Bank Talk.

That is http://banktalk.org
Bank Talk will feature the same mix of news as Housers.

Still, North Dakota excels.  It has a budget surplus.  Imagine that! It has an unemployment rate of just 4 percent.  In the last year, its state GDP grew 7.3 percent.

Still, it lacks a high quotient of baristas.  Its probably among the worst states in the US to get an espresso or a machiatto.  Its a good place, though, to get a 49 cent cup of coffee (watery) at a gas station outside of Fargo.

That’s interesting, but its also something of a challenge to Richard Florida‘s ongoing idea of the resilience of creative economies.  Florida doesn’t go so far as to say that more baristas will lead to more jobs, but then again, he doesn’t go too far from that suggestion, either.

It made sense when our best economies were in California and New York, paced simultaneously by high tech and high finance.  Today, our economy is changing.  Agriculture and raw resources seem to be more stable.

If you have ever looked into one of these cards, you will be shocked to see just how bad they are.  Short of payday loans, it is hard to imagine a more predatory product.  Oh wait, there are those guys in the track suits from North Jersey.  They have a loan product that they would like to offer you.  Its a hard call between that and a prepaid debit card.

Remember, these are not loans.  That may be why they have so little protection.  They work when the consumer loads them a new deposit.

Sometimes, the vendor will charge a fee just for making a deposit.  That fee is often as high as $30 for the first $100 deposit!

Then there are weekly or monthly “service fees.” Sometimes, these are as little as $0.75 per week.  Other times, though, they are up to $5.  The BabyPhat Rushcard is “affordable!” It offers activation fees of just$19.95, “so that you don’t have to pay a monthly fee!”

The BankFreedom Card offers a $9.95 monthly fee and and a $4.95 fee to “cashload” the card.  I asked Kelly, the chat agent, to explain cash load.  She said “click here to take advantage of this deal.” I asked again.  She said “Bankfreedom is easy to use…forget about stamps!”  I asked her, “where is the Schumer Box, to honor the Truth In Lending Act.”  She said, “One million ATMs accept your BankFreedom Mastercard!”

Actually, I didn’t expect a Schumer Box.  These aren’t loans.  They are just deposits that are accessible through a card.  So, although they don’t come with any consumer lending protections, they still ought to be relatively free of fees because its almost entirely electronic.

The banks avoid these products.  Instead, the cards are offered by a bunch of never-heard-of-fly-by-night companies.  True, they partner with MasterCard and Visa, but they are themselves a mystery.

There are two main features to this law:

First, it protects renters.  Renters have been one of the groups getting the collateral damage from the foreclosure crisis.  When an investor owner can’t pay his mortgage, he has to turn the home over.  In most cases, that means that the renters need to move on, as well.

Second, it includes a disclosure rule that requires companies buying mortgages on the secondary market to inform borrowers about who now owns their mortgage.

I have talked with so many people who are not sure who owns their mortgage.  I would say that this is a hard thing to understand.  I have tried to explain it numerous reporters.  Many are confused by the idea of a service and an investor on top of an original lender, possibly working with a wholesaler through a mortgage broker.

Definitely my broadcast news reporters couldn’t grasp it.

There are some other good features, too: a two percent cap on origination fees, and a “net tangible benefit” to borrowers during a refinancing.

The ABA and their bankers are a hard group to bargain with.  They have a lot of friends, particularly on the Financial Services Committee.  So, in a way, getting any kind of new law is great.  That said, this law is sort of misleading, because it does not come with the appropriate penalties for financial institutions who break its terms.

That’s because “curing” the problem does not require a systemic fix, but only a solution for the particular borrower.

I have a friend who always reminds me that brownfields efforts often mask gentrification. She sees other problems: in those defining moments in budget battles at legislatures across the country, left-leaning groups often end up competing against each other for a finite sum of political power. Do we fund open space, or do we redress inequality in schools?

This plays out in a lot of ways.  In the United States, it has much to do with priorities in African-American communities: people care first and foremost about achieving financial security.  When environmental concerns emerge (environmental justice), they are often the product of partnerships driven by both whites and African-Americans.  Climate change in Bangladesh threatens the entire nation’s very existence.  The rise of sea level portend the possibility that the entire country could soon be under water.

