Posts filed under ‘Credit Unions’

Is small business lending in NC doing better than the nation?

The Federal Deposit Insurance Corporation released data on bank statistics yesterday, showing a continuing trend of sluggish small business lending nationally. Inc.com reports that while commercial and industrial loans increased by 12 percent from 2011 to 2012, small business lending (here defined as loans under $1 million) only saw a meager 0.4 percent increase.

In North Carolina, the FDIC data show that small business lending has not kept pace with commercial and industrial lending overall; however, it has seen a much bigger increase than the national average.  Commercial and industrial loans issued by North Carolina banks increased 13 percent between 2011 and 2011, and loans under $1 million increased 5 percent. The data for very large banks (those with assets over $1 billion)  mirror this trend.

Despite the gap– small business lending is still lagging behind lending overall– this is significantly better than the national statistic. The question is, why? We continue to hear from our borrowers that accessing bank loans is still difficult, even for those who may have had bank loans in the recent past. More research would need to be done in order to figure out what is driving this data, however we have a couple of theories.

First, bank consolidation has meant that the operations of the large banks have become more concentrated. North Carolina has seen a significant number of bank mergers, and several of the major national banks are headquartered here. The FDIC only measures loans made to U.S. addresses– it does not distinguish whether or not the loans made by NC banks are to addresses within the state. It could be, therefore, that while banks are issued from bank locations in NC, the loans are actually to borrowers elsewhere.

Second, there is the question of who the banks are lending to. As we showed in our analysis of small business lending in NC, while large banks had a vast majority of lending resources, they were concentrating those resources on upper- and middle-income areas. We also had commented on a study by the National Bureau of Economic Research, which found that many more small businesses than originally though were accessing bank capital to finance their ventures. What the study also found, however, is that gender and race had an impact on a small business owner’s ability to secure outside capital.

As already mentioned, more research would be needed to answer these questions. If North Carolina is, in fact, doing better than the nation, it is important to ask why and find out who is benefiting. Digging deeper into the data may reveal that while small business lending is increasing, those who have historically faced barriers to accessing capital continue to do so.

 

 

 

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February 27, 2013 at 11:59 am

Small Business Lending Fund helps to increase capital to small businesses

The U.S. Department of Treasury published a report looking at the impact of the Small Business Lending Fund (SBLF), which was established as a part of the Small Business Jobs Act of 2010.  The SBLF is a $30 billion fund that provides capital to community banks (with assets less than $10 billion) to increase their small business lending.  The program has allowed the Department of Treasury to invest over $4 billion in 332 institutions.

The report shows that participants in the SBLF have in fact increased their small  business lending by $7.4 billion over a baseline of $36.5 billion. Three-quarters of the participants in the program have increased their small business lending by 10 percent or more. When compared to other similar institutions, SBLF banks have seen much greater increases in their outstanding loans– 32.3 percent increase, compared to 5.7 percent for banks within their peer groups, and 2.1 percent increase for banks that are in a broader comparison group.

The Charlotte Observer reports that North Carolina institutions saw an increase of $205.3 million in small business lending through funding provided by the SBLF. There are seven North Carolina banks that have participated in the SBLF program, some of which have seen significant increases in their lending to small businesses. Live Oak Bancshares out of Wilmington, which received $6.8 million from the SBLF, saw an increase in small business lending of almost 130 percent. Select Bancorp from Greenville, which received $7.7 million, saw an increase of about 60 percent.

This is all good news for small businesses and for community banks. The SBLF is not only expanding access to capital when the larger banks have receded from lending, it is also providing support for smaller, alternative lenders. In the landscape of small business lending, as the big banks continue to pull back and as the market continues to tighten, other community based lenders and banks will be stepping in to provide services and resources. Community banks, community development financial institutions (CDFIs), and credit unions will play a larger role in small  business lending. It is encouraging that federal programs such as the SBLF are having a positive impact.

 

January 22, 2013 at 11:22 am

New mortgage rules could help credit unions & small banks

Yesterday, we blogged about the new “ability-to-repay” mortgage lending rule announced by the Consumer Financial Protection Bureau. The rule sets forth stipulations to help ensure that borrowers can actually afford the loans that they qualify for. Again, it’s just common sense. But some in the banking industry warned that some of the stipulations, particularly those regarding “qualified mortgages” would tighten the credit market and make getting loans harder for certain borrowers like first-time buyers and  low-income people. But in fact, the new rule creates an exemption for small lenders, which may open up the market.

