Non-Banking Mortgage Taking Business from Banks Despite the Risk

by tom 24. April 2015 17:55

The rise of alternative payment services, such as PayPal, Google Wallet, Venmo, and Apple Pay, offer convenience for customers and more competition for banks, and credit unions, but they also pose a greater risk to consumers. The recent security problems with Apple Pay fraud, for example. have been well publicized. And this highlights one of the root problems with alternately financial services – they lack government backing. There is no government oversight or FDIC regulations to monitor these services for financial stability or even fraud.

The latest concern is over mortgage lenders. A news report in American Banker this week explains the dilemma facing Ginnie Mae – they don’t have the resources to police non-banking mortgage lenders.

FHA Loans at Risk

Large banks have ceded the market for riskier borrowers to non-banks, especially for mortgages. However, the borrowers may have more to lose than the non-bank lenders. Any one of a number of events could put theses companies into financial hole that could make it hard to stay in operation, let alone pay off their backers. Ginnie Mae doesn’t have the resources to monitor the financial health of these firms. Ginnie Mae is asking for a bigger budget to expand their mandate – it currently has a staff of 145 and a budget of $23 million – but the majority of loans backed by the Federal Housing Administration (FHA) are now being made by companies without any supervision.

According to the latest estimates, more than 62 percent of FHA-backed home loans are held by non-banks. The number of FHA loans held by large banks has dropped to 30 percent.

Although none of these companies have defaulted to date,  the risk is still there. Some of these firms have been raising cash as a cushion for the time when rates rise, which will happen. They also need to be prepared to defend against potential lawsuits in the future. Since mortgage lending is cash-intensive, there is more risk; when a loan defaults the lender still has to pay bondholders.

Riskier Mortgages Lucrative for Non-Banks

These maverick lenders are doing a booming business, One of the latest entrants in the U.S. mortgage market is  SoFi The company started by refinancing student loans and now has a $100 million portfolio, offering mortgages up to 5 million in 17 states. SoFi is competing effectively by offering an all online loan application process, and authorizing mortgages with as little as 10 percent down payment.

SoFi is getting most of its funding from Goldman Sachs, Barclays, Credit Suisse, and Deutsche Bank in to from of warehouse lines of credit, and it secured peer-to-peer loans in 2014.  Sources at Goldman Sachs estimate that non-banks could steal as much as $11 billion in profits from banks, including $2.3 billion in mortgage servicing and fees.

Could these non-banks trigger another mortgage crisis if market conditions shift? No one has the tea leaves to read that future, but the fact that these unregulated organizations are commanding more of the FHA-backed mortgage market should be cause for concern. Not only could the failure of these companies affect the housing market, their success in selling mortgages to higher risk buyers could mean more poaching of mortgages from banks and credit unions. These companies offer great term rates with low down payments that are attractive to any potential home buyer.

This is just another market segment where non-banks are attacking bank profits. Today, they are lending to those buyers who wouldn’t qualify for a loan but tomorrow is another day. Maybe today’s mortgage banks should be start thinking about tomorrow.

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In The News | Loans | Regulations | Banking Trends

Weekly Term Accounts APY Spread and Premium Index–Apr 20

by tom 20. April 2015 17:32

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index

The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

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Premium Index

Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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What Drives Customer Loyalty? Integrated Channels and Convenience

by tom 16. April 2015 19:28

You have probably heard about the Brand Keys 19th annual Customer Loyalty Engagement Index that ranked customer satisfaction for the top banks. There were six banks in the ranking – most likely because the same six banks were consistently named by the 36,000 consumers surveyed. The banks that ranked in the survey included PNC Financial at number six, Bank of America at number five, Wells Fargo at number four, ATB Financial at number three, and Citigroup at number two. JP Morgan Chase ranked number one for the fourth year in a row. What is Chase doing right that promotes greater customer loyalty than the competition?image

The Motley Fool did its own editorial analysis of the rankings. JP Morgan Chase is doing a better job reaching customers through social media and technology. The bank leads the industry with more than 3 million Facebook followers and is active on various social media platforms, targeting itself to serve the Millennials and the small business market.

To service its established customer base, the Baby Boomers, JP Morgan Chase has been expanding its banking services to include investing. Where the bank had virtually no wealth management services four years ago, the bank now has dedicated services for customers who have been less affected by the recession and are looking to maximize their investments.

And all this good will and customer high fives comes as JP Morgan Chase announced it is closing 300 branches or 5 percent of its locations over the next two years. Customers don’t seem too worried about losing their local branches – the number of deposits made with assistance from a human teller dropped to 42 percent last year, where it was 90 percent in 2007. Mobile deposit and ATMs are taking over. The benefit for the bank, of course, is savings. JP Morgan Chase reports that it costs on average $0.62 per teller deposit versus $0.03 for a mobile deposit.

Technology is not only driving banking innovation but customer loyalty. Bain & Company reports that integrating banking channels, including web, mobile, ATMs, and branches, is driving loyalty.By using technology to integrate its banking channels, JP Morgan Chase has gained share in every region of the United States.

