During the home buying boom, banks made as many home loans as possible to take advantage of great volume of buyers. The loans were sold to mortgage trusts, who repackaged them as securities, and sold them off to private investors. This gave the banks greater flexibility on who they could give loans to, because they could take the loans off of their balance sheets, and didn’t have to worry so much about the borrower being able to pay them back. So they could make more loans.
Short Cuts Were Taken
Although the mortgage trusts were legally obliged to obtain and hold the mortgage notes, a lot of them didn’t bother with that. Of course, when the foreclosures come to court, these notes were supposed to come with the case, but instead the courts have been relying on affidavits claiming that all the paper work is in order. And, it has come to light, that many of these affidavits were signed by low level employees who have no idea what condition the papers are in.
Now there are a number of claims that many of the people who have been foreclosed on are victims of fraud. They have been charged fees they didn’t owe, sued for default when they weren’t behind.
The Government Comes On Soft
Instead of demanding that this mess is straightened out before any more people are wrongfully foreclosed on, the Obama administration is asking these financial institutions, which were recipients of bail out money over the last couple of years, kindly be more careful, and be better behaved as they continue in their foreclosures.
Conservatives in Congress are even less demanding of the banks, implying that proper records of borrower obligations are not anything to be concerned about. People should just assume that if the bank says it owns your house, then they do. Even those, I suppose, who have had the houses that they bought with cash foreclosed on, or those who have been foreclosed on by two different banks at the same time
Credit unions are increasingly an alternative for banks and payday loans
After more than a hundred years of being outside the mainstream financial services sector, last April it looked as though credit unions might start edging their way in.
£38m million of government funding was allocated to the Credit Union Expansion Project, with a view to growing credit union membership in the UK from just over 900,000 in 2012 to two million by 2017.
As an alternative to banks and pay day lenders, credit unions, owned by local savers and borrowers have fans who want to see a more sustainable financial system. So, is membership increasing and how is the expansion project taking shape?
The latest figures posted on the Bank of England’s website show a membership increase of almost 17% in the year ending September 2013. The previous two years saw year-on-year increases of 8% and 9%, respectively.
However, actual membership is still hovering just above the one million mark. There is a long way to go and hurdles to tackle to grow this number. Credit unions have an image problem that needs to be addressed in order to bring more sustainable finance on to their balance sheets, according to Matt Bland, policy manager at the Association of British Credit Unions (ABCUL).
He says the perception of credit unions for many people is still of a service that is for “the poor”.
ABCUL is charged with running the expansion project for the government. “The big challenge that we’re grappling with here is that there’s been too much focus on supporting people who find it difficult to access mainstream services, so credit unions can find themselves disproportionately exposed to bad debt.
“They want to continue to do that costly but socially worthwhile work, but it needs to be balanced with a core membership that is in a more financially stable position,” says Bland.
There are around 500 credit unions in the UK, differing vastly in size, from those with just a few hundred members and run by volunteers, to those with more than 10,000 members, offering a wider range of services such as insurance and mortgages. Many receive grant funding from local authorities or charities, but it’s not enough to sustain them.
Helping a larger number of credit unions grow and offer more service is something on which ABCUL is working with members. Attracting more customers is difficult with few high street service points and limited services.
“The expansion project is looking at how we can collaborate and access economies of scale to provide services in a way that credit unions couldn’t individually,” says Bland.
ABCUL is now exploring, for example, whether groups of credit unions could get together to create secondary cooperatives offering specialist products such as mortgages for members.
Martin Groombridge, chief executive of London Capital Credit Union and one of the delegates of a recent US credit union field trip run by ABCUL, was inspired by the range of innovative products he saw.
In the US, credit unions serve more than 46% of the economically active population. They have a more diverse membership and range of products.
London Capital now hopes to branch out itself by offering less costly consumer finance as an alternative to high interest store cards and credit cards.
“This will help a lot of small retailers who would otherwise be put out of business by competition from larger chains, and keep money in the local community as well as reducing the cost of credit,” he explains.
The big win for ABCUL would be getting more employers to offer employees the option to automatically put a portion of their salary into a credit union savings account each month. This would get the numbers up quickly and bring in sustainable income, says Bland.
But despite a number of big employers including Stagecoach, British Airways, parts of NHS, various councils, Parliament, many police forces, and others running such a scheme, employers often believe it will be more difficult to organise than it is, according to Bland.
Credit unions are also working independently of the expansion project to develop their offering.
Tees Credit Union in Stockton has secured £150,000 from a charity, the Northern Rock Foundation, to fund its expansion. It plans to offer better online access, provide more service points within the community and increase public recognition by moving to high street premises. Its target is to quadruple membership, which is currently just over 2,000, by 2018.
“This is a bank for the whole community, not just a poor person’s bank,” says manager, Diane Patterson.
Groombridge agrees: “Many ordinary working people are paying too much for credit, and there’s never been a better time for the credit union movement in this country to take a significant market share from the banks.”
Reaching two million by 2017 looks like a big hill to climb, but ABCUL is optimistic that continued adjustments can at least keep generating a year-on-year rise in membership and make an increasing dent in the UK’s financial services sector.
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