Small Businesses Get a Boost from Nonprofit Lenders

I am a huge proponent of people starting their own business—it is the American Dream to be successful at your own business!! Thank goodness that our government is focused on making it easier for small businesses to acquire loans. Community development financial institutions or CDFIs are certified nonprofit banks, credit unions, funds and venture capitalists which have been set up by the government to offer loans in low income and under-served urban and rural areas.

A Klipinger.com article explains how CDIFs can be more flexible. Read on!

Banker Tax May Mean Less Money Available to Lend, Yingling Says

Americans everywhere cheered when Obama proposed a fee from the biggest banks who borrowed taxpayer money through the TARP program, but is the tax really such a good idea? Edward Yingling, CEO of the American Bankers Association has expressed concern that taxing the largest banks will stagnate their willingness to lend to customers, making economic recovery all the more difficult.

The $90 billion bank tax proposed by President Barack Obama may reduce the amount of money banks can lend by $63 billion a year, the president and chief executive officer of the American Bankers Association said.

The administration’s tax is expected to raise $9 billion a year over 10 years, said Edward Yingling, president and CEO of the ABA. Each dollar in bank capital supports $7 or more in lending, Yingling said in an interview. Some banks leverage money further, with each dollar supporting $9 or $10 in lending, he said.

“It’s a concern,” Yingling said. “Nine billion dollars could actually mean $63 billion less in lending.”

The administration is sending a “mixed message” about banks needing to lend while setting requirements that make lending harder to do, Yingling said.

Continue reading at Business Week…

Bank Tax Unfair, To Have Serious Effects - Bank Group

From CNN Money:

U.S. banks are worried about the impact of a planned tax on lenders and believe other industries that received federal money, such as car makers, should be targeted, a top economist at a banking group said Friday.

"We're concerned that such a high tax directed at the wrong parties will have serious consequences," James Chessen, Chief Economist at the American Bankers Association, told a press conference presenting ABA's latest economic forecasts.

Thursday, President Barack Obama said banks have a responsibility to make taxpayers whole for the financial-sector bailout and should pay a proposed tax by rolling back big bonuses.

If approved by Congress, the new tax--which the White House calls a "financial crisis responsibility fee"--would force about 50 banks, insurance companies and large broker-dealers to collectively pay the federal government roughly $90 billion over 10 years.

Community Lenders Hit the Funding Jackpot

From CNNMoney.com:

Goldman Sachs' banking titans and top congressional Democrats don't often see eye to eye -- executive pay caps, anyone? But here's something the megabank and Capitol Hill agree on: One of the best ways to get financing to worthy small businesses is through a little-known community lending vehicle called a CDFI.

Taken together, Goldman Sachs and the federal government have earmarked more than $300 million to invest in these local financiers in 2010. Compared to Wall Street's bailout billions, that's pennies on the dollar, but for CDFIs it's a jackpot. Next year's funding pool is almost three times bigger than any they've ever had before.

A CDFI is a Community Development Financial Institution, a certification conferred by the Treasury Department. The program gives low-interest government loans, grants and tax credits to organizations that specialize in economically developing low-income and otherwise underserved markets.

CDFIs were a hot topic at the small business lending forum Treasury Secretary Timothy Geithner convened last month to brainstorm solutions to the ongoing credit crunch small companies face. Wary of lending to firms struggling through the recession, banks slashed their small business credit this year.

That left CDFIs, which specialize in riskier loans, scrambling to pick up the slack. Funding requests surged. For the 2010 fiscal year, the CDFI Fund received applications totaling $467 million, a 97% jump from 2009.

Obama (again) Urges Bankers to Lend more Money

From USAToday.com:

It was a little like financial Groundhog Day at the White House today-- President Obama again met with a group of bankers, and again asked them to provide more loans to business owners so they can hire more people.

The difference is that this group consisted of a dozen owners of smaller, community banks.

Obama said he had "the same conversation that I had with some of the larger banks last week and that I've been having with CEOs of companies across the country."

The goal, he said, is to see "that businesses are getting the capital that they need and that we are starting to see people hired again, people able to finance their homes, finance college educations and so forth."

And again, banking analysts pointed out that it's not that easy to find credit-worthy borrowers in this economy.

And many lenders are "getting a lot of grief from the banking examiners," said banking consultant Bert Ely. "They're criticizing the bankers for some of their loans."

At the White House meeting, Obama echoed a message he has used for months, and will continue to use as long as the unemployment rate remains in double digits. "Everything that we're going to be doing here in the White House over the next several months," he said. "is going to be geared towards catalyzing and spurring additional lending."

Obama also asked this second set of bankers to back new financial regulations that are pending in Congress.

Bank of America Pledges $5 Billion More for Small Businesses

After a White House meeting encouraging U.S banks that received large bailouts to increase lending, Bank of America has announced they would be lending out $5 billion in 2010 to small and medium sized businesses. This is a good sign for the Obama administration, which is hoping that other large banks will follow suit. If small business lending does increase in the next year, it could certainly help slow down the ever climbing unemployment rate.

"Bank of America is determined to do our part to help the economy grow next year and reduce unemployment by making every good loan we can make," CEO Ken Lewis said in a statement.

Lewis acknowledged the key role that small businesses play in creating jobs, calling them the "lifeblood" of the U.S. economy. "Our improved financial condition and our optimism about the economy will allow us to step up lending to support these clients," he said.

Bank of America (BAC, Fortune 500), based in Charlotte, N.C., is currently the second largest small business lender in the U.S., behind only Wells Fargo (WFC, Fortune 500), according to reports filed to the Treasury Department. Bank of America ended September with $41.9 billion in small business loans outstanding. That tally includes credit lines, credit cards, traditional loans and other financing.

