LoanNow Unveils Group-Signing at Finovate Spring 2015

6This month we were honored to present at Finovate’s annual event in Silicon Valley. For those unfamiliar with Finovate, it’s the premier event for showcasing the latest, most innovative developments in financial service technology. A writer from the Wall Street Journal described it well by saying, “For finance nerds, Finovate is the Super Bowl and World’s Fair rolled into one.”

Start-ups such as Mint, Credit Karma and Prosper as well as industry powerhouses such Visa, Google and PayPal are among the hundreds of companies that have debuted their game-changing innovations at Finovate over the years.

Needless to say, we were thrilled that we were invited to take the stage at Finovate on May 13th to unveil our latest innovation: LoanNow’s Group-Signing.

Our CEO/Co-founder, Harry Langenberg, lead the presentation alongside our President/Co-founder, Miron Lulic, who operated the technical side of the demonstration.

This year’s event had the added prestige of being held in San Jose’s historic City National Civic – a landmark venue whose stage has been graced by such musical legends as The Rolling Stones, Bob Dylan, Frank Sinatra, Barbra Streisand, The Grateful Dead, KISS, Duke Ellington and The Who, just to name a few.

The presentation and the entire two-day event was spectacular success. We’d like to give a huge “thank you” to Finovate’s organizers, our fellow presenters and audience attendees for their contributions on making this such a rockin’ great conference!

An equally big “thank you” goes out to our internal staff that put in some seriously long and hard hours to make sure every element of Group-Signing was in perfect working order for this high profile debut on the big stage.


5 tips to help home buyers get approved for loans

5Right now may be the perfect time for prospective home buyers to make that big dream investment. Many will still face the hurdle of qualifying for a home loan. In some situations, real estate agents may need to get creative to make sure that their clients can get the home they want when they want it. Consider these following 5 tips to help home buyers get approved for loans.

1. Explore alternative loans
Alternative loan packages such as FHA loans, Fannie Mae foreclosure loans and military loans may all be easier for a home buyer to acquire. Conventional loans are often very difficult to get, even for buyers who have relatively good credit ratings. Conventional loans also always require a full down payment of 20%. Alternative loan packages can help buyers in two ways. They usually require a much lower down payment than conventional loans and they also usually allow a higher debt-to-income ratio than conventional loans.

2. Alternative lending institutions
Real estate agents with clients who cannot get approved at their local banks can suggest other lending institutions. There are many companies that operate on a national level and specialize in mortgage packages exclusively. It is often easier to get a mortgage through these companies than through a local bank or federal credit union. A real estate agent who wants to provide alternative ideas to their clients should research the largest current loan providers so that they can advise their clients.

3. Credit repair
If a client is having issues getting a loan because of credit issues, a real estate agent can suggest a credit repair company. It is a good idea to research reputable credit repair companies before making suggestions, however, because some repair companies either don’t do a good job or charge fees far in excess of what is needed. Credit repair can help clients by advising them on the best ways to repair their credit and any mistakes that might be on their credit report.

4. Suggest a cosigner
Often, the only way to reliably get a person approved for a loan is to suggest that they get a cosigner. Many buyers are hesitant to get a cosigner, but if the situation is fully explained they may understand why it is a necessity. Some people hesitate before getting a cosigner because they don’t know how it affects the ownership of the property. You can explain to the buyer that a cosigner can be, but doesn’t have to be named on the property deed if the buyer doesn’t want them to be.

5. Get involved
Speaking with the client’s mortgage company directly may be the easiest way to find out more about the client’s situation and how to help them. A real estate agent with a client who is having difficulties may want to ask the client for permission to talk directly to the mortgage company. With this permission, the agent will be able to better understand the client’s finances and be better able to help them.

The job of a real estate agent is a complex one, and agents often have to go above and beyond the call of duty to secure their buyers the homes they want. A real estate agent should not be afraid to exhaust all options when acting as an advocate for their client. With determination and patience there are many things real estate agents can try to make their clients more suitable for a loan.

Being an advocate for your buyer doesn’t stop with the loan. Consider suggesting a home warranty with a reputable company like American Home Shield for the ultimate in protection.


Make your student loan payments on time

4When mortgage lenders look at your credit history, they’ll want to see that you’ve paid off other debts on time, including your student loans, car payments and credit cards. If you’ve proved you can handle debt responsibly and you have a good credit score to show for it, mortgage lenders will be more likely to approve you – even if you still have outstanding student loans.

“A student loan is never negative,” Koss says. “It’s just a question of whether you pay it on time.”

