Posts filed under ‘Economy’

Don’t Forget About NY’s Homestead Exemption

NY’s Homestead Exemption has been around since1850 but wasn’t big enough to provide much of a concern to creditors until the last decade.  This exemption, like others across the country, shields equity in a principal dwelling up to a statutorily prescribed dollar amount from application of a judgment lien.  A recent decision by the Court of Appeals for the Second Circuit that retroactively applied homestead exemption increases further puts creditors on notice that they may not have as much equity to go after as they thought.

Just how much has NY’s homestead exemption increased? It was increased from $10,000 in 1977 to $50,000 in 2005 and now stands at a baseline of $75,000 in 2010 with regional differentials that make it as high  as $150,000 in certain counties.

So, you all should take note of a decision by the Court of Appeals for the Second Circuit which answered the following question: Does the 2005 Amendment’s increased homestead exemption apply to judgment liens perfected prior to the amendment’s effective date? The answer is yes.

When Tanya Calloway filed for Chapter 7 bankruptcy in 2009, her house was valued at $110,000 with $85,000 remaining on her mortgage. If the pre-2005 homestead exemption applied then there was still money the creditors could go after but if the $50,000 exemption applied then the creditors were out of luck. 1256 Hertel Ave. Associates, LLC v. Calloway, 12-1603-BK, 2014 WL 3765864.

Deciding the issue for the first time, the Court concluded that “[a]lthough the Legislature made no specific pronouncement as to the 2005 Amendment’s effect on pre-enactment debts, the statute’s legislative history reflects a clear sense of urgency that the homestead exemption limit be immediately adjusted to bring it in line with modern home values.”

This ruling just applied to the retroactively of the Legislature’s 2005 homestead exemptions; however, I would work on the assumption that if you have a judgment lien on someone’s principal dwelling, the court will apply the exemption in effect at the time you move to enforce the judgment. Given how high NY’s homestead exemption is now, your liens may not be worth the paper they are printed on.    

European News Impacts Your Search For Yield

News out of Europe this morning that Germany’s GDP shrank and that Europe’s nascent economic recovery ground to a halt will further complicate the search for yield. Here’s why.

First, the yield on the German 10-year bond has actually fallen below 1% for the first time in history. At first blush, this makes no sense.   Since interest rates and bond prices have an inverse relationship, why should the cost of buying a German bond increase? Because, like U.S. Treasuries in the dark days of 2008, when the economy is bleakest, investors ultimately want to put their money in the economy where it is safest. This is kind of interesting, Henry, you may be musing, but how does it affect me?

Because, as explained in this article, “low yields in Europe remind us that the current 2.4% yield on the 10-year [U.S.] Treasury Note is actually relatively high.” In other words, if there is no lack of demand for U.S. debt at current rates, then don’t expect that to change in the near future.

August 14, 2014 at 9:10 am Leave a comment

Who Rules The Bond Market?

There are some issues that represent such an important shift in the way the broader financial sector operates that they are important to know about even if they don’t impact credit unions directly. Besides, they are just interesting.

One of these developments comes in the form of news that Argentina is on the verge of defaulting on its government bonds. This is no run of the mill default as it could be precedent-setting by giving U.S. courts the upper hand in enforcing judgments against nations. Not only that, it underscores just how powerful those information subpoenas you receive are, provided they are valid.

There is a long history of foreign governments refusing to enforce judicial rulings by U.S. courts seeking to enforce money judgments. As far back as 1832 when Chief Justice John Marshall ruled that the federal government and not the states had authority to negotiate with tribes to purchase land owned by Indian tribes in Georgia  (Worcester v. Georgia (1832), President Jackson allegedly responded with his famous retort, Marshall made his ruling, now let him try to enforce it.

Similarly, when it comes to bonds issued by a foreign nation the conventional wisdom has been that there is only so much bondholders can do to redeem assets to pay off bond defaults. So when the Argentinian government defaulted on its bonds in the first years of this century, the vast majority of bondholders took the reduced payouts reasoning that it’s better to get half a loaf than no bread at all. However, a handful of bondholders held out for full payment.  With the aid of some of the best lawyering you are ever going to see, these holdouts have backed the Government of Argentina into a corner.

