Student Loans: New Subprime Crisis in The Making

For those students having trouble paying for college, government-backed student loans are a much more popular option than private student loans. This is because the interest rates are lower and there are more flexible repayment options. In contrast, private student loans require repayment as soon as the borrower graduates and repayment terms are rigid.

According to a recent report from Consumer Financial Protection Bureau concerning the private student loan market, beginning in the middle of 2000, there had been a growing number of students relying on private loans before they had exhausted all possible federal loans presented to them.

The growth in terms of the private student loan market, which increased from $5 billion in the year 2001 to $20 billion in the year 2008, is almost similar to the growth of subprime mortgage loans during the same time.

Banks discovered that they could package student loans into securities and trade them for a profit to investors. By means of securitization, $100 in student loans could be converted into $105. Because the initial lenders were not hanging on to the loans, they were not in danger if students failed to pay the loan.

Some time ago, a filter operation had been provided by universities, notifying students to the accessibility of private loans when the rest of the alternatives were exhausted.

However, the increase in private student loans is also indicated by an increase in direct-to-consumer lending. Most of the time, these students were not aware that the private loans are less preferred compared with those offered by the government.

The conditions were most extreme at for-profit colleges, a lot of whom had financial connections with private lenders. Based on a report from the CFPB, in the year 2008, a private loan was taken on by 42 percent of undergraduates at for-profit colleges. However, only 14 percent of all undergraduates used a private student loan.

Why is it Hard to Refinance a Mortgage?

Years ago, when the loaning business was not in the crisis it is in today, one thing is always for certain. When the interest rates would drop, the homeowners would refinance their mortgages to be able to take advantage of the lower rates. This would help them save about a hundred bucks in their monthly bills.

However, things do not work that simple anymore. Mortgages rates have been at their lowest now. The average mortgage loan is a 30 year loan at 3.56% rate this is almost 1 percent lower than it used to be last year.As the rates have decreased, the number of refinancing applicants has also fallen for the third time this week.

According to CNBC, the unusual trend is not new, and it may mirror the new reality of housing in the coming years. But there is definitely something you should worry about further about a mortgage than just its rate. If the value of a property has fallen, then it can lead to being declined for a refinanced loan. The government has stretched out the authority of Fannie Mae and Fannie Mac so that they could refinance loans in the Home Affordable Refinance Program. This will allow them to make refinancing transactions to happen by getting rid of constraints on the unequal position of the current market.

Banks are still being cautious with their transactions in mortgages. The Bank of America, JPMorgan Chase, Citigroup and the Wells Fargo are currently revolving around the $25 billion settlement money they have with the state authorities and federal officials. They are trying to avoid being stuck on the same situation in the foreclosure-abuse they had last year. The most civil thing to do is for them to demand higher loans.

So, if you have the opportunity to refinance your loan, do not hesitate to take the opportunity to talk to your lender about it. For it may be able to help you in reducing your liabilities in the mortgage loan in the future.

Savannah, Mo. Former Treasurer Faces 52 Federal Charges of Fraud

A woman is currently being charged of 52 federal offenses after she illegally got her hands on over $900,000.

Vicky D McDonell, a 61 year old is facing the federal grand jury for allegedly obtaining cash illegally from two companies from Savannah, Mo. She will soon be facing complaints of fraud; 44 of them are wire fraud, 4 are bank frauds, 3 mail fraud and aside from fraud she is facing a count for false statement. McDonell is looking at 75 years imprisonment if she is proven guilty of all the offenses.

The documents in court say that McDonell started to loot from the companies since 1997 when she held the position of treasurer and also a partner to MPC Billboards Inc. and Max Pro Consultants Inc.

These two companies are operational in Savannah, Mo., and are owned of business men Guy Defenbaugh, Fred Ramsay and James Morten.

According to the court, McDonell held the books of the companies, she also oversaw the operations in the office, she took head of the financial department, took care of the bills and billed and collected the account receivables from customers. She did all the financials for the companies without the supervision of the three owners; they had trusted everything to her completely.

The accused treasurer is being suspected of having written herself checks from the business to take care of her personal expenditures. These include her automobile payments, renovation and landscape makeover of her house, and even gifts. She also had unauthorized loans and checks written to her children and her mother for over $35,000 she has done this for almost 12 years.

Moreover, Ms. McDonell was said to have used the credit card of the company to pay for her own expenses and arranged that the cash statements would be mailed to her home address.

It was also said that she may have overpaid her own salary by $392,695. According to the FBI, she has given confessions to stealing some of the money. If she is proven guilty she is going to have to relinquish properties that she had gotten from the scheme and proceeds from $906,425.25 with interest.

Financial Institutions Open Their Doors to Subprime Lending Again

Banks are starting to open up to subprime lending once again. Equifax spokesperson, Daryl Toor confirmed that in a statement, he further explained that it will not be easy to get a loan if your credit score is below 660 in the FICO credit standards, though consumers are seemingly more responsible and wiser with how they handle their finances.

Bad credit will cost you 5 to 10 percent more when you loan compared to those with stellar credit. Banks would charge you more than the average rates and tie you up with a three year contract that disallows you from increasing your rates in the first year the account is opened.

The ratio of subprime clients have increased this year by 41% compared to 2011 according to Equifax. Credit card insurance for people with VantageScores (those within the 601 to 700 range) has increased to 21% in the first three months of 2012 which is the highest number since 2008.

Those with credit ratings under 600 however are still stuck with limited opportunities. According to Ezra Becker, the vice president of the research and consulting of TransUnion, not everyone is given the chance of a loan because not everyone pays them back, and these high risk clients are among those who are unlikely to pay their loans on time.

The number of credit delinquencies has decreased now and this development greatly contributes to the reason why banks are more comfortable with lending to people with troubled credit standing.the economy in the United States is starting to recover from the great recession it encountered in 2008.

Banks’ credit scores continue to improve and according to TransUnion, the marketing effort is fueling this improvement. Banks and other financial lenders are marketing their services to clients and thus more people are becoming interested in the business.

More Bad News for JPMorgan

JPMorgan Chase is in for more bad news as their credit continues to decrease these past few days. Fitch Ratings gave a lower rating of A+ to the financial agency after they lost $2 billion worth of dollars earlier last week.

According to Jamie Dimon the Chief Executive of JPMorgan, the company’s situation could get worse because they are not liquid enough and ratings companies are asking questions about their company’s risk management status, framework and practice.

The ratings industry head, says that JPMorgan Chase’s reputational and risk governance issues are not as good as they used to be however the current amount that the company is losing can be managed. According to reports JPMorgan’s, last week’s market shares was at $36.96, it went down by 9.3%, then after just a few hours it plunged further down to 0.8%  that’s $36.67.

The bank continues to be criticized and ridiculed by politicians and lawmakers as the ratio continues to drop. Thus a more convenient way for the firm is to have tighter measures and adapt to something like the Volcker Rule which can take care of too much risk-taking done by large banks.

The bank’s Executive Chief Mr.Dimon who has been getting positive regards about his efforts to get the bank back in tact has been open about his thoughts in implementing laws and regulations especially the Volcker Rule.

This however stirs questions from external sources whether the company has tried to implement the regulation in the past. However the total loss of $2 billion that was reported last week has weakened the arguments of the bank for their new measures. Bank investors are currently having difficulties in getting access to financial institutions and international trade and businesses.  Though JPMorgan Chase like the Bank of America and Citigroup have reports that can still be further evaluated, their unseen transactions and unclear records for their strategies could be destructive for them.