Capital One Discontinues Some Loans

According to spokesman Steven Thorpe, Capital One Bank has indeed stopped offering both not secured, CD-backed loans and savings-backed loans in the Baton Rouge market.

Thorpe stated it was a decision that was not easy and concluded after much deliberation. In addition, he said that they will still offer consumer lending products at reasonable rates in the market, such as secured credit cards, equity loans, auto loans and mortgage loans.

Last Monday, Capital One stopped receiving applications for the loans that the bank stopped offering. Patrick Mendoza, the regional spokesman of Capital One, said that loans they stopped offering where only a small segment of their business in the part of Baton Rouge.

Moreover, the directors of Capital One have decided that the income from this line of business is not enough to secure the investment expected to expand the business. The change will not have a huge impact on the consumers who have these loans.

Willie Staats, LSU professor in banking and finance, was a bit shocked at the discontinued loans of Capital One. However, he says that all financial institutions have a new outlook brought about by the Dodd-Frank Act.

Since the main objective of banks is to have greater profits and efficiencies to compensate for their expenses, products which do not meet this objective will be discontinued. Also, Staats estimates that other banks will also make modifications in their own products.

As of the moment, banks have two choices, either to increase their fees or to be more efficient, and strengthen the products they are good at.

In the previous month, Capital One has declared the positions of Steve Lousteau and Scott Ridley will end at May 1. They are both group executives for retail and business banking in their branch at Greater Baton Rouge.

The dismissals of the positions are only a part of a bigger reorganization plan by the bank that will result to dismissal of more or less 30 other executive positions nationwide.

Increasing Student Loan Debt

Most recently, a report showed that there is an increase in terms of the debt load of both college students and college graduates.

Specifically, the report according to the Federal Reserve Bank of New York states that balances having overdue payments of a month or more reached up to 27 percent of the 37 million borrowers.

According to the same report, a result of an analysis of credit reports from Equifax, the balance of student loans that are not yet fully paid amounted to more or less $870 billion. This figure unexpectedly exceeded the overall credit card balance, which is $693 billion, and overall auto loan balance, which is $730 billion.

The outstanding student loan balance is estimated to maintain its increasing trend because of the increasing college enrollments and growing costs of attendance.

As stated in the report, the average outstanding student loan balance per borrower is $23,300.

Moreover, according to The Washington Post, one-third of the outstanding student loan is held by individuals between the age brackets of 30 years old to 39 years old. On the other hand, another one-third is held by Americans older than 39. This means that only a few of the college graduates fully pay their student loan while they are still in their 20s.

In addition, the report stated that compared to other types of household debt, for instance, credit cards and auto loans, the student loan debt is much more complicated. In particular, student loans include a lot more stakeholders, such as government, families and other relatives, banks, colleges and universities.

The report stated that student loan is not only a problem for the young but also parents and the federal government because a significant portion of the post-secondary education bill is carried by them.

Colleges and universities were urged by President Barrack Obama to reduce their costs. Also in fall of the previous year, 10 percent of the discretionary income was the limit of monthly loan payments.

How to Avoid Child Identity Theft

Except when their Social Security number is used by somebody to falsely open an account or get a loan, the majority of children below 18 will not have a credit history.

With the help of Equifax, Experian, and TransUnion, the three credit reporting agencies, you can apply for a credit report in your child’s name to see if he or she has been a victim of child identity theft.

TransUnion has an application form for parents or guardians to answer and submit online. On the other hand, Experian requires written requests from parents. Both ask for the Social Security number and date of birth of the child and ID from the parent or guardian.

Moreover, there are sample letters already made by the state Office of Privacy Protection. Parents can mail these letters to either of the three credit reporting agencies if they would like to request for a copy of the credit reports of their child.

If parents discover a false account, then they can erase the credit history of their child by following a few steps.

Normally, you should request for the credit history of your child when they are in the age of 16 or 17 and they are about to graduate in high school. This is the time when they might be required a credit history, for instance, in applying for college or scholarships.