Typically, Argentina would pay the American bondholders who accepted the modified payouts independent of what it owes to the hold outs. However, Judge Gleason of the Federal Court for the Southern District of New York issued an order mandating that, as explained by the New York Law Journal,   “the next time the ‘exchange’ debt holders are paid by Argentina, and the country is expected to pay them $900 million, the country must pay one of the hold outs $1.3 billion, plus interest, or about $1.5 billion.”  Presumably, if Argentina chooses to ignore this order, the holdouts could attach any payouts to other bondholders.

In addition, the legal wrangling underscores just how powerful those third-party information subpoenas are. In a 2012 case before the Second Circuit, which has jurisdiction over New York credit unions, The holdouts argued that subpoenas against third-party banks holding assets in a foreign country are valid-even if the money sought is ultimately out of the creditors reach. Why does this matter? Because as the Court explained, “New York State’s post-judgment discovery procedures, made applicable to proceedings in aid of execution by Federal Rule 69(a)(1), have a similarly broad sweep. The New York Civil Practice Law and Rules provides that a “judgment creditor may compel disclosure of all matter relevant to the satisfaction of the judgment.” N.Y. C.P.L.R. § 5223; see David D. Siegel, New York Practice § 509 (5th ed. 2011) (describing § 5223 as “a broad criterion authorizing investigation through any person shown to have any light to shed on the subject of the judgment debtor’s [**6] assets or their whereabouts”).

But remember, an information subpoena under NY law is only valid if it is properly issued and that includes mandating that the creditor have a good faith reason for thinking that money may be stowed away in your accounts.

By the way, I would still bet that the issue will be resolved sometime today short of default, but no matter what happens the power of U.S. courts and creditor subpoenas have been given a big shot in the arm. Can you imagine if Europe had to negotiate with New York judges before restructuring Greek debt? This is the type of power we are talking about. As former Presidential Advisor James Carville once quipped, when he comes back to life he wants it to be as the bond market.

 

July 31, 2014 at 9:40 am Leave a comment

5 Steps to Minimize Your Cyber-liability

I’m here to tell you this morning that you will be breached and if you have been already, you will be again.  Cybercriminals are chameleons and they have the money to quickly adjust to the latest techniques meant to stop them.

For example, remember when “dual authentication” of your customer accounts was all the rage in IT security circles? The FFEIC even came out with a guidance mandating that depository institutions implement systems that demonstrate two forms of identification. It was originally updated in 2005 and updated again in 2012 to emphasize the need to “layer” your IT security.

To what do I owe my gloomy morning forecast?  Two informative posts, one by the CU Times and the other by the Information Technology Website underscored just how fast moving the game of cyber security cat and mouse is and unfortunately the bad guys win fairly often. Specifically, hackers have broken into 34 banks in Asia and Europe by bypassing a dual authentication system developed by Android and used for online banking. Check with your IT people to get the technical details, but the basic idea is that they used email requests to lure customers to a fake website. Marks opened the door to hackers by opening the email and going to the site through which the hackers could steal all the information they needed to get by the dual authentication system. What is astounding the experts is that the banks used SMS technology, which requires a customer to enter a new password every time they access an account. This is above and beyond what most U.S. credit unions and banks require.

So, is there anything you can do to mitigate the risk beyond making sure that you have a good computer person on speed dial?  In looking at cases examining the liability of financial institutions for data breaches, here are some of the points I would keep in mind. Although many of them are most relevant to those of you who offer business accounts, NCUA regulations require all of you to identify and monitor the “red flags” of identity theft on an ongoing basis.

