White House hears calls for action

I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won’t add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust.—President Barack Obama, State of the Union 2012

A lot of people, including me in my blog on Monday, have been calling for the President and Congress to take strong action to stop the housing foreclosure crisis not only to keep hard working American’s in their homes but also to revive the housing construction industry.  Last night President Obama indicated that he has heard our message and will challenge Congress to force financial institutions to allow “responsible” homeowners to refinance at today’s rock bottom interest rates with “no questions asked”.

 That’s great news.  But now we need to see the details of the plan.  How are “responsible” homeowners defined?  We need to include as many homeowners as we can, not just ones current in their mortgages.  And we also should include investment properties not just owner-occupied housing.  It hurts the economy and property values just as much went a rental unit occupied by a working American is kicked out of the house they rent due to foreclosure. 

The bigger issue is how do we stop the big banks from killing the idea in Congress?

On Monday I said, “It is time for these private banks to give back to the country for bailing them out.  The profits they’re reeling in now wouldn’t exist if it wasn’t for the taxpayer.”  Last night the President said the program “will give banks that were rescued by taxpayers a chance to repay a deficit of trust.”

 But I doubt that our calls for the big financial institutions to grow a conscience will be effective.  That's why we must all push hard against the upcoming lobbying effort to stop this plan.  Tell your member of Congress to support the President on this issue.

If you can't compete...attack the rules of the game

This week the U.S. House is expected to start voting on legislation to turn back regulations and make it nearly impossible for federal agencies to develop new regulations in the future. If that happens, Congress might as well just stop passing any new laws because the rules for implementing them will never be developed. 

One of the big targets for the anti-regulation crowd is Dodd-Frank, the financial reform that passed last year to try to put regulations of big financial institutions in place so we won’t repeat this great recession.

The majority party in the House, spurred on by the big banks, blame Dodd-Frank for stopping loans to small businesses.  But apparently what the real problem for these banks is that Dodd-Frank has fostered greater competition for the commercial and industrial (C&I) loan business and smaller banks are winning.

According to Jeff Harding, writing in the Daily Capitalist:

What we see is that C&I loans took off starting in the first quarter of 2011. While the data for large domestic banks shows steady C&I loan growth since the fourth quarter of 2009, small domestic bank C&I lending shot up in the first quarter of 2011, from zero base to $20 billion.  Even more surprising is that average loan size for small banks increased from about $100,000 to almost $650,000….The main reason for this sudden increase in loan activity is competition. Ever since Dodd-Frank, banks have been scrambling to figure out how to make more money, as many credit card and other account fees were prohibited in an attempt to protect consumers. One way to offset that loss is to gain more business customers, and there has been a scramble by both large and small banks for SME customers….Small banks have the most to gain or lose in this competition because SMEs are their territory. So they are pursuing customers. Many also believe that there is a window of opportunity with favorable spreads and thus the timing is critical to expand business before that window closes. The initial beneficiaries seem to be the banks in the $5 billion to $10 billion asset range, which are classified as small banks.

No wonder the big banks want to repeal Dodd-Frank with its unintended consequence of fostering loan competition.  They’re not doing so well in the “small-business friendly” department.

Unfortunately this new competition isn’t leading to more smaller loans in the $50,000 and under range that so many microenterprises need.  But still, Dodd-Frank is working so obviously it MUST die.