy because the lender, which had funded the couple's home-equity line of credit, ignored a "red flag" in their loan application.
The borrowers "made a material false representation concerning their financial condition ... with knowledge of its falsity and the intent to deceive the bank," the court found. But the bank's reliance on those figures wasn't reasonable, the judge wrote. National City declined to comment.
One of the borrowers, Cecelia Hill, said in an interview: "I take full blame for living a lifestyle that we couldn't afford." Her family last year gave up the home, she says, which they had purchased some 20 years ago. They found themselves unable to make payments after having taken out additional debt, from National City, against the property. The lender that held the primary mortgage bought the home in a foreclosure sale.
"Under no circumstances did we intend to defraud anyone," she said. "And we signed a paper authorizing [National City] to call our employers and access our bank accounts, and they never did."
Mrs. Hill and her husband, Norman Hill, both 54 years old, work as a delivery driver and an employee for an auto-parts distributor, respectively. They signed two loan applications in 2006 incorrectly stating they earned about a combined $146,000 and, six months later, about $191,000 annually.
They claimed that their independent broker and the bank put the income figures into the applications without their knowledge and that they didn't read them before signing.
The judge, who said she didn't find the borrowers' argument to be credible, said even if they hadn't read the loan application, by signing it "they effectively made the representation" to the bank.
But the judge said that the income figures "would alert the reasonably prudent lender of the possibility that the information was inaccurate" and that the bank didn't follow its own guidelines, which required that it "evaluate the reasonableness of the stated income based on job type, tenure, and geographical location among other things."
Philip Stone, a Worcester, Mass., consumer-bankruptcy lawyer, said the nature of the case was unusual. Lenders typically don't try to collect debt from borrowers whose collateral has been sold. Still, he said "the ruling is significant because the judge is saying the lender has a responsibility to carry out an investigation of borrowers' financial condition." The couple represented themselves in defending the case, Mrs. Hill noted, saying she couldn't afford a lawyer.
By AMIR EFRATI
May 31, 2008; Page B2
In a ruling that backs borrowers even when they have lied on loan applications, a federal bankruptcy judge held that borrowers who inflated their income to get a loan don't have to pay back a bank because the lender should have noticed a "red flag" about the deceit.
The case, which the Oakland, Calif., judge called "a poster child for some of the practices that have led to the current crisis in our housing market," places responsibility on the lender for vetting information in loan applications.
Inaccuracies in loan documents have emerged as a factor behind the current wave of foreclosure and bankruptcy actions. Mortgage experts say some applications were riddled with inflated credit and income scores that allowed borrowers to qualify for loans that should have been out of their reach.
The Oakland case highlights a debate that has emerged over whether responsibility for homeowners' woes should fall to lenders or borrowers. In the May 23 ruling following a trial, U.S. Bankruptcy Judge Leslie J. Tchaikovsky said that Cleveland-based National City Bank couldn't recover debt from a Pinole, Calif., couple who emerged from bankruptcy because the lender, which had funded the couple's home-equity line of credit, ignored a "red flag" in their loan application.
The borrowers "made a material false representation concerning their financial condition ... with knowledge of its falsity and the intent to deceive the bank," the court found. But the bank's reliance on those figures wasn't reasonable, the judge wrote. National City declined to comment.
One of the borrowers, Cecelia Hill, said in an interview: "I take full blame for living a lifestyle that we couldn't afford." Her family last year gave up the home, she says, which they had purchased some 20 years ago. They found themselves unable to make payments after having taken out additional debt, from National City, against the property. The lender that held the primary mortgage bought the home in a foreclosure sale.
"Under no circumstances did we intend to defraud anyone," she said. "And we signed a paper authorizing [National City] to call our employers and access our bank accounts, and they never did."
Mrs. Hill and her husband, Norman Hill, both 54 years old, work as a delivery driver and an employee for an auto-parts distributor, respectively. They signed two loan applications in 2006 incorrectly stating they earned about a combined $146,000 and, six months later, about $191,000 annually.
They claimed that their independent broker and the bank put the income figures into the applications without their knowledge and that they didn't read them before signing.
The judge, who said she didn't find the borrowers' argument to be credible, said even if they hadn't read the loan application, by signing it "they effectively made the representation" to the bank.
But the judge said that the income figures "would alert the reasonably prudent lender of the possibility that the information was inaccurate" and that the bank didn't follow its own guidelines, which required that it "evaluate the reasonableness of the stated income based on job type, tenure, and geographical location among other things."
Philip Stone, a Worcester, Mass., consumer-bankruptcy lawyer, said the nature of the case was unusual. Lenders typically don't try to collect debt from borrowers whose collateral has been sold. Still, he said "the ruling is significant because the judge is saying the lender has a responsibility to carry out an investigation of borrowers' financial condition." The couple represented themselves in defending the case, Mrs. Hill noted, saying she couldn't afford a lawyer.
Friday, May 30, 2008
East West Bancorp at B. Riley & Company Annual Investor Conference - Final
Copyright: CCBN, Inc. and FDCH e-Media, Inc.
Source: FD (FAIR DISCLOSURE) WIRE
Wordcount: 4415
JOE GLADUE, ANALYST, B. RILEY & COMPANY: I guess we will get started. The next presenting company is East West Bancorp, and here with us is the CEO of East West, Dominic Ng, and Irene Oh.
DOMINIC NG, CEO, EAST WEST BANCORP: Good morning. It is great to be here, and this, in fact, is our first time that we participated in B. Riley investor conference. It is nice to be in Las Vegas. It is only an hour flight for us coming from Los Angeles. Anyway let me go ahead and get started.
Safe Harbor statement I have you read, and I don't have to talk too much about it. And let me just start with a history of East West Bank. The bank was established in January of 1973. It was at that time the first Savings and Loan to focus in Chinese-American community, and it was based in Chinatown Los Angeles. And since then, the bank continued to grow throughout the '80s, only focused in the Chinese American community in Los Angeles. And until 1991 I actually helped an investor from Asia to acquire East West in 1991 for $40 million. I spent 10 years at Deloitte & Touche, and then at that time after, I helped the investor to acquire East West Bank, and I joined the bank and became the CEO.
And right after the acquisition of East West Bank during 1991 and 1992, obviously everybody was aware that back at that time Southern California was going through some severe recession, and there were a lot of Savings and Loans who were basically taken over by the government. So we actually took the opportunity to acquire three thrifts from the RTC, and East West actually grew substantially from $600 million to over $1 billion within a few months. And then with the acquisitions of these thrifts from RTC, we have went from a Los Angeles-based thrift to become a statewide base thrift because we end up getting branches in San Francisco. And right after that I decided that because of the Chinese-American customers that we have, many of them are actually actively engaging in commercial banking business like international trade finance, and also many of them are also very interested in the acquisition of real estate such as apartment buildings and also commercial buildings. We decided that it would be more appropriate for East West to become a commercial bank versus just a thrift.
So in 1995 we changed our charter from a thrift to a commercial bank, and then in 1998 due to the Asian crisis, our investor that bought East West in 1991 decided that while East West was performing very, very well, but they have some liquidity issue in Asia, and it will be time for them to cash out East West with the American currency that can help to support their liquidity issue back in Asia.
So very quickly, I think in June of 1998 I went out and met with about 150 investors throughout the United States. Most of them are institutional investors, and we brought in $238 million and then bought the bank from the former investors. So it was a management buyout in 1998, and since then I think in February of 1999, we did ask for a registration and get all the stock traded on NASDAQ. And so we have been publicly traded since February 1999.
And since then, again the bank continued to grow, and our financial performance is growing very well, and in 2005 we exceeded $100 million in net income. In 2007 now we have surpassed $11 billion in assets.
So just a quick overview of the earnings per share growth of the last 10 years. In fact, this actually is 11 years here. We have 11 year consecutive record earnings at East West Bank. Compound annual growth rate is 27%. Had it not for the onetime assessment to pay for the government being a thrift back in the early '90s, we actually have an even longer record earnings record than what we have shown.
And if you just look at the past five year, three years, one year compounded annual growth, what we did here is that we look at all the banks over $750 million in market cap. There's not many in California because most of the big banks are headquartered elsewhere from California. But these are the banks that are all over $750 million in the market cap. What you notice is that we consistently, whether you are looking at five years or three years or one year, we consistently rank at the top compared with all these other peer banks that we compete and do business with in terms of earnings per share growth.
How we got the strong earnings per share growth for the last 11 years is because of our loan growth, deposit growth and also the asset growth. And then I think altogether combined help us to get to where we are today.
So East West Bank today in terms of our vision, when I first bought the bank for the investor back in 1991, I shared with them and I said this should not be just a Chinese bank focus in the Chinese community because not only the market will be too small for long-term future growth, but also we are ignoring a substantial advantage the East West have because of the Chinese knowledge. We were able to use that knowledge to share with mainstream customers and would create a niche for East West that most other mainstream banks cannot compete with us. And if we just focus on that niche, we will be able to bring in a lot of commercial customers from the mainstream who came to us not because of pricing, not because of credit terms, but who came to us simply because we have valued added service that can offer to them that they would not be able to find from other community banks, such as if some of them are looking at outsourcing in China, we will be able to help them in terms of making connections in China. Or if they are actually exporting or importing to China and they have issues about dealing with banks over in China, we have many corresponding banks that we can help them.
So these are the kind of advantage that we have, and in the same token, we have Chinese customers who are coming to the United States to acquire real estate. In fact, back in the early '90s, we are actively engaged with many Asian investors from Taiwan, Hong Kong, Indonesia, Malaysia and Singapore, buying just about every hotel in Los Angeles. And we were actually involved in that sort of like acquisitions in terms of providing consulting service to these Chinese customers. And because of that, a lot of the mainstream real estate players notice that since we have the connection with the equity source from Asia they better start thinking about doing business with us in order to tap into bad resources. And that has been very helpful for us.
So back in early '90, '91, we come up with the vision of East West Bank to be recognized as the premier bridge between East and West and acknowledged for delivering relationship-driven financial solutions to an increasingly diverse and sophisticated customer base. That was the vision then, and 16 years later we still have the same vision today. And I would imagine 15 years from now East West Bank will still be that bridge between the East and the West. Because that niche has worked out really well for us, and also so far not many banks are out there competing in this particular niche.
So we're now the second-largest bank headquartered in Southern California. We have $12 billion total assets, 70 branches in California and one in Houston, Texas. Why in Houston Texas? We bought a bank that happened to have one branch in Houston, Texas, and therefore, we inherited it. We have three greater China locations. A full-service branch that can take deposits and loans in Hong Kong and two rep offices, one in Beijing and one in Shanghai.
I talked about the strategic niche that we have in terms of financial bridge between East and West, and basically what we had done is that on the commercial banking side we have been making a great inroad in terms of getting more and more commercial clients from the mainstream. But we continue to have the leading market share within the Chinese market, particularly on the consumer banking side.
So again, we feel that the Chinese-American market is a high-value niche, mainly not just because that this particular segment of population are strong banking potential clients, but also because being the bridge between the East and West allows us to actually tap into plenty of mainstream business and offer a value-added service that the other banks cannot provide.
So because of their efforts, since 1995 once we became a commercial bank, as of today we have more than 60% of our commercial banking clients that actually came from mainstream through our active efforts of showcasing ourselves as the bridge between the East and the West.
So let me give you a snapshot of our loan portfolio as of December 31. Again, 48% of our portfolio are commercial real estate, and in terms of C&I and trade finance is about 20% in construction, 17% multifamily, 8% in single-family and consumer 7%.
In today's market everybody worries about subprime loans. So I do want to share with you we do not have one subprime loan. We have never made a subprime loan in East West, and also we do not have any of the exotic investments securities like CDOs and stuff like that that would require markdowns. So that in terms of East West is great.
How about consumer lending? Credit cards? Again, we have very very little credit card exposure. Most of the credit cards are outsourced to other parties. So we are literally have almost no exposure in the credit card area.
Home equity -- something that people are very concerned. Our maximum loan to value for home equity line of credit is 75% loan to value. So from that standpoint, it was I mean as of today, actually we have hardly any issues in the home equity line of credit.
So the concern that we have currently is mainly on the residential construction loans. You know, you look at 17%, two-thirds of that 17% comes from residential construction. And most people are worried about commercial real estate, and we have 40% of our portfolio in commercial real estate, and I will highlight that in the next few slides so that I can give you a better color in terms of where we are in our commercial real estate.