Too, there is a recognition among many developing nations that escaping from poverty is a struggle that will fail or succeed within the constraints of fuel choices. Many third-world countries only have wood, charcoal, or coal to burn – nuclear power, solar, or wind are abstractions.

What ties these examples of resistance is that in both cases, it is low-income people who would pay the most for new investment in a greener economy.  It might even be thought of as a regressive form of taxation.

Alternatively, consider how environmental emergencies often impact communities differently.  The Ninth Ward in New Orleans has still not been redeveloped after Katrina.  Some say its not about the response, but about the a priori long-term inequalities in housing and neighborhood type that systematically sort minorities inot more vulnerable locations.  It’s not about need, perhaps, so much as it is about wealth, according to authors Donna Shai.  Those homes burning in Santa Barbara are going to get more funding, and they will be rehabilitated, before we are done with restoring the low-income neighborhoods gutted by outlash surrounding the beating of Rodney King.

Van Jones, a leader in Green Jobs, is working to reverse this very dynamic by finding ways for employment policy to collaborate with the new green movement. He’s going against a long-term problem.  Too many proponents of environmentalism come from the same well-off and largely white background.

People who meet Jones come away with a sense of resilience against any obstacle.  Still, many profess some doubts about his ideas.  Robert Stavins summed it up:

“Let’s say I want to have a dinner party. It’s important that I cook dinner, and I’d also like to take a shower before the guests arrive. You might think, Well, it would be really efficient for me to cook dinner in the shower. But it turns out that if I try that I’m not going to get very clean and it’s not going to be a very good dinner.”

Right now, Jones is the Green Jobs Czar in the Obama administration.  Its hard to know what that means, but it certainly is a platform to realize change.

Those efforts are laudible, and I support them.  Then again, the context of the distribution of wealth in this world reminds us of the fissure between environmentalism and class.  We know we need to worry about our environment.  We know that our future economy will be fundamentally thwarted without natural resources. We have one billion hungry people in this world – today.  For many of them, it is not pollution that undermines life, but about finding any way out of crushing poverty.

The address for comment is:

regs.comments@federalreserve.gov

The comments are due by 5 pm, EST.

Comments should focus on how the re-organization will accommodate the needs of the public.  Its an important opportunity, and while the regulatory invitation is not specific in what will be reorganized, it is safe to bet that it involves Countrywide and perhaps First Franklin (a subprime lending operation owned by National City and later by Merrill Lynch).

Comments could include concerns about credit cards, about consumer protections, about small business lending, or about the lack of publicly-available data to help regular people participate in this change.  Moreover, there are safety and soundness issues relative to why B of A needed so much money to make up its capital requirements.

Here is a form letter.

Adam M. Drimer
Assistant Vice President
Federal Reserve Bank of Richmond
P. 0. Box 27622
Richmond, VA 23261
RE:   Bank of America Corporation, Charlotte, North Carolina, and NB
Holdings Corporation, Charlotte, North Carolina; to acquire 100 percent
of the voting shares and thereby indirectly acquire Bank of America
North Carolina, National Association, Charlotte, North Carolina (in
organization).

Dear Mr. Drimer,   This letter is to comment on the proposed reorganization of Bank of America and to request an extension of time so that we can understand the purpose of this reorganization.  I represent (INSERT NAME OF ORGANIZATION AND DESCRIPTION HERE).  As Bank of America seeks internal reorganization it is out hope that this will facilitate better relationships with it customers and the communities and neighborhoods impacted by its decisions.   We have a number of concerns related to Bank of America’s business practices that we feel should be addressed before this reorganization is approved.   Bank of America fared poorly on the recent stress test.  We feel this will result in unnecessary and unwarranted reduction of credit to small businesses across the country and will contribute to increased unemployment throughout the country, leading to increased foreclosures.

