Santander Profit Declines on Loan Provisioning Costs

- Banco Santander SA, Spain’s biggest bank, said second-quarter profit fell 4 percent as higher profit from the U.K. cushioned the impact of increased loan provisions.

Net income fell to 2.42 billion euros ($3.42 billion) from 2.52 billion euros a year earlier, the Santander, Spain-based bank said in a filing to regulators today. Earnings exceeded the 2.15 billion-euro median estimate of 11 analysts surveyed by Bloomberg. Profit from Britain rose by 50 percent.

Santander said it’s sticking with a target to match last year’s profit of 8.88 billion euros in 2009, as it integrates purchases in the U.K. and Brazil. Banco Bilbao Vizcaya Argentaria SA, Spain’s second-largest bank, posted a 34 percent jump in net income yesterday. Both are positioned to ride out recessions buffeting their main markets, said Andrea Williams at Royal London Asset Management, which oversees about $63 billion.

“The results look good at first glance, absolutely resilient,” said Williams. “My only worry would be whether they may be deferring some pain for the future.”

Santander fell 11.5 cents, or 1.2 percent, to 9.87 euros in Madrid trading, paring this year’s gain to 46 percent. The 63- member Bloomberg Europe 500 Banks Index advanced 27 percent over the same period, and BBVA 26 percent.

Santander has a market value of about 80 billion euros, the largest in Europe after London-based HSBC Holdings Plc.

Growing Loan Losses

The 152-year-old lender, headed by Chairman Emilio Botin since 1986, dodged most credit-related losses from the U.S. subprime mortgage market collapse and purchased damaged lenders such as Alliance & Leicester in the U.K.

The bank hasn’t been able to sidestep the impact of slumping economies. Bad loans as a proportion of total loans climbed to 2.82 percent from 1.43 percent a year ago and 2.49 percent at the end of March.

The bad-loan ratio will probably end the year at about 3.5 percent for Spain and also at group level, Chief Executive Officer Alfredo Saenz said on a Web cast today. The ratio will probably be 2 percent in the U.K. and may be as high as 6 percent at Santander’s consumer-finance division, Saenz said.

Non-performing loans on Santander’s books leapt to 21.8 billion euros from 9.7 billion euros a year earlier. Provisions for bad loans climbed to 2.42 billion euros in the second quarter from 1.6 billion euros a year before.

Provisions may reach 10 billion euros this year and Spanish default rates probably won’t peak until next year, Saenz said. The bank’s results in the second half of the year will look similar to those in the first, and the pace of provisioning probably wouldn’t ease for a year, he said.

‘Very Resilient’

“We’re pretty confident that they’ll be very resilient,” said Stuart Fraser, who oversees 2 billion pounds ($3.3 billion) as head of European equities at Aegon Asset Management in Edinburgh. As economies stabilize, “one bank that can look to benefit is Santander,” he said.

Santander’s core capital ratio, a gauge of its ability to absorb losses, rose to 7.5 percent from 7.3 percent in March. Santander will seek to raise funds by selling a 15 percent stake in its Brazilian unit through a share sale, Saenz said.

Net interest income rose 26 percent to 6.62 billion euros from a year ago as lending increased 16 percent. Operating costs rose 9.6 percent to 4.09 billion euros.

Spain, U.K.

Second-quarter profit from Santander’s retail banking network in Spain rose 9 percent to 1.07 billion euros, the bank said. Bad loans as a proportion of total lending at the business climbed to 3.5 percent from 1.33 percent a year earlier.

Profit from the U.K. rose to 475 million euros from 316 million. Santander said. Earnings from its consumer-finance business dropped 28 percent to 151 million euros as its bad-loan ratio climbed to 5.14 percent from 3.49 percent a year before.

Profit from Latin America, which contributes about a third of Santander’s earnings, rose 0.8 percent. First-half earnings from Mexico slumped 37 percent to 230 million euros.

Quarterly profit from Brazil, where Santander is the third- biggest non-state bank after buying ABN Amro Holding NV’s business in the country, rose 14 percent to 525 million euros.

Profit from global wholesale banking, a unit that includes the bank’s corporate and investment banking and markets business, almost doubled in the first half to 1.5 billion euros as the bank picked up market share, Santander said.

The bank used a 262 million-euro gain from the sale of a stake in the Brazilian affiliate of Visa Inc. to bolster its balance sheet in the country, Santander said.

Santander will book 555 million euros in gains from a 9.1 billion-euro exchange of European junior debt, funds that will go toward bolstering reserves, Saenz said. The swap had an acceptance rate of 54 percent and an exchange of debt in the U.S. is under way and scheduled to end in August, Saenz said.

A decision by the Bank of Spain to ease provisioning rules for mortgages had a positive impact of 270 million euros for the bank, which also used it to boost loan-loss reserves, he said.

Korea asks banks to cut bad loan ratio to 1 pct

Bad loan ratio hits 4-yr high of 1.50 pct at end-June

* Private bad bank to be launched with 1.5 trln won injection

(Adds details from statement)

SEOUL, July 30 (Reuters) - South Korea's financial watchdog said on Thursday it would advise banks to lower their bad loan ratios to 1 percent by year end as they brace for more soured debt created in the corporate restructuring process.

Problem loans, defined as those for which payments are more than three months overdue, rose to an average 1.50 percent of domestic banks' total credit at the end of June, the highest level since 1.65 percent in June 2005.

"In August, the Financial Supervisory Service (FSS) will discuss and set targets with each bank and examine their achievements going forward," said Choo Kyung-ho, a director general of the Financial Services Commission (FSC), in a briefing.

"In principle, each bank should aim for 1 percent, without consideration of their specific situation."

The FSS is under the FSC's supervision.

In the second quarter alone, bad loans increased by 7.6 trillion won for South Korean banks, led by unpaid corporate loans and credit card receivables. The lenders picked ailing companies during the first half for which debt would be rescheduled or new lifelines cut off.

South Korean banks, led by Kookmin and Shinhan, cleaned up a combined 3.4 trillion won ($2.7 billion) worth of problem loans in the quarter ended June, more than half of the amount they disposed of in 2008 through write-offs and sales, the FSC said in a statement.

Woori Bank, the country's No. 2 lender and a unit of Woori Finance Holdings (053000.KS), logged the highest bad loan ratio of 1.77 percent, compared with 1.34 percent for Kookmin and 1.59 percent for Shinhan Bank.

Kookmin and five other banks are preparing to set up a private bad bank in September with a total investment of 1.5 trillion won to compete with state-run debt clearer Korea Asset Management Corp in buying their non-performing loans, the FSC said.

($1=1243.8 Won)

China Pledges to Control Loans With ‘Market Tools’

China’s central bank said it will use market tools to control lending growth and affirmed a “moderately loose” monetary policy to support the nation’s economic recovery.

The People’s Bank of China will “emphasize the use of market tools instead of quantity controls to guide appropriate growth in money supply and lending” in the second half, Deputy Governor Su Ning said in a statement posted on the bank’s Web site late yesterday.

Shanghai’s benchmark stock index fell for a second day on speculation credit will tighten. China has pushed up money- market rates in open-market operations in the past month and resumed one-year bill sales as policy makers seek to restrict funds for stocks and real-estate investment without derailing a 4 trillion-yuan ($585 billion) economic stimulus plan.

“The market has accepted that it’s only a matter of time before the PBOC takes some serious actions,” said Li Wei, an economist at Standard Chartered Plc in Shanghai. “Everybody knows new loans growth is going to slow in the second half. In the first half, the monetary policy was extremely loose, now the policy has already changed.”

The Shanghai Composite Index slid 1.2 percent as at 11:30 a.m. local time. The benchmark dropped 5 percent yesterday after a report that two of the nation’s biggest banks set ceilings on new loans, spurring concern credit growth will slow. China’s overnight money-market rate rose for the first time in more than a week on speculation the availability of credit is tightening.

Top Priority

The central bank’s statement, which reiterated earlier comments, came hours after the biggest drop in the benchmark stock index in eight months yesterday. Last week, the bank said it would use monetary-policy tools to guide “appropriate” growth in credit, work to control loan risks, and maintain a “moderately loose” monetary policy.

“To continue to foster the relatively smooth and fast economic development is the top priority,” Su said at a recent meeting at the Shanghai branch of the central bank, according to the latest statement. The central bank should “maintain continuity and stability in macro-economic policy and strictly stick to the moderately loose monetary policy,” he said.

China’s credit growth will slow from the “unsustainable” pace seen this year to about 15 percent in 2010 as a strengthening economy reduces the need for loan support, Goldman Sachs Group Inc. said in a note dated yesterday.

Lending Spree

Chinese banks, which advanced a record 7.37 trillion yuan of new loans in the first half, created the equivalent of two Indian banking industries and stoked concerns that loan quality may drop, Goldman Sachs analysts led by Roy Ramos said.

The lending spree, encouraged by the government to support its stimulus package, has also fanned concerns that asset bubbles will form, and prompted the nation’s banking regulator to call on lenders to control the flow of credit several times since last week.

Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp., the nation’s two largest lenders by assets, aim to cap their new loans at 200 billion yuan in the second half, 21st Century Business Herald reported today, citing people it didn’t identify.

M2, the broadest measure of money supply, rose a record 28.5 percent in June from a year earlier, after a 25.7 percent gain in May. China’s economy expanded 7.9 percent in the second quarter as the nation became the first major economy to rebound from the global recession.

Lobbying Showdown Over The Future Of Student Loans

When Sallie Mae, the nation's largest provider of student loans, saw the possibility of its own extinction in a plan advanced by the Obama administration, it did what just about any big corporation would do: It hired the best lobbyists money can buy.

That was standard procedure for Sallie Mae, which for two decades has almost single-handedly stymied attempts to reduce or eliminate federal subsidies to the multibillion-dollar private student loan industry.