First, I want to share with you about asset quality. East West we went all the way back in 1992 because we felt it is very important for us to show not just the last five years of pristine asset quality, but we ought to go way back when California went through the toughest recession to show you where we are -- where we were comparing with their peers. We have all been always been consistently better than the peers in terms of lower nonperforming assets as a percentage of total assets.
Same thing for charge-offs. We've consistently outperformed our peers in both charge-offs and NPA.
Now why we were able to do that, because again consistently even though, we have a high exposure in real estate, remember back in the early '90s East West was actually a thrift. 100% of our loans were in real estate. But we had profit every single year from '91 through '95, and we never had any regulatory issues throughout the history of East West. It is because we have very prudent underwriting criteria for our real estate lending.
So even though real estate, commercial real estate is kind of like a four letter word right now in America, the fact is East West actually are very comfortable commercial real estate.
One of the reasons is that if you looked at the history and the loan to value, the average loan to value -- these are historical loan to value -- of our commercial real estate has 55%. Single-family, 58% average loan to value. That is what we hardly have any problems and any charge-offs at all in single-family. Multifamily is 62%. Construction is the one that I said that we have stressed at 69%.
Average loan size, not only the average value is low, but average loan size is also low. And again, commercial -- California real estate price is very high. It's not like, let's say, Mississippi or Louisiana, but still even with a high real estate price, you can tell -- average loan size only $1.2 million for our commercial real estate, $700,000 for multifamily and $415,000 for single-family, and construction is the only one at 2.6 relatively speaking still much lower than most of the portfolios you expect from other banks.
So let me drill down more for the commercial real estate. Over 90% of our commercial real estate loans are less than $3 million in price, and they have an average loan to value of 53%. Less than 10%, 275 loans only at our entire East West Bank portfolio out of the $4.2 billion of real estate portfolio. There's only 275 loans that are bigger than $3 million in size. And even for them to average, LTV is only 58%.
And now I have a more relevant chart here, which will show you why I'm comfortable with the LTV. For loans that are less than 50%, these are historical -- again historical loan to value. So many of them have principal paydowns for the last two years and also appreciation that I have not counted. These are historical loans to value at the date of origination. At less than 50%, we have 31% of our total loan population are less than 50% loan to value. 57% of these loans are less than 60% loan to value if you are looking at the cumulative column.
More than 97% of our loans are less than 75% loan to value. That is why we're so confident that commercial real estate -- first of all, in California commercial real estate had not really gone down much, despite the fact that Wall Street is out doing mark-to-market on securities due to liquidity reasons, and then they are marking down 15, 20%.
But California, Southern California, Northern California, the CRE price had not dropped much. But more than 97% of our commercial real estates are less than 75% loan to value. That is why we have plenty of cushion, and that is why I'm not too concerned about it.
Again, our portfolio is pretty diversified and all kinds of mix types, shopping centers, stores, office buildings, warehouses, etc. And geographic breakdown, 63% in Southern California, 23% in Northern California. And if I drill down to Southern California by City, of course, most of them in Los Angeles. And I drill down by zip code downtown, again Los Angeles has the lion's share by zipcode, and this map kind of gives you a flavor about where all the loans are.
The biggest concentration is in middle Los Angeles and then San Gabriel Valley, which is really our home court, and then you looked at the other areas, Orange County. That is one of the biggest concentrations that we have. And now for the drill down, we look at office building, we look at the submarket of office building. Again, we look at a geographic mix and see how many loans that we have in any of these subregions, and we look at the net adsorption rate in that region, and we look at the average gross rental rate. And then we look at how many new constructions are taking place in that area.
Source: FD (FAIR DISCLOSURE) WIRE
Wordcount: 4415
JOE GLADUE, ANALYST, B. RILEY & COMPANY: I guess we will get started. The next presenting company is East West Bancorp, and here with us is the CEO of East West, Dominic Ng, and Irene Oh.
DOMINIC NG, CEO, EAST WEST BANCORP: Good morning. It is great to be here, and this, in fact, is our first time that we participated in B. Riley investor conference. It is nice to be in Las Vegas. It is only an hour flight for us coming from Los Angeles. Anyway let me go ahead and get started.
Safe Harbor statement I have you read, and I don't have to talk too much about it. And let me just start with a history of East West Bank. The bank was established in January of 1973. It was at that time the first Savings and Loan to focus in Chinese-American community, and it was based in Chinatown Los Angeles. And since then, the bank continued to grow throughout the '80s, only focused in the Chinese American community in Los Angeles. And until 1991 I actually helped an investor from Asia to acquire East West in 1991 for $40 million. I spent 10 years at Deloitte & Touche, and then at that time after, I helped the investor to acquire East West Bank, and I joined the bank and became the CEO.
And right after the acquisition of East West Bank during 1991 and 1992, obviously everybody was aware that back at that time Southern California was going through some severe recession, and there were a lot of Savings and Loans who were basically taken over by the government. So we actually took the opportunity to acquire three thrifts from the RTC, and East West actually grew substantially from $600 million to over $1 billion within a few months. And then with the acquisitions of these thrifts from RTC, we have went from a Los Angeles-based thrift to become a statewide base thrift because we end up getting branches in San Francisco. And right after that I decided that because of the Chinese-American customers that we have, many of them are actually actively engaging in commercial banking business like international trade finance, and also many of them are also very interested in the acquisition of real estate such as apartment buildings and also commercial buildings. We decided that it would be more appropriate for East West to become a commercial bank versus just a thrift.
So in 1995 we changed our charter from a thrift to a commercial bank, and then in 1998 due to the Asian crisis, our investor that bought East West in 1991 decided that while East West was performing very, very well, but they have some liquidity issue in Asia, and it will be time for them to cash out East West with the American currency that can help to support their liquidity issue back in Asia.
So very quickly, I think in June of 1998 I went out and met with about 150 investors throughout the United States. Most of them are institutional investors, and we brought in $238 million and then bought the bank from the former investors. So it was a management buyout in 1998, and since then I think in February of 1999, we did ask for a registration and get all the stock traded on NASDAQ. And so we have been publicly traded since February 1999.
And since then, again the bank continued to grow, and our financial performance is growing very well, and in 2005 we exceeded $100 million in net income. In 2007 now we have surpassed $11 billion in assets.
So just a quick overview of the earnings per share growth of the last 10 years. In fact, this actually is 11 years here. We have 11 year consecutive record earnings at East West Bank. Compound annual growth rate is 27%. Had it not for the onetime assessment to pay for the government being a thrift back in the early '90s, we actually have an even longer record earnings record than what we have shown.
And if you just look at the past five year, three years, one year compounded annual growth, what we did here is that we look at all the banks over $750 million in market cap. There's not many in California because most of the big banks are headquartered elsewhere from California. But these are the banks that are all over $750 million in the market cap. What you notice is that we consistently, whether you are looking at five years or three years or one year, we consistently rank at the top compared with all these other peer banks that we compete and do business with in terms of earnings per share growth.
How we got the strong earnings per share growth for the last 11 years is because of our loan growth, deposit growth and also the asset growth. And then I think altogether combined help us to get to where we are today.
So East West Bank today in terms of our vision, when I first bought the bank for the investor back in 1991, I shared with them and I said this should not be just a Chinese bank focus in the Chinese community because not only the market will be too small for long-term future growth, but also we are ignoring a substantial advantage the East West have because of the Chinese knowledge. We were able to use that knowledge to share with mainstream customers and would create a niche for East West that most other mainstream banks cannot compete with us. And if we just focus on that niche, we will be able to bring in a lot of commercial customers from the mainstream who came to us not because of pricing, not because of credit terms, but who came to us simply because we have valued added service that can offer to them that they would not be able to find from other community banks, such as if some of them are looking at outsourcing in China, we will be able to help them in terms of making connections in China. Or if they are actually exporting or importing to China and they have issues about dealing with banks over in China, we have many corresponding banks that we can help them.
So these are the kind of advantage that we have, and in the same token, we have Chinese customers who are coming to the United States to acquire real estate. In fact, back in the early '90s, we are actively engaged with many Asian investors from Taiwan, Hong Kong, Indonesia, Malaysia and Singapore, buying just about every hotel in Los Angeles. And we were actually involved in that sort of like acquisitions in terms of providing consulting service to these Chinese customers. And because of that, a lot of the mainstream real estate players notice that since we have the connection with the equity source from Asia they better start thinking about doing business with us in order to tap into bad resources. And that has been very helpful for us.
So back in early '90, '91, we come up with the vision of East West Bank to be recognized as the premier bridge between East and West and acknowledged for delivering relationship-driven financial solutions to an increasingly diverse and sophisticated customer base. That was the vision then, and 16 years later we still have the same vision today. And I would imagine 15 years from now East West Bank will still be that bridge between the East and the West. Because that niche has worked out really well for us, and also so far not many banks are out there competing in this particular niche.
So we're now the second-largest bank headquartered in Southern California. We have $12 billion total assets, 70 branches in California and one in Houston, Texas. Why in Houston Texas? We bought a bank that happened to have one branch in Houston, Texas, and therefore, we inherited it. We have three greater China locations. A full-service branch that can take deposits and loans in Hong Kong and two rep offices, one in Beijing and one in Shanghai.
I talked about the strategic niche that we have in terms of financial bridge between East and West, and basically what we had done is that on the commercial banking side we have been making a great inroad in terms of getting more and more commercial clients from the mainstream. But we continue to have the leading market share within the Chinese market, particularly on the consumer banking side.
So again, we feel that the Chinese-American market is a high-value niche, mainly not just because that this particular segment of population are strong banking potential clients, but also because being the bridge between the East and West allows us to actually tap into plenty of mainstream business and offer a value-added service that the other banks cannot provide.
So because of their efforts, since 1995 once we became a commercial bank, as of today we have more than 60% of our commercial banking clients that actually came from mainstream through our active efforts of showcasing ourselves as the bridge between the East and the West.
So let me give you a snapshot of our loan portfolio as of December 31. Again, 48% of our portfolio are commercial real estate, and in terms of C&I and trade finance is about 20% in construction, 17% multifamily, 8% in single-family and consumer 7%.
In today's market everybody worries about subprime loans. So I do want to share with you we do not have one subprime loan. We have never made a subprime loan in East West, and also we do not have any of the exotic investments securities like CDOs and stuff like that that would require markdowns. So that in terms of East West is great.
How about consumer lending? Credit cards? Again, we have very very little credit card exposure. Most of the credit cards are outsourced to other parties. So we are literally have almost no exposure in the credit card area.
Home equity -- something that people are very concerned. Our maximum loan to value for home equity line of credit is 75% loan to value. So from that standpoint, it was I mean as of today, actually we have hardly any issues in the home equity line of credit.
So the concern that we have currently is mainly on the residential construction loans. You know, you look at 17%, two-thirds of that 17% comes from residential construction. And most people are worried about commercial real estate, and we have 40% of our portfolio in commercial real estate, and I will highlight that in the next few slides so that I can give you a better color in terms of where we are in our commercial real estate.
First, I want to share with you about asset quality. East West we went all the way back in 1992 because we felt it is very important for us to show not just the last five years of pristine asset quality, but we ought to go way back when California went through the toughest recession to show you where we are -- where we were comparing with their peers. We have all been always been consistently better than the peers in terms of lower nonperforming assets as a percentage of total assets.
Same thing for charge-offs. We've consistently outperformed our peers in both charge-offs and NPA.
Now why we were able to do that, because again consistently even though, we have a high exposure in real estate, remember back in the early '90s East West was actually a thrift. 100% of our loans were in real estate. But we had profit every single year from '91 through '95, and we never had any regulatory issues throughout the history of East West. It is because we have very prudent underwriting criteria for our real estate lending.
So even though real estate, commercial real estate is kind of like a four letter word right now in America, the fact is East West actually are very comfortable commercial real estate.
One of the reasons is that if you looked at the history and the loan to value, the average loan to value -- these are historical loan to value -- of our commercial real estate has 55%. Single-family, 58% average loan to value. That is what we hardly have any problems and any charge-offs at all in single-family. Multifamily is 62%. Construction is the one that I said that we have stressed at 69%.
Average loan size, not only the average value is low, but average loan size is also low. And again, commercial -- California real estate price is very high. It's not like, let's say, Mississippi or Louisiana, but still even with a high real estate price, you can tell -- average loan size only $1.2 million for our commercial real estate, $700,000 for multifamily and $415,000 for single-family, and construction is the only one at 2.6 relatively speaking still much lower than most of the portfolios you expect from other banks.
