Small Businesses Can’t Get Loans from Banks

Today, the California Reinvestment Coalition released our fourth report analyzing the extent to which small businesses, especially those owned by women and minorities, are able to access critical loans from California’s largest banks.

Banks tightly restricted their lending as a result of the housing crash.  Despite hundreds of billions of dollars in subsidies from the federal government, banks are still hoarding their cash and not lending it to small businesses who historically have created 2 our of every 3 new jobs in the U.S.

A few statistics from our report today:

  • Only 2% (96 loans) of SBA 7a loans were made to businesses owned by African-Americans, 11% to Latinos (634 loans), and 14% to women (846 loans) in California for Federal Fiscal Year 2013.
  • Where overall SBA lending by the five banks dropped by 59 percent from 2007 to 2013, their lending to Latino-owned, African American-owned, and Asian- owned businesses dropped more dramatically– at 63 percent, 85 percent, and 64 percent, respectively.
  • Thirty percent of California businesses are owned by women and slightly over half of the population is women, however, loans to women-owned small businesses dropped from roughly twenty percent of all SBA 7a loans in federal fiscal year 2007 to just above fourteen percent in 2013.

The full report is available here: Small Business Access to Credit- The Little Engine that Could: If Banks Would Help

Join the discussion on Twitter: #smallbizca

Ocwen Financial’s $2 billion Settlement: How Will Homeowners be Helped?

Ongoing issues with foreclosures. CRC April 2013 survey

A settlement between Ocwen Loan Servicing and the CFPB and other state regulators was announced today.

The court order still needs to be approved by a judge, but calls for $2 billion in principal reductions for homeowners and another $125 million in refunds to homeowners who already went through foreclosure.  This include homeowners whose loans are serviced by Ocwen, as well as those who were transferred over from Litton Loan Servicing and Homeward Residential Holdings.  (More info on the fact sheet here)

Reports earlier this week (U.S. preparing civil charges against Citigroup, Merrill Lynch) indicate that civil fraud charges are likely forthcoming for Citigroup and Merryl Lynch (related to mortgage securities).

The California Reinvestment Coalition has advocated on behalf of homeowners who are dealing with the many loan servicing problems listed today in the CFPB materials about Ocwen, including robo-signing, illegal foreclosures, illegal fees being charged, lost paperwork, inappropriate loan modification denials, not honoring trial modifications that were entered into prior to a loan being transferred, and more.   Our survey of over 80 housing counselors and nonprofit attorneys in April 2013  found many banks are not in compliance with the California Homeowner Bill of Rights or loan servicing standards required under the National Mortgage Settlement.

In light of the JPMorgan Chase settlement announced last month, this announcement about Ocwen today, and the strong possibility of future settlements, CRC members and allies signed onto a statement to federal regulators and prosecutors, with suggestions on how to structure future settlements so that homeowners benefit from them.

These suggestions are based on “lessons learned” from the National Mortgage Settlement, Independent Foreclosure Review, and experiences housing counselors and nonprofit attorneys have had in trying to help homeowners stay in their homes.

1. Relief commensurate with harm caused. Financial institutions have yet to be forced to pay for the total harm caused by predatory mortgage lending and improper foreclosure practices that have drained wealth from working families and their neighborhoods.

2. A priority on keeping people in their homes and first lien principal reduction.

3. Support for housing counselors and legal service lawyers. These groups, whose sole focus is on their clients, are the only real competition for the steady stream of loan modification scam artists who gladly charge families thousands of dollars while doing nothing to save their homes.

4. Best practices and strong standards going forward. Stronger servicing standards have been put in place by the California Homeowner Bill of Rights (HBOR), the National Mortgage Settlement, and the soon to be effective rules of the Consumer Financial Protection Bureau. But an April 2013 CRC survey of over 80 housing counselors in California found that large servicers were routinely violating key provisions of HBOR and NMS. The NMS Monitor found some of the same issues; almost half of the nearly 90,000 complaints made to his office were related to problems with a bank not providing a responsive, capable Single-Point-of-Contact or apparent dual track violations. Besides compensating victims, settlements must end harmful practices.

5. Support for affordable housing. The foreclosure crisis has not only harmed homeowners, it has exacerbated an already desperate affordable housing crisis. Families displaced from their homes by foreclosure are now competing for housing with tenants in a heated rental housing market. These families are also competing with Wall Street investors who pay all-cash for homes, beating out first-time homebuyers and then renting the houses back to some of the same people originally displaced by the Wall Street-generated economic crisis.

6. Transparency and data reporting to ensure relief is distributed fairly. Most of the recent settlement agreements have for the most part allowed the offending parties to determine how to distribute relief. This has contributed to a feeling that the hardest hit communities have been ignored. The California Attorney General did well to negotiate a separate California agreement as part of the NMS that created incentives for servicers to provide relief in hard hit counties. But even this provision didn’t ensure that relief reached the hardest hit communities. And the National Mortgage Settlement agreement did not require that servicers report the race, ethnicity, gender and income of borrowers and neighborhoods where relief was provided. All future agreements must require this level of transparency to ensure fair housing and fair lending laws are honored.

7. Strong enforcement and monitoring. A settlement agreement is not worth the paper it is written on if the terms are not clear and meaningful, and if the oversight and enforcement is lax to the point of inviting banks to ignore their obligations.

For more information about today’s announcement with Ocwen:

OCWEN FACT SHEET

CONSUMER FREQUENTLY ASKED QUESTIONS ABOUT OCWEN SETTLEMENT

UPDATE: CA homeowners expected to receive $268 million in principal reductions, $23 million in cash payments:

Attorney General Kamala D. Harris Announces $2.1 Billion Mortgage Settlement with Ocwen

CFPB Report Confirms That Banks & Credit Card Companies Are Taking Away Your Right To Sue

From Consumerist: “Allowing companies to force consumers into an often biased, secretive, and lawless system deprives millions of people of their right to justice,” explains Lauren Saunders, managing attorney of the National Consumer Law Center.