This time, however, Sallie Mae has elected not to fight to preserve the current system. Rather, it is trying to leverage its lobbying muscle and years of showering money on lawmakers to push an alternative plan that would position itself not only as a survivor, but a clear winner - with an even larger share of the market.

Even so, despite ramping up its spending on lobbying -- nearly $2 million in the first half of the year according to disclosure reports released this month -- Sallie Mae faces an uphill struggle in Congress. Legislation that would radically reshape the financial aid landscape along the lines proposed by President Obama cleared a key House panel last week. Credit rater Standard & Poor's immediately warned investors that it might downgrade the company's debt to junk level because "we believe the likelihood has increased" that within a year Sallie Mae will no longer be able to originate loans.

Rep. George Miller (D-Calif.), chair of the House Education and Labor Committee, said at a committee meeting that the bill would stop "wasteful taxpayer subsidies that are keeping a broken system afloat."

The plan would end lending by private firms by giving the Department of Education a monopoly over federally backed student loans. That could save the government $87 billion in subsidies over ten years, according to the Congressional Budget Office - money that would be redirected to Pell Grants for low-income students. Sallie Mae and other lenders would be confined largely to servicing loans held by the government and collecting on defaulted loans.

Presently there are two types of government-backed loans: At schools that have signed up for direct federal lending, students can borrow directly from the government. Or they can borrow from a lender such as Sallie Mae as part of the Federal Family Education Loan Program. Either way, the taxpayers take on the risk that a borrower might default.

Sallie Mae surprised the rest of the industry earlier this year when it announced it supported Obama's plan - but with certain caveats. The company argues that if lenders are still allowed to originate and service the loans that the government holds, they could produce similar savings that could also go toward Pell Grants. Under its proposal, companies that don't already service loans wouldn't be able to participate in the new system and thus could be pushed out of the business, leaving Sallie Mae with a bigger share.

Based in Reston, Va., Sallie Mae, formally known as SML Corp., was created four decades ago as a government-sponsored enterprise. It went private in the late 1990s. As the number of college students and tuition costs skyrocketed, so did Sallie Mae's profits - at least until the credit crisis hit. Last year, chief executive Albert Lord earned $4.6 million in cash and stock and Jack Remondi, its vice chairman and chief financial officer, more than $13.2 million in cash and stock, including the use of a company airplane.

Sallie Mae derives about a third of its earnings from federally backed loans, and the rest comes from private loans and other lines of business. Its financial future looks weaker not only because of the political threat but because of growing delinquencies in its non-subsidized student loans. The company reported a loss of $122 million for the most recent quarter, compared with a profit of $265 million a year earlier.

Calling on the Lobbyists

Most Republicans support a continuing role for private student lenders. Thus the battle over Sallie Mae's future is taking place among Democrats, which is why the company turned largely to that side of K Street.

"The banks and lenders who have reaped a windfall from these subsidies have mobilized an army of lobbyists," Obama said in a weekly radio address earlier this year. "I know they're gearing up for a fight as we speak. My message to them is this: So am I."

Sallie Mae's key hire was Jamie Gorelick, a former deputy attorney general in the Clinton administration, who signed on in February to lobby White House and Education Department officials on student-loan issues. Gorelick is a partner in the Washington law firm of Wilmer, Cutler, Pickering, Hale and Dorr, which billed Sallie Mae $270,000 for its work in the first half of 2009.

Gorelick said in an interview that while she was initially hesitant to work for Sallie Mae because it had fought the Clinton administration's efforts to boost direct lending by the government, she decided to do so because Sallie Mae's plan, like Obama's, provides funding for Pell Grants. She argues that Sallie Mae's proposal is better than Obama's because "many schools need the help that [private] lenders provide in managing the flow of information, processing and reconciling changes, and educating students about their choices and how to manage debt."

In March, less than a month after hiring Gorelick, Sallie Mae retained the Podesta Group, founded by Tony Podesta, a legendary Democratic fundraiser whose brother headed the Obama transition team. In addition to Podesta himself, the firm, which was paid $110,000 for its work in the first half of the year, assigned at least four of its lobbyists to push Sallie Mae's case on Capitol Hill: Paul Brathwaite, the former executive director of the Congressional Black Caucus and a former Clinton Labor Department official; Israel "Izzy" Klein, a former aide to Sen. Charles E. Schumer of New York and Rep. Edward J. Markey of Massachusetts, both Democrats; Lauren Maddox, a former assistant secretary for communications and outreach at the Education Department in the Bush administration; and Donni Turner, a former aide to Sen. Richard Durbin of Illinois, Rep. David Scott of Georgia, and former Sen. Max Cleland of Georgia, all of them Democrats.

Sallie Mae also has tapped several other Washington lobbying firms for help, including Clark & Weinstock, Global USA, ML Strategies, and Von Scoyoc Associates, which together were paid $302,500 in the first half of 2009.

Clark & Weinstock detailed more than a third of its lobbyists to the Sallie Mae account, including Vin Weber, the firm's managing partner, a former Republican congressman from Minnesota, and a half-dozen veteran Capitol Hill staffers: James Dyer, a former staff director of the House Committee on Appropriations; Niles Godes, who most recently was chief of staff to Sen. Byron Dorgan (D-N.D.); Ed Kutler, a former senior adviser to the Speaker of the House; Peg McGlinch, who most recently was chief of staff to Rep. Tim Walz (D-Minn.); Jonathan Schwantes, a former general counsel to the Senate Judiciary Committee; Deirdre Stach, a former legislative director to Rep. Robert Walker (R-Pa.); and Sandra Stuart, a former chief of staff to Rep. Vic Fazio (D-Calif.).

Sallie Mae also has a sizable in-house lobbying staff, including six individuals who are registered on Capitol Hill. They include Carmen Guzman Lowrey, a former legislative assistant to Sen. Barbara Boxer (D-Calif.), and Brent Hartzell, a former chief of staff to the Education Department's chief financial officer.

Many of Sallie Mae's rivals in the private loan business, including Citigroup's Student Loan Corp., based in Stamford, Ct., and ,Nelnet, based in Lincoln, Neb., felt blindsided by the company's survival strategy and have been lobbying on their own to preserve much of the current system. All three companies are members of a trade association, America's Student Loan Providers, that represents originators, guarantors (including dozens of state agencies with that role), and servicers of federally guaranteed student loans.

Nelnet spent $300,000 on lobbying in the first half of this year, according to its disclosure reports. One of the company's registered lobbyists is Amy Tejral, a former legislative director for Sen. Ben Nelson (D-Neb.), who is one of the most vocal opponents of the administration's proposal.

Nelson's state is home to Nelnet, which employees about 1,000 people. The lender was the third largest contributor to Nelson's campaign committee in the 2008 election cycle, with its PAC and employees donating $49,100, according to the Center for Responsive Politics.

Spreading Campaign Cash

Sallie Mae also has forged close ties to lawmakers in both parties by using its political action committee to shower them with campaign contributions -- more than $2.5 million in the past decade, according to the Center for Responsive Politics.

Since the Democrats took control of Congress in 2006, Sallie Mae has wooed key Democrats. In the 2008 election cycle, Sallie Mae's PAC gave $10,000 to the Blue Dog PAC, and an additional $145,500 to the individual campaign committees of Blue Dogs and Democrats on the House Committee on Financial Services, according to a Huffington Fund review of campaign finance data compiled by the Center for Responsive Politics.

Rep. Paul Kanjorski (D-Pa.), chair of a House Financial Services subcommittee, is one of Sallie Mae's most loyal friends. Sallie Mae is one of the largest employers in Kanjorski's district, and it was the second largest contributor in 2008 to Kanjorski's campaign committee and leadership PAC. The company and its executives donated $26,150.

Kanjorski has boasted of how he has used his leverage on the committee to keep Sallie Mae happy. "I got Sallie Mae here and I kept Sallie Mae here because of my activities with them at a federal level," he once told the Wilkes-Barre Times Leader, "making sure that we have a very favorable climate for them to remain."

An internal strategy document obtained by Miller, the House education chairman, and published by Higher Ed Watch, a blog of the New America Foundation, shows that top executives of Sallie Mae saw "Democratic control of Congress" as the No. 1 challenge facing the company. They then laid out, as their top "high-level political strategy," a plan to channel PAC contributions to fiscally conservative "Blue Dog" Democrats and Democrats on the House Financial Services Committee. The objective, as Sallie Mae's strategy document put it, was simple: "grow pro-FFELP [Federal Family Education Loan Program] coalition within the Democratic Party."

Miller soon announced that he was siding with Obama's plan and on July 21 his committee approved legislation along those lines by a vote of 30 to 17.

Sallie's Lifeline

But even if Sallie Mae's lobbyists fall short and the company's alternative fades, it isn't likely to face massive layoffs or cutbacks. Instead, Sallie Mae has a pretty good backup plan in place -thanks, ironically, to the government-run Direct Lending Program that it has fought for so long.

When the credit crisis disrupted the availability of education loans last summer, Congress authorized the government to buy tens of billions of dollars in existing loans to keep the money flowing to students. Then, just last month, the Education Department picked Sallie Mae to be one of four companies that will, under a renewable five-year contract, service those loans in exchange for fees.

Tucked in the Education Department's press release about the deal was this highly important sentence: "The selected contractors will also service loans originated by and sold to the Department in the future."

Sallie Mae already services more than 35 percent of all student loans. A new huge stream of servicing business under its contract with the Education Department could offset losses under the Obama plan.

"We're very confident that even in a servicing mode, that we have the earnings power to generate a substantially higher stock price," Lord told Wall Street analysts this spring.

China’s Loan Growth to Slow in 2010, Goldman Says

China’s credit growth will slow from the “unsustainable” pace seen this year to about 15 percent in 2010 as a strengthening economy may reduce need for loan support, Goldman Sachs Group Inc. said.

Chinese banks, which advanced a record 7.37 trillion yuan ($1.1 trillion) of new loans in the first half, created the equivalent of two Indian banking industries and stoked concerns that loan quality may drop, Goldman Sachs analysts led by Roy Ramos said in a note dated yesterday.