  • Member and staff education is key. Your security is only as effective as your most careless employee or technologically “savvy” member.
  • In assessing commercial reasonableness of online business accounts, which are regulated by Article 4A of the UCC, courts consider (1) security measures that the credit union and customer agree to implement, and (2) security measures that the credit union offers to the customer but the customer declines. Make sure this is in writing and, if possible, attached to the contract.
  • You must respond to changing threats by offering new mitigation techniques. For example, remember now that hackers can electronically impersonate an employee, dual control and not dual authentication is becoming the baseline standard. This way, hackers have to obtain the login information for two employees before transferring money.
  • Here is the good news. Commercially reasonable and regulatory standards vary depending the size and sophistication of your credit union. However, this means that the policies and procedures you adopt must be unique to your credit union based on its resources and risk profile. This is one area where cutting and pasting a colleague’s policies the day before the examiner comes calling won’t cut it in the long run.
  • Similarly, the vendor contract really matters. Most of you will use vendors to implement your cyber banking. How much must the vendor indemnify you if its negligence causes a breach? Are both parties legally obligated to monitor developments in cybercrime and update protocols when appropriate? Are these changes integrated into your security procedures? These are all questions that, if asked, can help mitigate losses and maintain member confidence in your electronic banking.

Second Quarter GDP Growth Stronger Than Expected

A few minutes ago, news came out that second quarter GDP growth grew at a 4% rate, beating the expectations of economists.  In addition, the Government is reporting that household spending increased by 2.5%.

 

 

July 30, 2014 at 9:21 am Leave a comment

UPDATED: Busy day in DC..sort of

July 16, 2014 at 8:55 am Leave a comment Edit

WARNING: The following blog is predicated on the assumption and\or delusion that Congress has both the ability and inclination to not just talk about the nation’s challenges but to do something about them

Good morning-Yesterday was a busy day in the public policy arena. Here is a quick review of some of the highlights

Credit Union Reg Relief TestimonyDouglas A Fecher, CEO of Wright-Patt Credit Union, delivered testimony on behalf of CUNA before a House Financial Services Sub Committee. The testimony highlighted an increasingly long list of needed reforms-ranging from putting the brakes on the Justice Department’s “Operation Choke Point” before it chokes off legitimate business activity, to forcing NCUA to scale back some of its proposed RBC asset weighting. CUNA estimates that, since 2008, credit unions have been subjected to 180 regulatory changes from 15 different agencies. The testimony is available here: http://financialservices.house.gov/uploadedfiles/hhrg-113-ba15-wstate-dfecher-20140715.pdf

Warren is must see T.V. Even though I disagree with about 90 percent of what she has to say, Elizabeth Warren, the Birth-Mother of the CFPB and the current Senator from Massachusetts is good for America if only because she is one of the few politicians willing to publicly say how little is being done to prevent Too-Big-To-Fail banks from failing again at taxpayer expense. In this increasingly exasperated exchange with Fed Chairman Yellen Warren points out that so called “living wills,” which are  intended to provide for blueprints for the  orderly liquidation of the Behemoth banks, aren’t worth the paper they are printed on if the Fed doesn’t force institutions to make the changes necessary to allow for orderly liquidation. Yellen suggests that the Fed role in the process is merely advisory.  http://www.huffingtonpost.com/2014/07/15/too-big-to-fail_n_5588558.html

The Feds Outlook Chairman Yellen’s written testimony before Congress didn’t break much new ground. She did indicate that it remains on track to stop the “twist” bond buying program. In addition, even though the economy is improving she still sees enough slack in it to keep from raising interest rates. The WSJ is reporting that she “hedged” on interest rates but every Chairman hedges on interest rates. http://www.federalreserve.gov/newsevents/testimony/yellen20140715a.htm

Senator George D. Maziarz Calls it quitsThe long serving Western New York Republican’s departure means that there are now  four open seats in the State Senate. Republicans have to protect these seats and gain three in order to keep Senate Democrats from taking control of the Senate now that the Independent Democratic Caucus is backing the democrats to lead the chamber. http://www.buffalonews.com/city-region/all-niagara-county/george-maziarz-on-federal-probe-i-have-nothing-to-hide-20140713

On Mortgage meltdowns and prayers NY is slated to receive $92,000,000.00 from the Justice Department’s 7 billion settlement with Citigroup over its shoddy underwriting practices for Mortgage Backed Securities but what really caught my eye was this quote from a Citi trader cited in the settlement papers : The trader stated that Citi should pray and explained that he“… would not be surprised if half of these loans went down. There are a lot of loans that have unreasonable incomes, values below the original appraisals (CLTV would be >100), etc. It’s amazing that some of these loans were closed at all.” http://www.justice.gov/iso/opa/resources/558201471413645397758.pdf

