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Fannie, Freddie profits jump; Amex promises $1 billion for diversity

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Downward spiral

“Large swaths” of Detroit have been left behind in its comeback attempt, largely because they are “starved of the housing credit n eeded to revive them. No purchase mortgages were made last year in almost a third of Detroit’s census tracts, and fewer than five each in another third. Detroit’s Black residents are largely shut out of access to financing, making it tougher to attain homeownership, the key to building wealth for most Americans.”

“Nonprofits, governments and corporations are trying to channel money back into the city’s neighborhoods. But making mortgages in Detroit is a convoluted task. The dearth of credit is largely a consequence of battered property values plus a commercial reality that depresses them further: Lenders can’t earn money on tiny mortgages, so they don’t make them. Unfinanceable houses then go unsold, and their value sags still more.”

On a positive note, several banks have rolled out lending programs “in an effort to bolster home-buying opportunities for African Americans, a group whose homeownership levels consistently lag behind other minority groups and White people,” the Washington Post reports. “Housing advocates are viewing the programs as efforts to repair the damage banks caused over the years, including the subprime mortgage lending in the early 2000s — risky high-interest mortgages to Americans with scuffed or limited credit — that contributed to the Great Recession and the low Black homeownership rate.”

Wall Street Journal

Booming profits

Fannie Mae and Freddie Mac “reported improved earnings in the third quarter, as record-low interest rates fueled a refinancing boom that buoyed the companies’ results. Fannie Mae, the larger of the two companies, said Thursday its net income rose to $4.23 billion from $2.55 billion in the previous three months. Net income in the same quarter of 2019 was $3.96 billion. Fannie’s smaller sister company, Freddie Mac, reported net income of $2.46 billion, up from $1.78 billion in the second quarter.”

“At the same time, the companies reported a steady decline in the number of borrowers who have suspended payments as the labor market began to recover, suggesting reduced strain on their businesses. Some 4.1% of Fannie’s single-family loans were in forbearance as of Sept. 30, down from 5.7% at the end of June.”

Help on the way

The European Central Bank is expected to unveil an economic stimulus package that “could include billions more of bond purchases as well as an interest-rate cut and cheaper loans for banks at its December policy meeting.”

“The ECB was there for the first wave, the ECB will be here for the second wave, and we will deploy the same flexibility,” bank president Christine Lagarde said, “a day after Europe’s biggest economies, Germany and France, announced the toughest coronavirus restrictions since the spring.”

Washington Post

To pay or not to pay

Wall Street faces a quandary about paying bonuses to its traders and investment bankers following “a bumper year for performance: Pay too little and you lose your stars; pay too much and you infuriate the public,” a Bloomberg op-ed says.

“Banks will find it tough to justify bonuses, however, and not just externally. Many firms’ traditional banking divisions, such as commercial lending, are struggling because of the distressed economy and lower interest rates. Net profit at the group level is often under pressure as provisions for bad loans eat into the record trading income. Arguing that traders should get a bigger slice of profit won’t be easy.”

Financial Times

End of an era?

Customers of British banks, who “unlike those in the U.S. and Europe have not suffered the indignity of being charged for banking services since the 1980s unless they dip into the red,” may be about to find out that “there’s no such thing as a free bank account.”

“This week, HSBC admitted it would have to look at charging for basic banking services in some markets, because it was losing money on large numbers of accounts. Yet even before HSBC’s admission, there were plenty of people, from the governor of the Bank of England down, who claim the UK’s ‘free’ banking model is as anachronistic as paying by check in a shop.”

Elsewhere

Landmark moment

American Express said “it was investing $1 billion to advance racial and gender equality, the latest in a line of U.S. companies pledging to promote social justice,” Reuters reported. Amex said it “has achieved 100% pay equity for its employees and would continue to do so, as well as promote practices to hire and retain underrepresented colleagues, including Black, Latinx and female colleagues.”

“The company also said it intends to double its spending on diverse and minority-owned suppliers in the United States to $750 million annually, as well as provide grants to non-profit organizations by the end of 2024.”

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