The nation’s deposits surged by 10 trillion yuan to 56.6 trillion yuan as of June 30, suggesting part of the loans are “recycled back into deposits with banks, not plugging operating deficits,” the analysts wrote in the report.

China’s lending spree, encouraged by the government to support its 4 trillion yuan stimulus package, has fanned concerns that asset bubbles will form and non-performing loans will rise. The nation’s banking regulator has called on lenders to control the flow of credit several times since last week.

Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp., the nation’s two largest lenders by assets, aim to cap their new loans at 200 billion yuan in the second half, 21st Century Business Herald reported today, citing people it didn’t identify.

ICBC, the world’s largest bank by market value, advanced 825.5 billion yuan of new loans in the first half and Construction Bank, the No. 2, extended 709 billion yuan.

Ensuring Growth

Plans to slow credit growth are “very welcome,” the Goldman Sachs analysts said.

China’s GDP expanded 7.9 percent in the second quarter as the nation became the first major economy to rebound from the global recession. The central bank said in a statement late yesterday that it plans to maintain a “moderately loose” monetary policy and that sustaining economic growth is “the top priority.”

New credit may reach 11 trillion yuan this year as the government refrains from clamping down on lending to protect economic growth, BNP Paribas SA said last week.

Student Loan Measure Clears House Panel

A bill that cleared a House committee Tuesday would largely remove private lenders from the federal student loan industry, generating an estimated $87 billion savings over 10 years to fund more government grants and loans.

The Student Aid and Fiscal Responsibility Act of 2009 would eliminate an entire category of student loans issued by private lenders and subsidized by the federal government, vastly expanding direct lending by the government starting next July. Democrats would use the savings to fund a $40 billion increase in federal Pell Grant scholarships over 10 years, $10 billion in community college upgrades and $8 billion in pre-kindergarten changes, among other uses.

Republicans opposed to the legislation say it amounts to a federal takeover of student lending. Democrats say the private lending program is in disarray because of the credit crisis, which has caused private capital to dry up. Republicans contend that the program will mend with the economy.

Initiated in 1965, the Federal Family Education Loan program -- which subsidizes loans made by private banks -- generated almost 80 percent of all federal student loans in fiscal 2008, serving 6.5 million students and creating $55 billion in loans.

"We can either keep sending these subsidies to banks and a broken system, or we can start sending them directly to students and their families," Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee, said Tuesday.

Republicans countered that the program generates $70 billion annually in private capital when the market is functioning properly and employs about 35,000 workers, many of whom could lose their jobs. Democrats rejected a Republican amendment that would have halted the legislation if research determined that more than 5,000 workers would be displaced.

"I have to ask: Is there any industry not on the verge of federalization?" said Rep. John Kline (Minn.), the senior Republican on the committee. Rep. Brett Guthrie (R-Ky.) said he wasn't "comfortable with the idea of the federal government acting as a profit-making bank."

The bill prevailed, 30 to 17, with two Republicans voting with the Democrats. It now goes to the full House. The issue will be taken up by the Senate after the House vote.

The bill would increase the maximum annual Pell Grant scholarship from $4,731 last school year to $5,500 in 2010-11 and $6,900 in 2019. Starting in 2011, the annual grant would be linked to cost-of-living increases.

Republicans say colleges and universities will be hard-pressed to switch from subsidized to direct government lending. Democrats say the conversion will be relatively simple.

Obama’s Student-Loan Plan May Save Less Than Thought

President Barack Obama’s plan to end federal subsidies to student-loan providers such as Sallie Mae may save $47 billion over 10 years instead of the $87 billion originally projected, the Congressional Budget Office said.

Incorporating market risk into the proposal, which would switch all new federal student loans to the Education Department’s direct-lending program, could reduce projected savings by $33 billion, CBO director Douglas Elmendorf said in a letter yesterday. The direct-loan program’s administrative costs would cut the savings by an additional $7 billion, he said.

The new CBO calculation, requested by Republicans, raises questions about plans by Obama and congressional Democrats to spend most of the projected savings on education programs and deficit reduction. Those proposals would cost taxpayers billions because the $87 billion in savings is a “myth,” said Representative John Kline of Minnesota, the House Education and Labor Committee’s senior Republican, who opposes the measure.

Committee Democrats said Republicans were trying to “cook the books” by asking CBO to ignore current student-loan market conditions. Yesterday’s letter didn’t change the official projection of $87 billion in savings over 10 years, they said.

“It’s clear that Republicans didn’t like the truth -- that our legislation generates almost $90 billion that could be used to help students, families, and taxpayers -- so they shamelessly decided to have a little fun with the numbers,” Committee Chairman George Miller, a California Democrat who sponsored the House bill that includes Obama’s proposal, said in a statement.

Market-Risk Cost

Senator Judd Gregg of New Hampshire, the Senate Budget Committee’s senior Republican, had asked CBO to adjust its projection to include the market-risk cost -- the prospect that student-loan defaults over 10 years will exceed the default rate used in CBO’s standard procedure for calculating the value of loans. CBO used a similar methodology in estimating the Troubled Asset Relief Program’s budget impact, Gregg said today in an e- mailed statement.

“I’m pleased that CBO has told Congress what it needs to know about the real economic and budgetary impact” of Obama’s proposal, Gregg said.

Elmendorf said in his letter, addressed to Gregg, that relying on a market-risk analysis “does raise some concerns” because “risky assets, including student loans, can fluctuate wildly in value” from one year to the next.

CBO’s official projection is based on a more accurate methodology than the market-risk analysis, said Justin Hamilton, an Education Department spokesman.

‘Longstanding, Neutral’

“This methodology is required by federal statute and provides a longstanding, neutral, and objective basis” for comparing the costs of government lending programs, Hamilton said in an e-mail.

Obama and Miller seek to end the 43-year-old Federal Family Education Loan Program, which subsidizes and guarantees loans made by private lenders. All new federal student loans would be made through the 16-year-old Direct-Loan Program, which lets students borrow directly from the government. Miller’s proposal, like Obama’s, would let companies compete for loan-servicing tasks such as processing payments and collecting on defaults.

Miller’s legislation, approved last week by the education panel, would direct the projected $87 billion in savings into other programs. The bill would channel $40 billion into Pell Grants for low-income college students and $10 billion into early childhood education grants. It also would use $10 billion to help reduce the deficit.

‘Budgetary Gimmick’

“A government takeover of our student loan programs is just a budgetary gimmick designed to finance the latest entitlement spending spree,” Kline, the Republican lawmaker, said today in an e-mail.

Reston, Virginia-based SLM Corp., known as Sallie Mae, is the biggest U.S. provider of student loans, followed by Citigroup Inc.’s Student Loan Corp. in Stamford, Connecticut, and Lincoln, Nebraska-based Nelnet Inc. Sallie Mae made $24.2 billion in student loans last year, 74 percent of them federally guaranteed.

The three companies are among 30 organizations pushing an alternative plan that would let private lenders continue to market federal student loans, which they would then sell to the government.

The new CBO calculations “will be used to highlight the risk inherent in the president’s proposals and could possibly bolster the industry plan” in Congress, Matt Snowling, an analyst with Friedman Billings Ramsay Group Inc., said today in a note to clients.

Sallie Mae lost 28 cents, or 3.1 percent, to $8.87 at 4 p.m. in New York Stock Exchange composite trading. Student Loan Corp. fell $1.56 to $46.02, and Nelnet slid 13 cents to $14.50.

New CBO Figures Fuel the Debate over Obama's Student Loan Plan

According to a letter released by the Congressional Budget Office (CBO), President Obama's plan to end the government-guaranteed Federal Family Education Loan Program (FFELP) could save the Treasury less money than the administration suggests. The new figures estimate that under certain risk assumptions, the plan would generate $47 billion over 10 years instead of the $87 billion officially projected as federal savings by the standard CBO methodology.

The most recent CBO analysis, requested by Sen. Judd Gregg (R-N.H.), uses an alternative method of calculating the cost of the Obama plan that takes into account the market risks – the prospect that student loan defaults over 10 years will exceed the default rate used in CBO's standard procedure for calculating the value of loans.

The new CBO calculation refueled student loan groups' and Republican lawmakers' opposition to the administration's plan. "CBO's conclusion that a downturn could cause a $33 billion swing in projected cost savings is reason enough for Congress not to rush consideration of the administration's proposal and to consider alternative reform proposals that pose less risks and costs to students and schools," Kevin Bruns, executive director of America's Student Loan Providers, told Inside Higher Ed.

House Democrats argued that the GOP was trying to "cook the books" by asking CBO to ignore current student loan market conditions. "It's clear that Republicans didn't like the truth – that our legislation generates almost $90 billion that could be used to help students, families, and taxpayers – so they shamelessly decided to have a little fun with the numbers," House Education Committee Chairman George Miller (D-CA) and sponsor of the House bill that includes Obama's proposal, said in a statement.

RBI report card shows sharp fall in "personal loans"

While industry and agriculture sector absorbed a larger amount of the total gross bank credit, there was moderation in the personal loan segment as home loans and credit cards showed a decline, according to RBI.

Loans to the real estate sector remained high as it included all the loans extended to the development of hospitals, educational institutes, hotels and commercial finance.

Industry absorbed about 47.4 per cent of the total bank credit against 43.2 per cent a year ago.
Personal loans, such as housing, credit card outstanding, education, consumer durables, and advances against fixed deposits that accounted for 7.6 per cent of the incremental non-food credit witnessed moderation. The total amount of personal loans at the end of May was down to Rs 29,266 crore from Rs 72,777 crore a year ago.