Bain conducted its own survey of 83,000 consumers in 22 countries to assess how technology is affecting customer service and improving bank profits. This is what they uncovered about mobile technology, merging channels, and customer loyalty:

  • 50 percent of customer transactions were through digital channels in 18 of 22 countries. More than half used both digital and physical channels such as a branch.
  • Mobile banking has become the most used in 13 countries, accounting for 30 percent of global transactions.
  • Online usage dropped 3 percent while mobile usage jumped 19 percent in one year.
  • Consumers use multiple channels to research new banking products. Forty-seven percent of U.S. customers consulted banking web sites and 37 percent talked to a banker.
  • Bain also notes that “hidden defection” is on the rise and one third of all customers bought a banking product from a competitor in the last year.

Innovation is driving customer loyalty, which in turn is building deposits. Chase is reported building its deposits and loans, reducing noninterest expenses, and boosting its asset management revenue. Loyalty on one area, such as mobile banking, is opening opportunities to increase share of wallet.

So how big a role is technology playing in your banking strategy? Do you see your channels converting to promote greater customer loyalty?

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Weekly Term Accounts APY Spread and Premium Index–Apr 13

by tom 13. April 2015 17:46

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index

The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

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Premium Index

Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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National Pricing Indicator | APY | Market Research | CD rates

Turning Branch Banking Into a Virtual Experience

by tom 9. April 2015 10:51

Not long ago we commented on predictions regarding the decline of the branch bank. While only 1 in 11 banks is actually planning to close branches, we also are seeing a new type of branch bank emerging that can be set up anywhere – the virtual bank.

Interactive Teller Machines (ITMs) are finding their way into shopping malls and locations where setting up a bank branch doesn’t make economic sense. We are seeing more financial institutions experiment with these virtual banks that connect the customer with a live teller who can handle virtually any transaction.

Transactions are handled much in the same way as they are at an ATM, but using an interactive video link to talk to a teller at a remote location. Among the financial institutions announcing installation of ITMs in recent weeks are LAFCU in Michigan, University Federal Credit Union, in Utah, Frontier Bank in South Dakota, and Comerica Bank in suburban Phoenix. Jack Buttars, CEO of University Federal CU, boasts, “These machines can do everything you could do at a branch. There's no service we can't offer.”

For banks and credit unions the advantage, of course, is that ITMs can be installed almost anywhere. They have a very small footprint – usually the size of the average vending machine – and all they need is a secure Internet connection to deliver two-way audio-video service. Rather than paying for brcik-and-mortar offices and on-site staff, banks are consolidating their services at centralized call centers where tellers interact with customers anywhere in the country via video chat. For many institutions, ITMs are proving an effective alternative to branch banking.

One of the real advantages of deploying ITMs is they help expand a bank or credit union’s market reach. Many rural areas that would not generate enough business to support a branch bank can certainly take advantage of an ITM. Now areas that never had banking services available before can now get almost all the services they need via ITM.

Is Internet technology a substitute for face-to-face interaction? Of course not, but it’s a close substitute. Right now, virtual tellers are assisting customers with routine transactions at strategically placed kiosks, but there is no reason that ITMs can’t evolve into full-service operations capable of handling loans and investments as well. Anyone can get a loan online these days, so there is no reason that banks can’t extend the same service via ITM.

The next logical step is to eliminate the kiosks altogether and enable virtual transactions from your home computer. There is no reason that the same connection that links smartphone and Web users to bank services can’t be expanded to accommodate video chat. Why not negotiate a new car loan from the car dealership, or review your investments from the local coffee shop.

We certainly won’t get rid of banks and credit unions any time soon, but bricks and mortar banking is becoming less relevant to customers. The power of the Internet will continue to promote frictionless banking, and save financial institutions time and money as ITM technology continues to evolve.

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Weekly Term Accounts APY Spread and Premium Index–Apr 6

by tom 6. April 2015 16:48

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index

The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

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Premium Index

Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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Google Pony Express Could Mean Bill Bay Profits Riding into the Sunset

by tom 2. April 2015 13:57

Technology is a wonderful thing, and technology innovators continue to disrupt the banking space. The latest technology challenger that promises to wrest fiscal control from banks is Google’s new Gmail Bill Pay service.

Last week Re/code reported that Google is perfecting a new online bill payment service as an adjunct to Gmail. The new Pony Express service is designed to provide users with an easier way to pay their bills. Pony Express aggregates consumers bills in their email box, categorized by utility, credit card, cable, telephone, and the like, and allows users to pay bills with an associated bank account or debit card. The system is using capabilities already built into Gmail and Google Wallet, and gives users one single, centralized means of managing household bills.File:Pony Express centennial stamp 4c 1960 issue.jpg

This next phase in e-commerce technology has the potential to be highly disruptive to the banking industry. Consider that the bill payment industry is a $1.2 trillion annual business, second only to point-of-sale at $6.2 trillion. With more than 420 million Gmail accounts that could be a lot of bill pay business.

