Receiving Wide Coverage ...
Credit Where It's Due: Banks may start offering more affordable loans to a broader range of Americans because of changes in the way credit scores are calculated. FICO will place less weight on unpaid medical debt and exclude all overdue bills that have been settled with collection agencies, according to news reports. "The moves follow months of discussions with lenders and the Consumer Financial Protection Bureau aimed at boosting lending without creating more credit risk," the Wall Street Journal reports. People whose credit scores had been damaged by medical debt may get a particularly big boost from the new model: "That is when you could expect to see your score go through the roof," Credit Sesame expert John Ulzheimer told the New York Times.
GSEs' New Normal: Fannie Mae and Freddie Mac reported lower earnings in the second quarter, though they were still able to direct $5.6 billion to the Treasury. The drop in profits compared to the previous and year-ago periods is primarily a reflection of the fact that the companies didn't score any big legal settlements or other one-time gains, according to the Washington Post and the Journal. "This quarter gives you a good sense of a normalized environment for Fannie Mae," Fannie chief Tim Mayopoulos said in a phone call with the press. Wall Street Journal, Washington Post.
Wall Street Journal
The Journal reveals that Deutsche Bank has a private memorandum of understanding with the New York Fed and New York's Department of Financial Services that's been in effect since 2012. The MOU "demands that Deutsche Bank overhaul its technology and compliance procedures, and fix what the regulators describe as serious risk-management deficiencies," according to knowledgeable anonymice. Regulators reportedly gave the bank till mid-2015 to shape up. Deutsche also received a strongly worded letter from the New York Fed in late 2013 criticizing the bank for weaknesses in its financial reporting and its failure to promptly address the problems, as the Journal reported last month.
New foreclosures are at their lowest level in eight years, while the mortgage delinquency rate has dropped to its lowest level in seven. But that doesn't mean the housing crisis is in the rearview mirror: "Banks have over a million loans already in the foreclosure process that must be worked through."
Bank of America is almost done resolving legal issues stemming from the financial crisis, but John Carney of "Heard on the Street" says investors would be remiss to count on a big share price bump. The company is likely to continue relying on cost-cuts to drive profits in the near future, Carney says, which "can only go so deep."
U.S. regulators plan to add new terms to mortgage settlements in an effort to make sure that consumer relief reaches the people who were most hurt by the housing crisis. Future deals will follow the model of Citigroup's $7 billion government settlement, reached in July, according to anonymice. Citi is required "to disclose by postcode the areas that receive the relief," "direct 50% of a minimum of $820m in first lien mortgage modifications to hard-hit cities," and "provide gap financing to build affordable rental units in areas where the cost of living is high." A related article says that housing advocates are concerned that low- and middle-income people have failed to benefit from the mortgage relief included in the $50 billion National Mortgage Settlement. "Doing a small number of principle reductions on expensive homes is a quick way to run up your numbers but not helping people most in need of help," the Home Defenders League's Kevin Whelan says.
Perhaps there's something in the water making bank officials complain about regulators this week. First HSBC chairman Douglas Flint said that his staffers are so frightened of running afoul of regulations that they've become overly risk-averse. Now the head of Standard Chartered's Asia operations laments that "banks have been asked to play the role of policing anti-money laundering [but when] we have a lapse we don't get treated like a policeman, we are treated like a criminal." An editorial points out that the bank cases currently in the news are "not cases of honest endeavor being condemned with the benefit of hindsight" and suggests that complex regulations are an unsurprising response to complex banks.
Former FDIC chair Sheila Bair fears that many regulators "still quietly subscribe to the view that bailouts are inevitable." Her op-ed speculates, "That would explain the slow progress towards making big financial institutions simplify their legal structures and become less intertwined with one another."
New York Times
Santander's U.S. auto financing unit has received a subpoena related to the government inquiry into subprime auto lending. General Motors' finance unit announced earlier this week that it had also been subpoenaed in the probe.