“Credit absorption by infrastructure companies have been encouraging, we expect other segments to fall in line with the busy season in the second half. With the economic conditions improving and interest rates going down substantially, housing should see a revival this year. In fact, home loans have started improving, but credit cards are down as banks are cutting back on their losses,” said M Narendra, executive director, Bank of India.
Exorbitant rise in real estate prices in metros also contributed to the dull demand. Home loans at the end of May were Rs 13,028 crore, while total home loans at the end of May 2008 was Rs 31,735 crore. Credit card outstanding at May-end fell to Rs 381 crore from Rs 7,116 crore in the corresponding period a year ago.

Education loans grew substantially with the total outstanding at the end of May 2008 going up to Rs 7,338 crore from Rs 5,914 crore a year ago, as most banks particularly the public sector banks aggressively grew their portfolios.

Negative growth in consumer durable loans declined to Rs 300 crore at May-end from Rs 534 crore at the end of May last year.

“The growth in credit deployment was lower in 2008-09 because of the economic slowdown in the normally busy season of second half of the year,” said RK Bakshi, executive director, retail, Bank of Baroda. Growth in loans to the commercial real estate, however, remained high. Loans to the real estate sector rose to Rs 32,321 crore in May 22 from Rs 17,018 crore at the end of May 2008.

Personal Loans for Bad Credit, Second chance Personal Loans

With bad credit, it may be difficult to get donors to give you a second chance. Find a personal loan lender bad credit OK after financial difficulties can be a real challenge for personal finances. The truth is that not only do you deserve a second chance personal loans with bad credit ok amenities are an important part of rebuilding your finances Get a second chance for personal loans, a bad credit rating is OK on all restore your financial reputation to the credit reporting bureaus. The benefits to make them compatible with the time of your meeting and payment of loans far outweigh the immediate need for money. These loans, and your payment history are responsible for the first step towards rebuilding your credit and breathe new life into your finances.

The real second chance personal loans are willing to lend you the money you need, even after a past financial situation, they rely on you and your financial recovery. They are ready to give you a second chance for funding in return for higher fees and costs of a normal loan. If you are looking for a unsecured personal loan, you can expect high costs, but in some situations, the loan second chance they provide worthwhile.

So what should we handle the search at the second opportunity for personal loans in bad credit? The Internet is a good place to find bad credit loans ok because you can apply to multiple lenders and to quickly compare financing terms that are offered on your new loan at a glance. It is both fast and effective and gives you the possibility of the borrower to find the best offer personal loan quickly and painlessly.

It is often useful to search for personal loans, review sites or work with a bad credit loan brokers because they can shop your loan to multiple lenders and save you time and money in efforts to line with your quest. Your second chance personal loan is often just a secure application away, as you are usually required for complete financial details of basic and can often get approval for your new loan, the days of your request.

Personal loans for second chance for a bad credit rating are just that, a second chance, and it is important that you make the most of it. Borrow responsibly, and make sure you can meet your loan before you accept the terms of funding, such as time payment history will be the workplace will help you rebuild your credit for years to come.

Apply For An Online Debt Consolidation Loan

When you decide that your finances are spirraling out of control with numerous credit card repayments, personal loan repayments, a car loan, etc. to pay every month, you really should do something about it.

The ideal way to cut down greatly on what you are paying out at present for all these debts is by arranging a debt consolidation loan. A debt consolidation loan, if you are a homeowner in particular, can be granted at a good rate of interest.

This form of secured loan forms the consolidation of all your outstanding balances on personal loans and credit cards, etc. giving you one much lower monthly payment, saving you money and making your financial life less complicated. Having decided that this is the best way to save money, your next consideration is how to go about arranging this debt consolidation loan.

If you have access to the internet, the best way is to go online Arranging your debt consolidation loan in the comfort of your own arm chair is a great and comfortable way to arrange your secured homeowner loan. You can complete the online loan application form and fill in all the details about your credit card consolidation, your personal loan debt consolidation etc.

There is no need to trawl round the high street when your debt consolidation loan can be arranged online.The days of having to go into your bank or building society to enquire about a debt consolidation loan is a thing of the past. Also the debt consolidation loan brokers found online have access to a greater number of loan prducts that are available from your bank.

Therefore you are in a win win situation. You are sitting comfortably at home and also getting the best rates available by applying for your debt consolidation loan online. Switch on your computer and see how much you can save with your online debt consolidation loan.

Mortgage loans will be more transparent, Fed says

If you have ever been in the market for a home loan, you know that understanding all of the terms - including rates, fees and penalties - can be quite a challenge.

New proposals from the Federal Reserve are aimed at making the process of choosing a mortgage loan as transparent as possible.

The 600-page document contains a number of provisions that significantly tighten lending practices and change how mortgage brokers do business.

For example, lenders would be required to describe any potentially risky aspects of their home loan and provide them with a list of questions and answers before they sign on the dotted line.

Another proposal obligates lenders to give a detailed disclosure about the annual percentage rate of the mortgage loan so that borrowers can thoroughly understand fees and settlement costs.

Furthermore, consumers would be able to see how their APR compares to the average rates paid by borrowers with high credit scores.

And homebuyers with adjustable-rate mortgages would receive an explanation of how their payments could potentially increase.

"Consumers need the proper tools to determine whether a particular mortgage loan is appropriate for their circumstances," commented Federal Reserve chairman Ben Bernanke.

"It is often said that a home is a family's most important asset, and it is the Federal Reserve's responsibility to see that borrowers receive the information they need to protect that asset."

There is a 120-day comment period for the proposals, which may then be revised and voted upon.

Forensic Loan Audit, Mortgage Loan Audit Software

With more than 70% of mortgages being in violation of applicable laws pertainin for the loan of these laws on the loan of these loans, if a customer has of your violations you likely to get a loan modification . Most often, violations Tila, Breathe, Hopea, April and that most violations of mortgages that were initiated during the last 5 years. Citing the breach and indicating in a report is an excellent addition to your loan modification ordrer forms package to give your peak and get a loan faster change.

www.ForensicLoanSoftware.com a statutory audit guide borrowing and lending Forensic Audit Software that will discover and identify violations of specific laws that violate the loan. This is exported in a report outlining the violations and laws relating to the breach. The software uncover violations of TILA, RESP, Hopea, APR, and even the cost of verification will indicate whether the charges are in violation of same. The software is a great way to make a loan audit and legal to get a report of it quickly.For more information about Forensic Laon audit visit http://www.forensicloansoftware.com/

Mortgage Firms Struggle to Redo Hard-Hit Loans

Morgan Stanley chief John Mack recently made a new friend, he told shareholders in April -- a Southern woman who had benefited from the big bank's stepped-up efforts to modify loans under a new federal program aimed at keeping borrowers in their homes.

"I'm now invited -- if I ever visit Memphis, Tennessee -- to drive two hours south to have dinner with her and her family," Mr. Mack said. But by some measures, Morgan Stanley's mortgage-loan servicing firm, Saxon Mortgage Services Inc., has a long road to go. An April Credit Suisse Group analysis of how quickly companies have renegotiated loans ranked Saxon last among 18 mortgage-servicing firms. Saxon has modified just 6% of the loans it oversees that originated between 2005 and 2007. By contrast, Litton Loan Servicing, a Goldman Sachs Group Inc. unit, modified 28% of its loans.

Such firms are at the center of a grand government experiment aimed at halting foreclosures and the collateral damage they cause neighboring homes. New foreclosure notices will total 2.4 million this year, which could trigger price drops in 69.5 million nearby homes, estimates the Center for Responsible Lending, a financial-services research and policy firm. At an average decline of $7,200 a house, that translates to a potential drop of $502 billion in total U.S. property values.

The government plan, rolled out in February and called the Home Affordable Modification Program, or HAMP, will pay mortgage-servicing firms to modify mortgages and find other ways to keep people in their homes. But the program's sheer scale and the speed with which it was rolled out has created a new set of problems for some of the 27 firms charged with carrying it out.

A look at Saxon provides a window into the challenges these mortgage servicers now face as they attempt to salvage the loans of three million to four million Americans. Mr. Mack declined to comment through a spokeswoman, but Saxon says that as soon as HAMP launched, it was flooded with requests from borrowers.

The company, based in Irving, Texas, has hired or expanded contracts with four outside companies to help handle the influx, and it recently added a late shift from 4 p.m. to 11 p.m. to manage the extra work. Even the volume of paperwork at one point grew unwieldy -- an internal audit in mid-May found that Saxon's scanning equipment was overloaded with materials sent in by borrowers, leading to delays and lost documents.

Staff lacked the training and experience to modify so many sour loans. During the housing boom, Saxon's mortgage-servicing employees did little more than send monthly statements in the mail and track down delinquent borrowers. Like other mortgage servicers, Saxon was essentially the link between borrowers and the investors who owned pools of mortgages. It handled the day-to-day business of collecting payments on behalf of those investors, and when borrowers fell behind, of covering the payments until it could collect. When borrowers defaulted, Saxon would either modify the loans or foreclose.

Now, firms like Saxon are under pressure to stem foreclosures at all costs. That means many employees need to be trained in an entirely new set of skills. Under HAMP, reworking a single loan can be a time-consuming process with many steps, from calculating a borrower's debt-to-income ratio, to negotiating with investors who own different slices of the loan pool, to figuring out which type of modification works best for each borrower. Loan specialists need to study multiple guidelines, online tutorials and a HAMP data dictionary with terms such as "underlying trust identifier."

In May, shortly after the government program kicked off, Anthony Meola, Saxon's chief executive, gave his employees a call to arms. Standing atop a makeshift stage in the middle of Saxon's call center in Fort Worth, Texas, Mr. Meola barked into a microphone: "You are getting a chance to help preserve the American dream. Think about what you could do -- you can save someone's home!"

Saxon also has a financial incentive: The government is paying servicers $1,000 for each loan they modify, with another $1,000 annually for up to three years if borrowers stay current. In all, the U.S. could provide as much as $18.6 billion to the mortgage industry, investors and borrowers.