What makes this new Pony Express service a threat is its potential popularity with users. It offers a number of features that other bill pay services don’t such as consolidating bills in one place with an alert that can be handled using mobile technology. Google is clearly striving to become the digital clearing house for consumers’ transactional lives, relegating banks to the role of wholesale providers for Google financial services.

This is part of an ongoing trend that poses a real threat to banks and credit unions. High profile bill pay services like PayPal, Apple Pay, and now Google Pony Express are gaining popularity and, more importantly, gaining mindshare with consumers. Despite their problems with issues such as Apple Pay fraud, many consumers would rather trust technology brands such as Google and Apple than their banks. Not only do these disruptive bill pay services take business away from banks and credit unions, they undermine trust as well.

And consider how these financial services from non-banks undermine relationship banking. They make it harder to create attractive service bundles. Services like bill pay are very sticky, and bring customers back on a regular basis to handle routine payments and transactions, which provides an opportunity to engage, cross sell, and upsell. Without engagement you lose customer loyalty.

So where do you see the biggest threat from emerging technology? Is it money transfer, bill pay, point of sale, or all of the above? What can banks and credit unions do to fight the “cool” factor of new services like Pony Express and maintain meaningful contact with customers?

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Weekly Term Accounts APY Spread and Premium Index–Mar 30

by tom 30. March 2015 18:19

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index

The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

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Premium Index

Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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National Pricing Indicator | Deposit Products | CD rates

Time for New Bank Fees to Replace Overdraft Revenue

by Tom 26. March 2015 16:59

Overdraft fees continue to be very much top-of-mind with bank and credit union executives. It’s common knowledge that the Consumer Financial Protection Bureau (CFPB) is expected to issue new ruleson overdraft fees in July. These new rules are expected to address the opt-in process for overdraft protection fees, including overdrafts for one-time ATM transactions, overdraft coverage limits, transactions posting order, and more.

Consumer backlash over overdraft fees has been sharp. One consumer advocate who writes for the Times Leader in Pennsylvania characterizes overdraft protection fees as “a deceptive rip-off” in a very heated column. And consumer advocates aren’t the only ones calling overdraft fee policies deceptive. This week American Savings Bank agreed to pay a $2 million settlement in a class action suit filed in the first circuit court of Hawaii. The suit specifically pointed to deceptive practices for overdraft fees charged to debit cards and ATM transactions. The lawsuit claimed that American Savings would order transactions by dollar amount rather than chronology, thereby falsely inflating overdraft fees charged for some accounts. The judgment allows anyone who incurred even one overdraft fee from January 1, 2006 to June 27, 2011 to benefit from the ruling.

Overdraft fees have always been controversial, and profitable. The Wall Street Journal reports that in 2013 overdraft fee revenue hot $31.9 billion, which is down from a high of $37.1 billion in 2009, but the median overdraft fee has hit an all-time high of $30 per transaction. While overdraft protection and overdraft fees are lucrative, they are very unpopular and the pending CFPB ruling will be sure to reduce the amount of overdraft earnings. It’s time to come up with new sources of revenue that don’t alienate customers.

The smart financial institutions are starting to charge for services that appeal to consumers, which means customers are going to be willing to pay for them.  A story in the Chicago Tribune this week cites a new SNL Financial report that says one on four mobile banking customers would pay $3 per month to use their bank’s mobile app.

While most mobile banking apps are offered for free, the study shows that users of 75 mobile bank apps are willing to pay. Thirty-three percent of Bank of America users were willing to pay $3 per month, and respondents from Citibank, U.S. Bank, Wells Fargo, Chase, PNC Bank, Capital One, and other leading financial institutions all said they would not be adverse to paying for mobile banking.

Our own research into emerging financial services reveals that consumers are generally willing to pay for convenience and protection. Any bank service that makes customers’ lives easier or safer has value, and customers are willing to pay for services such as credit monitoring, person-to-person transactions, personal couponing, identity theft protection, and related other services. Taken together, these services could prove to be more valuable than overdraft protection and fees, and more appealing to customers.

With all the new emerging financial support services from PayPal to SoFi, banks are no longer the only game in town when it comes to financial services. While there are some customer services where banks excel, there are others that leave customers short, including overdraft protection. Those banks that offer more services as a carrot rather than a stick will see more benefits in both revenue and customer loyalty.

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Weekly Term Accounts APY Spread and Premium Index–Mar 23

by tom 23. March 2015 16:57

American Banker and Market Rates Insight feature a weekly APY Spread and Premium indices to provide pricing executives with greater insight into national pricing trends and practices.

APY Spread Index

The APY spread is a simplified form of a standard deviation. It measures the variance between the high and low ends of the price range to the average, which indicates whether the APY of a particular CD is closer to the low or the high end of the pricing spectrum.

image

Premium Index

Premiums are used as the main vehicle to drive balances towards the most desired deposit products, and are an indication of the capital strategy of each individual institution. This week’s highest and lowest national premiums:

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