Vital Financial Updates Credit – Is it good or bad?

Conn’s: Bad Credit, Big Losses

By Ben Levisohn

When a stock loses nearly a third of its value, something must have gone wrong, real wrong. And that&’s certainly the case with Conn&’s (CONN) today.

AFP

The retailer/lender said it earned 50 cents a share during the second quarter, well below forecasts for 75 cents, on revenue of $353 million. Conn&’s also lowered its full-year outlook to a range of $2.80 to $3.00, down from $3.40 to $3.70.

Canaccord&’s Laura Champine and Jason Smith explain what happened to Conn&’s:

The credit segment reported its second net operating loss in three quarters, driven primarily by a higher provision for bad debt. The provision for bad debts was 13.9% in Q2, versus 10.6% in the year-ago period and our estimate of 8.4%. The company suffered multiple execution issues on the credit side in FY14 (automated dialer in Q2 and undertrained collections staff in Q4), and now it is having trouble getting accounts in late-stage delinquency back on track. Delinquent accounts 60-days plus past due was 8.7% of the total portfolio at the end of the July quarter, up from 8% in Q1, and the trend has worsened in August to 9.2%. Conn’s reduced its FY15 operating EPS guidance by $0.65 at the midpoint to a range of $2.80-$3.00, compared with prior consensus of $3.54. This reflects a FY15 bad debt provision of 11%- 12%, versus prior guidance of 8%-10%. We remain BUY rated with shares trading at only 11x the midpoint of Conn’s updated EPS guidance based on the pre-market price of $33, but our confidence is shaken here given the continued struggles on the credit side.

Shares of Conn&’s have dropped 31% to $31.13 at 11:46 a.m. today. They&’re off 60% so far this year.

Breaking Down Debt: How 4 Different Loans Affect Your Mortgage-Worthiness

Want to get a new mortgage? Then, your credit score is a really big deal — it can make or break your mortgage payments, and ultimately determine whether or not you get the house you want.

But before we talk about credit scores, let’s talk about the debt that affects them. There are two types of debt: secured and unsecured. When you borrow money to buy a house, the bank can take back the house to recoup their money if you don’t pay the debt. That means the debt is secured — it’s being balanced against something that you want to keep, and gives the bank some measure of security that they’re going to be able to recover the money they’ve loaned you.

Unsecured debt, on the other hand, means the bank can’t reclaim the thing you’re buying with the borrowed money. (Credit card debt is unsecured, and so are student loans.)

Let’s look at the impact of four key consumer loans, a mix of secure and unsecured debt, on your credit score–and ultimately your mortgage worthiness:

1. Student loans

Student loans are unsecured debt, but they’renot necessarily bad for your credit score– if you pay your bills on time. Because they often take decades to pay off, student loans can actually help your score. Loans held (and paid consistently) over a long period of time raise your score. Student loans will figure into your overall debt-to-income ratio, though, so they might affect your ability to afford a mortgage.

2. Auto loans

Auto loans are secured debt, because the lender can repossess the car if you don’t pay up. In some cases, auto loans raise your credit score by diversifying the types of debt you carry. And because auto loans are harder to get than credit cards, some mortgage lenders may look favorably on you because you’ve already been approved for a loan that wasn’t a slam dunk.

3. Payday loans

Payday loans don’t usually show up on your credit report. But if you default on the loan, it might ding your credit. Payday loans are unsecured — the lender doesn’t have any collateral — and the interest rates are often exorbitant, costing way more than people expect.

4. Existing mortgage loans

Mortgages are the classic example of a secured debt because the bank has the ultimate collateral — a piece of property. Mortgages, when paid on time, are great for your credit score. Missed payments on previous mortgages will make your new lender very nervous, however. If you already have a mortgage and are applying for another one, the new lender will want to know that you can afford to pay both bills every month, so they’ll be looking closely at your debt-to-income ratio.

If your second mortgage is for a rental property, you may be expecting the rental income to count towards the income side of the equation. But most lenders won’t count rental income until you’ve been a landlord for two years. Until that time, you have to qualify for any mortgages using documented income from other sources.