But like most other big banks, Bank of America has pared back its lending through the recession. Since April, when top banks began submitting monthly reports on their small business lending, Bank of America has shaved its outstanding loan balance by 5%, or $2.2 billion.

Continue reading at CNN.com…

Treasury Tightens Screws on Mortgage Firms

On Monday, the Obama administration announced a few steps they are planning to take to pressure lending institutions. The Federal government could no longer ignore complains from taxpayers who still cannot find the long-term loan assistance they need. CNN Money.com published a great article explaining how the government plans to focus on helping borrowers get into permanent modifications.

Government swat teams will go to the institutions to see what the holdup is and banks will have to submit progress reports twice a day during December.

"Now it's up to the banks to do their part to covert borrowers to permanent modifications," said Michael Barr, an assistant Treasury secretary. "Servicers to date have not done a good enough job."

Only a tiny percentage of troubled homeowners have received permanent modifications, raising concerns about the effectiveness of the $75 billion effort. Treasury officials will release the first comprehensive look at the conversions next week.

Top loan servicers will be required to report the status of each modification and their plan to reach a decision. Also, these servicers must say how they will communicate decisions to borrowers.

Continue reading at CNN.com…

Realtors’ Agenda Shifts from Homebuyer Tax Credits to Lending Issues

After successfully lobbying for an extension and expansion of the first-time homebuyers credit, the National Association of Realtors is reportedly set to focus it efforts on relieving the commercial real estate credit crunch. According to Market Watch, there are hundreds of billions of dollars in commercial loans that will require refinancing over the next two years.

"The commercial area is something that is going to be in the news more and more, as loans are rolled over and need to be refinanced," NAR senior vice president and chief lobbyist Jerry Giovaniello said Sunday at the industry group's annual conference in San Diego.

Commercial transactions are down due to a "virtual lack of available credit," according to Lawrence Yun, chief economist of the NAR. About $800 billion to $850 billion in commercial loans will mature in the next two years and will require refinancing, he added.

"The credit has to be available ... or potentially lenders will end up owning half of Manhattan," Giovaniello said.

For residential properties, meanwhile, lending requirements remain tough, he said.

"The problem has been to convince lenders, federal agencies and Congress to push the money from Wall Street to Main Street," Giovaniello said. "We think that the lenders could be more flexible. Their capital standards have increased, their stock prices have increased and they need to get out of that overreaction mode."

NAR's policy agenda also includes making sure the Federal Housing Administration remains strong.

Continued tight underwriting standards for conforming mortgages have led prospective buyers to seek out home loans insured by the FHA, which have seen an uptick.

Continued at Market Watch.com…

Fewer Banks Tightened Lending Standards Last Quarter, Federal Reserve Says

From the Los Angeles Times:

Fewer U.S. banks tightened lending standards for companies and consumers in the third quarter as the economy grew for the first time in more than a year, a Federal Reserve survey showed.

Demand for most types of loans weakened at a smaller number of banks than in the second quarter, the Fed also said Monday in its quarterly Senior Loan Officer survey. For prime residential mortgages, a larger number of banks reported stronger demand, the central bank said.

The report helps explain why Fed policymakers last week said "tight credit" remains a drag on the economy and pledged to keep their benchmark interest rate near zero for an "extended period." JPMorgan Chase & Co. is among the banks that have reduced lending in response to stricter underwriting standards for consumer loans and lower demand from companies.

"It will be helpful if the banks were more prepared to lend, because there are creditworthy borrowers that are having difficulty getting credit," said Brian Bethune, chief financial economist at IHS Global Insight.

The survey of loan officers at 57 U.S. banks and 23 U.S. branches of foreign banks was conducted from about Oct. 6 to Oct. 20, the central bank said. The report doesn't identify respondents.

Loans and leases held by U.S. commercial banks have declined for 10 straight months, falling to $6.7 trillion as of Oct. 28 from $7.2 trillion at the end of 2008, according to a separate statistical release from the Fed.

FICO Scores Show Flaws as U.S. Banks Cut Consumer Credit Lines

The FICO score formula has long been the choice of most US lenders, but some reports show the decline in actual loans may be making these scores somewhat flawed, which is quickly becoming a problem. Earlier today Bloomberg.com posted a great release about a woman experiencing these flaws, and deconstructed some of the reasons why.

“When Sharii Rey, a paralegal in Portland, Oregon, had her credit limit reduced by JPMorgan Chase & Co. earlier this month, she said it would hurt her 760 credit score. That’s not the bank’s problem, she was told. It’s FICO’s.”

After Rey’s $42,500 credit line was cut to $12,000, her debt relative to available funds almost quadrupled. This so- called utilization rate is a large component of the FICO formula and a higher ratio can lower a score. Rey, 62, is concerned a new FICO score will squash her ability to borrow.

Congressman Luis Gutierrez, an Illinois Democrat, says the FICO formula, the most widely used by U.S. lenders, has flaws as banks decrease loans to consumers, regardless of individual risk profiles. At least 30 million Americans had their credit limits reduced arbitrarily during the second half of 2008, FICO estimates. In the first quarter, New York-based JPMorgan and Citigroup Inc. and Bank of America Corp. in Charlotte, North Carolina, slashed $320 billion from credit lines, according to a report by former Oppenheimer & Co. analyst Meredith Whitney.

“Reductions to a consumer’s line of credit based upon the lending institutions’ overall appetite for risk has little or no bearing on a consumer’s own risk of default,” said Gutierrez, chairman of the House Subcommittee on Financial Institutions and Consumer Credit.

An individual’s FICO score is based on factors that aren’t directly related to JPMorgan’s decision to lower a credit limit, said Paul Hartwick, a spokesman for the biggest U.S. bank by market value.

Continue reading this story, here.