Save for a down payment and closing costs
Buying a home doesn’t just involve taking on a mortgage – you’ll also have to pay upfront for closing costs and the down payment. Closing-related costs include the home inspection, mortgage loan origination fee, mortgage insurance, homeowners insurance premium and title fees. In total, closing fees cost the average homebuyer about 2% to 5% of the home’s price, according to Zillow.

A traditional down payment is 20% of the cost of the home, but there are other options for borrowers today, such as putting less down and paying for private mortgage insurance each month until you build 20% equity in your home (though the less you put down, the more you’ll pay in interest).

Despite Kristin’s student loans, the Couches were able to buy their home with just 3% down through a local bank. But that doesn’t mean her student loan payment isn’t still a burden. “It’s as much as a second mortgage,” she says.

Still, to her, owning a home is worth the extra responsibility. “It’s yours,” she says. “You bought it. It’s something tangible that you can see.”


What is the true cost of payday loans?

9The true cost of payday loans is somewhat elusive because of the fee-based model. Using the example above, a two-week $100 payday loan may come with a $15 fee. Someone who isn’t savvy with finance might look at that and think the interest rate is 15%. Unfortunately, this is not how APRs work.

When translated to an annual percentage rate, this $15 fee for a two week $100 loan equates to a 390% APR. The industry average APR is 339% according to the CFPB.

A major problem that the CFPB highlights in their report is that it’s unclear whether consumers understand the costs, benefits, and risks of using these products.

Should we place rate limits on loans?

Some states have begun to push back on payday lenders. In 15 jurisdictions across the United States, payday loans are illegal or have annual percentage rates (APR) capped at 36 percent, which is in line with the interest charged by credit card companies for cash advances. These jurisdictions are: Arizona, Arkansas, Connecticut, District of Columbia, Georgia, Maryland, Massachusetts, Montana, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Vermont, and West Virginia.

The federal government has also taken notice, with laws already in place to protect military personnel and proposed legislation to protect all consumers. The Military Lending Act places a maximum limit of 36 percent APR on loans offered to military personnel.

To achieve a 36% APR, the lender would need to limit the fee on a two-week $100 loan to $1.38 – not enough to even cover the origination cost.

Then there is the issue of covering the costs of defaults. Industry statistics indicate 6% of all payday loans default. Seems low? Well remember these are two week loans, so if you had a group of 100 two-week loans and 6 of them defaulted, you would need an annual rate of 156% just to break even on those defaults.

The bigger costs are the marketing and operations costs associated with these loans. Overhead to operate the 20,000 omnipresent storefront locations is the biggest single expense. Lets say that we go really conservative and say between all the marketing and operational expenses it cost a payday lender $5 to get that $100 loan. We would need a 130% APR to cover that cost.

If you combine default costs with your assumed marketing and operations costs we are at a 286% APR just to cover basic expenses (and that doesn’t take into account compounding). In case it’s not yet clear, lending small amounts of money to high risk borrowers for short periods of time is expensive, and therefore so is borrowing that money.

If you look at the annual reports of big payday lenders you’ll see that they actually operate at pretty low margins..

A more competitive marketplace would likely bring the price meaningfully below $15 per $100 loaned, but 36% APR would be unsustainable for the current payday lending model as we know it today.

Ultimately, this means 36% APR caps would undoubtedly push many borrowers with poor or nonexistent credit histories even further out of the credit system.

States that eliminate payday loans immediately experience a substantial rise in costly outcomes to consumers, according to research at the Federal Reserve Bank of New York and Kansas City Fed. These studies also find that more households file for bankruptcy when payday loans are no longer available.

Hence, trying to focus purely on interest rate caps is probably a short sighted way to regulate the industry. Fostering competition will introduce better alternatives, while providing access to credit to those that need it.

New and innovative lenders like LoanNow will organically drive down interest rates through more sustainable installment products, operational efficiency, better underwriting models, risk-based pricing, and improved risk management.

It’s pretty simple. If you spend less money on overhead, your underwriting is smarter and you offer loans only to those who prove creditworthy (which doesn’t necessarily mean those with a high credit score), then your default rate falls and, indirectly, so does your APR.


Minimize debt from credit cards and car loans

3When lenders evaluate you for a mortgage, they typically look at four things:

Your income.
Your savings.
Your credit score.
Your monthly debt-to-income ratio.
Your debt-to-income ratio shows the lender your total financial obligations — including car payments, credit card debt and student loans — compared with your income. Lenders are looking for borrowers with a debt-to-income ratio of 36% or less, including the monthly mortgage payment. To keep yours low, pay off as much debt as possible before applying for a mortgage.

The Couches focused on paying off Sean’s truck and their credit cards, which they’d relied on when Kristin was “making less than peanuts” in her first few jobs. When they got their mortgage, their only remaining debt was from Kristin’s student loans.