So let me drill down more for the commercial real estate. Over 90% of our commercial real estate loans are less than $3 million in price, and they have an average loan to value of 53%. Less than 10%, 275 loans only at our entire East West Bank portfolio out of the $4.2 billion of real estate portfolio. There's only 275 loans that are bigger than $3 million in size. And even for them to average, LTV is only 58%.
And now I have a more relevant chart here, which will show you why I'm comfortable with the LTV. For loans that are less than 50%, these are historical -- again historical loan to value. So many of them have principal paydowns for the last two years and also appreciation that I have not counted. These are historical loans to value at the date of origination. At less than 50%, we have 31% of our total loan population are less than 50% loan to value. 57% of these loans are less than 60% loan to value if you are looking at the cumulative column.
More than 97% of our loans are less than 75% loan to value. That is why we're so confident that commercial real estate -- first of all, in California commercial real estate had not really gone down much, despite the fact that Wall Street is out doing mark-to-market on securities due to liquidity reasons, and then they are marking down 15, 20%.
But California, Southern California, Northern California, the CRE price had not dropped much. But more than 97% of our commercial real estates are less than 75% loan to value. That is why we have plenty of cushion, and that is why I'm not too concerned about it.
Again, our portfolio is pretty diversified and all kinds of mix types, shopping centers, stores, office buildings, warehouses, etc. And geographic breakdown, 63% in Southern California, 23% in Northern California. And if I drill down to Southern California by City, of course, most of them in Los Angeles. And I drill down by zip code downtown, again Los Angeles has the lion's share by zipcode, and this map kind of gives you a flavor about where all the loans are.
The biggest concentration is in middle Los Angeles and then San Gabriel Valley, which is really our home court, and then you looked at the other areas, Orange County. That is one of the biggest concentrations that we have. And now for the drill down, we look at office building, we look at the submarket of office building. Again, we look at a geographic mix and see how many loans that we have in any of these subregions, and we look at the net adsorption rate in that region, and we look at the average gross rental rate. And then we look at how many new constructions are taking place in that area.
Consumers Lower Expectations on HELOCs
Customers are more satisfied with the process of getting a home-equity loan or line of credit than they were last year, but only because their expectations are much lower, according to a new survey.
A J.D. Power and Associates poll of 3,176 customers earlier this year found that overall customer satisfaction has risen to 780 on a 1,000-point scale, up 14 points from a year earlier. That's despite the fact that measures of service -- like length of approval process -- have remained consistent.
Customers simply expect more problems when they apply for such debt, due to ongoing troubles in the housing and mortgage markets, says Tim Ryan, senior research director of the finance and insurance practice at J.D. Power. At this point, many are just happy to obtain the loan, regardless of how long it takes or the frustrations they have to endure.
That's especially true since some homeowners already have "feelings of uncertainty toward property values and lenders," as Ryan puts it, or "associate the loan application process with hassle and frustration."
BankingMyWay.com offers a tool to search for the best rates on home-equity loans in your area. Rates have generally risen over the past week, especially in the Northeast. Local banks and credit unions can offer more competitive rates than major lenders.
Ryan suggests customers contact several lenders to get the most competitive interest rate and fee structure. Those who need to consolidate several existing loans may be able to work with their current lender to negotiate a favorable rate.
"Now may be an opportune time for homeowners who qualify to apply for a home equity product," says Ryan. However, homeowners with weaker credit or who are in areas where property values have declined sharply will probably have a "more difficult time qualifying for a home-equity product under the current circumstances."
A J.D. Power and Associates poll of 3,176 customers earlier this year found that overall customer satisfaction has risen to 780 on a 1,000-point scale, up 14 points from a year earlier. That's despite the fact that measures of service -- like length of approval process -- have remained consistent.
Customers simply expect more problems when they apply for such debt, due to ongoing troubles in the housing and mortgage markets, says Tim Ryan, senior research director of the finance and insurance practice at J.D. Power. At this point, many are just happy to obtain the loan, regardless of how long it takes or the frustrations they have to endure.
That's especially true since some homeowners already have "feelings of uncertainty toward property values and lenders," as Ryan puts it, or "associate the loan application process with hassle and frustration."
BankingMyWay.com offers a tool to search for the best rates on home-equity loans in your area. Rates have generally risen over the past week, especially in the Northeast. Local banks and credit unions can offer more competitive rates than major lenders.
Ryan suggests customers contact several lenders to get the most competitive interest rate and fee structure. Those who need to consolidate several existing loans may be able to work with their current lender to negotiate a favorable rate.
"Now may be an opportune time for homeowners who qualify to apply for a home equity product," says Ryan. However, homeowners with weaker credit or who are in areas where property values have declined sharply will probably have a "more difficult time qualifying for a home-equity product under the current circumstances."
Your Home - A Hidden Source Of Financing
by: News Canada
(NC)-Your home is more than just a place to hang your hat. In addition to being a source of pride and protection, it can be a valuable source of equity.
With interest rates still low, now may be a good time to consider a renovation, purchasing a new car or making some investments. The equity in your home may be able to help you secure the necessary funds to help you achieve your goals.
One way to access the equity in a home is to refinance the existing mortgage. This adds additional funds to the mortgage but it may yield a lower interest rate and lower monthly payments than a traditional loan. One caution, however; adding to your existing mortgage means it will take longer to pay it off. As a consequence, you will be paying more interest.
Another way to access the equity in your home is to open a line of credit that is secured against your home. Just as with refinancing, a line of credit may be available at an interest rate that is lower than a regular loan. In some cases, the interest rate on a line of credit can be as low as prime.
A line of credit gives you payment flexibility that is not available with a conventional mortgage. Not only do you have control over the length of the loan and how you repay it, you also have the flexibility to pay off the debt at anytime without penalty and you can control
the amount of payment you make each month - the minimum, as little as interest only, or as much as you can afford. The larger your monthly payment, the quicker you will pay off the line of credit and the lower your overall interest costs.
If minimizing the amount of interest you pay over the lifetime of the debt is important, then a secured line of credit may work for you. To qualify, you generally require 25 per cent equity built up in your home. Legal fees or registry fees may apply.
"If you are considering leveraging your home equity, you should meet with a qualified lending expert," says Terry Fitzpatrick, Vice-President, Bank of Montreal Consumer Lending. "A lending expert will explain your options, offer a variety of solutions, and help you make the best decision to suit your needs and your budget."
Information provided by Bank of Montreal. For more information visit www.bmo.com.
About The Author
News Canada provides a wide selection of current, ready-to-use copyright free news stories and ideas for Television, Print, Radio, and the Web.
News Canada is a niche service in public relations, offering access to print, radio, television, and now the Internet media, with ready-to-use, editorial "fill" items. Monitoring and analysis are two more of our primary services. The service supplies access to the national media for marketers in the private, the public, and the not-for-profit sectors. Your corporate and product news, consumer tips and information are packaged in a variety of ready-to-use formats and are made available to every Canadian media organization including weekly and daily newspapers, cable and commercial television stations, radio stations, as well as the Web sites Canadians visit most often. Visit News Canada and learn more about the NC services.
This article was posted on August 5, 2002
(NC)-Your home is more than just a place to hang your hat. In addition to being a source of pride and protection, it can be a valuable source of equity.
With interest rates still low, now may be a good time to consider a renovation, purchasing a new car or making some investments. The equity in your home may be able to help you secure the necessary funds to help you achieve your goals.
One way to access the equity in a home is to refinance the existing mortgage. This adds additional funds to the mortgage but it may yield a lower interest rate and lower monthly payments than a traditional loan. One caution, however; adding to your existing mortgage means it will take longer to pay it off. As a consequence, you will be paying more interest.
Another way to access the equity in your home is to open a line of credit that is secured against your home. Just as with refinancing, a line of credit may be available at an interest rate that is lower than a regular loan. In some cases, the interest rate on a line of credit can be as low as prime.
A line of credit gives you payment flexibility that is not available with a conventional mortgage. Not only do you have control over the length of the loan and how you repay it, you also have the flexibility to pay off the debt at anytime without penalty and you can control
the amount of payment you make each month - the minimum, as little as interest only, or as much as you can afford. The larger your monthly payment, the quicker you will pay off the line of credit and the lower your overall interest costs.
If minimizing the amount of interest you pay over the lifetime of the debt is important, then a secured line of credit may work for you. To qualify, you generally require 25 per cent equity built up in your home. Legal fees or registry fees may apply.
"If you are considering leveraging your home equity, you should meet with a qualified lending expert," says Terry Fitzpatrick, Vice-President, Bank of Montreal Consumer Lending. "A lending expert will explain your options, offer a variety of solutions, and help you make the best decision to suit your needs and your budget."
Information provided by Bank of Montreal. For more information visit www.bmo.com.
About The Author
News Canada provides a wide selection of current, ready-to-use copyright free news stories and ideas for Television, Print, Radio, and the Web.
News Canada is a niche service in public relations, offering access to print, radio, television, and now the Internet media, with ready-to-use, editorial "fill" items. Monitoring and analysis are two more of our primary services. The service supplies access to the national media for marketers in the private, the public, and the not-for-profit sectors. Your corporate and product news, consumer tips and information are packaged in a variety of ready-to-use formats and are made available to every Canadian media organization including weekly and daily newspapers, cable and commercial television stations, radio stations, as well as the Web sites Canadians visit most often. Visit News Canada and learn more about the NC services.
This article was posted on August 5, 2002
The Consumer Credit Counseling Service offers tips for surviving job loss
DURHAM, N.C. - It’s never a good time to lose your job. However, the current economic environment has resulted in business closures, downsizing and layoffs for many Americans. The unemployment rate hovers near 5 percent with recent graduates preparing to flood the market.
The Consumer Credit Counseling Service (CCCS) Raleigh and Durham offers the following tips for surviving a layoff, should one occur:
Allow yourself to be upset or even afraid. - These are natural reactions. However, should they become intense, be willing to seek professional help. Talking things through and hearing another person’s perspective can bring relief and restore your positive outlook.
Resist the urge to tell your boss what you truly think of him or her. - Remember, you may need him or her as a reference for a future job.
Take advantage of any assistance your workplace offers. - Many companies provide placement assistance, job retraining and severance packages. Make sure you are aware of all benefits offered.
Apply for any applicable government benefits. - Your HR representative at work will be a good resource.
Resist the urge to solve your problems by spending recklessly. - It may feel good for the moment, but the high of spending won’t equal the low of dealing with additional debt when there is no income.
Don’t be tempted to live off of your credit cards. - Someone with a good line of credit could actually support the family at the current standard of living by using credit, but there’s no guarantee a new position will materialize any time soon. One rule of thumb job counselors use is to expect one month of job search for each $10,000 of annual income you hope to replace. In other words, if you seek a $50,000 salary, it may take you five months to land that job.
Take a personal inventory. - Consider all assets, income and expenses. Hopefully, you will not have to liquidate any assets to survive, but it is good to know what you have to fall back on.
Drastic times call for drastic measures. - Nothing is off-limits. If necessary, consider selling the second car, or any recreational vehicles, real estate holdings, rental properties or jewelry.
After reviewing income versus debt obligations, - if there is not enough money to make ends meet, calculate how much is needed to meet the basic household living expenses. Your goal is to pay everyone, but if you must make a choice, keep your home-life stable by paying your rent or mortgage, utilities, childcare, insurance premiums, health care, food and keeping gas in the car.
Have a family meeting that includes the children. - You do not want people pulling in different directions, and a joint effort yields a greater result. Make cutbacks wherever possible, knowing that this austere lifestyle will only be temporary. Resolve to stop all non-essential spending immediately.
Tracking your spending is always a good idea, but when money is tight, it’s essential. - Write down every cent you spend. At the end of 30 days, review where the money went and make conscious decisions on where to cut back. You’ll be amazed by how much you can save and not even feel the pinch.
Contact your creditors to arrange lower payments. - Most major credit card issuers have in-house help programs. Explain your situation and what you are doing to resolve it. The creditor may be able to temporarily lower your monthly payment and reduce interest.
Call your mortgage lender or servicer and inform them of your situation. - Be prepared to provide them with documentation of the setback, and have a resolution plan in mind. Since the average consumer doesn’t know all of the loan modifications available, it is smart to first sit down with a certified housing counselor and map out a plan. This way, you will know that you have selected the option that is best suited to your situation.
“No one is immune to a layoff. Stalwarts of the American economy have laid off workers by the thousands. Financial setbacks are never easy, but with help, most can survive unscathed,” said Leslie Barber, Director of CCCS and Emergency Housing Assistance, with TFS. “Reaching out to a trained and certified credit counselor can be one of the smartest steps a person can take during times of financial distress.”
