One of the nation’s top bank regulators says the banking system is safe, but worries about risks at non-bank financial institutions, particularly mortgage servicers, YahooFinance.com reported. The remarks from Federal Deposit Insurance Corp. Chair Jelena McWilliams come days after regulators freed the last “too big to fail” non-bank from extra regulation. McWilliams told a banking conference on Tuesday that post-crisis regulatory reform helped make the banking system safer but could have pushed risky activity to non-bank lenders. Those lenders, McWilliams feared, are not regulated by the FDIC or the other two banking regulators: the Federal Reserve and the Office of the Comptroller of the Currency. McWilliams’s comments come as she and the rest of the Financial Stability Oversight Council, a committee of financial regulators, unanimously voted to strip Prudential Financial of its “systemically important financial institution” title. In its report, the council said that the largest life insurer in the U.S. is no longer a risk to financial stability because it has more liquidity that it used to and lacks the exposure to be of concern. “It’s not Prudential that I’m concerned about,” she said. “It’s where are we putting this activity by regulating at the banks at the level that we have regulated it in the past.” McWilliams added that she sees a problem in the fact that eight out of the 10 largest mortgage servicers in the country are non-banks.
The Federal Deposit Insurance Corp. said yesterday that the percentage of Americans who do not have a bank account fell to a record low last year, the Associated Press reported. In 2017 approximately 6.5 percent of U.S. households did not have a primary bank account. That is down from 7 percent in 2015 and from a high of 8.2 percent in 2011. That translates into roughly 14.1 million adults without a bank account. The reasons for not having a bank account remained steady from previous surveys, with "not having enough money" being the No. 1 reason for doing so. Not trusting banks was another popular reason for not being banked.
Moody’s Investors Service said that companies owned by the 16 largest private equity firms have lower credit quality than those of similar, non-private equity owned companies, WSJ Pro Bankruptcy reported. In a recent report, the ratings agency said that weakening credit worthiness and loose safeguards could mean trouble for private equity firms when economic conditions change. The report says 92 percent of companies owned by the top 16 private equity firms are rated B2 or below, compared to 40 percent of companies without private equity backing. Driving the disparity is private equity’s appetite for shareholder returns and risky debt, according to Moody’s analyst Julia Chursin. Since 2009, Moody’s say it has rated 308 companies owned by the top 16 private equity firms, 99 of which have paid debt-funded dividends to private equity shareholders.
Credit scores for decades have been based mostly on borrowers’ payment histories. That is about to change, the Wall Street Journal reported. Fair Isaac Corp., creator of the widely used FICO credit score, plans to roll out a new scoring system in early 2019 that factors in how consumers manage the cash in their checking, savings and money-market accounts. It is among the biggest shifts for credit reporting and the FICO scoring system, the bedrock of most consumer-lending decisions in the U.S. since the 1990s. The UltraFICO Score, as it is called, isn’t meant to weed out applicants. Rather, it is designed to boost the number of approvals for credit cards, personal loans and other debt by taking into account a borrower’s history of cash transactions, which could indicate how likely they are to repay. The new score, in the works for years, is FICO’s latest answer to lenders who after years of mostly cautious lending are seeking ways to boost loan approvals.
The Securities and Exchange Commission said yesterday that public companies that are easy targets of cyber scams could be in violation of accounting rules that call for firms to safeguard assets, the Wall Street Journal reported. The SEC said in an investigative report that nine public companies wired nearly $100 million to hackers who impersonated corporate executives or vendors using emails. One company made 14 wire payments to a hacker, resulting in more than $45 million in losses, the SEC said. The agency declined to punish the companies, which weren’t identified. “Cyber frauds are a pervasive, significant, and growing threat to all companies, including our public companies,” SEC Chairman Jay Clayton said in a statement. “Investors rely on our public issuers to put in place, monitor, and update internal accounting controls that appropriately address these threats.” The type of scam the companies faced, known as business email compromises, have been responsible for more than $5 billion in losses since 2013 and ranked last year as the top cause of estimated losses linked to any cybercrime, the SEC said, citing data from the Federal Bureau of Investigation.