Lower your monthly student loan payments
Even without other types of debt, having a lot of student loans could give you a high debt-to-income ratio. To lower that ratio and show your mortgage lender you have enough extra cash to make your monthly mortgage payments, consider refinancing your student loans or switching to an income-driven repayment plan to lower your monthly student loan payment.

There are tradeoffs involved with both refinancing and income-driven repayment plans. When you refinance federal student loans, they become private loans and you lose federal protections, including access to income-driven plans and federal forgiveness programs. Income-driven plans, which cap your monthly payment at a percentage of your income, increase the amount of interest you’ll pay over time because they extend your term length.

Most mortgage lenders won’t mind if your overall student loan debt will increase; they’re primarily concerned with your monthly payment, says Kevin Hanson, director of lending at Gate City Bank in Fargo, North Dakota. But you’ll save the most money on your student loans if you minimize the amount of interest you’ll pay over the life of the loan.


Tips for buying a home if you have student loans

2When Kristin and Sean Couch were ready to buy their first home, they feared that one thing would hold them back: Kristin’s student loans. Her broadcast journalism master’s degree from Syracuse University had left her more than $80,000 in debt.

The Couches are part of a generation that’s delaying major life decisions, like whether to buy a home, because of student loan debt. More than half of student loan borrowers say their debt affects their ability or decision to become a homeowner, according to a 2015 survey of 1,934 student loan borrowers by American Student Assistance, a Boston-based nonprofit.

But becoming a homeowner is possible even if you have student loans. The Couches bought their 2,900-square-foot Craftsman home in Gainesville, Georgia, last spring. Here’s how you can do it, too.

Recommended: Seven money goals for young adults
Shop for a home you can afford
Home shopping can be tempting. Three-car garages! Granite countertops! Stainless-steel appliances! Before you get carried away, research the type of home you actually can afford. If you’re a first-time homebuyer, you may have to settle for a starter home instead of your dream abode.

But there are good reasons to buy a home sooner rather than later, namely tax incentives and the opportunity to build equity, says Brian Koss, executive vice president of Mortgage Network, a Massachusetts-based independent lender.


Do banks deserve some of the blame?

10Many lenders, not just payday lenders, ask borrowers to set up automatic payments using Automated Clearing House (ACH) withdrawals. This allows lenders to collect payments from borrowers while providing structure and convenience to the borrower’s repayment cycle.

But for approximately 27 percent of payday borrowers, withdrawals for payday loan payments result in overdrafts to their accounts, according to a 2013 story published in The New York Times. With banks collecting overdraft fees of $20, $25, or $30 for each overdraft, it’s easy to see how payday lending represents a potentially lucrative source of revenue.

On the surface it seems natural to point a finger at lenders for initiating these failed payments. But blaming lenders for payment failures seems a little bit ironic. They are simply trying to collect a payment using a method that was already authorized by their borrower. Furthermore, lenders also have to pay fees for failed ACH payments, not to mention the fact that a high rate of failed ACH payments threatens their banking relationships. Hammering borrower accounts with ACH payments is not something lenders want to do.

The heart of the problem is that lenders are working within the confines of a system built in the 1970s. Any payment made via ACH also has to clear the Federal Reserve System and their clearing process only runs once per day. This means the overall process can take up to ten days!

Furthermore, there is almost no transparency into the status of the transfer throughout this process. By contrast, when you purchase something with a credit or debit card an authorization is sent out and an approval or denial response comes back in real time. If the purchase authorization fails neither the borrower nor the lender pays fees.

So why don’t lenders just use the debit cards to process payments? Many, including LoanNow, do offer a debit card payment option. But the main problem is that the banks and credit card companies take credit card processing fees for using their network – usually around 3% of the transaction cost. As a lender looking for ways to lower interest rates, it’s hard to do so when you’re sending 3% right off the bat to the banks/networks.

A real-time ACH network with transaction authorizations would undoubtedly resolve the issue of overdrafting borrower accounts. But the value would go far beyond solving lending payment inefficiencies. Families on the verge of missing the deadline for a utility bill payment would benefit. So would companies that must pay vendors right away. In a situation where a worker fails to submit a timesheet on time, the employer could make a speedier direct deposit.

The United Kingdom also used an old system with old pipes, but after years of complaints, eventually moved to a new banking initiative known as the Faster Payments Service, which made money transfers from banks in the U.K. instantaneous. In the U.K., you can even transfer money on Christmas Day and see it right away.