CFPB’s rules state that to be a certified qualified mortgage, borrowers must be evaluated on a range of criteria, including their income, credit history, debt, and others. The loan can’t have any of the more risky features like balloon payments or interest-only loans. In exchange, the lender would gain greater protection from consumer lawsuits. The biggest sticking point seems to be that the borrower must not have a debt-to-income ratio of more than 43 percent. This is a measure of how indebted borrowers are, comparing their income with the debt that they already have prior to taking on a mortgage. Banks say that this will significantly restrict the pool of eligible borrowers, and thus will tighten the credit market.

The catch is that there is an exemption for small banks and lenders with less than $2 billion in assets. If banks and credit unions that are below this threshold, and keep loans on their books rather than selling them, they could get the exemption to the stipulations laid out for qualified mortgages. Smaller lenders also have more flexibility with the types of loans that they can make.

What this means is that, while the larger banks may find that their pools of eligible borrowers shrinks, other lenders will be able to step in. This makes sense. For low-income and underserved borrowers, the type of hands-on financial counseling and training that credit unions and smaller banks and lenders provide is critical. Community banks, credit unions, community development financial institutions (CDFIs), and other lenders are better positioned to take on the risk associated with these borrowers, as they are designed to provide additional support to ensure borrowers’ long-term success. As discussed in a report we released last month, community lenders like CDFIs step in to fill gaps in lending and financial services, reaching individuals not served by the financial mainstream. With the new mortgage lending rules, these lenders will continue to do so.

So in the end it seems that the concerns expressed by some in the banking industry may be a bit over stated. The market will no doubt shift. The new rules create a new playing field that all providers will have to adjust to. But as some consumers find that they no longer can access credit at the major banks, other lenders will step in to create new pathways.

 

 

 

January 11, 2013 at 11:42 am 2 comments

CFPB announces new “ability-to-repay” mortgage lending rule

Today the Consumer Financial Protection Bureau (CFPB)announced a new “ability-to-repay” rule, which is aimed at making sure that lenders do not saddle borrowers with loans that they can’t afford.  In order to qualify for a loan, the borrower must have enough assets or income to pay it back, they must provide financial information that is verified by the lender, and the lenders have to assess the borrower’s ability to pay over the long term, including both the principal and the interest. CFPB also announced a few proposals: to exempt designated nonprofit lenders and homeownership stabilization programs, and to create a new category of “qualified mortgages” for small creditors like community banks and credit unions. Qualified mortgages are meant to reduce the amount of risk in mortgage lending by eliminating risky features, such as negative amortization and interest-only mortgages, and offer borrowers more protection. In exchange, lenders that make certified qualified mortgages will be protected from consumer lawsuits.

The ability-to-repay rule seems like common sense, but the fact that it has to be spelled out points to just how far banks and lenders had gone in making loans to people who could not afford them. Lending standards had become so lax that people were qualifying for loans without even providing validation of their income, credit history, or even showing an understanding of the terms that they were agreeing to. Previous rules issued by the CFPB, which will be finalized this month, were meant to increase transparency with mortgage lenders and provide consumers with timely and accurate information. Borrowers need to be provided with the information they need to make sound decisions. This new rule, which will take effect in January 2014, will take it a step further. Now lenders and borrowers will have to provide some assurance that they will, in fact, be able to pay the loan. Here’s how the Chicago Tribune sums it up:

For all types of mortgages, to help determine a borrower’s ability to repay, lenders must look at eight factors. They include current income and assets, employment status, credit history, the mortgage’s monthly payment, other loan payments associated with the property, monthly payments for such things as property taxes, other debt obligations and a borrower’s monthly debt-to-income ratio.

Some banks have expressed concerns, particularly around the criteria for qualified mortgages. According to the rule, borrowers’ debt-to-income ratio is capped at 43 percent. The American Bankers Association says that this may be too low and might unnecessarily tighten access to credit. Banks will be encouraged to follow the qualified mortgage lending criteria due to the protections it offers, but the result, they claim, may be fewer borrower who can qualify for loans– in particular, low-income or first-time homebuyers.

Though the new rule may contain some tighter standards, the mortgage lending industry had run so amok that it is not surprising that the process of reigning it in is causing some consternation. Whether the debt-to-income ratio will have a significant impact is yet to be seen, and the industry has a year to adjust to the new regulations. The rest of the rule, however, is simply common sense. Banks and lenders should not be making loans to people who can’t afford them. For those who are excluded under the new rules, such as low-income families seeking to build up their assets, perhaps adjusting the rules and providing hands-on financial counseling to ensure their financial success can help balance out the equation.