Yet there is growing concern among some lawmakers that loan modifications aren't moving fast enough. In late June, 20 Democratic senators wrote to Treasury Secretary Timothy Geithner, whose agency is the architect of the housing program, to ask him to put more pressure on mortgage-servicing firms. The group cited a recent report from a foreclosure program administered by NeighborWorks America, a Washington network of affordable-housing organizations, that found homeowners still were being forced to wait, on average, 45 to 60 days for help.

On July 9, Mr. Geithner sent a message to the mortgage-servicing firms that have signed up for the modification program and told them to ramp up their efforts. "We believe there is a general need for servicers to devote substantially more resources to this program," Mr. Geithner wrote, including adding staff and call centers. He said the agency would begin publicly reporting each firms' results starting in August, and that Freddie Mac, the government-controlled mortgage buyer, would be auditing a sample of declined requests to make sure no borrowers were denied incorrectly.

Saxon so far has completed nearly 17,000 loan modifications where borrowers have submitted income verification and other documentation and made their first payment. In total, it has given initial approval of 28,000 modifications where the borrower has provided spoken information about income, a process that underscores the government's desire to move things along quickly.

Still, some Saxon borrowers have endured long waits. Diana Wiles, a 54-year-old lab technician in Fremont, Mich., was approved in February for a modification on a $113,000 home-equity loan which cut her interest rate to 1.75% from 6.75%.

She says Saxon told her not to make her March loan payment and it would send her documents to sign and return. But the documents didn't arrive -- and Saxon charged her a late fee for missing a payment. Ms. Wiles made another attempt to modify her mortgage, and this time, Saxon screened her to see if she qualified under HAMP. But when the firm requested she put property taxes and insurance in an escrow account, as the U.S. program required, she balked. "I didn't trust them after all we had been through," she says.

Over the next six weeks, she resubmitted her financial information twice and called Saxon weekly, without a clear answer.

After The Wall Street Journal inquired about Ms. Wiles's case, she received a package confirming terms of an approved loan modification, setting her mortgage rate at 1.75% for five years beginning Aug. 1. A Saxon spokeswoman says her financial documentation only recently had been completed.

But more confusion followed. After her loan package was confirmed, Ms. Wiles received a letter dated June 24 from Saxon that said her first new payment was actually due July 1. Ms. Wiles phoned to clarify and then received another letter dated June 25 that told her to disregard the June 24 letter and that in fact her new loan package would begin Aug 1.

Saxon's borrowers' rate of so-called re-defaulting -- or defaulting on a loan after it's been modified -- has also been higher than most. Of the loan modifications made by Saxon in the first quarter of 2008 where monthly payments were decreased by more than 20%, 34% of the amount owed was delinquent by 60 days or more 10 months after the modification, according to Credit Suisse Group. That compares with an average of 27% delinquent for the 18 servicers Credit Suisse analyzed.

Part of the problem at Saxon is that it didn't ramp up its ability to modify loans as early as other servicing companies. A spokeswoman for Saxon says that when Morgan Stanley purchased the company in 2006, it lacked enough employees and systems to undertake massive numbers of modifications. It wasn't until the spring of 2007 -- after its portfolio of subprime loans had already started to sour -- that Saxon began to focus on modifying loans. Not until the fourth quarter of 2008 did Saxon boost its capacity to handle a large flood of requests.

Some Saxon borrowers have gotten swift modification approvals. Lorraine Rodriguez, a hospital worker in Anaheim, Calif., called Saxon in mid-May. Following an hourlong call, she says, Saxon told her she had been approved for a three-month trial modification starting June 1, cutting her mortgage rate to about 5% from 9.5%. Her monthly payment was cut 42%, to just below $1,900. The new rate "is still a high amount and is tough for us," says Ms. Rodriguez, 57.

Charged with beefing up Saxon's operations is Mr. Meola, an accountant who held senior mortgage positions at Citigroup Inc., PNC Bank, Washington Mutual Inc. and New Century Financial Corp.

Mortgage Rate update and Loan Qualifying

Rates for our ever-popular POV* took a beating today as most major Wholesale Lenders repriced for the worse twice today. Conforming rates ($417K and under) are at 5.25% with Jumbo Conforming (up to $729,750) at 5.625%. Super Jumbo (up to $2 million) for a five year fixed at 5.875%. You can always send your questions or scenarios to me at lololoans@yahoo.com

Reminder: on the 8% Tax Break: The First-Time Home Buyer Tax Credit as part of the American Recovery and Reinvestment Act of 2009 goes away as of 31 December of this year. You have to Close and be Funded on your Loan prior to that date. Click on the link to see if you qualify http://www.irs.gov/newsroom/article/0,,id=204671,00.html?portlet=7 So if you are "on the fence" as far as a home purchase this may be a factor.

Just who Qualifies for that Mortgage Loan? Remember that there are 3 major components to having the happy folks in Underwriting approve your Loan Application. Credit Score, your income and the equity involved in the property. The 3 components are inter-related and in some cases can be adjusted. For example if your income is a tad on the low side, you can up your chances with a higher FICO score and more equity in the home. Less equity, then a higher FICO score and more income etc..so on a Purchase Loan, the big change that you can control quickly is the Equity part of the triangle. If you have a fixed dollar amount set aside for the down payment, then going with a smaller home than you had wanted or planned on increases your Equity component and thus adds more "firepower" to your chances of getting approved. A reversal of the mindset of a few years ago when it was "think big" because..you could!

*POV = Plain, Old, Vanilla Home Loan: 30yr fixed, fully amortized, 20% equity min, Single Family residence, owner-occupied, rate and term refi or Purchase loan only, slightly better rates for being kind to animals and strangers.

Refinance Home Loan Rates Likely To Follow Interest Rates Higher

Refinance home loan rates are likely to follow interest rates higher. Over the next few weeks, it is very likely that we will see home loan rates move towards 6%. The 10 year treasury rate yield has been in an uptrend since the beginning of the year and has recently started to push higher again. A move from 3.3% to 3.7% on the 10 year yield has not greatly affected mortgage rates….yet! There is little doubt that the affect is going to take place in a very rapid fashion. It would not be surprising whatsoever to see the 30 year fixed rate mortgage move as much as a full percentage point in a week or less.

If you have been thinking about refinancing this is exactly what you do not want to get caught up in. It is advisable to go ahead and complete your mortgage application and get it in before mortgage rates start shooting higher. If you wait a month or possibly even a week, you could see mortgage rates as high as 6% which would defy the purpose of refinancing your current home loan.

There are currently some great deals out there on getting a low refinance rate so take advantage of them now. I am sure you have seen advertisments on tv and all over the internet for low rate refinance. Some of the ads actually give you an 800 number to call and speak with a representative. It never hurts to call and ask a few questions. Do not think that everything they say is completely true, but it will help you get a grasp on things. Do your personal research and get that low rate refinance!

Changes to expect when shopping for a *home loan *

If the proposals for a federal Consumer Financial Protection Agency comes to fruition, below are some changes a mortgage shopper might expect.

Less paper
Anyone who has gotten a mortgage knows just how much paperwork is involved.

Forms today are "too many and too complicated” and could be clearer, said Marc Savitt, immediate past president of the National Association of Mortgage Brokers.

Alex Pollock, in testimony to the House Financial Services Committee, said that the one good idea that has emerged from the reform proposals has been the proposed requirement of clear and simple disclosures. Pollack is a resident fellow at the American Enterprise Institute for Public Policy Research.

"In congressional testimony in the spring of 2007, I proposed a one-page mortgage form so borrowers could easily focus on what they really need to know. The one-page-form idea was included in change bills in both the House and Senate, but not enacted, unfortunately. It remains my opinion that something like it would be a huge improvement in the way the American mortgage system works,” he said.

With better disclosures, borrowers can be better able to "underwrite themselves,” he said, making sure they understand the debt commitments they are making.

‘Plain vanilla’ mortgages
What would a "plain vanilla” mortgage be? Most likely a 30-year fixed-rate mortgage and possibly other basic loans, such as a five-year adjustable-rate mortgage, said Richard Thaler, a professor of economics and behavioral science at the University of Chicago Booth School of Business.

That doesn’t mean you couldn’t get a more complex product, just that you have to see more basic options first.

To obtain a mortgage with more complicated terms, "people would have to opt into them and be warned that they would be doing something unusual,” he said of the more complex mortgage products.

Thaler is co-author of the book "Nudge,” which examines scenarios that "steer people in the direction that is likely to be helpful and warn them about things that are likely to be dangerous.”

A "plain vanilla” mortgage encourages borrowers to opt for a certain basic mortgage type without banning other choices, he said.

This system could help prevent consumers from agreeing to complex terms they don’t understand, when they might otherwise have chosen a simple, basic product.

Case in point: John Sullivan, president of the National Association of Exclusive Buyer Agents, recently was involved in a transaction with sellers who didn’t realize they had an interest-only loan until five years later when they wanted to sell the property; without paying principal on a loan, they didn’t build equity.

Certain fees banned
Prepayment penalties, or costs you’re charged if you want to pay a mortgage off early, could be banned or restricted by this proposed agency. At its worst, consumers get trapped in mortgage terms that aren’t right for their situation because they can’t refinance unless they pay the penalty fee.

Consumers may not even notice another fee that could become extinct because they’re not easy to spot to begin with: Yield spread premiums. Shaun Donovan, secretary of the Department of Housing and Urban Development, called them "unfair practices” used by lenders to encourage brokers to sell riskier and higher-priced loans.

From the industry perspective, Savitt said the premiums are a way consumers can finance origination costs over time.

He said that costs built into the interest rate — both from brokers and lenders — should remain permissible, but that "it’s important that everything be disclosed on both sides,” meaning both brokers and lenders should disclose all fees embedded into the rate.

HDFC Cuts New -Home Loan- Rates

Indian mortgage lender Housing Development Finance Corp., or HDFC, has cut floating rates on some new home loans by quarter percentage point to half percentage point, a company spokesman said Wednesday.

