FDIC to Tighten Interest Rate Restrictions on Institutions That are Less Than Well-Capitalized

Below is a partial notice released by the FDIC.  Were less that stable banks offering higher than average rates of returns?  If memory serves me correctly both Indymac and Washington Mutual were offering accounts at a return of approximately 5% before their demise.  The bigger question in my mind is:  If there are only 154 problem banks out of the 8,300 nationwide why is the government concealing their identity?  With the lack of faith in the entire banking community wouldn't the country be better served with FULL DISCLOSURE?

 

Prompt Corrective Action requires the FDIC to prevent banks that are less than Well Capitalized from soliciting deposits at interest rates that significantly exceed prevailing rates. The proposed regulation would define nationally prevailing deposit rates as a direct calculation of those national averages, as computed and published by the FDIC based on data available to it. Reliance on the Treasury yields in the regulation would be discontinued. The expectation is that this additional concreteness would result in lower deposit rates being paid by a number of banks that are less than Well Capitalized and closer adherence to the statute."

The proposed rule applies only to the small minority of banks that are less than well capitalized. As of third quarter 2008, there were 154 banks that reported being less than Well Capitalized, out of more than 8,300 banks nationwide.

 

Fair Isaacs is making major changes to its credit scoring models by mid 2009

By next spring, two of three credit reporting bureaus will use a new model. Fair Isaac, the developer of FICO scores, has made the biggest change to its mathematical credit score model since it was introduced in 1989. Scores will still be on a 300- to 850-point scale. But the company estimates that 40% to 50% of borrowers’ scores could go up or down by more than 20 points because of how the new model fine-tunes the variables it uses to evaluate consumers’ credit use behavior.

For creditors, the new FICO score promises to reduce the risk of defaults, improving the predictability of defaults by 5% to 15%. Delinquencies are at their highest rate since 1992, when the economy was also in a recession. The revised scoring method “has a few more gray areas fleshed out so it gives us confidence in credit scoring models,” says Ginny Ferguson, a member of the board of the National Association of Mortgage Brokers.

Equifax and TransUnion will be the first credit reporting bureaus to roll out the changes over the next year. As credit tightens because of the financial crisis, FICO scores are becoming increasingly important for borrowers looking to qualify for favorable terms. That puts high scorers in “even a better position for pricing on loans” as the economy recovers, says Ferguson.

Fair Isaac has increased the number of groups that customers fall into from 10 to 12, taking into more account the number and magnitude of credit problems. Infrequent problem borrowers will no longer be lumped in with habitual delinquents. With the new model, “there is more forgiveness around people in the middle,” says Foster. “If you have one isolated missed payment you won’t score as low as before.” The new FICO model also focuses less on how many accounts a borrower has and more on the amount of balances carried.

Piggybacking — upping a score on someone else’s back — won’t be ruled out in the new FICO score. But it will make using that route to establishing credit harder and lengthier. The authorized user provision allows young adults to create a credit history by using and paying off accounts held by their parents. But it has also been subject to abuse, with high credit scorers selling their names to borrowers looking to improve scores. Fair Isaac estimates that 30% of U.S. credit card holders, or 60-75 million people, are authorized users. Credit.com says that many of those authorized users are women. Many of them rely on their husbands’ FICO scores, and it will now take longer for those women to build up their own credit scores.

 

Super Conforming Loans Ineligible for Private Mortgage Insurance

Recent announcements by the Private Mortgage Insurance companies no longer allow mortgage insurance coverage on loan amounts over $417,000 in the states of:  Arizona, California, Florida, or Nevada.

 

 

USDA Rural Development 100% loan program to run out of money by January 9, 2009, if not sooner

In a message received from the USDA Rural Development National Office in Washington DC announced that demand for the this program is at a historic high, and we anticipate this funding will be exhausted by January 9, 2009, if not sooner.  USDA Rural Development will continue to accept and process applications, and will issue Conditional Commitments “subject to receipt of Congressionally appropriated funds.”.  There will be no interruption of service by USDA Rural Development during any period in which funding is not available.  So rest assured any loans I currently have in the process for your clients will continue to move forward in a timely manner.

 

Brent Diebert

Mortgage Lending Professional

 

The Arlington Bank

4621 Reed Rd

Columbus, OH 43220

Office: 614-486-3843

Cell:     614-571-3554