Bank of America has cut off lines of credit to small business owners who have not defaulted on their payments who have excellent credit but serve tough markets.  We have seen a number of small locally based homebuilders who could benefit from the ARRA but who need that line of credit to pay employees until the contracts are signed and payment for the work comes in.

We are concerned that this “reorganization” does not address the performance of Bank of America, Countrywide, First Franklin, Home Service Loans and Wilshire as it related to home retention and loan modifications.  There are clear inefficiencies and we believe intentional efforts to stall home retention efforts for borrowers who are trying to avoid foreclosure.  It takes 10-30 days to get information that has been faxed to these divisions of BOFA into the system.  This delays the ability of housing counselors to keep delinquencies and retention costs manageable for their clients and to ensure that a SUSTAINABLE workout option is available.    We want to know how this “reorganization” will address the following questions.

How will this restructuring of Bank of America ensure fair and equitable capital flows to low-to-mod and communities of color?

How will this restructuring of Bank of America address sustainable homeownership for low-to-mod and communities of color?

How can we ensure that Bank of America develops models for pricing, securitizations, and regulatory/economic capital that considers on the front-end the impact on low-to-mod and communities of color and that efforts are recorded to show they mitigated any disproportionate impact on these communities.

Thank you for your consideration of this comment.

The more comments, the better.  Each comment counts as one additional concern.  Quantity is more important than depth.

Andrews is the economic reporter for the New York Times.  He has covered the rise and fall of mortage markets in our country since the beginning of the decade.  He gave some warnings to readers about the situation.  He should have known better.

Andrews mentions that he was earning $120,000 per year.  His new wife also was making a second, albeit much more pedestrian, salary.  She was probably making less than $30,000 in retail at a clothing store.  Nonetheless, they had a pretty good income.  Andrews’ only thorn was a $4,700 per month alimony payment.

As he recounts, he qualified for a $500,000 mortgage with American Home Mortgage.  They didn’t check out his cash flow.  They didn’t want to know that he was giving away about half of his after-tax take home pay to his wife.  They did notice that he had a second mortgage out, on his former home with his first wife, but that just meant that he would get a slightly higher interest rate.  He got a high-cost stated-income loan with almost 100 percent loan-to-value.  And, it carried an adjustable rate...doomed to reset in five years.

Well, it caught up with Andrews in a few years.  He had to refinance, but into a much higher interest rate loan.

What was really unbelievable was the incentives that faced him when it came time to deal with a loan in default.  As JP Morgan Chase, his loan servicer, explained it was not possible to modify his loan while he was current on his payments.  If he fell behind 90 days, then his loan would go to a different department.  Then it would be up for a mod, but it would probably be modified with no change in the principle due.  Monthly payments would probably increase.

These incentives are unfortunately all too normal. A professor at Valparaiso determined that while there were many modifications taking place, that as many as half resulted in a higher monthly payment for borrowers.  The logic of that is impossible to understand. It would seem that all of the efforts, which are difficult and require the participation of many institutions, are only leading to more situations that will end up in foreclosure.

Sheila Bair has some good ideas, but she is being countered by the big banks and some of the other regulatory institutions. For example, a study jointly authored by the OTS and the OCC points out that many loan modifications aren’t working.  They indicate that many are occuring.  Their lead comment is somewhat naive:

“Consistent with last quarter’s findings, the report also showed that re-default rates on modified mortgages were both high and rising during the first three quarters of 2008, with loans modified in the third quarter showing the highest re-default rates. For example, the percentage of modified loans that were seriously delinquent (60 or more days past due) after eight months was 41 percent for loans modified in the first quarter and 46 percent for loans modified in the second quarter.”

Then they note that one possible reason could be that most mortgages are getting these higher monthly payments.  Gee…what an interesting finding!

This year, we ranked about 70 banks by an index formula that sought to identify and quantify the quality of a bank’s service to the community.  We graded the institutions on their ability to provide capital to low-income populations and to small business borrowers.

Bancorp South (BXS) did well on both scores.  They scored particularly well on business banking, but they were still able to demonstrate a fairly high level of mortgage lending for low-income borrowers and low-income neighborhoods.