In general, having different types of debt can boost your credit score. So it’s not necessarily a bad thing to have a student loan and an auto loan when you’re applying for a mortgage. But be careful — over-borrowing can hurt you. Most mortgage companies, in addition to looking at your overall credit score, will look for a debt-to-income ratio below 43 percent. They’ll look at all the money you owe, and the monthly payments on all of that debt. They want to see that your income is enough to cover all your debts, including the mortgage you’re applying for.

Nebraska readies debt relief program for law grads practicing in rural areas …

Nebraska College of Law student Alissa Doerr clerked with a small-town lawyer this summer, seeking the experience she needs to set up a similar practice and take advantage of the states debt relief program for rural lawyers.

Doerr worked in Center, Nebraska, home to only 94 residents, the Washington Post reports. She clerked for lawyer John Thomas, 61, who would like to find a successor so he can retire. Doerr learned from Thomas as he worked on family estates and farm sales, and handled criminal cases as the county attorney. She applied during her second year of law school and was his first applicant for a clerk job in 20 years.

Center is in Knox County, home to only 12 lawyers, eight of whom are over 60 and would like to retire, according to the Post. The county has shrunk from 19,100 residents in 1930 to 8,560 today. Knox Countys lawyer count surpasses that of at least 12 counties in Nebraska, where there are no lawyers at all.

Guidelines are being drawn up for the states new Rural Practice Loan Repayment Assistance Program, which takes effect next year, the story says. Under the program, law grads who work in counties with fewer than 15,000 residents can receive up to $42,000 in student debt relief. The maximum is paid to those who practice in those areas for 10 years.

Doerr grew up in Nebraska County, but she is unsure if she will practice there. Her boyfriend has a construction business 120 miles away.

Prior coverage:

ABAJournal.com: Lawyer shortage in rural Nebraska is target of state bar initiative

Homeowners Insurance Cost Too Much? Check Your Bad Credit

Read More: Key to Quick Insurance Claim Turnaround? Doing a Home Inventory

According to InsuranceQuotes.com, homeowners with lousy credit can pay up to 91% more. Even having mediocre credit can hurt you with homeowners insurance — bringing payments 29% more, on average, then those of consumers with excellent credit.

Again, prices vary on a state by state. In West Virginia, for example, people with poor credit pay 208% more than those with stellar credit. Virginia, Ohio and Washington, DC, also post high rates on homeowners insurance for consumers with bad credit.

Consumers with a toxic credit score catch a break in three states: California, Massachusetts and Maryland. In those states, insurance companies are barred from using credit to calculate homeowners insurance.

In some states, weather trumps credit. For example, in Florida, where homeowners insurance rates are twice the national average, hurricane risk is a much bigger factor than credit, Adams notes.

To insurers, the equation is all about risk — the less of it the better.

Read More: 3 Tips on Getting a Higher Credit Card Limit

This is another example of why credit is such an important part of your financial life, said Laura Adams, a senior analyst at InsuranceQuotes.com. Maintaining a good credit history suggests that youre a less risky customer and can lead to several hundred dollars in annual homeowners insurance savings.

To try and curb rising homeowners insurance rates due to bad credit, make sure to check your credit score on a regular basis (you can get a free copy of your credit report at annualcreditreport.com.)

Check for errors and unpaid bills and resolve those issues as soon as possible. Contact your insurance company as your credit rating improves. You may be able to cut a new deal based on a better credit rating, but youll never know for sure until you talk to your insurer.

How to get a mortgage right now, even with bad credit

In his interview with HousingWire, Mel Watt, the director of Federal Housing Finance Agency urges the opening of the mortgage credit box to less-than-optimal borrowers.

We are getting lenders to reduce some of the credit overlays, he said in the exclusive interview.

Furthermore, FICO scores will ignore debts that have been paid off or settled, and a lesser weight will be assigned to medical bill collections, which account for about half of all unpaid collections on consumers credit reports.

Nonetheless, the average FICOs have been going down steadily since 2006 and its not hard to see why, what with the housing crisis, the financial meltdown and the general recession and record unemployment and underemployment.