A long-delayed federal rule intended to protect student loan borrowers who were defrauded by their schools went into effect yesterday, after a judge rejected an industry challenge and the Education Department ended efforts to stall it any longer, the New York Times reported. The new rule, finalized in the last few months of President Barack Obama’s administration, is intended to strengthen a system called borrower defense that allows forgiveness of federal student loans for borrowers who were cheated by schools that lied about their job placement rates or otherwise broke state consumer protection laws. The new rule could expedite the claims of more than 100,000 borrowers, many of whom attended for-profit schools, including ITT and Corinthian, that went out of business in recent years. The new rule requires the Education Department to create a “clear, fair, and transparent” process for handling borrowers’ loan discharge requests, many of which have sat for years in the department’s backlog. It also orders the department to automatically forgive the loans of some students at schools that closed, without requiring borrowers to apply for that relief.
A federal regulator plans to explain what it considers to be “abusive” practices by companies selling financial services, a move aimed at giving a clearer idea of what behavior would get companies into trouble under relatively new government enforcement powers, the Wall Street Journal reported. Mick Mulvaney, the Consumer Financial Protection Bureau’s acting director, said on Monday that the bureau is working on a regulation defining how it views unfair, deceptive or abusive acts or practices, known as "UDAAP." Most of the CFPB’s enforcement actions involve such claims and the 2010 Dodd-Frank financial law, which created the CFPB and gave it broad enforcement powers. Companies have long complained that the CFPB’s UDAAP approach was overly broad and nuanced, making what would trigger an enforcement action less predictable.
The U.S. Department of Education recently released new data on student loan default rates and is touting a success story: The national default rate is 10.8 percent, down from 11.3 percent last year. But this decline doesn’t mean that students are no longer struggling to repay their loans or suffering the consequences of default. Though data on federal loans is notably poor, over the past three years, researchers have identified certain groups of students who face particularly high risks of default on their federal student loans. The Center for American Progress and others have found that African American borrowers, students who are parents, and low-income students have higher-than-average default rates, in some cases topping 50 percent. Research has also repeatedly demonstrated that students who do not complete college are more likely to default than those who have. These groups are relatively large and can therefore be studied in depth using the Education Department’s sample survey data, which follow students from when they entered college in 2003 through 2015. However, there are other groups of students with similarly high default rates who often go unstudied because they comprise a relatively small portion of the overall population. These students are an important part of the American postsecondary education system, yet they are too often underserved by it.
Mortgage rates hit their highest level in more than seven years this week at nearly 5 percent, a level that could deter many home buyers and represents another setback for the slumping housing market, the Wall Street Journal reported. The average rate for a 30-year fixed-rate mortgage rose to 4.9 percent — the largest weekly jump in about two years — according to data released Thursday by mortgage-finance giant Freddie Mac. Lenders and real-estate agents say that, even now, all but the most qualified buyers making large down payments face borrowing rates of 5 percent. A 5 percent mortgage rate isn’t that high by historic standards. During much of the decade before the financial crisis, these rates hovered between 5 and 7 percent.
Corporate loans have outperformed almost every asset class this month as climbing interest rates hit stock and bond prices, defying analysts’ warnings about rising risk in funds that buy below-investment-grade loans, the Wall Street Journal reported. While stocks bore the brunt of the recent selling, even investments that typically profit when rates rise have declined, leaving investors with few havens. The resilience of so-called leveraged loans in this environment helps explain the rising popularity of the once-niche market, which grew to a record $1.2 trillion this year, overtaking the amount of outstanding junk bonds for the first time. Leveraged loans to companies with junk credit ratings have grown increasingly popular among individual and institutional investors because they pay relatively high interest that moves in lockstep with benchmark interest rates. That feature insulates the loans from rate increases by the Federal Reserve, which have weighed on corporate and government bonds throughout the year and sent stock prices tumbling in recent days, analysts said. “It’s a Wall Street truism that you can’t fight the Fed — except, maybe, with loans,” said Steve Miller, a loan-market analyst and chief executive of Fulcrum Financial Data. Leveraged-loan returns have beaten investment-grade and high-yield bonds in only five of the past 26 years and in four of those years the Fed raised rates, Miller said.