The new rates are effective immediately, he said.

The lender will now charge an interest rate of 8.75% on home loans up to 1.5 million rupees ($31,120) and 9% on loans between 1.5 million rupees and 3 million rupees.

HDFC was earlier charging a rate of 9.25% on all loans up to 3 million rupees.

Chino Hills woman pleads guilty to forging home loans

SAN BERNARDINO - A Chino Hills real estate agent who forged more than $900,000 in loan documents to purchase a home pleaded guilty to two felonies Friday in San Bernardino Superior Court.

As part of a plea bargain reached with prosecutors, Anita Andres Mendoza, 44, will be sentenced to 90 days in jail and be placed on probation for three years, Deputy District Attorney Vance Welch said.

She will be required to pay back $180,000 lost by a mortgage company victimized in her scheme, Welch said.

And if she violates the terms of her probation, she could be sentenced to two years in state prison, Welch said.

A judge granted Mendoza's request Friday to be released from jail, with a promise that she will return to court for sentencing Aug. 21. She had been jailed in lieu of about $1.15 million bail since her arrest on July 15.

Mendoza was accused of forging another woman's signature on home-loan documents to purchase a home in Chino Hills in 2006.

The forgery was discovered when a lending institution contacted the woman whose signature Mendoza allegedly forged.

Welch said that prosecutors offered Mendoza a relatively lenient plea bargain because she confessed completely when contacted by investigators.

"She kind of told us in her own words that (being caught) was almost a relief for her because there wasn't a moment that went by that she didn't think about this," Welch said.

"We do a lot of these types of cases, and my standard is state prison," the prosecutor added. "But this was such a different situation in that this lady came completely clean with us."

Welch said that if there was anyone besides Mendoza involved in the scheme, "We didn't really have enough to file (charges) on."

Welch said that because of her convictions, Mendoza will likely lose her real-estate license.

Bonds Backed By Home Loans Buoyed By Govt's Toxic Asset Plan

NEW YORK -(Dow Jones)- The Treasury's plan to deal with toxic home-loan- related debt on bank balance sheets has raised some skepticism in the financial industry, yet it is having an impact on one market: that for bonds backed by home loans.

Since the government last week - after some delay - announced the selection of nine fund managers to run funds seeded with public and private money that will invest in these securities, home-loan-backed debt has been gaining steadily in price, sending yields lower.

Importantly, these gains are taking place in the market that deals with loans that aren't backed by housing finance giants, Fannie Mae (FNM) and Freddie Mac ( FRE). This part of the market - the private-label residential mortgage-backed market - hasn't benefited from Federal Reserve purchases or other support measures, yet its revival is necessary for mortgage lending to pick up, mortgage rates to decline and the housing market to heal.

The nine fund managers have up to 12 weeks to raise at least $500 million of capital each from private investors. The Treasury will then match this capital and provide debt financing up to 100% of the total equity in the partnerships.

Prime, riskier Alt-A and risky subprime bonds have all gained as confidence has returned and investors, in the knowledge that there will be buyers for these securities, are more willing to trade.

One market participant noted several so-called bid lists - offers to sell securities - were circulating in the market Tuesday as investors took advantage of the new-found demand to sell.

"The bidlist activity in a frenzied rally is to be expected," he wrote in an e-mail.

The gains in home-loan-backed bonds mirror the impact of other government programs aimed at reviving struggling parts of the credit market, including the Federal Reserve's efforts to support the markets for consumer-loan-backed debt and securities backed by commercial mortgage loans.

The programs "put a floor on the price of these bonds," said Dan Nigro, a portfolio manager at Dynamic Credit Partners in New York, adding that the knowledge that there's a buyer for these securities gives market participants the incentive to trade them.

When the Fed's Term Asset-Backed Securities Loan Facility, or TALF, was expanded to include existing commercial mortgage bonds, it started "a significant rally" in those securities, said Darrell Wheeler, head of securitization research at Citigroup. Risk premiums on TALF-eligible CMBS tightened sharply to under 400 basis points from 700 basis points two weeks ago, Wheeler wrote in a note.

"PPIP-eligible CMBS and RMBS have just started to see some of their rally as PPIP is approaching actual implementation," Wheeler wrote. PPIP refers to the public-private investment partnerships, the official names for these funds.

The bonds "still have anywhere from 10 to 15 points to rally as PPIP gets fully functional," Wheeler wrote.

-By Anusha Shrivastava, Dow Jones Newswires; 212-416-2227; anusha.shrivastava@dowjones.com

(END) Dow Jones Newswires
07-21-091429ET
Copyright (c) 2009 Dow Jones & Company, Inc.

New Orleans Mayor Ray Nagin creates "home loan' frustration

Mayor Ray Nagin's decision to "reprogram" $20 million away from a popular mortgage subsidy program threatens to derail deals for close to 100 families of moderate means who already had been approved for the aid, with fully renovated homes under contract.

It's the latest stumble for a program that started under a cloud of confusion a year ago, but had been going like gangbusters of late. Close to 200 families recently purchased their first homes thanks to forgivable "soft second" mortgages of up to $65,000 plus grants of up to $10,000 to cover closing costs.

But that success has led to problems. About a month ago, the Finance Authority of New Orleans, which administers the program, discovered that its 12 participating lending institutions had reserved all of the $27 million in federal money available so far.

FANO had been promised another $79 million from the city and state for soft-second mortgages, and continued to process applications.

But none of the money has arrived.

After the program had hit capacity -- but before FANO could put the brakes on lenders' access to its computerized loan reservations database -- 92 deals were approved with financing that now doesn't exist.

Left in limbo

Some expectant homebuyers feel like the rug's been pulled from under their feet.

One young professional, who wants to remain anonymous because he fears losing his spot on a waiting list, said he had an affordable house under contract. He had attended the required first-time homebuyer classes. He had spent hundreds of dollars on inspections, and he had even hoped that a promotion at work wouldn't push his salary over the program's income limit -- $50,200 for an individual and $71,800 for a family of four.

"I felt really good about the program -- it's there to help people come back and recover some of these neighborhoods. But if you preapprove people, you should have some idea about when the money is running out, " he said shortly after hastily moving his belongings to a friend's house in hopes he'll be selected in a lottery.

The lottery was instituted after a few of the loans in the pipeline that did have financing fell apart. It has allowed some of the 92 families whose loans were not financed to get back into the program, said FANO spokeswoman Terrell Perry.

More loans could be restored that way. But with most iffy borrowers already weeded out by the program's strict standards, lenders and builders doubt many more deals will crater.

Grasping for solutions

The only real hope for those on the waiting list, it appears, is for the city to hand over some of the money the mayor promised.

Two weeks ago, Austin Penny, the head of the city's recovery office, told The Times-Picayune that he was meeting with FANO director Mtumishi St. Julien on July 13 to discuss that possibility. The city's 2009 budget, adopted last fall, included a $27 million investment to match the state's initial allocation, but Nagin said in May that $20 million of it would go to a different program.

Penny said the plan is to use the $20 million to help homeowners with rehab work, but details for that program aren't yet available. He said he would discuss the other $7 million with FANO at last week's meeting.

The city hasn't said whether it still plans to provide the $7 million, which would cover all 92 people on the waiting list. Penny has been out of town and unavailable for interviews, according to Nagin's press office. FANO's Perry declined to comment on the meeting.

But she did say FANO is scrambling to avoid losing any promised deals. In a memo to lenders dated July 2, FANO said "we are all in an emergency situation."

"I don't know if anybody's to blame, but we're all in a difficult situation, " said Judy Pelitere, vice president for mortgage lending at Gulf Coast Bank, one of the program's leading lenders.

Gulf Coast had to put 35 deals on hold because of the program's financial straits, Pelitere said.

The emergency has prompted rule changes that have only added to the confusion.

Earlier this year, FANO took the slow-moving loan program, which initially had been limited to houses in nine Housing Opportunity Zones identified by the city's recovery office, and opened it up to any restored property in the city that suffered significant damage in the 2005 hurricanes.

But then, on July 1, FANO told lenders to drop any new deals for properties outside the zones in an effort to conserve money. But a day later, when it introduced the lottery, FANO said it would approve loans for any property in the city that was picked in the lottery.

FANO and its state financial backers also have dithered about setting a ceiling on eligible home prices. Official program guidance says loans are available on purchases up to $289,000. But when the money crunch began, lenders said a few deals were scuttled at the closing table because the state and FANO set a new sales price cap of $200,000.

'Getting slammed'

The lower cap would essentially kill any deals in the Lakeview Housing Opportunity Zone, including two homes bought and renovated by Kym Valene of Valene Developments LLC.

"The loans were guaranteed, they did the inspections a month ago, " Valene said. "One was supposed to close on Friday. Now, my income is held up because they changed the rules when the (buyer) is sitting there at the closing table. My livelihood is getting slammed, not to mention the dreams of a 25-year-old schoolteacher" who was trying to buy one of Valene's Lakeview houses with help from the FANO program.

The schoolteacher, Jessica Pivik, who is actually 24, is a first-grade teacher at McDonogh 15. She decided to move to New Orleans from St. Louis when she saw the soft-second program would allow her to buy a house in a safe neighborhood.

Perry promises the $200,000 threshold -- which emerged because the state was concerned about complying with federal rules -- is no longer an issue.

"The state has informed us that sales over $200,000 will be approved as long as the deal meets all the other guidelines, " she said.

That's good news for Pivik, who was devastated when she got a call last Thursday, a day before her closing, telling her that the home might cost too much to be eligible.

"I went all the way through to closing with them saying here's the money you're going to get, and then they took it back, " Pivik said. "I was very upset and angry at first, but I do understand they're policing the situation because things got out of hand."

Florida AG sues home loan modification companies

Florida’s attorney general has filed a lawsuit against four South Florida companies that allegedly collected upward of $1 million in illegal upfront fees for loan modification services to homeowners facing foreclosure.