So what can those with a FICO that is under 620 do to get a mortgage?

1. Prepare to pay more

People with poor credit can still get a mortgage, but they will pay far more than even those with credit scores on the margin.

Guidelines from the US Department of Housing and Urban Developmentand the GSEs,Fannie Mae and Freddie Mac, advise waiting at least two years after a short sale, so long as credit after the short sale is good.

Sellers should be advised to do their homework on the mortgage brokers they are working with shady and dodgy operators are like bottom feeders, looking to prey on those who are more desperate and who arent financially savvy, which is how they see people with poor credit.

2. Refinance ASAP

A bad credit mortgage may seem like the borrower is signing away their life on a bad deal, but so long as the borrower maintains their credit after the mortgage is signed, they can be eligible to refinance for a much better deal within two years, and their credit will have improved.

In short, a bad credit mortgage is a short-term solution that gets them in a home. Its important to bear in mind that bad credit neednt follow the borrower longer than necessary.

3. Ask about options

The 30-year mortgage is a popular choice, but maybe not the right one if the borrowers credit is weak. Adjustable rate mortgages are also a possibility, depending on the circumstance, during which time the borrower can work on repairing and maintaining their credit while paying at a lower interest rate than are offered on fixed-rate mortgages.

Many people who had their credit torn up in the recession were not the typical bill skippers. They were hard-working, responsible people whose world was upended through layoffs, downsizing, the loss of contract work, and a dozen other legitimate reasons.

4. Get a co-signer

Many have some other assets, or have family members who are responsible. These people may be willing to co-sign. Federal Housing Administration rules allow for a co-signer on loans.

Above all, check with HUD, FHA, the FHFA, Fannie Mae and Freddie Mac for information on pathways to homeownership for those who have damaged credit.

It is possible to get a mortgage with bad credit today. Possible, but still challenging.

US-based PE Firm Exits Repco Home Finance, Garners Rs 471 Crore

Mumbai: US-based private equity firm Carlyle Group has offloaded its entire 17.74 per cent stake in Chennai-based Repco Home Finance Ltd for over Rs 471 crore.

The sale marks Carlyes final exit from the housing financing firm where it once held a 49 per cent stake.

First Carlyle Growth VI, the growth investment fund of private equity major Carlyle, sold a total of 1.10 crore shares in Repco through open market route on Thursday, representing a 17.74 per cent stake.

The shares were offloaded on an average price of Rs 427.56 valuing the transaction at Rs 471.50 crore. The stake sale has reaped many-fold gains to Carlyle.

The buyers included DSP Blackrock, Nomura India, FT India Prima Fund, Jupiter India, and SmallCapWorld Fund.

The private equity firm had invested about Rs 108 crore in Repco during 2007 and 2009, with Carlyle Asia Growth Fund picking up an around 49 per cent stake in the company.

Through Repcos IPO process, launched in March 2013, Carlyle had diluted a small portion of its stake. Later, the private equity firm had sold some of its holding to Wolfensohn Capital Partners and Creador.

Repco was incorporated in 2000 as a subsidiary of Repatriates Co-operative Finance amp; Development Bank Limited, a government of India enterprise.

It operates 91 branches and 32 satellite centres in Tamil Nadu, Andhra Pradesh, Kerala, Karnataka, Maharashtra, Madhya Pradesh, Gujarat, Odisha, West Bengal and Puducherry.

Shares in Repco, on Friday, ended at Rs 466.80 apiece on the BSE, down 2.20 per cent from the previous close.

Credit Cards For People With Bad Credit

Consumers with poor credit scores were once locked out of the credit card game. But lenders are beginning to court those whose low scores once typed them as too risky to be offered a credit card.

In the first quarter of 2014, 3.7 million subprime borrowers¬†– those with a FICO credit score below 660¬†– were issued credit cards, according to Equifax, Inc. That’s a 39% jump from 2013 and the highest level since 2008, according to Equifax data provided to the Wall Street Journal.

Federal regulations tying the hands of card issuers wanting to raise interest rates on existing balances have convinced banks and other credit card issuers to do business with consumers who otherwise might not be offered a card.