Consumerist

In 2011, the Supreme Court held that it was A-OK to not only hide a complicated forced-arbitration clause in a novel-length contract for a consumer product or service, but that it was also just peachy that such a clause stripped the consumer of his/her right to bind together with other affected customers in a class action. Since then, sellers of everything from cellphone service to video games have added these complicated clauses in an attempt to keep complaining consumers out of court and into the unfair arena of arbitration. Today, the Consumer Financial Protection Bureau issued its first report on forced arbitration, and the results are, sadly, not shocking.

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Appointment of Representative Mel Watt Important Step Forward for Housing Recovery

Rep. Mel Watt is Confirmed to lead FHFA

December 10, 2013–In response to today’s Senate vote to confirm Representative Mel Watt as the next director of the Federal Housing Finance Agency, Kevin Stein, Associate Director of the California Reinvestment Coalition, released this statement:

“The California Reinvestment Coalition applauds the confirmation of Representative Mel Watt to head the Federal Housing Finance Agency, the regulator of Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac. For years, California tenants, homeowners and communities suffered because of the policy positions of the outgoing acting director of the FHFA, Ed DeMarco.  Mr. DeMarco set policy for how banks and servicers are required to service loans held by Fannie Mae and Freddie Mac, including how to provide assistance to homeowners facing foreclosure.  Instead of using this important position to keep more Americans in their homes, he continued policies that greatly worsened the foreclosure crisis.

These policies included:

  • Fighting against the enactment of California’s landmark Homeowner Bill of Rights, a law widely applauded for protecting homeowners and which has already been duplicated in Nevada and Minnesota;
  • Not maintaining sufficient protections for tenants negatively impacted when the homes they were renting were foreclosed on;
  • Refusing to offer favorable principal reduction loan modifications to families struggling to pay their GSE loans;
  • Selling foreclosed Fannie and Freddie homes to private investors instead of residents and nonprofits who could have used the homes to promote community stability; and
  • Aggressively working against local governments who are considering using tools to stem the foreclosure tide, including eminent domain.

In light of these polices, CRC organized a letter (link to letter) in 2012, which 96 organizations signed, calling on Acting Director Ed DeMarco to either resign or change policies at Fannie Mae and Freddie Mac.   CRC is hopeful that FHFA Director Watt will right these, and other, wrongs, and lead the GSEs to finding their way back towards helping all qualified families attain and maintain homeownership, or access much needed affordable housing. We also are pleased Mr. Watt will be in place to ensure that any reform of the GSEs will not leave behind low income tenants, homeowners, and communities.”

Additional background

Since the beginning of the foreclosure crisis, the California Reinvestment Coalition has conducted an annual survey of housing counselors and nonprofit attorneys about their experiences working with banks and servicers.

In CRC’s 2012 survey, (link to survey) housing counselors and nonprofit attorneys reported:

  • 81% reported “mixed or negative” experiences in trying to escalate cases to help homeowners when the loans were held by Fannie or Freddie.
  • 66% of counselors rated loans serviced on behalf of GSEs as either “terrible” or “bad” when asked how likely the servicers were to help borrowers save their homes when they thought that outcome was possible.

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Will Bank Payday Loans Become a Thing of the Past?

deposit advance loans as hamster wheels

The New York Times editorial board, which has written about payday lenders previously this year (Progress on Predatory Lending)  wrote earlier this week (Banks as Payday Lenders)  about payday loans that are offered by banks like Wells Fargo, US Bank, Regions Financial and Fifth Third Bank.  While the banks call them different names (like “deposit advance”), they share many of the same negative characteristics as loans offered by storefront and online payday lenders, including sky-high interest rates and short repayment terms.

Fortunately, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation recently released guidance to member banks that if they continue making these loans, they will face much higher scrutiny by their regulators.

Last year, the California Reinvestment Coalition, along with our national partners, Woodstock Institute, New Economy Project, and Reinvestment Partners, released a report  (The Case for Banning Payday Lending: Snapshots from Four Key States) focused on payday lending which  cited the dangers created for consumers in each of our states (California, Illinois, North Carolina, and New York) by these loans.

While we are excited to see this guidance, as American Banker noted, (Wells Fargo, U.S. Bank Face Crossroads on Deposit Advances) the Federal Reserve did not sign onto this guidance, which may mean that the two banks it regulates that offers these loans: Regions Financial and Fifth Third may continue making these destructive loans.

The momentum against payday loans- whether they’re provided through a storefront, a mainstream bank, or online, is growing.  As an example, the Consumer Financial Protection Bureau announced its first enforcement action against a payday lender in November:  The Plain Dealer: Cash America to pay $19 million – most in refunds – in CFPB’s first payday action.   This momentum will likely continue growing, with the CFPB likely announcing rulemaking next year on payday lenders.

The Consumer Financial Protection Bureau is now accepting complaints about payday lenders. Consumers are encouraged to visit: http://www.consumerfinance.gov/complaint/

Are you a Californian who has used a payday loan and would like to share your story? Do you want to get involved in local efforts to restrict payday lending in our communities? If so, please contact Liana Molina, CRC’s Payday Campaign Organizer: Liana@calreinvest.org  or 415-864-3980.

To stay up to date on financial justice issues in California, especially as they relate to low income communities, and communities of color, you can follow the California Reinvestment Coalition on our Facebook page, via TwitterGoogle+, watch our movies on our YouTube Channelsign up to receive our newsletter and action alerts, and of course, visit our website.