FHA AllDay.com of Deerfield Beach and its owner, Jason Vitulano, along with three other affiliated companies, are alleged to have solicited hundreds of distressed homeowners nationwide using the Internet and robo-calls that featured President Barack Obama’s voice.

According to the complaint, filed in Palm Beach County Circuit Court, Vitulano’s companies were charging as much as $5,000 to modify loans for those who faced losing them to lenders.

The other companies, which went by the names Safety Financial Services Inc., Housing Assistance Law Center PA and Housing Assistance Now Inc., were previously located in Boca Raton and Delray Beach.

The suit alleges that the companies promised to work with lenders to reduce debt and prevent foreclosures. However, consumers claim the companies did not perform the promised services, and that they were unable to contact the companies or get their money back.

The attorney general’s office received as many as 300 complaints.

The lawsuit asks that Vitulano and his companies be prevented from continuing to do business and that the court order the dissolution of the businesses, as well as award civil penalties of $15,000 for each violation of the Foreclosure Fraud Prevention Act.

To file a complaint go to www.myfloridalegal.com/mortgagefraud or call (866) 966-7226.

Bad debt burdens Naples-based bank holding company

Bad debt is likely to keep Bank of Florida Corp. operating at a loss for the rest of 2009 before it begins to ease, Chief Executive Officer Michael McMullan said Tuesday.

The Naples-based bank holding company reported a net loss of $6.5 million, or 51 cents per share, for the quarter ended June 30, compared to net income of $4,000, or less than a penny a share, for the same period a year ago.

The company's shares fell sharply following the morning earnings announcement, trading as low as $2.74 before closing at $2.95, down 55 cents from Monday's close.

The company reported nonperforming loans of $141 million, or 11.1 percent of total loans in the quarter, up $26 million from $115 million or 8.9 percent of total loans in the first quarter.

"The remainder of 2009 will be the peak of non-performing loans and then in 2010 we will see a decline in new non-perming loans," McMullan said. "2010 will be the beginning of working back toward normal."

Many banks in South Florida have seen their bad debt increase as tens of thousands of homeowners defaulted on mortgages.

Bank of Florida Corp. set aside $9.8 million for loan losses, up from $6.7 million in the first quarter and $1.6 million in the second quarter of 2008.

Bank of Florida is a holding company for Bank of Florida - Southwest, with branches in Collier and Lee counties; Bank of Florida- Southeast, with branches in Broward, Miami-Dade and Palm Beach counties and Bank of Florida -Tampa Bay in Hillsborough and Pinellas counties.

McMullan said the company is managing its troubled assets as a division, while still seeking growth opportunities in other divisions.

"We continue to have a resilient core business," McMullan said.

The holding company's trust division, Bank of Florida Trust Company, reported assets under advisement grew 21 percent to $630 million.

The company also received $4.1 million during the quarter in proceeds from the sale of preferred stock.

Bank of Florida Corp. also reported that it lost about $230,000 due to the failure of Atlanta-based Silverton Bank in May. Silverton made loans and sold services to other banks.

"Debt Loans" that Help Ease Pressure On Consumers

Debt Consolidation Loans (http://www.loansconsolidation.org.uk/debt_consolidation_loans.html) are a money management strategy that, when used wisely, can ease monthly payments, give household budgets a break, and help satisfy other important financial obligations while letting the borrower set aside some savings. The way it works is that the borrower essentially takes out one large loan - at a decent interest rate - and uses it to pay off several smaller loans that carry more expensive monthly rates and fees.

By choosing a loan with a longer payback period, for example, the monthly payments are spread over more months and years. The net effect is that the amount of each individual monthly installment payment is lowered. Or a borrower with high credit card interest rates, for example, can use a lower rate consolidation loan to pay off high-rate balances. Wipe out a running credit card balance with an interest rate of 18 percent, for instance, by using a consolidation loan with a 10 percent rate, and automatically it saves 8 percent - which is almost a 50 percent savings. Skim the extra money saved into household savings and it is a wonderful plan for surviving tough times like the current economic recession.

All kinds of loans can be consolidated, and one of the most popular methods for getting consolidation loans (http://www.loansconsolidation.org.uk) these days is through a "bad credit" loan. These unique loans are made by lenders who specialise in lending money to people with low credit scores or damaged credit history. While conventional banks generally shun these types of borrowers or charge them extraordinarily high rates and fees, bad credit lenders welcome those who have poor credit. That's important in 2009, because the situation for the average UK debt holder or borrower is extremely challenging.

According to recent news reports from the Guardian and Telegraph, for example, banks and other traditional lenders are "wreaking havoc on borrowers' credit scores by failing to offer quotation searches that let you shop around for cheap deals without leaving damaging footprints on your credit file." Multiple credit application searches leave evidence on a consumer's credit history file, that are then calculated into the credit score. Lenders view multiple attempts to apply for credit as a sign of desperation, and credit rating agencies translate this kind of activity into a lower credit score which can lead to loan denials. Despite this situation, quotation searches are not offered by any major UK high street banks. But the average credit card APR has risen above 18 percent in the UK - up from approximately 12 percent - making a bad situation worse for British consumers.

Interest rates are rising, too, and bank statistics showed that the average price of some common mortgage products rose more than half a point during the past month. Government loans to small business are shrinking, and David Frost, director general of the British Chambers of Commerce, said that he is "absolutely" concerned about the trend.

Credit card holders, meanwhile, are facing new monthly and annual fees as card companies attempt to compensate for lost revenues. Cash withdrawal fees, foreign usage fees, and charges to transfer balances from one card to another have all risen in recent weeks. Workers made redundant - who are now depositing less money into their checking and saving accounts - are also threatened with steeper fees as banks withdraw favorable rates reserved for customers who make deposits of at least £1,000 per month.

All of these unsettling developments simply add to the allure and financial wisdom of taking out a debt consolidation loan.

~Student Loan~ Measure Clears House Panel

A bill that cleared a House committee Tuesday would largely remove private lenders from the federal student loan industry, generating an estimated $87 billion savings over 10 years to fund more government grants and loans.

The Student Aid and Fiscal Responsibility Act of 2009 would eliminate an entire category of student loans issued by private lenders and subsidized by the federal government, vastly expanding direct lending by the government starting next July. Democrats would use the savings to fund a $40 billion increase in federal Pell Grant scholarships over 10 years, $10 billion in community college upgrades and $8 billion in pre-kindergarten changes, among other uses.

Republicans opposed to the legislation say it amounts to a federal takeover of student lending. Democrats say the private lending program is in disarray because of the credit crisis, which has caused private capital to dry up. Republicans contend that the program will mend with the economy.

Initiated in 1965, the Federal Family Education Loan program -- which subsidizes loans made by private banks -- generated almost 80 percent of all federal student loans in fiscal 2008, serving 6.5 million students and creating $55 billion in loans.

"We can either keep sending these subsidies to banks and a broken system, or we can start sending them directly to students and their families," Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee, said Tuesday.

Republicans countered that the program generates $70 billion annually in private capital when the market is functioning properly and employs about 35,000 workers, many of whom could lose their jobs. Democrats rejected a Republican amendment that would have halted the legislation if research determined that more than 5,000 workers would be displaced.

"I have to ask: Is there any industry not on the verge of federalization?" said Rep. John Kline (Minn.), the senior Republican on the committee. Rep. Brett Guthrie (R-Ky.) said he wasn't "comfortable with the idea of the federal government acting as a profit-making bank."

The bill prevailed, 30 to 17, with two Republicans voting with the Democrats. It now goes to the full House. The issue will be taken up by the Senate after the House vote.

The bill would increase the maximum annual Pell Grant scholarship from $4,731 last school year to $5,500 in 2010-11 and $6,900 in 2019. Starting in 2011, the annual grant would be linked to cost-of-living increases.

Republicans say colleges and universities will be hard-pressed to switch from subsidized to direct government lending. Democrats say the conversion will be relatively simple.

US House panel backs Obama student loan reform

* Federal Family Education Loan Program would end

* Most student lending would shift to federal agency

* Final passage of bill in House seen likely-analysts (Adds Miller comments, outlook for bill, byline)

By Kevin Drawbaugh

WASHINGTON, July 21 (Reuters) - The $92-billion U.S. college student loan market would be fundamentally reshaped under a bill approved on Tuesday by a congressional committee, which sent the measure on to the full House of Representatives.

The bill would end the Federal Family Education Loan Program, the mainstay of a government-backed student loan business that once furnished handsome profits for lenders such as Sallie Mae (SLM.N), Student Loan Corp (STU.N) (C.N), JPMorgan Chase (JPM.N) and Bank of America (BAC.N).

Most student lending would be shifted from FFELP to the Direct Loan program run by the U.S. Education Department under the bill, offered by Representative George Miller, chairman of the House Education Committee that approved it.

"By converting all new federal student loans to the Direct Loan program starting in July 2010, we will finally end wasteful taxpayer subsidies that are keeping a broken system afloat," Miller said.

"We will insulate all federal college loans for families from future turmoil in the financial markets."

The Miller bill mirrors one proposed earlier by the Obama administration. Analysts said final passage was likely in the House, possibly before its August recess.

If approved, the bill would mark progress in President Barack Obama's broad push to overhaul financial regulation. (Reporting by Kevin Drawbaugh; Editing by Dan Grebler)

PhillyDeals: No more online 'payday loans,' for now

Texas-based Cash America International Inc. last weekend stopped lending money, at least for now, to hard-pressed Pennsylvanians at high rates of interest from a Web site, www.cashnetusa.com, it thought was beyond the reach of state restrictions.

That's after Commonwealth Court ruled 4-3 that the Pennsylvania Department of Banking acted legally in forcing Cash America and other online lenders to get a license that would bring them under state law limiting charges to around 24 percent a year. Cash America will appeal to the Pennsylvania Supreme Court, its Philadelphia lawyer, Alan Kaplinsky of Ballard Spahr, said last night.