 

July 16, 2014 at 9:23 am Leave a comment

Busy day in DC..sort of

WARNING: The following blog is predicated on the assumption and\or delusion that Congress has both the ability and inclination to not just talk about the nation’s challenges but to do something about them

Good morning-Yesterday was a busy day in the public policy arena. Here is a quick review of some of the highlights

Credit Union Reg Relief TestimonyDouglas A Fecher, CEO of Wright-Patt Credit Union, delivered testimony on behalf of CUNA before a House Financial Services Sub Committee. The testimony highlighted an increasingly long list of needed reforms-ranging from putting the brakes on the Justice Department’s “Operation Choke Point” before it chokes off legitimate business activity, to forcing NCUA to scale back some of its proposed RBC asset weighting. CUNA estimates that, since 2008, credit unions have been subjected to 180 regulatory changes from 15 different agencies. The testimony is available here: http://financialservices.house.gov/uploadedfiles/hhrg-113-ba15-wstate-dfecher-20140715.pdf

Warren is must see T.V. Even though I disagree with about 90 percent of what she has to say, Elizabeth Warren, the Birth-Mother of the CFPB and the current Senator from Massachusetts is good for America if only because she is one of the few politicians willing to publicly say how little is being done to prevent Too-Big-To-Fail banks from failing again at taxpayer expense. In this increasingly exasperated exchange with Fed Chairman Yellen Warren points out that so called “living wills,” which are  intended to provide for blueprints for the  orderly liquidation of the Behemoth banks, aren’t worth the paper they are printed on if the Fed doesn’t force institutions to make the changes necessary to allow for orderly liquidation. Yellen suggests that the Fed role in the process is merely advisory.  http://www.huffingtonpost.com/2014/07/15/too-big-to-fail_n_5588558.html

The Feds Outlook Chairman Yellen’s written testimony before Congress didn’t break much new ground. She did indicate that it remains on track to stop the “twist” bond buying program. In addition, even though the economy is improving she still sees enough slack in it to keep from raising interest rates. The WSJ is reporting that she “hedged” on interest rates but every Chairman hedges on interest rates. http://www.federalreserve.gov/newsevents/testimony/yellen20140715a.htm

Senator George D. Maziarz Calls it quitsThe long serving Western New York Republican’s departure means that there are now  four open seats in the State Senate. Republicans have to protect these seats and gain three in order to keep Senate Democrats from taking control of the Senate now that the Independent Democratic Caucus is backing the democrats to lead the chamber. http://www.buffalonews.com/city-region/all-niagara-county/george-maziarz-on-federal-probe-i-have-nothing-to-hide-20140713

On Mortgage meltdowns and prayers NY is slated to receive $92,000,000.00 from the Justice Department’s 7 billion settlement with Citi Bank over its shoddy underwriting practices for Mortgage Backed Securities but what really caught my eye was this quote from a Citi trader cited in the settlement papers : The trader stated that Citi should pray and explained that he“… would not be surprised if half of these loans went down. There are a lot of loans that have unreasonable incomes, values below the original appraisals (CLTV would be >100), etc. It’s amazing that some of these loans were closed at all.” http://www.justice.gov/iso/opa/resources/558201471413645397758.pdf

 

July 16, 2014 at 8:55 am 1 comment

Pres: We Need More Banking Reform

In a recent interview, President Obama suggested that what the country needs is more banking reform. Speaking on MarketPlace Radio last Wednesday, the President was asked whether Dodd-Frank had worked since mega banks are as big as ever? After going through the usual litany of Dodd-Frank accomplishments – i.e., the CFPB and so-called “living wills,” as well as increased capital requirements, the President changed his tone:

“Here’s the problem, the problem is that for 60 years, we’ve seen the financial sector grow massively. Now, it’s a great strength of our economies that we’ve got the deepest, strongest capital markets in the world, but what has also happened is that as the financial sector has grown, more and more of the revenue generated on Wall Street is based on arbitrage — trading bets — as opposed to investing in companies that actually make something and hire people. And so, what I’ve said to my economic team, is that we have to continue to see how can we rebalance the economy sensibly, so that we have a banking system that is doing what it is supposed to be doing to grow the real economy, but not a situation in which we continue to see a lot of these banks take big risks because the profit incentive and the bonus incentive is there for them. That is an unfinished piece of business, but that doesn’t detract from the important stabilization functions that Dodd-Frank was designed to address.”