Today, I’m going over their annual report.  True, the picture on the front is a bit over the top.  But, I like to see that they’ve actually had a fairly good year.  Shareholder equity increased  by 3.6 percent. Book value went up 2.6 percent.  They even managed to increase their dividend! They extended their stock repurchase program.

The picture is not all rosy.  Like almost all banks, they saw a drop in their net income and in their share prices.

One statistic stands out, though.  They indicate that 41 percent of their mortgage customers make their monthly payment in person, at a teller window.  That is just the kind of personal service that most banks have eliminated.  It’s too expensive, the reasoning goes, to provide face-to-face attention to customers.  Better to sell the loan and have a servicer take care of the payments.  Argghh.

Yet it makes so much sense.  What kind of accountability does it generate to have a teller see the same person, once a month, coming in to pay their mortgage?  I bet the answer is that it makes a big difference.  Customers know that if they don’t make a payment, that a real person will notice. Moreover, as they do make payments, it solidifies an identity grounded within the context of a personal relationship.  That has got to be something that reinforces responsible borrowing.

The confirmation of that vision is found in their rate of loan charge-offs.  In 2008, a bad year for most banks, BXS has a charge-off rate of just 0.4 percent.  Oh, and that was an increase from 0.14 percent in 2007 and 0.15 percent in 2006.  Most banks would dream of those kinds of numbers.

The new “i-house” is both an aesthetic knockout and a legitimately green endeavor.  I would be surprised if the home is not snapped up by a whole new demographic of homebuyers.

This is significant because this product could expand the audience for manufactured housing.  It also might change perceptions surrounding the building practices.  Traditionally, manufactured housing has been a popular element among rural homeowners.  With that geography, an inference of a certain set of preferences is easily made.  Most of the homes have been perceived to be of relatively compromised quality, especially those built prior to the HUD code. Many would say that in the late 90s, that housing quality caught up with site-built standards.  Alternatively, some might argue that site-built slipped (with smaller 2 by 4′s, thinner walls, and more reliance on electric heating) to standards that are relatively equivalent to contemporary mh designs.

The i-house by Clayton, driven by design and green construction, could draw a new type of consumer to manufactured housing.

Either way, the new i-home is a break out.  Green design is more cost-efficient in the long-run, but often its up front costs present an obstacle to homebuyers.  It is similar to cars: often some of the poorest families are driving clunkers from the 70s.  Those cars are cheap to buy, but they need a lot of repairs and they use plenty of gas.

I like the i-house.  It uses big windows, tankless water heaters, low-e windows, and rainwater collectors.  Clayton says that the whole home can be maintained on just one dollar of energy per day.  Think how much energy this will save.  I suppose that many people living in the Southwest will find those features particularly relevant: rainwater comes in bursts but in general there is a lack of precipitation, and there is plenty of sun to brighten rooms.

Clayton must have chosen the name to connect with young consumers.  I-house is a great adaptation of Apple’s iphone, i-life, and i-tunes.  Did I forget ipod? If anything, Clayton has staked a claim on the name frontier.  Its a great move.

Clayton may soon be making some changes in its own corner of the world.

My last points suggested that some anecdotal events (home sales in my neighborhood, the new work enjoyed by my contractor) point to a recovery.

Then again, its hard to ignore the macro picture.

State coffers, unable to print money in order to escape problems, tell the real story.

Sales tax revenues continue to drop. In California, sales tax revenues have dropped more than 50 percent year over year. Personal income taxes, which have fallen 43 percent, are following suit. Sales tax is just about as current of an indicator that can be found.  This ought to tell us something, namely that today is still very bad.

Unemployment is still increasing.

And those bank stress tests are really more discouraging than the market appears to understand. We know that they were designed to inspire investor confidence.  We also know that the Treasury let banks negotiate stress test results.

Knowing that, are we supposed to feel good that Bank of America needs $33.9 billion?

I get a kick out of that.  It is just like grading at the private universities where many of these bankers have come from. A grade has become only the starting round of a longer process of negotiation.

Nonetheless, people ought to be a bit more hesitant before jumping on the bandwagon.  Earnings don’t justify more gains.