Loan Picture Improves but Troubles Remain: FDIC

For the first time in four years, loans that are 90 days or more past due have decreased instead of increased. While this is no doubt a good sign for the housing industry, it comes just days after the National Association of Realtors reported a record 27% drop home sales.

According to Reuters the Federal Deposit Insurance Corp earned $21.6 billion during the quarter largely due to banks putting away less money to cover expected loan losses.

During the first quarter, the industry earned $17.8 billion.

In other signs of improvement, the total assets of banks characterized as "problem" institutions fell during the quarter to $403 billion from $431 billion, and the FDIC's insurance fund increased by $5.5 billion during the quarter.

But there are still troubling indicators.

Loan balances continued to decline during the second quarter, with net loan and lease balances declining by 1.3 percent. Loans to small businesses and farms -- a major focus of the Obama administration -- fell by 1.8 percent during the quarter.

Home Refinancing Demand At Highest In 15 Months

From Reuters.com:

Mortgage applications leaped last week as rock-bottom rates lifted demand for home refinancing loans to its highest level in 15 months, the Mortgage Bankers Association said on Wednesday.

Home loan refinancing puts extra cash into consumers' hands that can be used to pay off existing debt or funnel into the economy through purchases. By lowering a monthly mortgage payment it may also help some homeowners avoid default and foreclosure.

The MBA said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended August 13, increased 13.0 percent. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 2.6 percent.

The MBA's seasonally adjusted index of refinancing applications increased 17.1 percent, the highest since the week ended May 15, 2009.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.60 percent, up 0.03 percentage point from the previous week's record low. The survey has been conducted weekly since 1990.

Interest rates were also below their year-ago level of 5.15 percent.

New Credit Initiative to Boost Lending to Small Businesses

Owning your own business is a rewarding path for many people toward wealth and personal success. Small businesses are what drive the national economy and that’s why I support more funding toward small business lending. It would be especially rewarding to see more funding extended to businesses that otherwise have difficulty with funding from large banks.
The House of Representatives is expected to take action on a proposed $2 billion grant initiative that could bring about billions in lending to small businesses, especially women and minority owned businesses that might be having a hard time getting credit. It’s for these reasons I enjoy sharing with others my personal success story.

The initiative, modeled after state capital access programs, would require states to pay $10 of lending for every $1 of federal funding they received. According to the Wall Street Journal, this new policy will work alongside the Treasury’s small business fund. The small business fund is specifically designed for community banks that are based in neighborhoods, as opposed to the larger Wall Street financial firms.

The real question is whether this proposed fund will truly help increase lending or if it will exhibit some of the same weaknesses as the Troubled Asset Relief Program (TARP)’s capital purchase program -- which has not necessarily seen an increase in lending as was expected. Hopefully, there will be safeguards in place to make sure the initiative delivers results. Our economy would also benefit from the creation of much needed jobs through this measure.

SBA Out of Money For Loan Breaks

From Washington.Bizjournals.com:

The Small Business Administration once again has run out of money for breaks that made its loans less risky for lenders and more affordable for borrowers.

The economic stimulus bill temporarily increased the government guarantee to 90 percent on the SBA’s flagship 7(a) loans and reduced or eliminated fees on 7(a) and 504 loans, which primarily are used for real estate. Congress has extended these enhancements four times, but the SBA announced Wednesday that it has exhausted all of the funds provided in the most recent extension.

As a result, the agency has reactivated its waiting list for borrowers who want to receive the higher guarantee and reduced fees when — and if — Congress provides funds for another extension. Pending legislation would extend these breaks through the end of the year, but it is not clear whether this bill will be enacted before Congress leaves for its weeklong Memorial Day break.

Until Congress acts, small businesses seeking SBA loans can either place their applications in a queue to wait for additional funding, or take a loan without the higher government guarantee or reduced fees.

The higher guarantee and reduced fees “engineered a significant turnaround in SBA lending and have been successful in helping jumpstart our economy for small businesses,” SBA Administrator Karen Mills said.

The First Small Business Loan Of The Year Goes To ....

Earlier today a coworker sent me this link to an article on CNN Money, that offers a unique perspective of small business lending in the U.S. CNN worked with the small business association to identify the first SBA loan that was awarded this year. The loan went to the owner of Lawlor’s, a sportswear store in Omaha, and you can read about this interesting story below.