Now, to be clear, politics being politics the White House quickly got out the word that the President’s comments didn’t mean that another push for banking reform was on its way. And there was speculation as to whether the President actually meant what he said or if his comments were simply intended to preempt criticism of Dodd-Frank in advance of its upcoming anniversary.

But the President’s comments reveal an inconvenient truth of which anyone who has tried to implement Dodd-Frank is aware: Congress and the President have done precious little to prevent another financial crisis. The too big to fail banks are still too big and with finance taking on an increasingly important role in the economy as a whole, reform of the banking system – such as reinstating boundaries between investment and commercial banking – are now all but impossible to achieve. The President had his chance, and he did not go far enough. For my money, it will go down as the greatest failure of his Presidency,

Unfortunately, credit unions are still left with the financial burden of complying with Dodd-Frank inspired mandates that are making it increasingly difficult for them to provide the types of products and services that got them into the business in the first place.  In the meantime, the reality that major banks are “too big to fail” does give them a competitive advantage over their smaller counterparts. To steal a favorite political metaphor, the banks went through the car wash with the windows down and credit unions got wet.

True banking reform is not going to happen, but maybe, just maybe, with both Republicans and Democrats criticizing aspects of Dodd-Frank now’s a good time to push once again for mandate relief. At the top of my list would be an outright exemption from Dodd-Frank mortgage requirements for all credit unions. There is no evidence that credit unions caused the financial crisis, yet there is lots of evidence that Dodd-Frank is increasing costs for credit unions. There is also no good reason why credit unions should have to bear the costs for institutions that Congress doesn’t have the stomach to truly regulate.

Employment Numbers

The government reported stronger than expected job growth in June with the economy adding 280,000 new jobs. In addition, the growth was spread over a large cross-section of industries providing the best evidence yet for those of you who see the economic glass as half full. About the only negative I could find in the report is that the workforce participation rate was unchanged. People are already arguing that the jobs report is a signal that the Fed should move up its timeline for raising short term interest rates. There are some great arguments for why this approach is short sighted, but the blog has already gone on longer than I wanted.

Good luck making it through today after a nice long weekend. My advice: more coffee – lots and lots of coffee.

July 7, 2014 at 8:50 am Leave a comment

What The HELOC Is Going On Here?

There are some things that just make no sense to me. For example, why can’t a country of 270 million sports loving citizens, many of whom grew up playing soccer, find 23 people good enough to make us one of the best soccer teams in the world? I’m sorry, there’s only so much pride I can take in beating Ghana.

Another mystery of more practical concern is trying to figure out how great a risk resetting Home Equity Lines of Credit (HELOC) pose to financial institutions in particular and the economy as a whole. Since the start of the Great Recession, pundits have been predicting a second wave foreclosure crisis as the draw periods on HELOCS come to an end. With so many people still struggling and interest rates likely to rise, it seems logical to assume that problems are on the horizon. But, so far, the worst case scenarios haven’t materialized.

Nevertheless, if I was a regulator, I would be a little nervous, which is why I’m not surprised that a joint guidance was issued yesterday instructing financial institutions, including credit unions, to take steps to mitigate against the risks posed by HELOCS which are coming to the end of their draw periods. Among other things, examiners will generally be reviewing how cognizant your credit union is of its HELOC portfolio and the risks posed by pending repayment periods. The amount of scrutiny will vary depending on your credit union’s size, but examiners will be reviewing, among other things, if your credit union is:

  • Developing a clear picture of scheduled end-of-draw period exposures;
  • Ensuring a full understanding of end-of-draw contract provisions;
  • Evaluating near-term risks;
  • Contacting borrowers through outreach programs;
  • Ensuring that refinancing, renewal, workout, and modification programs are consistent with regulatory guidance and expectations, including consumer protection laws and regulations;
  • Establishing clear internal guidelines, criteria, and processes for end-of-draw actions and alternatives; and
  • Documenting the link between ALLL methodologies and end-of-draw performance.