You do not have to solve your financial problems alone. CCCS Raleigh and Durham, a division of Triangle Family Services (TFS), is just a call or click away. To reach the certified credit counselor closest to you dial 919-821-0790 x307, or online go to http://www.tfsnc.org/ .
About Triangle Family Services
Triangle Family Services (TFS) is a local United Way agency helping families and children throughout the Triangle. Established in 1937, it is one of the oldest and most comprehensive nonprofits in the region. All of our services are confidential and nationally accredited by the Council on Accreditation. Through skilled and compassionate care, TFS annually helps more than 5,000 Triangle families and individuals achieve Financial Security, Family Safety, and Mental Health. For more information about Triangle Family Services, visit http://www.tfsnc.org/ .
About the NFCC
The National Foundation for Credit Counseling (NFCC), founded in 1951, is the nation’s largest and longest serving national nonprofit credit counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior and build capacity for its members to deliver the highest quality financial education and counseling services. NFCC members annually help more than two million consumers through close to 900 community-based offices nationwide. For free and affordable confidential advice through a reputable NFCC member, call1-800-388-2227, (en Español 1-800-682-9832) or visit http://www.nfcc.org.
The Consumer Credit Counseling Service (CCCS) Raleigh and Durham offers the following tips for surviving a layoff, should one occur:
Allow yourself to be upset or even afraid. - These are natural reactions. However, should they become intense, be willing to seek professional help. Talking things through and hearing another person’s perspective can bring relief and restore your positive outlook.
Resist the urge to tell your boss what you truly think of him or her. - Remember, you may need him or her as a reference for a future job.
Take advantage of any assistance your workplace offers. - Many companies provide placement assistance, job retraining and severance packages. Make sure you are aware of all benefits offered.
Apply for any applicable government benefits. - Your HR representative at work will be a good resource.
Resist the urge to solve your problems by spending recklessly. - It may feel good for the moment, but the high of spending won’t equal the low of dealing with additional debt when there is no income.
Don’t be tempted to live off of your credit cards. - Someone with a good line of credit could actually support the family at the current standard of living by using credit, but there’s no guarantee a new position will materialize any time soon. One rule of thumb job counselors use is to expect one month of job search for each $10,000 of annual income you hope to replace. In other words, if you seek a $50,000 salary, it may take you five months to land that job.
Take a personal inventory. - Consider all assets, income and expenses. Hopefully, you will not have to liquidate any assets to survive, but it is good to know what you have to fall back on.
Drastic times call for drastic measures. - Nothing is off-limits. If necessary, consider selling the second car, or any recreational vehicles, real estate holdings, rental properties or jewelry.
After reviewing income versus debt obligations, - if there is not enough money to make ends meet, calculate how much is needed to meet the basic household living expenses. Your goal is to pay everyone, but if you must make a choice, keep your home-life stable by paying your rent or mortgage, utilities, childcare, insurance premiums, health care, food and keeping gas in the car.
Have a family meeting that includes the children. - You do not want people pulling in different directions, and a joint effort yields a greater result. Make cutbacks wherever possible, knowing that this austere lifestyle will only be temporary. Resolve to stop all non-essential spending immediately.
Tracking your spending is always a good idea, but when money is tight, it’s essential. - Write down every cent you spend. At the end of 30 days, review where the money went and make conscious decisions on where to cut back. You’ll be amazed by how much you can save and not even feel the pinch.
Contact your creditors to arrange lower payments. - Most major credit card issuers have in-house help programs. Explain your situation and what you are doing to resolve it. The creditor may be able to temporarily lower your monthly payment and reduce interest.
Call your mortgage lender or servicer and inform them of your situation. - Be prepared to provide them with documentation of the setback, and have a resolution plan in mind. Since the average consumer doesn’t know all of the loan modifications available, it is smart to first sit down with a certified housing counselor and map out a plan. This way, you will know that you have selected the option that is best suited to your situation.
“No one is immune to a layoff. Stalwarts of the American economy have laid off workers by the thousands. Financial setbacks are never easy, but with help, most can survive unscathed,” said Leslie Barber, Director of CCCS and Emergency Housing Assistance, with TFS. “Reaching out to a trained and certified credit counselor can be one of the smartest steps a person can take during times of financial distress.”
You do not have to solve your financial problems alone. CCCS Raleigh and Durham, a division of Triangle Family Services (TFS), is just a call or click away. To reach the certified credit counselor closest to you dial 919-821-0790 x307, or online go to http://www.tfsnc.org/ .
About Triangle Family Services
Triangle Family Services (TFS) is a local United Way agency helping families and children throughout the Triangle. Established in 1937, it is one of the oldest and most comprehensive nonprofits in the region. All of our services are confidential and nationally accredited by the Council on Accreditation. Through skilled and compassionate care, TFS annually helps more than 5,000 Triangle families and individuals achieve Financial Security, Family Safety, and Mental Health. For more information about Triangle Family Services, visit http://www.tfsnc.org/ .
About the NFCC
The National Foundation for Credit Counseling (NFCC), founded in 1951, is the nation’s largest and longest serving national nonprofit credit counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior and build capacity for its members to deliver the highest quality financial education and counseling services. NFCC members annually help more than two million consumers through close to 900 community-based offices nationwide. For free and affordable confidential advice through a reputable NFCC member, call1-800-388-2227, (en Español 1-800-682-9832) or visit http://www.nfcc.org.
Consumers More Satisfied With Home Equity Loan Process, Survey Shows
RTTNews) - In the face of the worst housing slump since the Great Depression, a sliver of bright light was released Thursday. J.D. Power and Associates released their 2008 Home Equity Line/Loan Study for 2008, revealing a boost in consumer satisfaction from last year, increasing by 14 points to 780/1,000 from 2007's 766/1,000.
However, it may not be that service has actually improved so much as expectations have been lowered, Tim Ryan, a senior research director with J.D. Power explained. The rise in prominence of the housing crisis lowered consumer expectations, he said, leading many consumers to think that applying for a loan would be a negative experience.
"As a result, customers who obtained a home equity product report being more satisfied with the process in 2008, compared with 2007, even though measures of service-such as the average length of time for application approval-have remained consistent during the past year," Ryan said.
Ryan urged consumers to shop lenders to get the most competitive rate. Bank of America (BAC) was ranked as the best for consumer satisfaction when seeking a home equity, followed by Sun Trust (STI) and Wachovia (WB).
"Bank of America, SunTrust and Wachovia all perform well in specific areas that are important to customers, including having problem incidence rates and application approval times that are better than the industry average," Ryan said. "With high levels of service provided by these and other lenders who have performed well at fulfilling customer expectations, now may be an opportune time for homeowners who qualify to apply for a home equity product."
The fallout from the subprime crisis will likely impact both homeowners with lower credit scores and those who live in areas with lower property value, Ryan said.
"Homeowners with lower credit scores or who are in an area where property values have declined may have a more difficult time qualifying for a home equity product under the current circumstances," he said There are five key performance indicators that customers considered important, the study showed. They are listed as approving applications and providing customers with access to their funds quickly; setting and meeting expectations during the application approval process; avoiding surprising the customer during the origination process; being versatile and flexible in the location of the closing; and being mindful of the pitfalls of using a mortgage broker. The survey is based on responses from 3,176 customers who originated a home equity line/loan between February 2007 and January 2008. The study was fielded in February and March 2008.
However, it may not be that service has actually improved so much as expectations have been lowered, Tim Ryan, a senior research director with J.D. Power explained. The rise in prominence of the housing crisis lowered consumer expectations, he said, leading many consumers to think that applying for a loan would be a negative experience.
"As a result, customers who obtained a home equity product report being more satisfied with the process in 2008, compared with 2007, even though measures of service-such as the average length of time for application approval-have remained consistent during the past year," Ryan said.
Ryan urged consumers to shop lenders to get the most competitive rate. Bank of America (BAC) was ranked as the best for consumer satisfaction when seeking a home equity, followed by Sun Trust (STI) and Wachovia (WB).
"Bank of America, SunTrust and Wachovia all perform well in specific areas that are important to customers, including having problem incidence rates and application approval times that are better than the industry average," Ryan said. "With high levels of service provided by these and other lenders who have performed well at fulfilling customer expectations, now may be an opportune time for homeowners who qualify to apply for a home equity product."
The fallout from the subprime crisis will likely impact both homeowners with lower credit scores and those who live in areas with lower property value, Ryan said.
"Homeowners with lower credit scores or who are in an area where property values have declined may have a more difficult time qualifying for a home equity product under the current circumstances," he said There are five key performance indicators that customers considered important, the study showed. They are listed as approving applications and providing customers with access to their funds quickly; setting and meeting expectations during the application approval process; avoiding surprising the customer during the origination process; being versatile and flexible in the location of the closing; and being mindful of the pitfalls of using a mortgage broker. The survey is based on responses from 3,176 customers who originated a home equity line/loan between February 2007 and January 2008. The study was fielded in February and March 2008.
Bank Operating Line of Credit and Letters of Credit
May 30th, 2008
Banking - Business Loan Application
Operating Lines of Credit and Letters of Credit
You are probably wondering what a series on business banking essentials is doing on a natural health website.
Well, stress caused by financial worries will eventually adversely affect your health. Many business owners operate under constant financial pressure, and this series on commercial banking and commercial finance will arm them with the knowledge that they need to deal confidently with diverse business situations, and with their bank managers. Knowledge is comforting, it is the fear of the unknown that is stressful.
How can I help you? I obtained my Chartered Accountant designation (I’m retired now) in Australia. Upon moving to Canada, I worked for a wholly owned Canadian subsidiary of an American bank. Over time, I rose to become the Senior Vice-President responsible for the commercial finance division. This division granted flexible operating lines of credit, which included letters of credit for importers. In this career, I encountered numerous different types of businesses including trading, manufacturing and importing.
This is not intended to be a detailed accounting or banking course. I have put together the essential information you need in order to give yourself the best chance of succeeding in your business. I shall tell you what your bank manager would like to hear from you at your meetings. I shall tell you the early warning signs that your business needs positive action.
These comments are not for retail business; they apply to wholesalers, importers and manufacturers.
To cover the vast amount of banking information, even in thumbnail format, I shall break it down into various segments. Some will apply to your business, others may not. I am intentionally phrasing the segments in very simple layman’s terms. I would advise you to discuss my advice with your accountant, or even your banker, before you decide to act on it.
This first segment deals with the initial loan application. It is assumed that you are applying for an operating line of credit, which may, or may not, include letters of credit. The actual loan within the line of credit will fluctuate at different times, depending on the cashflow, but the bank will put an upper limit which you cannot exceed without special authorization. The limit of the operating line of credit is determined by the bank after evaluating various aspects of your business, including your equity in it.
There is certain basic information that the financial institution requires in order to make the decision to finance your business. You must come to the appointment with the bank armed with this information, ideally accompanied by your accountant who prepared the information package.
Financial Statements for the past three years
Pro forma financial statement for the year to date
Cashflow projections for the current year
List of aged accounts receivable
List of aged accounts payable
Summary of inventory
From the above documents, the bank will ascertain whether your business was profitable in the past, and whether it appears to be profitable this year.
The cashflow projections will show how high the financial involvement will peak at, and how well the loan will be collateralized at any given time.
The accounts receivable list will disclose the quality of the customers and whether a significant percentage of them is delinquent.
The accounts payable list will reveal whether your business is up-to-date with its payments to suppliers.
The inventory summary will show the nature of the inventory and give an indication of whether it can be sold readily.
In addition to examining the above documentation in detail, be aware that a credit check will be done on the business to ascertain if there is any outstanding litigation, and as to its creditworthiness.
Knowing all this, be sure to have satisfactory explanations for any aspects that may appear detrimental to the bank.
It is important to keep in mind that the ideal customer for an operating line of credit, as far as the bank is concerned, is one who:
Is profitable
Needs the credit to finance profitable growth
Does not require too high a loan/equity ratio
Has adequate collateral to cover the loan at all times
Has collateral that can be liquidated easily
Has excellent credit rating
Your strategy? When making the loan application:
stress the good value of the assets that support the equity of the business.
Point out that the inventory is current, or can easily be sold.
Explain that your accounts receivable are up-to-date and that delinquent receivables have been provided for.
If you have unencumbered fixed assets, point out that there is additional collateral for the bank in them.