Cash America charges 25 percent fees on one- to five-week "payday loans," usually under $1,000. Pay on time, or they get your paycheck. That works out to as much as 1,141 percent interest on an annual basis, the court said.

The company told the court it earned $20 million from Pennsylvania loans in 2007 and 2008. Profits from across the United States and Mexico totaled $81 million last year, $79 million the year before.

Lawyer Robert L. Byer, a partner at Duane Morris L.L.P., represented Pennsylvania in last week's case, with associates Robert Palumbos and Jennifer Diesing-Falcey.

A different group of Duane Morris lawyers represents some payday-lender defendants in a separate federal class-action lawsuit, Yulon Clerk v. Cash America. The state's not worried about the firm working both sides of the street, says banking department spokesman Dan Egan.


Payday lite

Delaware banks are boosting funds to the "Loan Plus" short-term loan program run by nonprofit West End Neighborhood House Inc. of Wilmington at YMCA and Catholic Charities offices.

Wilmington Trust Co., TD Bank, Barclaycard, ING Direct, and United Way back Loan Plus, which has lent $160,000 to nearly 400 borrowers, up to three months each, at 15 percent annualized interest, since 2007.

Seven percent of borrowers have defaulted; the rest paid off or are on schedule, says West End spokeswoman Molly Keresztury. So far that beats the recent 10 percent loss rate at credit-card lenders like Bank of America.

But expenses are high, given the program's size: $137,000 this year. Loan Plus hopes to leverage its costs by more than doubling loan volume this year, says Keresztury.

Pro lenders watch the loans. "We look over their shoulder, and pick up the phone when we need to say something," Wilmington Trust vice president Beryl Barmore told me. "There hasn't been much need."


Risk wars

The Federal Reserve under Alan Greenspan let banks run amok, so we can't trust Ben Bernanke or his successors to regulate financial-system risk, as Obama proposes, said yesterday's report from the Investors' Working Group chaired by ex-Securities and Exchange Commission chiefs William Donaldson and Arthur Levitt.

"The Fed has other, potentially competing responsibilities - from guiding monetary policy to managing the vast U.S. payments system," IWG wrote. "Its credibility has been tarnished by the easy-credit policies it pursued and the lax regulatory oversight that let institutions ratchet higher their balance sheet leverage and amass huge concentrations of risky, complex securitized products.

"Other serious concerns stem from the Fed's regulatory failures - its refusal to police mortgage underwriting or to impose suitability standards on mortgage lenders - and the heavy influence that banks have on the Fed's governance."

Instead, IWG wants "an independent Systemic Risk Oversight Board" reporting to "Congress and the Administration."

The group also wants banks to stick to lending and savings, not compete with Wall Street traders; to merge the SEC with the Commodities Futures Trading Commission; and "a federal role in the oversight of insurance companies," since "state-based regulation makes for patchwork supervision that has proven inadequate to the task."

IWG's criticism of the Greenspan-era Fed is spot-on. Still, IWG represents the investment business, which pressured and formed the SEC as banks influenced bank regulators. Can we trust them on financial risk?

Virginia, Pennsylvania announce -payday loan- actions

Two large U.S. states, Virginia and Pennsylvania, on Monday announced steps they said may keep consumers who are struggling in a tough economy from taking out unnecessarily high-cost loans from payday lenders.

Virginia said it will offer six-month loans of $100 to $500 to state employees facing financial difficulties, Gov. Timothy Kaine said. The loans have a 24.99 percent interest rate and no late fees or credit checks, and borrowers must take an online financial course and a brief financial literacy exam.

"This program will allow our state employees to receive small loans without having to go to predatory lenders," the governor said. He encouraged companies to offer similar programs on their own.

Meanwhile, Pennsylvania banking chief Steve Kaplan said a state appellate court ruled on Friday that Internet payday lenders and other out-of-state companies must obtain licenses before they make consumer loans to Pennsylvania residents.

Kaplan said a state law capping rates and fees on non-mortgage loans of $25,000 or less had previously applied only to companies with offices or employees in the state.

Payday loans are typically made to tide over borrowers until they get their next paychecks.

Critics say the loans contribute to consumers' financial problems because of high fees that can equate to annualized interest rates of several hundred percent.

According to a July 9 report by the Center for Responsible Lending, about three-fourths of the industry's $27 billion of annual loan volume comes from "churned" loans taken out by borrowers within a single two-week pay period, ensuring that their high borrowing costs persist.

Thirty-five states allow payday lending, while the other 15 states and the District of Columbia cap borrowing costs, the report shows. (Reporting by Jonathan Stempel; Editing by Richard Chang)

Mortgage Applications for Government Loans Jump

Government insured home loans jumped to 36 percent of all U.S. mortgage applications in June, the highest since 1990, the Mortgage Bankers Association said.

Federal Housing Administration and Veterans Administration loan applications increased in market share from 25.7 percent in May and from 27 percent a year earlier, the Washington-based trade group said today in a statement.

Borrowers are turning to government backing to offset stricter lending by banks. About 50 percent of banks tightened requirements for prime borrowers in the first quarter, asking for bigger down payments and more savings, the Federal Reserve said in June.

“Credit standards are tightened so much, home-buyers have turned to the government,” said Michelle Meyer, economist for Barclays Capital. “I think that as the financial markets normalize and credit markets heal, you’ll start to see the share of conventional mortgages increase again.”

The Mortgage Banker’s index of applications to purchase a home or refinance a loan rose 11 percent to 493.1 in the week ended July 3. Purchase applications rose 6.7 percent while requests to refinance gained 15 percent.

Mortgage Rates

In June, the government-insured share of purchase applications climbed to 38.6 percent from 27.8 percent a year earlier, the MBA said. The federally backed share of refinance applications increased to 33.6 percent. It touched a record high 38.4 percent in October, according to the MBA.

Home loan rates climbing from a record low 4.78 percent in April are one reason buyers are looking for other ways to reduce costs. The 30-year fixed U.S. mortgage rate was 5.2 percent this week, according to McLean, Virginia-based Freddie Mac.

“A primary reason government-insured loans have retained a high share of the purchase market is that these loans typically require lower down payments than conventional loans,” said Orawin Velz, associate vice president of economic forecasting for MBA. “In addition, lending standards tend to be tighter for conventional loans, especially for loans that require private mortgage insurance.”

Push is on for more home-loan bank data

Banks need to provide more information about their mortgage lending so regulators and the public can flag risks and potential racism in the housing market, experts say.

Amid the ongoing financial crisis, community advocates and the Obama administration are calling for more data to be supplied under the Home Mortgage Disclosure Act. The additional data would help detect patterns of racial discrimination that may exist. It would also give better insight on types of lending that could lead to another mortgage meltdown.

The HMDA data supplied by banks, for example, doesn't currently include borrowers' credit scores, the down payment amount and other details that would give a clearer picture of a lenders' decisions to make or deny a particular loan. In the past, the banking industry has resisted providing more data, saying the requirements were burdensome and could violate borrowers' privacy.

Rep. Brad Miller, D-N.C., says more data would be useful to help explain long-standing discrepancies between the races in lending – and to perhaps shame lenders into improving their practices.

“Getting more data about what is actually going on would be very helpful in avoiding what has happened in the last few years,” Miller said. “We can't afford to be blindsided again.”

Miller is one of the lawmakers pushing this month for the creation of a new consumer financial protection agency that would oversee HMDA. The move is part of the administration's plan for strengthening financial regulation.

Matthew Lee, executive director of the New York watchdog group Inner City Press/Fair Finance Watch, has long argued the public needs more information about the role race plays in lending. Now that many banks are recipients of federal bailout dollars, he says they should submit to stricter HMDA requirements.

“It's the least they can do,” he said.

In the Observer's study of 2008 HMDA data, nine of the 10 lenders were either bailout recipients or acquired by banks that took federal money.

An industry group that represents large mortgage lenders wants to see a specific proposal on additional HMDA data before taking a stand, said Paul Leonard of the Housing Policy Council. The trade group, however, opposes the creation of a new consumer protection agency, preferring that this task remain under other regulators.

“We're not opposed to more information, but it needs to be done in the right way,” Leonard said. The industry's resources are already stretched in the financial crisis as lenders work to reduce loan losses and report their efforts to regulators, he said. Banks also remain concerned that borrowers' privacy could be violated, he said.

Because HMDA data does not include certain financial details about borrowers, it's impossible to determine whether race was a factor in denying a loan or offering a higher rate.

In 1992, Federal Reserve Bank of Boston researchers collected more details about borrowers' loans and credit histories and found that weaker credit records and other factors accounted for some of the disparity between races but not all of the gap. The report found that minorities with unblemished credit histories were almost certain of being approved, but in other cases, “lenders seem to be more willing to overlook flaws for white applicants than for minority applicants.”

The latest piece of data added to HMDA came when the government required lenders to report information about interest rates for 2004. Those new details revealed that minorities were much more likely to receive loans with higher interest rates than whites.

After examining that data, federal regulators targeted lenders with racial disparities in their lending records for further review. A U.S. Attorney General's report in April said banking regulators have referred a handful of cases to the U.S. Justice Department involving alleged racial discrimination in the pricing of loans. The department continues to investigate potential fair lending violations prompted by HMDA data disclosures, the report said.

Mortgage lending has been at the heart of the global financial crisis. As the housing boom cooled, borrowers weighed down by unaffordable subprime loans began to default and foreclosures soared. Banks, investors and the economy reeled in the aftermath.

The Obama administration has called for more HMDA data such as a “universal loan identifier” that could tie the data to property databases, flags for loans originated by brokers and information about whether the interest rate is fixed or variable.

Keith Ernst, research director at the Center for Responsible Lending in Durham, would like more data on adjustable-rates, pre-payment penalties and other loan terms that were major factors in the financial crisis. “What we need,” Ernst said, “is a way to get more information to regulators to come up with a fire-prevention strategy.”