This is not a definitive list, but you get the idea.

Why are our regulatory overlords releasing this guidance now? For one thing, resets on HELOCS are expected to accelerate this year and peak between now and 2017, according to this article in National Mortgage News which warns that there is little the Government can do if the housing sector experiences a wave of second-lien induced foreclosures.

Then, of course, there is the fear that rising interest rates will squeeze consumers since most HELOC payments are tied to interest rates.  Last, but not least, is the reality that people are again turning to HELOCS to tap equity in their homes. According to the WSJ, HELOCS are up 8% this year and “While that is still far below the peak of $113 billion during the third quarter of 2006, this year’s gains are the latest evidence that the tight credit conditions that have defined mortgage lending in recent years are starting to loosen. Some lenders are even reviving old loan products that haven’t been seen in years in an attempt to gain market share.” Oh, boy.

Is this yet more proof that consumers and many lenders didn’t learn a darn thing from the last seven years? You bet.  Enjoy your Fourth. I will be back on Monday.

 

 

 

 

July 2, 2014 at 8:41 am 1 comment

Guess Who Has The Most Stable Housing Market In America?

Buffalo, New York, has the most stable housing market in America. According to research conducted on behalf of Bloomberg.com, Buffalo is followed by Pittsburgh, Louisville, Nashville and Raleigh, NC.

Working with Zillow, Bloomberg analyzed housing prices since 1979 for the 50 largest housing markets using a five year rolling average to calculate changes in home prices. The result shows that you may not strike it rich buying that home in Buffalo, but you won’t lose your shirt either. The data shows that over the last 35 years, Buffalo homeowners had “virtually no chance” of losing money on their house. In contrast, the same can’t be said for Hartford, Connecticut at the bottom of the list.

Some of those areas on the least stable list are awfully nice places to live so what’s the difference? One agent pointed out that your typical Buffalo buyer is planning to stay in the area for the long-term. Buffalo isn’t where you go to invest in a second home or flip houses.

By the way, in commenting to NCUA many NY credit unions argued that NCUA’s proposed risk weightings for mortgage concentrations were too severe because they didn’t take into account a credit union’s track record in making well performing mortgages. This research provides one more piece of evidence that not all mortgage loans are equal. Hopefully, NCUA will take that into account in finalizing its RBC framework.

Court Says Localities Can Block Hydro-fracking

Remember when high powered hydro-fracking was a big issue, with New York’s Department of Environmental Conservation analyzing the potential impact of its widespread use in the Southern Tier? There hasn’t been much movement on the issue since the Department of Health was tasked with analyzing its health effects in 2012 and has yet to reach its conclusions. In the meantime, a statewide moratorium on the process remains in effect.

But yesterday, the NY Court of Appeals — our highest Court — ruled that localities could use local zoning laws to block hydro-fracking even if the state authorizes it.

This may be another setback for drillers or it might actually allow the state to lift the moratorium because only towns that want the drilling are going to get it. Remember, the issue is important to credit unions that should insure their interest in mortgaged property is adequately protected in the event that a member wants to lease out their property for oil drilling.

 

 

July 1, 2014 at 8:33 am Leave a comment

New York Atty. Gen. Scrutinizes Use of Applicant Screening Services

Yesterday afternoon, New York Attorney General Eric T. Schneiderman announced an agreement with Capital One Bank under which the bank has agreed to stop using ChexSystems to review the payment history of persons seeking to open an account.  Instead, the system will simply be used to assess fraud risk.
“No one – least of all struggling New Yorkers – should be forced to rely on high-cost alternatives to banks just because they bounced a check or were a victim of identity theft,” Attorney General Schneiderman said. “Equal access is the least we can do to ensure that all New Yorkers have access to widely used services such as our nation’s banking system. I commend Capital One for stepping up and working with us to help eliminate an unnecessary barrier to opening a checking or savings account. I would hope other banks will step up and join us to do the same.”
This is a very carefully worded announcement. Although the AG hopes that this agreement becomes a model for large banks and credit unions, many of which use ChexSystems or other similar services for applicant screening, Capital One is not accused of engaging in illegal conduct nor is there anything illegal about reviewing an individual’s paying history when opening an account. Clearly, however, the AG is concerned that such practices may have a disparate impact on low-income New Yorkers. At this point, I wouldn’t change any of my account opening practices, but if I used ChexSysems or similar services I might want to take a quick look at the criteria being used to screen out potential applicants and make sure it is necessary.