Advise the bank that you have adequate fire insurance to protect the assets, and personal life insurance that could be used to protect the bank, if necessary.
Recognise that the banker looks to collateral to repay the loan if the business fails. The banker is not really interested in intangible assets, such as goodwill, even though they could be very valuable.
Jay Chatterjee & his partner, Roshmi Raychaudhuri, maintain a site www.youngagainforever.com http://www.youngagainforever.com on natural health information and remedies. Stress plays an important part in health, and finances play an important part in causing stress. In order to use natural techniques to improve finances (such as meditation and mental concentration), one has to understand the basic principles of finance.
AP - The State Department has yanked Fulbright scholarships from eight Palestinian students from Gaza because Israel will not grant them exit visas, a spokesman said Thursday.
Banking - Business Loan Application
Operating Lines of Credit and Letters of Credit
You are probably wondering what a series on business banking essentials is doing on a natural health website.
Well, stress caused by financial worries will eventually adversely affect your health. Many business owners operate under constant financial pressure, and this series on commercial banking and commercial finance will arm them with the knowledge that they need to deal confidently with diverse business situations, and with their bank managers. Knowledge is comforting, it is the fear of the unknown that is stressful.
How can I help you? I obtained my Chartered Accountant designation (I’m retired now) in Australia. Upon moving to Canada, I worked for a wholly owned Canadian subsidiary of an American bank. Over time, I rose to become the Senior Vice-President responsible for the commercial finance division. This division granted flexible operating lines of credit, which included letters of credit for importers. In this career, I encountered numerous different types of businesses including trading, manufacturing and importing.
This is not intended to be a detailed accounting or banking course. I have put together the essential information you need in order to give yourself the best chance of succeeding in your business. I shall tell you what your bank manager would like to hear from you at your meetings. I shall tell you the early warning signs that your business needs positive action.
These comments are not for retail business; they apply to wholesalers, importers and manufacturers.
To cover the vast amount of banking information, even in thumbnail format, I shall break it down into various segments. Some will apply to your business, others may not. I am intentionally phrasing the segments in very simple layman’s terms. I would advise you to discuss my advice with your accountant, or even your banker, before you decide to act on it.
This first segment deals with the initial loan application. It is assumed that you are applying for an operating line of credit, which may, or may not, include letters of credit. The actual loan within the line of credit will fluctuate at different times, depending on the cashflow, but the bank will put an upper limit which you cannot exceed without special authorization. The limit of the operating line of credit is determined by the bank after evaluating various aspects of your business, including your equity in it.
There is certain basic information that the financial institution requires in order to make the decision to finance your business. You must come to the appointment with the bank armed with this information, ideally accompanied by your accountant who prepared the information package.
Financial Statements for the past three years
Pro forma financial statement for the year to date
Cashflow projections for the current year
List of aged accounts receivable
List of aged accounts payable
Summary of inventory
From the above documents, the bank will ascertain whether your business was profitable in the past, and whether it appears to be profitable this year.
The cashflow projections will show how high the financial involvement will peak at, and how well the loan will be collateralized at any given time.
The accounts receivable list will disclose the quality of the customers and whether a significant percentage of them is delinquent.
The accounts payable list will reveal whether your business is up-to-date with its payments to suppliers.
The inventory summary will show the nature of the inventory and give an indication of whether it can be sold readily.
In addition to examining the above documentation in detail, be aware that a credit check will be done on the business to ascertain if there is any outstanding litigation, and as to its creditworthiness.
Knowing all this, be sure to have satisfactory explanations for any aspects that may appear detrimental to the bank.
It is important to keep in mind that the ideal customer for an operating line of credit, as far as the bank is concerned, is one who:
Is profitable
Needs the credit to finance profitable growth
Does not require too high a loan/equity ratio
Has adequate collateral to cover the loan at all times
Has collateral that can be liquidated easily
Has excellent credit rating
Your strategy? When making the loan application:
stress the good value of the assets that support the equity of the business.
Point out that the inventory is current, or can easily be sold.
Explain that your accounts receivable are up-to-date and that delinquent receivables have been provided for.
If you have unencumbered fixed assets, point out that there is additional collateral for the bank in them.
Advise the bank that you have adequate fire insurance to protect the assets, and personal life insurance that could be used to protect the bank, if necessary.
Recognise that the banker looks to collateral to repay the loan if the business fails. The banker is not really interested in intangible assets, such as goodwill, even though they could be very valuable.
Jay Chatterjee & his partner, Roshmi Raychaudhuri, maintain a site www.youngagainforever.com http://www.youngagainforever.com on natural health information and remedies. Stress plays an important part in health, and finances play an important part in causing stress. In order to use natural techniques to improve finances (such as meditation and mental concentration), one has to understand the basic principles of finance.
AP - The State Department has yanked Fulbright scholarships from eight Palestinian students from Gaza because Israel will not grant them exit visas, a spokesman said Thursday.
The Financial Furry Freak Brothers
By Adrian Ash
London, England, U.K.
May 27, 2008
When Albert Hofmann — the Swiss chemist who discovered LSD — passed away at the start of this month, newspaper editors the world over reported it as the death of the man “who experienced the first ever bad trip.”
But Hofmann’s hallucinations seem little worse than most acid-induced visions. Or so people tell us...
“Beginning dizziness,” he wrote in his lab journal for 19 April 1943. Looking to find a stimulant for the circulatory and respiratory systems, he’d just concocted — and taken — a big dose of lysergic acid diethylamide-25.
“Feeling of anxiety,” he noted, before adding in due course “Difficulty in concentration. Visual disturbances. Desire to laugh.”
Finally, Hofmann scrawled the words “most severe crisis” and fled the lab on his bicycle. It seemed to stay stationary even as it wheeled him back home, where his neighbor — who brought him a nice glass of milk to calm him down — appeared as a witch in a colored mask.
~~~~~~~~~~~~~Special~~~~~~~~~~~~~
Which country listed below offers AVERAGE dividend yields of 8.5%?
(Hint…the answer may surprise you.)
(A.) United States
(B.) United Kingdom
(C.) Brazil
(D.) New Zealand
Click here to learn the answer...it’s free!
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
He felt possessed by demons. The furniture in his bedroom began to menace him. All pretty run of the mill stuff if you dabble with psychotropics, in short.
But such “fantastic images” don’t always ease into the sensations of “good fortune and gratitude” Hofmann got to enjoy later that day. Hallucinations can still cause the “most severe crisis” — even without some fool laying Witches Hat by the Incredible String Band on the turntable.
“Inflation will return to the two percent target,” claimed Mervyn King, head of the Bank of England, and one half of the financial furry freak brothers running Anglo-American monetary policy.
“Growth will eventually recover to a sustainable rate.”
Just a central banker’s wide-eyed hallucination? Maybe not. Like Albert Hofmann’s wobbly bike-ride six decades ago, the credit cycle will get us home in good time, ready to turn once again from boom to bubble to bust. But like any powerful psychedelic, the trip gobbled down by Western investors could last much longer than anyone dares hope right now.
And just what was the Governor smoking when he claimed, “In these [current] circumstances, the household saving rate is likely to rise…”?
The Bank of England has been cutting U.K. since December. Its latest Inflation Report says it will continue to cut interest rates “in line with [bond] market expectations,” too.
And U.K. households have grown their savings only once when interest rates fell in the last four-and-half decades. That brief period lasted for two years at the start of the 1990s.
Both before and since — and most markedly during the previous post-war recessions (of 1974 and 1981) — people have tweaked their savings almost precisely in line with changes to the rate of interest, as set by the Bank of England itself.
King’s starry-eyed vision, however, “is part of a rebalancing of the U.K. economy, away from spending and importing, toward saving and exporting,” he told reporters last week.
The sky’s turned all purple in Washington too if U.S. policy-makers think the credit crunch will somehow boost household savings there.
Put another way, “who had heard of collateralized debt obligations just 10 years ago?” as Niall Ferguson, history professor at Harvard, asked in a speech opening New York’s new Museum of Finance back in January this year.
“Collateralized loan obligations? Credit derivatives? These forms of financial instrument are of very recent origin. So are the hedge funds; so are the private equity partnerships; so are the sovereign wealth funds; and so are those wonderfully named entities, the conduits...”
~~~~~~~~~~~One Day Left ~~~~~~~~~~~
Closed to New Investors for the Last Six Years — Now Open Again…
The “Chaffee Royalty Program” That Turned Every $1 Into $50
In 2002, the same royalty “paycheck program” that paid out $50 for every $1 invested… decided to shut the door to new “members.”
In 2008, that door is open again…and it just got easier than ever to “make money while you sleep”…
Brand New Report Right Here.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Ferguson then flashed up a series of charts “to illustrate the speed with which these phenomena have proliferated.” First, mortgage-backed securities. Starting in 1980 – “when scarcely any such thing existed” — they total $3.5 trillion-worth today. Then he cited “the whole range” of other newly born asset-backed instruments — automobile loans, equipment loans, student loans, credit card-backed debt derivatives...
“Over the counter derivatives outstanding?” the professor asked. “Well, if you’d asked someone to name that figure in 1987 it would have been a very small number indeed.”
Ferguson’s theme bears repeating; he likens the huge growth in complex financial products to an evolutionary spurt, “an explosion of life forms [amid an] unusually benign climate.”
Whereas I see it more as a chemistry experiment gone horribly wrong. The hare-brained PhDs mixing up the medicine are too spaced out to even guess at what’s now sitting in the Petri dish. And the financial monsters it has spawned aren’t merely in the scientists’ minds.
Take hedge funds, for example; Ferguson notes that in 1990, those financial life forms known as “hedge funds” numbered around 600 (also including funds of funds). Now they’ve reproduced and multiplied up toward 10,000.
“As a form, the hedge fund dates back to the 1940s. But this population explosion is of very recent origin.”
The raw numbers also hide a “regular, annual dying out”; there’s chronic survivorship bias in the data. In 2006, for example, 717 hedge funds were culled; the 2007 figure should be even larger. And here, believes Ferguson, we see survival of the fittest in action. If he’s wrong, perhaps it’s just the contingency of life itself, allowing the standard proportion of idiots to thrive and market their “top decile” performance to a new generation of unwitting investors.
“A lot of reporters ask me these days whether we’re in the midst of a commodity bubble,” said Dr. Benn Steil, senior fellow at the Council on Foreign Relations, at the Hard Assets Conference in New York in mid-May.
“In fact, I’m going to Washington to give a Senate testimony. [Because] my perspective is that the more interesting, and indeed more important, question to ask is whether we’re at the end of what I would call a ‘fiat currency bubble’.”
Like Professor Ferguson, Dr. Steil looks back “to the early 1980s” to find the origins of whatever it is we’re now watching mutate, if not die out.
Under Paul Volker at the Federal Reserve, “inflation, and at least equally importantly inflation expectations, were driven out of the system through a pretty ruthless policy of very tight money, high interest rates. Very tight money.”
What followed was “the golden age of the fiat Dollar” says Steil, reminding us that credit expansion was unshackled from gold in 1971, when Richard Nixon stopped redeeming the U.S. currency for bullion altogether. It took tight money — “very tight money” — to bring the resulting inflation of the 1970s under control.
The fiat money experiment then broke out of the lab with the “explosion” of financial life-forms witnessed from 1980 right up to last summer. Indeed, it all ran just fine until around 2002, when the cost of key raw materials — notably wheat and oil, as in Steil’s charts above — began to shoot higher in terms of Dollars and other government-backed currencies.
Measured against gold prices, however, they’ve barely budged. “That shouldn’t surprise people,” says Steil, “because as we go back to the era of the gold standard from about 1880 until the outbreak of the First World War in 1914, prices around the world in countries that were on the gold standard were also remarkably flat.
“The figure looked just like this. So gold is behaving as it has historically.”
In the hot, fetid climate of low interest rates and surging credit supplies, central bankers like Ben Bernanke and Mervyn King are hallucinating if they think they can control the monsters spawned by the fiat money experiment.
And tripped out on delusions of “minor god” status, these furry freaks really do believe they can talk Wall Street and the City back down from their current wave of “worst crisis ever.”
Regards,
Adrian Ash
BullionVault
Greg’s Endnote: These financial instruments and terms that have cropped up recently have all had a staggering effect on our economy. Much of the current trouble we’re in is centered on these confusing and dangerous financial tools. But that’s not the only trouble we’re facing. A commodities bubble, a fiat money bubble, a crisis in credit. There are more problems than we know about, and we could be headed for very troubled waters soon. Click here to find out what’s coming next…
London, England, U.K.