 

January 10, 2013 at 12:20 pm 1 comment

Impact of the fiscal cliff on credit unions

Credit Union Magazine offers insight into what the impact might be on credit unions in the worst-case scenario that we do fall off the “fiscal cliff.” So far, no deal has been made to avert the cliff, although the Credit Union National Association’s (CUNA) senior economist Steve Rick predicts that it’s likely some deal will be made that essentially kicks the can down the road.

The major impacts on credit unions will be due to the uncertainty faced  by their members. If the U.S. economy is thrown back in a recession, people will be fearful of losing their jobs, will have less disposable income, and overall will be less inclined or able to take on any additional risk.

“Members wouldn’t want to risk taking out new loans because they’d be afraid of losing their jobs,” Rick explains. “So loan growth would be significantly curtailed; probably back to the levels we saw in 2009, 2010, and 2011. So we could go back to zero loan growth. “That would affect our income,” he continues. “Fewer loans on the balance sheet and more money in the investment portfolio would mean dropping net income for credit unions. That would have a severe impact on the bottom line going forward.”

A drop in income for credit unions means that they will be more restricted in their own operations and programs. Things like new branches and new hires will not be feasible. But ultimately, it’s the impact on credit union members that will be the biggest blow.

Credit Union Magazine highlights one credit union that is trying to get ahead of the game by providing services to members in the case we do drop off the cliff. Belvoir Federal Credit Union in Virginia will offer members:

  • A fiscal cliff emergency loan, which allows members to borrow up to $5,000 at 4.99% (0% for the first 60 days) with a maximum 12-month term. Members may defer their first payment for 60 days.
  • Loan workouts;
  • A no-charge skip-a-payment option for consumer loans; and
  • Free financial coaching.

Hopefully other credit unions will follow Belvoir’s lead in addressing their member’s concerns and challenges, no matter what the outcome of the current fiscal policy debate. Educating members about the fiscal cliff impacts– and the impacts of fiscal policy overall–  is also key. The decisions made in Washington are not just about policy debates. Every individual, family, and community is affected, and it’s important that people are aware of and engaged in these important debates– and that they have financial institutions ready and willing to help them navigate these uncertain economic times.

This will be the last post of the year for The Support Center. Wishing you all the best this holiday season!

 

December 21, 2012 at 10:22 am 1 comment

The Support Center featured on WUNC

WUNC featured a story on The Support Center’s new report on community development financial institutions (CDFIs) in North Carolina. Our President/CEO, Lenwood V. Long, Sr. was interviewed about the important role the CDFIs play in expanding access to credit to entrepreneurs across the state.

Click on the link below to listen to the story and share!

Community Lenders Help Small Businesses

 

December 19, 2012 at 12:02 pm

New report: CDFIs create jobs, expand access to capital

The Support Center released a new report today, examining the important role that Community Development Financial Institutions (CDFIs) play in the state’s economy. As traditional banks pull back from small business lending and tighten their lending standards, CDFIs have stepped in to fill the gap. In 2010, the 17 CDFIs in North Carolina helped to finance 33,000 businesses and developments that have created 3,100 jobs across the state.

In addition, the report found that:

  • In Fiscal Year 2011 alone, the 999 CDFIs nation-wide made 16,000 loans and investments, worth $1.2 billion, that supported 5,000 small businesses, 17,000 affordable housing units, and 25,000 jobs.
  • In North Carolina there are 17 CDFIs. As of 2010, they hold $1.17 billion in assets, and nearly 33,000 outstanding business, microenterprise, home purchase, consumer, and residential and commercial construction loans. The projects that CDFIs supported created over 3,100 jobs.
  • CDFIs are healthy and financially sound institutions. They perform better on key performance ratios than standards established by the CDFI Fund as well as industry comparisons.
  • CDFI credit unions and loan funds in the state also provide financial education and technical assistance services to help their members and borrowers, as well as to members of their broader community, increase their financial management skills.
  •  CDFIs can be a strategic partner to the State of North Carolina and to private institutions, such as banks, in revitalizing the state’s economy. As such, they need additional affordable capital and investments to meet the increased demand for capital and financial services.

The services provided by CDFIs are more important now than ever before, as CDFIs provide a vital link to financial services, capital, and financial literacy that help to improve the financial and economic security of individuals and families in underserved communities. CDFIs are not only support the businesses that create much-needed jobs for our state, but they also serve as generators of community economic development. CDFIs can be a partner to the public and private sectors in building our state’s economy as we continue on the path toward economic recovery.

 

December 17, 2012 at 9:34 am 2 comments

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