Keeping in mind that this is just one man’s opinion, while the millions of unbanked across the nation is a serious problem, I find it hard to believe that basic account due diligence is a major contributor to this dilemma. If the Attorney General had statistics showing otherwise, I would love to see them.

IMF Forecast Sluggish U.S. Growth As Far As The Eye Can See

For those of you into this kind of thing, the International Monetary Fund released its annual assessment of the U.S. economy and it predicts sluggish growth of 2% for the next several years. This means that the IMF doesn’t see much reason to expect interest rates to spike anytime soon. It would also like to see policymakers take steps to improve the nation’s infrastructure, education and tax systems.

On that cheery note, have a great day.

June 17, 2014 at 8:09 am 2 comments

Are HELOCS a growth opportunity?

This might seem like a strange question given the downward revision of first-quarter GDP (more on that in a moment) and the general sluggishness of the housing market, but according to the WSJ:

“Home-equity lines of credit, or Helocs, and home-equity loans jumped 8% in the first quarter from a year earlier, industry newsletter Inside Mortgage Finance said Thursday. The $13 billion extended was the most for the start of a year since 2009. Inside Mortgage Finance noted the bulk of the home-equity originations were Helocs. While that is still far below the peak of $113 billion during the third quarter of 2006, this year’s gains are the latest evidence that the tight credit conditions that have defined mortgage lending in recent years are starting to loosen.”

You will have to excuse me for being just a little confused: If I got this straight the American consumer is once again using her home as an ATM, Fannie and Freddie are still in business and we still have banks that are too big to fail. It looks like the more things change the more they stay the same. The full article is available at: http://online.wsj.com/articles/borrowers-tap-their-homes-at-a-hot-clip-1401407763

Are things worse than they appear?

Damn lies and statistics. Yesterday, the government released revised GDP figures for the first quarter of this year and instead of things being really bad they were really, really bad. According to the government’s Bureau of Labor Statistics GDP actually contracted at an annual rate of 1.0 as opposed to eking out growth of 0.1 percent. This revision will hardly be surprising to the credit unions I talked to about a month ago who watched a bitter cold winter keep people indoors rather than go shopping for big-ticket items.
One interesting note about the report. Cutbacks in government spending continue to be a drag on economic expansion. When economists look back for lessons about what we are going through right now one of the questions that will be debated is how smart is it for the same governments that are trying to increase economic activity to be cutting back spending on that economy? Here is the report:

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Is the government using banks to choke off legitimate businesses?
In an earlier blog this week, I talked about a disturbing trend in which prosecutors and regulators were increasing pressure on financial institutions to stop doing business with legal merchants. Yesterday, the House Oversight Committee released a report detailing just how aggressive and far-reaching the Department of Justice’s efforts to pressure financial institutions is becoming. According to the report the most immediate target of these for enforcement efforts is payday lending activities. Congressional investigators also question whether the Justice Department has the legal authority to carry out its program.
In general, I believe everything that comes out of the House committee on Government Reform and Oversight should be taken with two grains of salt. It is an election year and one of the primary purposes of the committee is to make the administration look bad. But even with that caveat the scope and aggressiveness of government efforts to use financial institutions to clamp down on business activities that prosecutors don’t agree with is certainly an issue worthy of further discussion. Where exactly is the government drawing the line? Should financial institutions be put in the middle of what are essentially consumer protection disputes? Inquiring minds want to know. You can get the full report at:

http://oversight.house.gov/wp-content/uploads/2014/05/Staff-Report-Operation-Choke-Point1.pdf

On that note enjoy your weekend. I will be back on Monday as my bid for the Los Angeles clippers was apparently not good enough. By the way, how would you like to be punished by selling a team for $2 billion?

May 30, 2014 at 8:54 am Leave a comment

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Henry Meier, Esq., Associate General Counsel, Credit Union Association of New York

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