May 27, 2008
When Albert Hofmann — the Swiss chemist who discovered LSD — passed away at the start of this month, newspaper editors the world over reported it as the death of the man “who experienced the first ever bad trip.”
But Hofmann’s hallucinations seem little worse than most acid-induced visions. Or so people tell us...
“Beginning dizziness,” he wrote in his lab journal for 19 April 1943. Looking to find a stimulant for the circulatory and respiratory systems, he’d just concocted — and taken — a big dose of lysergic acid diethylamide-25.
“Feeling of anxiety,” he noted, before adding in due course “Difficulty in concentration. Visual disturbances. Desire to laugh.”
Finally, Hofmann scrawled the words “most severe crisis” and fled the lab on his bicycle. It seemed to stay stationary even as it wheeled him back home, where his neighbor — who brought him a nice glass of milk to calm him down — appeared as a witch in a colored mask.
~~~~~~~~~~~~~Special~~~~~~~~~~~~~
Which country listed below offers AVERAGE dividend yields of 8.5%?
(Hint…the answer may surprise you.)
(A.) United States
(B.) United Kingdom
(C.) Brazil
(D.) New Zealand
Click here to learn the answer...it’s free!
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
He felt possessed by demons. The furniture in his bedroom began to menace him. All pretty run of the mill stuff if you dabble with psychotropics, in short.
But such “fantastic images” don’t always ease into the sensations of “good fortune and gratitude” Hofmann got to enjoy later that day. Hallucinations can still cause the “most severe crisis” — even without some fool laying Witches Hat by the Incredible String Band on the turntable.
“Inflation will return to the two percent target,” claimed Mervyn King, head of the Bank of England, and one half of the financial furry freak brothers running Anglo-American monetary policy.
“Growth will eventually recover to a sustainable rate.”
Just a central banker’s wide-eyed hallucination? Maybe not. Like Albert Hofmann’s wobbly bike-ride six decades ago, the credit cycle will get us home in good time, ready to turn once again from boom to bubble to bust. But like any powerful psychedelic, the trip gobbled down by Western investors could last much longer than anyone dares hope right now.
And just what was the Governor smoking when he claimed, “In these [current] circumstances, the household saving rate is likely to rise…”?
The Bank of England has been cutting U.K. since December. Its latest Inflation Report says it will continue to cut interest rates “in line with [bond] market expectations,” too.
And U.K. households have grown their savings only once when interest rates fell in the last four-and-half decades. That brief period lasted for two years at the start of the 1990s.
Both before and since — and most markedly during the previous post-war recessions (of 1974 and 1981) — people have tweaked their savings almost precisely in line with changes to the rate of interest, as set by the Bank of England itself.
King’s starry-eyed vision, however, “is part of a rebalancing of the U.K. economy, away from spending and importing, toward saving and exporting,” he told reporters last week.
The sky’s turned all purple in Washington too if U.S. policy-makers think the credit crunch will somehow boost household savings there.
Put another way, “who had heard of collateralized debt obligations just 10 years ago?” as Niall Ferguson, history professor at Harvard, asked in a speech opening New York’s new Museum of Finance back in January this year.
“Collateralized loan obligations? Credit derivatives? These forms of financial instrument are of very recent origin. So are the hedge funds; so are the private equity partnerships; so are the sovereign wealth funds; and so are those wonderfully named entities, the conduits...”
~~~~~~~~~~~One Day Left ~~~~~~~~~~~
Closed to New Investors for the Last Six Years — Now Open Again…
The “Chaffee Royalty Program” That Turned Every $1 Into $50
In 2002, the same royalty “paycheck program” that paid out $50 for every $1 invested… decided to shut the door to new “members.”
In 2008, that door is open again…and it just got easier than ever to “make money while you sleep”…
Brand New Report Right Here.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Ferguson then flashed up a series of charts “to illustrate the speed with which these phenomena have proliferated.” First, mortgage-backed securities. Starting in 1980 – “when scarcely any such thing existed” — they total $3.5 trillion-worth today. Then he cited “the whole range” of other newly born asset-backed instruments — automobile loans, equipment loans, student loans, credit card-backed debt derivatives...
“Over the counter derivatives outstanding?” the professor asked. “Well, if you’d asked someone to name that figure in 1987 it would have been a very small number indeed.”
Ferguson’s theme bears repeating; he likens the huge growth in complex financial products to an evolutionary spurt, “an explosion of life forms [amid an] unusually benign climate.”
Whereas I see it more as a chemistry experiment gone horribly wrong. The hare-brained PhDs mixing up the medicine are too spaced out to even guess at what’s now sitting in the Petri dish. And the financial monsters it has spawned aren’t merely in the scientists’ minds.
Take hedge funds, for example; Ferguson notes that in 1990, those financial life forms known as “hedge funds” numbered around 600 (also including funds of funds). Now they’ve reproduced and multiplied up toward 10,000.
“As a form, the hedge fund dates back to the 1940s. But this population explosion is of very recent origin.”
The raw numbers also hide a “regular, annual dying out”; there’s chronic survivorship bias in the data. In 2006, for example, 717 hedge funds were culled; the 2007 figure should be even larger. And here, believes Ferguson, we see survival of the fittest in action. If he’s wrong, perhaps it’s just the contingency of life itself, allowing the standard proportion of idiots to thrive and market their “top decile” performance to a new generation of unwitting investors.
“A lot of reporters ask me these days whether we’re in the midst of a commodity bubble,” said Dr. Benn Steil, senior fellow at the Council on Foreign Relations, at the Hard Assets Conference in New York in mid-May.
“In fact, I’m going to Washington to give a Senate testimony. [Because] my perspective is that the more interesting, and indeed more important, question to ask is whether we’re at the end of what I would call a ‘fiat currency bubble’.”
Like Professor Ferguson, Dr. Steil looks back “to the early 1980s” to find the origins of whatever it is we’re now watching mutate, if not die out.
Under Paul Volker at the Federal Reserve, “inflation, and at least equally importantly inflation expectations, were driven out of the system through a pretty ruthless policy of very tight money, high interest rates. Very tight money.”
What followed was “the golden age of the fiat Dollar” says Steil, reminding us that credit expansion was unshackled from gold in 1971, when Richard Nixon stopped redeeming the U.S. currency for bullion altogether. It took tight money — “very tight money” — to bring the resulting inflation of the 1970s under control.
The fiat money experiment then broke out of the lab with the “explosion” of financial life-forms witnessed from 1980 right up to last summer. Indeed, it all ran just fine until around 2002, when the cost of key raw materials — notably wheat and oil, as in Steil’s charts above — began to shoot higher in terms of Dollars and other government-backed currencies.
Measured against gold prices, however, they’ve barely budged. “That shouldn’t surprise people,” says Steil, “because as we go back to the era of the gold standard from about 1880 until the outbreak of the First World War in 1914, prices around the world in countries that were on the gold standard were also remarkably flat.
“The figure looked just like this. So gold is behaving as it has historically.”
In the hot, fetid climate of low interest rates and surging credit supplies, central bankers like Ben Bernanke and Mervyn King are hallucinating if they think they can control the monsters spawned by the fiat money experiment.
And tripped out on delusions of “minor god” status, these furry freaks really do believe they can talk Wall Street and the City back down from their current wave of “worst crisis ever.”
Regards,
Adrian Ash
BullionVault
Greg’s Endnote: These financial instruments and terms that have cropped up recently have all had a staggering effect on our economy. Much of the current trouble we’re in is centered on these confusing and dangerous financial tools. But that’s not the only trouble we’re facing. A commodities bubble, a fiat money bubble, a crisis in credit. There are more problems than we know about, and we could be headed for very troubled waters soon. Click here to find out what’s coming next…
Banknotes: Customer service rankings of BofA, Wachovia
In another set of customer service rankings out this week, Bank of America Corp. knocked crosstown rival Wachovia Corp. out of the top spot.
The annual survey, released Thursday by J.D. Power and Associates, polled more than 3,000 consumers who had recently obtained a home equity loan or line of credit. On a 1,000-point scale, Bank of America scored the highest with 811.
Wachovia, which had been No. 1 for the past two years, scored a close third behind SunTrust Banks Inc., with 807.
Both Charlotte banks scored well above the industry average of 780, which rose 14 points over the previous year.
Bank of America spokesman Terry Francisco said the bank was “very gratified by the results of the survey.”
“It's a tribute to our associates throughout the enterprise who strive to provide responsible credit products to our customers,” he said.
Kathleen Von Bergen, a spokeswoman for Wachovia, said the bank was “pleased to be a top-ranking company in this study.”
“Wachovia has a longstanding commitment to customer service, raising the bar for the entire financial services industry,” she added.Both banks have tightened standards for home equity loans as they expect more consumers to default on those loans.
Bank of America had $118 billion in home equity loans on balance in the first quarter, or about 22 percent of consumer loans.
Wachovia had $57.8 billion, also about 22 percent of consumer loans.
The overall increase in happy customers is partly due to trouble in the housing and mortgage markets, which lowered customers' expectations for the home equity lending process, said Tim Ryan, a senior research director at J.D. Power.
Conversely, a J.D. Power survey released Wednesday theorized that trouble in the housing and mortgage markets was also responsible for customers being less satisfied with retail banks, since customers could blame the banks for market problems.
Countrywide Financial Corp., which Bank of America plans to buy this summer, scored 728 in the home-equity survey, placing it last among big lenders. Christina Rexrode
Shares of Countrywide Financial Corp. rose 8.2 percent Thursday after the biggest U.S. home lender set a date for shareholders to vote on a $4 billion takeover by Bank of America Corp.
Setting a firm date for the special shareholders meeting may help quell investor concern that Bank of America will seek a lower price or cancel the deal. The Charlotte bank has repeatedly affirmed its commitment to the purchase and said Wednesday one of its own executives will be in charge of the combined mortgage operations.
“It looks to be beyond the point of no return,” said Paul Miller, an analyst at Friedman Billings Ramsey & Co. in Arlington, Va.
The meeting will be held June 25 at Countrywide's headquarters in Calabasas, Calif., the company said late Wednesday.
Countrywide rose 41 cents to $5.39. Bank of America added 73 cents to $34.60. Bloomberg News
The annual survey, released Thursday by J.D. Power and Associates, polled more than 3,000 consumers who had recently obtained a home equity loan or line of credit. On a 1,000-point scale, Bank of America scored the highest with 811.
Wachovia, which had been No. 1 for the past two years, scored a close third behind SunTrust Banks Inc., with 807.
Both Charlotte banks scored well above the industry average of 780, which rose 14 points over the previous year.
Bank of America spokesman Terry Francisco said the bank was “very gratified by the results of the survey.”
“It's a tribute to our associates throughout the enterprise who strive to provide responsible credit products to our customers,” he said.
Kathleen Von Bergen, a spokeswoman for Wachovia, said the bank was “pleased to be a top-ranking company in this study.”
“Wachovia has a longstanding commitment to customer service, raising the bar for the entire financial services industry,” she added.Both banks have tightened standards for home equity loans as they expect more consumers to default on those loans.
Bank of America had $118 billion in home equity loans on balance in the first quarter, or about 22 percent of consumer loans.
Wachovia had $57.8 billion, also about 22 percent of consumer loans.
The overall increase in happy customers is partly due to trouble in the housing and mortgage markets, which lowered customers' expectations for the home equity lending process, said Tim Ryan, a senior research director at J.D. Power.
Conversely, a J.D. Power survey released Wednesday theorized that trouble in the housing and mortgage markets was also responsible for customers being less satisfied with retail banks, since customers could blame the banks for market problems.
Countrywide Financial Corp., which Bank of America plans to buy this summer, scored 728 in the home-equity survey, placing it last among big lenders. Christina Rexrode
Shares of Countrywide Financial Corp. rose 8.2 percent Thursday after the biggest U.S. home lender set a date for shareholders to vote on a $4 billion takeover by Bank of America Corp.
Setting a firm date for the special shareholders meeting may help quell investor concern that Bank of America will seek a lower price or cancel the deal. The Charlotte bank has repeatedly affirmed its commitment to the purchase and said Wednesday one of its own executives will be in charge of the combined mortgage operations.
“It looks to be beyond the point of no return,” said Paul Miller, an analyst at Friedman Billings Ramsey & Co. in Arlington, Va.
The meeting will be held June 25 at Countrywide's headquarters in Calabasas, Calif., the company said late Wednesday.