In order to prevent child identity theft, parents can protect the computers with passwords or they can destroy papers that have financial data.

Online security specialist Steven Schwartz, who works at Intersections Inc., a risk management firm in Virginia, said that your own financial information should be handled like it is cash. In addition, he said that parents should check what their children do online and educate them not to give away information particularly on social networking sites like Facebook and Twitter.

Since the government is only doing little in keeping children from becoming victims of identity theft, it is in the hands of the parents to protect their own children.

Commercial Mortgages Slowing Down

According to reports last week by Mortgage Bankers Association, despite the credit crisis and recession, loans from commercial real estate have held up better compared to loans from banks and thrifts.

In the previous year, banks and thrifts charged off 0.8% of commercial mortgages and 0.7% of multifamily mortgages as bad debt.

The charge-off rate was almost one-half of the rates for all loans and leases held by banks and thrifts, which is 1.5%.

According to Jamie Woodwell, vice president of the commercial real estate research, for the banking sector or economy as a whole, commercial mortgages have showed to be neither ‘the next shoe to drop’ nor a ‘ticking time bomb’.

At the last part of 2011, commercial loans and multifamily loans by banks and thrifts had a delinquency rate of 3.5%, which is a decrease from the highest rate in quarter three of 2010 of 4.4%. On the other hand, residential mortgages had a delinquency rate of 7.7% in the last part of 2011.

As said by Jim Chynoweth, managing director of CBRE’s Albuquerque, vacancy rates were kept from elevating by the lack of new construction and it came to the extent that there were sudden rises in commercial mortgage default. Moreover, this was said to be the worst of commercial and multifamily mortgage defaults.

Other main investor groups in commercial and multifamily real estate had the following delinquency rates:

From 0.3% in the first half of 2010, only 0.2% of loans by insurance firms were two months or more late on payments.

From 9% in quarter two of 2011, only 8.6% of loans maintained in commercial mortgage-backed securities were a month or more delayed on payments.

From 0.4% in quarter one of 2011, only 0.2% of multifamily loans by Freddie Mac were two months or more late on payments.

From 0.8% in the first half of 2010, only 0.6% of multifamily loans held by Fannie Mae were two months or more delayed on payments.

Understanding Co-signed Loans

Because of the numerous dangers that can result from co-signing a loan, both the primary borrower and the co-signer must be completely aware of the possible consequences of co-signing. Although the advantages might seem clear and best for the short-term, there can be harmful effects in the long run.

Co-signed loans can help borrowers, who would not normally be eligible for a loan, build their credit. These borrowers are individuals who have small or no credit at all, who have bad credit history and credit score, who have high debt-to-income ratio, or who are trying to buy something more than their authorized loan amount.

For these types of borrowers, a co-signer, or guarantor, might be expected by the lenders of the loan. Basically, the co-signer guarantees that payments will be made on time by the primary borrower until the maturity date of the loan. Otherwise, the co-signers will be held responsible for paying the outstanding debt.

However, it will be troublesome for borrowers who only have co-signed credit and never purchased anything without help.

As borrowers get high credit score through co-signed loans, they gain confidence to independently apply for a mortgage or loan. In spite of this, there might still be harmful effects in applying for loans.

There might still be some reluctance on the part of the lenders to give a new line of credit to borrowers with a minor credit history. For instance, a fully paid co-signed auto loan might not convince the lenders that the borrower is trustworthy for new credit.

Besides co-signed-loans, another option for individuals who have poor credit history and credit score is a secured loan. As collateral for a loan, secured loans require borrowers to present an asset, for instance, a house or a car. If the borrower fails to pay the secured loan, the lender can take legal action and acquire the asset’s collateral value in order to regain the loss from the unpaid loan.

It is less difficult to get approval for a secured loan than a co-signed loan because of its collateral feature. In addition, co-signed loans will not appear in the borrower’s credit report, therefore, not giving a negative impact to the lenders.

When deciding whether to take a co-signed loan or a secured loan, the borrower must take into consideration both the short-term and long-term consequences.