That’s good news for consumers with poor credit scores who hope to rebuild their credit with the help of subprime credit cards.

Not surprisingly, the cards offered to those with less-than-stellar FICO scores are accompanied by an array of less-than-stellar fees and interest rates – far removed from the attractive incentives typically offered with prime credit cards. Other than a prepaid card, which doesnt offer any credit and works like a gift card, people with poor credit have two basic choices.

Subprime Credit Cards

Like prime cards, subprime credit cards dont require borrowers to deposit money with the bank before they use them. Thats where the resemblance stops. Subprime borrowers can expect to pay maximum interest rates, higher fees and possibly an annual fee, says Igor Tselenchuk, a personal finance and credit card expert in San Francisco. Rates for new purchases can go even higher if you are late with a payment or skip one altogether.

To reduce their financial exposure in the event a consumer defaults, credit limits are often initially set low on subprime credit cards. And very few subprime credit cards offer rewards incentives and perks. Those that do often package those rewards with steep interest rates and fees. For instance: Credit One Bank Credit Card with Gas Rewards card offers 1% back on all gas purchases and there’s no limit to the gas rewards you can earn. However, there’s an annual fee of $35 to $99 and a variable ongoing interest rate of 17.9% to 23.9%.¬†

Interest rates can go much higher. The First Premier Bank credit card has a whopping 36% interest rate for purchases and cash advances. There’s also a one-time processing fee of $75 and an annual fee of $75 the first year, $45 for additional years. On top of that, cardholders are charged a servicing fee of $6.25 per month after the first year. Some of these fees are charged before you ever use your card and will reduce the amount of credit you initially have available. For example, if your initial credit limit is $300, your initial available credit will be only about $225.

Repco Home Finance launches home loan scheme for rural people

CHENNAI: Repco Home Finance has launched a new housing loan scheme to provide affordable housing to low and medium income group customers in rural areas.

Christened Repco Rural, this scheme comes under the purview of the rural housing fund of the National Housing Bank (NHB) at an interest rate of 9.60% per annum.

This scheme is targeted at the weaker sections of society — small and marginal farmers with land holding of five acres and less, women, Scheduled Castes and Scheduled Tribes people, persons from minority communities and rural population with income up to Rs 2 lakh.

Credit Union Leader Denies Alleged Shell Game

A former president of a small Illinois credit union was accused of misapplying about $550,000 in a loan scheme that benefitted members with bad credit and minimized the institutions loan delinquencies, according to court documents obtained by CU Times.

Charles Juska, former president of the $25 million Tazewell County School Employees Credit Union in Pekin, Ill., pleaded not guilty to charges he forged at least seven members signatures, created numerous fraudulent loans over a five-year span and cooked the books to cover his tracks, the documents said.

Juska, 52, who was indicted in May, pleaded not guilty June 26 in US District Court in Peoria, Ill., and was released on bond with his next court set Aug. 7, according to court records. He is facing 10 federal counts of misapplication of funds and false entry into records.

The allegations follow a wave of employee arrests for embezzlement and other fraud at credit unions during the past few years, which some experts contend could damage the industrys reputation.

Juska, who served as the credit unions president for 17 years before his departure in December 2010, allegedly orchestrated an elaborate loan scheme that involved creating unauthorized loans and accounts, shifting money between the accounts and falsifying the books, the court documents said.

For members who were not eligible for a loan or having trouble making loan payments, Juska created loans in the names of other members by forging signatures, and used those funds to cover other members loans and delinquencies, the indictment stated.

The court documents do not specify whether Juska profited personally from the alleged crimes.

In the loan applications, he provided false information, including listing collateral that allegedly did not exist, failed to verify the value of other collateral, and used the same collateral for multiple loans, resulting in unsecured or under-secured loans, the indictment stated.

The former banker also concealed delinquent loans from his board of directors and loan committee by adjusting loan rates to lower the payments and not revealing the lower rate to the board, the documents said.

In addition, he allegedly created new loans for members with delinquent loans and used those funds to make payments on the delinquencies, court records stated.