Countrywide rose 41 cents to $5.39. Bank of America added 73 cents to $34.60. Bloomberg News
Expectation Shift: Consumer Satisfaction with Home Line of Credit Origination Increases
By PAUL JACKSON
Published: May 29, 2008
Despite an economy affected by a stagnant housing market, decreasing home values and upheaval among lenders, overall customer satisfaction with the home equity line of credit/loan origination process has improved since 2007, according to a study released Thursday by J.D. Power and Associates.
Overall customer satisfaction in 2008 averaged 780 on a 1,000-point scale, increasing by 14 points from 766 in 2007 — surprising results, given the number of lenders that have been pulling back on even existing lines of credit from borrowers who are seeing their available home equity vanish amid a record drop in prices.
Tim Ryan, senior research director of the finance and insurance practice at J.D. Power, said the results likely prove the old adage of “under promise, over deliver.” Consumers are now operating with a different baseline than in the past.
“Ongoing troubles in the housing and mortgage lending markets have had the effect of lowering customer expectations around the home equity loan and line of credit origination process,” Ryan said. “Since homeowners may have feelings of uncertainty toward property values and lenders, they may associate the loan application process with hassle and frustration.”
The result is that those getting a home equity loan or line of credit of all might be pleasantly surprised that they got the loan at all, leading to improved perception of satisfaction — although J.D. Powers’ study found that key measures of service remained flat year over year.
The study found that for consumers shopping for a home equity loan or line of credit lender, closing costs and price — including interest rates and fees — are particularly important considerations.
The best of the best
Bank of America Corp. (BAC: 34.60, 0.00%) ranked highest in satisfying customers who recently obtained a home equity product, receiving an overall index score of 811 and performing particularly well in the application/approval process factor, J.D. Powers said.
SunTrust Banks Inc. (STI: 52.96, 0.00%) — scoring 809 — and Wachovia Corp. (WB: 24.15, 0.00%), with an 807 score, followed Bank of America in the rankings. SunTrust performed particularly well in the loan officer/representative or banker factor, while Wachovia performed well in the closing factor, according to the study.
“Bank of America, SunTrust and Wachovia all perform well in specific areas that are important to customers, including having problem incidence rates and application approval times that are better than the industry average,” said Ryan.
Disclosure: The author held no positions BAC, STI, or WB when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
Published: May 29, 2008
Despite an economy affected by a stagnant housing market, decreasing home values and upheaval among lenders, overall customer satisfaction with the home equity line of credit/loan origination process has improved since 2007, according to a study released Thursday by J.D. Power and Associates.
Overall customer satisfaction in 2008 averaged 780 on a 1,000-point scale, increasing by 14 points from 766 in 2007 — surprising results, given the number of lenders that have been pulling back on even existing lines of credit from borrowers who are seeing their available home equity vanish amid a record drop in prices.
Tim Ryan, senior research director of the finance and insurance practice at J.D. Power, said the results likely prove the old adage of “under promise, over deliver.” Consumers are now operating with a different baseline than in the past.
“Ongoing troubles in the housing and mortgage lending markets have had the effect of lowering customer expectations around the home equity loan and line of credit origination process,” Ryan said. “Since homeowners may have feelings of uncertainty toward property values and lenders, they may associate the loan application process with hassle and frustration.”
The result is that those getting a home equity loan or line of credit of all might be pleasantly surprised that they got the loan at all, leading to improved perception of satisfaction — although J.D. Powers’ study found that key measures of service remained flat year over year.
The study found that for consumers shopping for a home equity loan or line of credit lender, closing costs and price — including interest rates and fees — are particularly important considerations.
The best of the best
Bank of America Corp. (BAC: 34.60, 0.00%) ranked highest in satisfying customers who recently obtained a home equity product, receiving an overall index score of 811 and performing particularly well in the application/approval process factor, J.D. Powers said.
SunTrust Banks Inc. (STI: 52.96, 0.00%) — scoring 809 — and Wachovia Corp. (WB: 24.15, 0.00%), with an 807 score, followed Bank of America in the rankings. SunTrust performed particularly well in the loan officer/representative or banker factor, while Wachovia performed well in the closing factor, according to the study.
“Bank of America, SunTrust and Wachovia all perform well in specific areas that are important to customers, including having problem incidence rates and application approval times that are better than the industry average,” said Ryan.
Disclosure: The author held no positions BAC, STI, or WB when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
Home equity lines of credit NOW DUE!
Posted May 28th 2008 3:00PM by Sheldon Liber
Filed under: Personal finance, Wells Fargo (WFC), Housing
The banks are starting to call in their markers. Home equity lines of credit, also known as HELOCs, were all the rage over the past few years and became very common among homeowners wanting to free up some equity. Perhaps it was for a room addition or college tuition. Maybe it was a 30 foot sail boat or just consolidating credit card bills at the lower interest rates. For me, it was used to create an opportunity fund for real estate investments.
Whatever your deal was, the HELOC landscape is changing rapidly. According to one of my lenders, Wells Fargo Bank (NYSE: WFC), the retail banking industry is looking for safety and liquidity -- and to improve theirs, they may be reducing yours. I have heard the same thing from mortgage brokers and private equity sources.
Lenders have been getting nervous as they watch home values move lower. They were writing equity lines at 80% loan-to-value. To maintain a margin of safety, they are reducing their exposure by calling due any unused portion of the available line. This means that if you had only used $100,000 of your $150,000 equity line you may receive notice in the mail that they are reducing the line to $100,000 and your available cash is zero.
In some cases where the loan-to-value has plummeted, you may even be asked to pay back some of the outstanding balance to align with the banks current loan standards. All this can happen even if your loan has always been current and your credit rating is strong.
There is another reason the banks are calling in the loans and reducing leverage. According to one of my lenders, the banks have to reserve capital to meet their equity line obligations. By reducing the HELOC amounts, they can free up capital for other purposes. In today's very tight credit markets, where bank margins (or spreads) are increasing, they have a lot of incentive to do this.
Like most things, people can readily adapt to the new lending environment if they have reasonable notice. What seems to be getting some borrowers steamed is that the HELOC notices are being sent out with little warning -- so I am warning you now.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.
Filed under: Personal finance, Wells Fargo (WFC), Housing
The banks are starting to call in their markers. Home equity lines of credit, also known as HELOCs, were all the rage over the past few years and became very common among homeowners wanting to free up some equity. Perhaps it was for a room addition or college tuition. Maybe it was a 30 foot sail boat or just consolidating credit card bills at the lower interest rates. For me, it was used to create an opportunity fund for real estate investments.
Whatever your deal was, the HELOC landscape is changing rapidly. According to one of my lenders, Wells Fargo Bank (NYSE: WFC), the retail banking industry is looking for safety and liquidity -- and to improve theirs, they may be reducing yours. I have heard the same thing from mortgage brokers and private equity sources.
Lenders have been getting nervous as they watch home values move lower. They were writing equity lines at 80% loan-to-value. To maintain a margin of safety, they are reducing their exposure by calling due any unused portion of the available line. This means that if you had only used $100,000 of your $150,000 equity line you may receive notice in the mail that they are reducing the line to $100,000 and your available cash is zero.
In some cases where the loan-to-value has plummeted, you may even be asked to pay back some of the outstanding balance to align with the banks current loan standards. All this can happen even if your loan has always been current and your credit rating is strong.
There is another reason the banks are calling in the loans and reducing leverage. According to one of my lenders, the banks have to reserve capital to meet their equity line obligations. By reducing the HELOC amounts, they can free up capital for other purposes. In today's very tight credit markets, where bank margins (or spreads) are increasing, they have a lot of incentive to do this.
Like most things, people can readily adapt to the new lending environment if they have reasonable notice. What seems to be getting some borrowers steamed is that the HELOC notices are being sent out with little warning -- so I am warning you now.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.
Ark. Board of Finance OKs $80M for Student Loan Authority
LITTLE ROCK (AP) - The state Board of Finance has approved a line of credit of up to $80 million for the Arkansas Student Loan Authority.
The student loan authority sought the line of credit so it can make loans to students while waiting for the bond market to stabilize. The money will come from state funds that would have otherwise been put in six-month certificates of deposit.
Last year, the authority funded about $70 million of the $470 million in loans for college students in the 2007-2008 school year.
The student loan authority sought the line of credit so it can make loans to students while waiting for the bond market to stabilize. The money will come from state funds that would have otherwise been put in six-month certificates of deposit.
Last year, the authority funded about $70 million of the $470 million in loans for college students in the 2007-2008 school year.
Bank of America Ranks Highest in Customer Satisfaction with Home Equity Line of Credit/Loan Origination
WESTLAKE VILLAGE, Calif., May 29 /PRNewswire/ -- Despite an economy affected by a stagnant housing market, decreasing home values and upheaval among lenders, overall customer satisfaction with the home equity line of credit/loan origination process has improved since 2007, according to the J.D. Power and Associates 2008 Home Equity Line/Loan Origination Study(SM) released today. Overall customer satisfaction in 2008 averages 780 on a 1,000-point scale, increasing by 14 points from 766 in 2007.
(Logo: http://www.newscom.com/cgi-bin/prnh/20050527/LAF028LOGO-a)
"Ongoing troubles in the housing and mortgage lending markets have had the effect of lowering customer expectations around the home equity loan and line of credit origination process. Since homeowners may have feelings of uncertainty toward property values and lenders, they may associate the loan application process with hassle and frustration," said Tim Ryan, senior research director of the finance and insurance practice at J.D. Power and Associates. "As a result, customers who obtained a home equity product report being more satisfied with the process in 2008, compared with 2007, even though measures of service -- such as the average length of time for application approval -- have remained consistent during the past year."
Now in its third year, the study measures customer satisfaction with home equity lenders. Four factors are examined to determine overall satisfaction. They are, in order of importance: application/approval process (36%); closing (35%); loan officer/representative or banker (26%); and problem resolution (4%).(1)
For consumers shopping for a home equity loan or line of credit lender, closing costs and price -- including interest rates and fees -- are particularly important considerations. Understanding and comparing terms from various lenders may help homeowners obtain a better deal.
"One tip for consumers who are shopping for a home equity loan or line of credit is to contact several lenders and allow them to compete for your business," said Ryan. "Shoppers may be able to secure lower fees and points and better interest rates as a result. In addition, shoppers should make sure they completely understand the terms of their loan before signing the closing papers. If anything is unclear or unexpected, shoppers have the right to receive an explanation, as well as to re-negotiate the terms or to walk away. Another approach is for shoppers to work with their existing lender. Through this lender, shoppers may be able to consolidate multiple accounts, as well as negotiate for -- and obtain -- a competitive interest rate."
Bank of America ranks highest in satisfying customers who recently obtained a home equity product, receiving an overall index score of 811 and performing particularly well in the application/approval process factor. SunTrust (809) and Wachovia (807) follow Bank of America in the rankings. SunTrust performs particularly well in the loan officer/representative or banker factor while Wachovia performs well in the closing factor.
"Bank of America, SunTrust and Wachovia all perform well in specific areas that are important to customers, including having problem incidence rates and application approval times that are better than the industry average," said Ryan. "With high levels of service provided by these and other lenders who have performed well at fulfilling customer expectations, now may be an opportune time for homeowners who qualify to apply for a home equity product. However, those homeowners with lower credit scores or who are in an area where property values have declined may have a more difficult time qualifying for a home equity product under the current circumstances."
The study finds that there are five key performance indicators for lenders that are critical to satisfying customers. These indicators include: approving applications and providing customers with access to their funds quickly; setting and meeting expectations during the application approval process; avoiding surprising the customer during the origination process; being versatile and flexible in the location of the closing; and being mindful of the pitfalls of using a mortgage broker.
The study also finds that lenders that perform well in these performance indicators will increase their percentage of highly committed customers, who are more than twice as likely to recommend their lender to others and to reuse their current lender for their next home equity or mortgage product. In turn, this growth can help these lenders outperform their competitors over time.
The 2008 Home Equity Line/Loan Origination Study is based on responses from 3,176 customers who originated a home equity line/loan between February 2007 and January 2008. The study was fielded in February and March 2008.
About J.D. Power and Associates
Headquartered in Westlake Village, Calif., J.D. Power and Associates is a global marketing information services company operating in key business sectors including market research, forecasting, performance improvement, training and customer satisfaction. The company's quality and satisfaction measurements are based on responses from millions of consumers annually. For more information on car reviews and ratings, car insurance, health insurance, cell phone ratings, and more, please visit JDPower.com. J.D. Power and Associates is a business unit of The McGraw-Hill Companies.