According to American Banker, in 2012 the banking community in the U.S. came together to vote for a plan that would provide same-day service (though still not instantaneous service!). The vote needed a supermajority of 75 percent in favor, and though more than half voted yes, the banks failed to reach a supermajority. The banks were hesitant because of the costs they would incur to upgrade and the inevitable loss of revenue from fewer overdrafts, wire transfers and other incidental fees.


Why do people borrow from payday lenders?

8Many payday loan customers apparently do not have access to lower cost credit from banks or credit unions and/or they have “maxed out” their credit cards and other lines of credit. Others do not have access to lower cost credit because they have severely impaired credit histories or do not participate in the banking system. They do not want to ask family members or friends for a cash advance because they might be judged harshly for doing so, or because they have exhausted their access to such informal alternatives. They could address their cash shortfall by making payments using checks that they know will bounce or by delaying paying some bills. But because of substantial fees for late payments, over-limit charges, and NSF and returned check charges, such steps can be even more costly than a payday loan.

As an alternative or supplemental explanation for the use of payday loans, some critics of the product argue that many customers may not understand just how expensive payday loans are. Survey data indicate that at least three quarters of payday loan customers remember to a reasonably accurate degree the dollar cost of the most recent cash advance they received. But when asked what the annual percentage rate (APR) is on their loan, the vast majority of payday loan customers either report that they do not know the APR or they report unrealistically low rates.

A never-ending cycle of debt?

In a traditional payday loan, a customer writes a personal check made out to the lender. The lender agrees to hold the check for a specified period of time, usually until the customer’s next payday or for up to about two weeks, before depositing it. In exchange, the lender advances a cash payment to the customer that is somewhat less than the amount of the check. For example, a borrower might write a check for $115 that the lender agrees to hold for two weeks. The lender provides the borrower with a $100 cash advance. So the borrower pays a $15 fee for a two week finance charge.

The short two-week repayment periods often make it difficult for borrowers to repay their loans in a timely manner. They often are in the same financial situation they were in two weeks prior. Payday lenders respond by allowing borrowers to “rollover” their loans, essentially creating a new loan with a new fee. According to a 2014 Consumer Financial Protection Bureau report [PDF], four out of five payday loans are rolled over or renewed.

Many borrowers end up in a cycle where they continue to pay a loan fee but do little to reduce their principal. In fact a 2013 CFPB white paper [PDF] indicates the average payday borrower is in debt for nearly 200 days — more than half a year. One-in-four borrowers spends at least 83% of their year owing money to payday lenders. This is on top of any debts that borrower might have to other creditors.


The Challenges of Building A Payday Loan Alternative

7Every year, about $50 billion is funneled into the coffers of payday lenders, according to stats from the Online Lenders Alliance. These lenders provide a life-line to approximately 12 million Americans who would otherwise not have access to credit in times of need. The problem is, these loans perpetuate an expensive cycle of fees that trap many borrowers.

Who are payday loan borrowers?

According to the Federal Deposit Insurance Corp.’s latest National Survey of Unbanked and Underbanked Households released October 2014 [PDF] , roughly 34 million households, representing 68 million adults, had limited or no participation in the banking system. According to an earlier survey in 2009, two-thirds of unbanked households use alternative financial service providers to cash checks, provide payday and title loans, issue money orders, and issue pre-paid cards. The FDIC survey indicates that most underbanked households that use alternative financial services do so primarily for convenience, speed of service, and ease in qualifying for a loan.

Surveys of payday loan customers find that most are from lower-middle to middle income households. In one survey, about half of the customers reported household incomes of between $25,000 and $50,000. The remaining customers were almost equally divided between those with household incomes under $25,000 and those with incomes over $50,000. This survey also found that payday loan customers tend to be younger than the general adult population and are more likely to have children. They are substantially less likely to have a college degree, although relatively few have less than a high school degree. Over 40 percent of customers report that they own their homes and 57 percent report that they have a bank credit card. Other data sources indicate that over half of payday loan customers are female.


General wealth

1“We’d all be better off out”
Vote Leave claims that EU membership costs the UK more than £350m a week, or nearly £20bn a year. According to campaigners, the Government has sent more than £500m to the EU since 1973.

The UK’s current policy of austerity means that such hefty financial claims resonate with British households who are feeling the pinch of cuts to services and benefits, and rising taxes. However, it’s a figure that’s very much disputed.

Sir Andrew Dilnot, chair of the UK Statistics Authority has publicly chastised campaigners for using the £350m figure, calling it misleading because it fails to take into account the UK’s rebate or the money that comes back from the EU via funding.

Despite his comments, pro-Brexit spokespeople have continued to make the claim and to suggest the full amount could be spent funding important UK institutions such as the NHS instead.