He also concealed some delinquencies by writing loan advances on existing loans, allowing members to use the advances to make payments on the same loans, the documents said.

According to the credit unions financial reports posted on the NCUAs website, TCSECUs net worth took a major hit in the final quarter of 2010, when Juska left the cooperative. The credit union reported 8.71% net worth as of Dec. 31, down sharply from 12.43% the previous quarter. Net charge offs increased from 3.75% of average loans during the third quarter 2010 to 15.03% the fourth quarter. Additionally, the credit union reported a $1.2 million net loss for 2010.

Since then, TCSECU has recovered its net worth to 10.87% as of March 31, 2014. However, profitability has not returned. As of year-end 2013, the credit union reported a nearly $90,000 net loss, and reported another $31,219 net loss as of March 31, 2014.

As one of the conditions of being released on a personal recognizance bond, Juska must notify any present or future employer about the charges, if the employment involves conducting any duties related to financial transactions or accounting.

CFPB, AG’s, secure $92M in debt relief for servicemembers victimized by …

NOTE: We intended to post this blog entry on the Monitor on July 30 but it was inadvertently omitted.

The CFPB, after an investigation in cooperation with 13 state attorneys general, has entered into a consent order with Colfax Capital Corporation, a California consumer lending company (Colfax), and its wholly-owned subsidiary, Culver Capital, LLC, a Georgia consumer lender (Culver) (formerly known as Rome Finance Co. Inc. and Rome Finance LLC, respectively) and their principals, Ronald Wilson and William Collins. As a result of this consent order, approximately 17,000 US servicemembers and other consumers will receive debt relief in the aggregate amount of approximately $92 million.

That amount represents approximately $60 million in about 12,000 financing agreements predominantly with servicemembers held by Colfax and approximately $32 million in about 5,000 similar agreements held by Culver. The relief is accomplished by ordering respondents (or anyone acting on their behalf) to cease and desist from collecting on any Rome Finance-related transactions. The Chapter 7 trustee will cooperate in this relief. Notably, despite the ban on collections of any amounts owing, the affected servicemembers and other consumers get to keep the merchandise they purchased.

Colfax is in bankruptcy as a result of a 2005 lawsuit alleging predatory sales and lending practices brought by the Tennessee Attorney General, and the Chapter 7 bankruptcy trustee has filed a non-opposition to the consent order pursuant to a duly approved compromise of controversy in the bankruptcy case. In view of the bankruptcy, the CFPB has assessed a symbolic $1.00 civil money penalty. None of the respondents admits or denies any wrongdoing or any of the stipulated facts (other than the facts necessary to establish CFPB jurisdiction) in the consent order.

The enforcement action charged the corporate respondents with a predatory lending scheme featuring ensnaring servicemembers with the promise of no money down and instant financing (in violation of UDAAP proscriptions), disguising very high finance charges by artificial inflation of the disclosed price of good purchased (in violation of Regulation Z), withholding information on billing statements (again in violation of UDAAP proscriptions), and illegal collections of void loans (in violation of certain state laws and UDAAP proscriptions).

The consent order also effects the permanent suspension and forfeiture of the corporate respondents business status and prohibits all respondents (or anyone acting on their behalf) from using, selling, transferring, or otherwise providing to any other person any of the corporate respondents intellectual property (including brand names, copyrights, trademarks, customer lists, business methods, promotional materials, and IT operating systems). The individual respondents are also permanently banned from conducting any business in the field of consumer lending. Finally, the consent order imposes a variety of disclosure obligations, operational restrictions, and ongoing reporting obligations with respect to any other businesses in which the individual respondents are involved.

Perhaps the most significant aspect of the conduct giving rise to the consent order involves the allegations of hidden charges in the marketing of products. The Bureau charged that Rome Finance and the merchants they worked with masked exorbitant finance charges by artificially inflating the disclosed price of the consumer goods being sold and, consequently, deflating the disclosed APR. For example, the CFPB cites disclosures indicating the APR was 16 percent when in fact the APR was 100 percent or more.

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