About The McGraw-Hill Companies
Founded in 1888, The McGraw-Hill Companies NYSE: MHP is a leading global information services provider meeting worldwide needs in the financial services, education and business information markets through leading brands such as Standard & Poor's, McGraw-Hill Education, BusinessWeek and J.D. Power and Associates. The Corporation has more than 280 offices in 40 countries. Sales in 2007 were $6.8 billion. Additional information is available at http://www.mcgraw-hill.com.
Media Relations Contacts:
Jeff Perlman Syvetril Perryman
Brandware Public Relations J.D. Power and Associates
Agoura Hills, Calif. Westlake Village, Calif.
(818) 706-1915 (805) 418-8103
jperlman@brandwaregroup.com syvetril.perryman@jdpa.com
No advertising or other promotional use can be made of the information in this release without the express prior written consent of J.D. Power and Associates. http://www.jdpower.com/corporate
Customer Satisfaction Index Ranking J.D. Power.com Power Circle Ratings
(Based on a 1,000-point scale) For Consumers
Bank of America 811 5
SunTrust 809 5
Wachovia 807 5
Chase 791 4
Industry Average 780 3
WaMu/Washington Mutual 773 3
CitiMortgage/Citibank 762 2
National City Bank 756 2
Wells Fargo 755 2
Countrywide Home Loans 728 2
Included in the study, but not ranked due to small sample size, are: Beneficial, Capital One, CitiFinancial, CitiFinancial Mortgage, Citizens Bank, Fifth Third Bank, First Horizon Home Loans, GMAC Mortgage, HSBC Mortgage Corporation, and U.S. Bank.
(1) Percentages may not total 100 due to rounding.
Available Topic Expert(s): For information on the listed expert(s), click
appropriate link.
Rocky Clancy
https://profnet.prnewswire.com/Subscriber/ExpertProfile.aspx?ei=58147
(Logo: http://www.newscom.com/cgi-bin/prnh/20050527/LAF028LOGO-a)
"Ongoing troubles in the housing and mortgage lending markets have had the effect of lowering customer expectations around the home equity loan and line of credit origination process. Since homeowners may have feelings of uncertainty toward property values and lenders, they may associate the loan application process with hassle and frustration," said Tim Ryan, senior research director of the finance and insurance practice at J.D. Power and Associates. "As a result, customers who obtained a home equity product report being more satisfied with the process in 2008, compared with 2007, even though measures of service -- such as the average length of time for application approval -- have remained consistent during the past year."
Now in its third year, the study measures customer satisfaction with home equity lenders. Four factors are examined to determine overall satisfaction. They are, in order of importance: application/approval process (36%); closing (35%); loan officer/representative or banker (26%); and problem resolution (4%).(1)
For consumers shopping for a home equity loan or line of credit lender, closing costs and price -- including interest rates and fees -- are particularly important considerations. Understanding and comparing terms from various lenders may help homeowners obtain a better deal.
"One tip for consumers who are shopping for a home equity loan or line of credit is to contact several lenders and allow them to compete for your business," said Ryan. "Shoppers may be able to secure lower fees and points and better interest rates as a result. In addition, shoppers should make sure they completely understand the terms of their loan before signing the closing papers. If anything is unclear or unexpected, shoppers have the right to receive an explanation, as well as to re-negotiate the terms or to walk away. Another approach is for shoppers to work with their existing lender. Through this lender, shoppers may be able to consolidate multiple accounts, as well as negotiate for -- and obtain -- a competitive interest rate."
Bank of America ranks highest in satisfying customers who recently obtained a home equity product, receiving an overall index score of 811 and performing particularly well in the application/approval process factor. SunTrust (809) and Wachovia (807) follow Bank of America in the rankings. SunTrust performs particularly well in the loan officer/representative or banker factor while Wachovia performs well in the closing factor.
"Bank of America, SunTrust and Wachovia all perform well in specific areas that are important to customers, including having problem incidence rates and application approval times that are better than the industry average," said Ryan. "With high levels of service provided by these and other lenders who have performed well at fulfilling customer expectations, now may be an opportune time for homeowners who qualify to apply for a home equity product. However, those homeowners with lower credit scores or who are in an area where property values have declined may have a more difficult time qualifying for a home equity product under the current circumstances."
The study finds that there are five key performance indicators for lenders that are critical to satisfying customers. These indicators include: approving applications and providing customers with access to their funds quickly; setting and meeting expectations during the application approval process; avoiding surprising the customer during the origination process; being versatile and flexible in the location of the closing; and being mindful of the pitfalls of using a mortgage broker.
The study also finds that lenders that perform well in these performance indicators will increase their percentage of highly committed customers, who are more than twice as likely to recommend their lender to others and to reuse their current lender for their next home equity or mortgage product. In turn, this growth can help these lenders outperform their competitors over time.
The 2008 Home Equity Line/Loan Origination Study is based on responses from 3,176 customers who originated a home equity line/loan between February 2007 and January 2008. The study was fielded in February and March 2008.
About J.D. Power and Associates
Headquartered in Westlake Village, Calif., J.D. Power and Associates is a global marketing information services company operating in key business sectors including market research, forecasting, performance improvement, training and customer satisfaction. The company's quality and satisfaction measurements are based on responses from millions of consumers annually. For more information on car reviews and ratings, car insurance, health insurance, cell phone ratings, and more, please visit JDPower.com. J.D. Power and Associates is a business unit of The McGraw-Hill Companies.
About The McGraw-Hill Companies
Founded in 1888, The McGraw-Hill Companies NYSE: MHP is a leading global information services provider meeting worldwide needs in the financial services, education and business information markets through leading brands such as Standard & Poor's, McGraw-Hill Education, BusinessWeek and J.D. Power and Associates. The Corporation has more than 280 offices in 40 countries. Sales in 2007 were $6.8 billion. Additional information is available at http://www.mcgraw-hill.com.
Media Relations Contacts:
Jeff Perlman Syvetril Perryman
Brandware Public Relations J.D. Power and Associates
Agoura Hills, Calif. Westlake Village, Calif.
(818) 706-1915 (805) 418-8103
jperlman@brandwaregroup.com syvetril.perryman@jdpa.com
No advertising or other promotional use can be made of the information in this release without the express prior written consent of J.D. Power and Associates. http://www.jdpower.com/corporate
Customer Satisfaction Index Ranking J.D. Power.com Power Circle Ratings
(Based on a 1,000-point scale) For Consumers
Bank of America 811 5
SunTrust 809 5
Wachovia 807 5
Chase 791 4
Industry Average 780 3
WaMu/Washington Mutual 773 3
CitiMortgage/Citibank 762 2
National City Bank 756 2
Wells Fargo 755 2
Countrywide Home Loans 728 2
Included in the study, but not ranked due to small sample size, are: Beneficial, Capital One, CitiFinancial, CitiFinancial Mortgage, Citizens Bank, Fifth Third Bank, First Horizon Home Loans, GMAC Mortgage, HSBC Mortgage Corporation, and U.S. Bank.
(1) Percentages may not total 100 due to rounding.
Available Topic Expert(s): For information on the listed expert(s), click
appropriate link.
Rocky Clancy
https://profnet.prnewswire.com/Subscriber/ExpertProfile.aspx?ei=58147
Business Financing
One of the biggest stumbling blocks for a new business owner is acquiring financing for the early costs of establishing the business. Unless you have an established banking relationship or collateral to put down, few banks or lenders are willing to make a loan without a personal guarantee of some sort. It makes sense for a homeowner to turn to their largest asset as collateral. A home equity loan or line of credit is often the easiest way for a new business owner to acquire a sum of money that can be used to fund their business startup.
The Case against Home Equity Business Financing
Financial experts almost unanimously warn against using your home as financing for a business. It’s a risky move. If your business fails, you could be putting your home in danger. Since most entrepreneurs begin a business with the intent of supporting their families, does it really make sense to put your family’s biggest asset at risk?
On the other hand, your home is the biggest asset. Using it as collateral can be a very cost-effective way of financing a new beginning. Home equity loans often carry the lowest rates of interest of any other type of loan. Add to that the fact that many banks will require a personal guarantee for a business loan to a startup, and the effect is about the same. You’ll still be personally liable for paying the money back if your business fails.
The trick is to borrow smart. Before you decide to put your house on line to finance your business, do a bit of soul-searching and a lot of research. Here are some factors to consider before you decide to put your home up as collateral for a business loan.
1. Are you counting on the success of the business to pay back the loan?
Keep in mind that most business concerns do not turn a profit within the first year. Can you make payments on a home equity loan for a year without tapping business profits? If you can, then a home equity loan may be a good option for you. Even if the business fails, as long as you know you can make the payments on your loan, your home is safe.
2. Is a home equity line of credit an option?
A home equity loan makes sense if you need a chunk of money to purchase equipment and pay starting expenses. A home equity line of credit has a number of advantages over a closed-end loan under some conditions. While you may be paying slightly higher interest rates on a line of credit, one of the biggest advantages is the revolving feature. In other words, when you pay back money on a line of credit, it becomes available for you to borrow against again. A second advantage is that you’ll only be paying interest on what you actually owe. A home equity line of credit for business purposes is a good way to have cash in reserves for emergencies without having to pay interest on it until you use it.
3. Do you have an exit plan?
One of the biggest failings for most business owners is that they fail to plan for failure as well as success. We all hope that our businesses will be wildly successful, and it’s easy to make big plans based on that dream. But there’s a real danger in not planning what you’ll do in case of failure. At what point will you decide that enough is enough, and what steps will you take to get out with the least possible damage? Deciding when to call it quits can save you from disaster if the business doesn’t fly as high as you hoped.
4. Should you tell your lender that your loan is for business?
While home equity loans can generally be used for any purpose, including funding a new business, some loan experts recommend against volunteering the information to your lender. They may feel obligated to direct you to the commercial lending arm of their institution if that’s bank policy. If, on the other hand, you are asked directly, it’s best to be honest. Lying about your purpose for the loan could be construed as misrepresentation and open you to charges of fraud. Misrepresenting yourself could also negate the loan and call it due immediately.
The Case against Home Equity Business Financing
Financial experts almost unanimously warn against using your home as financing for a business. It’s a risky move. If your business fails, you could be putting your home in danger. Since most entrepreneurs begin a business with the intent of supporting their families, does it really make sense to put your family’s biggest asset at risk?
On the other hand, your home is the biggest asset. Using it as collateral can be a very cost-effective way of financing a new beginning. Home equity loans often carry the lowest rates of interest of any other type of loan. Add to that the fact that many banks will require a personal guarantee for a business loan to a startup, and the effect is about the same. You’ll still be personally liable for paying the money back if your business fails.
The trick is to borrow smart. Before you decide to put your house on line to finance your business, do a bit of soul-searching and a lot of research. Here are some factors to consider before you decide to put your home up as collateral for a business loan.
1. Are you counting on the success of the business to pay back the loan?
Keep in mind that most business concerns do not turn a profit within the first year. Can you make payments on a home equity loan for a year without tapping business profits? If you can, then a home equity loan may be a good option for you. Even if the business fails, as long as you know you can make the payments on your loan, your home is safe.
2. Is a home equity line of credit an option?
A home equity loan makes sense if you need a chunk of money to purchase equipment and pay starting expenses. A home equity line of credit has a number of advantages over a closed-end loan under some conditions. While you may be paying slightly higher interest rates on a line of credit, one of the biggest advantages is the revolving feature. In other words, when you pay back money on a line of credit, it becomes available for you to borrow against again. A second advantage is that you’ll only be paying interest on what you actually owe. A home equity line of credit for business purposes is a good way to have cash in reserves for emergencies without having to pay interest on it until you use it.
3. Do you have an exit plan?
One of the biggest failings for most business owners is that they fail to plan for failure as well as success. We all hope that our businesses will be wildly successful, and it’s easy to make big plans based on that dream. But there’s a real danger in not planning what you’ll do in case of failure. At what point will you decide that enough is enough, and what steps will you take to get out with the least possible damage? Deciding when to call it quits can save you from disaster if the business doesn’t fly as high as you hoped.
4. Should you tell your lender that your loan is for business?
While home equity loans can generally be used for any purpose, including funding a new business, some loan experts recommend against volunteering the information to your lender. They may feel obligated to direct you to the commercial lending arm of their institution if that’s bank policy. If, on the other hand, you are asked directly, it’s best to be honest. Lying about your purpose for the loan could be construed as misrepresentation and open you to charges of fraud. Misrepresenting yourself could also negate the loan and call it due immediately.
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