To kick off the new year, we asked the Small Business Administration to find us the first business to receive funding this year through an SBA loan. The agency came back with Lawlor's Custom Sportswear in Omaha, which had its loan application approved Jan. 7 and received a $100,000 check from its bank, Security National Bank of Omaha, on Jan. 19.

When an opportunity arose in November to rent prime real estate in a popular area shopping mall, Pat Lawlor knew it wasn't exactly the best time to expand his modest chain of sports apparel retail stores.

Revenues for Lawlor's Custom Sportswear, which has 28 employees in four locations in and around Omaha, were on track to be down 10% for the year. Plus, the company was already trying to pay off substantial debt.

"I'd be lying if I said that it wasn't a bad year," Lawlor said.

Continue reading at CNN Money.com…

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…

TARP Bailout Extended 10 Months

This morning, Treasury Secretary Timothy Geithner announced that he would be extending the Troubled Asset Relief Program – or TARP – by 10 months. Geithner went on to say that the new, scaled back program would be focused on getting loans to small businesses, stopping foreclosures, and stimulating loans from the credit market. The extended TARP is estimated to cost no over $500 billion.

"History suggests that exiting prematurely from policies designed to contain a financial crisis can significantly prolong an economic downturn," Geithner wrote in a letter to congressional leaders. "We must not waver in our resolve to ensure the stability of the financial system and to support the nascent recovery that the administration and the Congress have worked so hard to achieve."

Under the TARP law, the bailout program would have expired at the end of December if Geithner had not decided to extend it.

Geithner said that in the end he does not expect to spend more than $550 billion and that $175 billion will be repaid by the end of 2010.

His letter also includes a current accounting of TARP: The government expects to lose $42 billion of the $364 billion it disbursed in the 2009 fiscal year, which ended on Sept. 30.

While most observers had expected Geithner to extend the bailout, Republicans have been calling for it to be shut down and have filed legislation to end it.

Continue reading at CNN.com…

Electric-Car Companies Grab U.S. Cash to Blunt Risks

From Bloomberg.com:

Electric-car makers ranging from Ford Motor Co. to California startups are using $11 billion in taxpayer funds to supply a market that doesn’t yet exist.

Fisker Automotive Inc., backed by a $528.7 million U.S. loan, said today it will join the rush to the assembly line by buying a closed Delaware plant from the former General Motors Corp. for $18 million. It will spend $175 million to refurbish and retool the factory to build plug-in hybrid cars.

Obama administration aid to spur demand for more fuel- efficient autos is luring companies including General Motors Co. and Nissan Motor Co. into the electric-car push. The result may be a supply of new vehicles that outstrips demand, said Michael Omotoso, a senior manager for J.D. Power & Associates in Troy, Michigan.

“The U.S. government is saying we’ll have 1 million electric vehicles on the road by 2015; we’re saying it will take three to five years longer,” Omotoso said. “Realistically, manufacturers could be selling 80,000 to 100,000 by 2015.”

Investors betting on acceptance of electric autos include Kleiner Perkins Caufield & Byers, the venture-capital firm that employs former Vice President Al Gore and is backing Fisker.

“A huge amount of private capital is on the sideline, so a new locus for funding right now is the U.S. government,” said Ray Lane, a managing partner at Kleiner Perkins who works on the firms’ alternative energy investments. “The Department of Energy has stepped into the role of private capital, at least temporarily.”

U.S. to Boost Small-Business Lending

According to the Wall Street Journal, President Obama is expected to make an announcement tomorrow morning with new initiatives designed to boost credit for struggling small business. The program will make it easier for banks to access funds from TARP (Troubled Asset Relief Program) that they can use to help fund small business loans.

The Obama administration has struggled to figure out what to do for small businesses and has spent months trying to get their initial program off of the ground.

The White House has faced criticism on multiple fronts related to small banks and small-business lending. Many community banks have complained the Bush and Obama administrations moved swiftly to help direct taxpayer money to large banks but made it harder for community banks to qualify. Small businesses have also complained existing government programs don't do enough to free up credit for their needs.

The Treasury Department is still working out details of the program, including how much it will cost banks to participate in the effort. The administration wants to make it less expensive for banks to access TARP funds by reducing the 5% dividend that financial institutions must currently pay, according to people familiar with the matter.