Archive for July 2016
They Brexit, we bought it. Well, we bought a new mortgage, at least.
Lenders say they have seen an increase in refinance applications since the United Kingdom voted to exit the European Union. The vote happened Thursday, and on Friday morning, mortgage rates tumbled about one-eighth of a percentage point. Then the underlying bond yields crept down a little Monday, then again Tuesday, then again Wednesday.
Analysts are weighing in on how Discover Financial Services (NYSE:DFS), might perform in the near term. Wall Street analysts have a much favorable assessment of the stock, with a mean rating of 1.8. The stock is rated as buy by 13 analysts, with 10 outperform and 6 hold rating. The rating score is on a scale of 1 to 5 where 1 stands for strong buy and 5 stands for strong sell.
For the current quarter, the 25.00 analysts offering adjusted EPS forecast have a consensus estimate of $1.42 a share, which would compare with $1.33 in the same quarter last year. They have a high estimate of $1.50 and a low estimate of $1.30. Revenue for the period is expected to total nearly $2.22B from $2.18B the year-ago period.
For the full year, 27.00 Wall Street analysts forecast this company would deliver earnings of 5.70 per share, with a high estimate of $6.04 and a low estimate of $5.54. It had reported earnings per share of $5.13 in the corresponding quarter of the previous year. Revenue for the period is expected to total nearly $9.00B versus 8.74B in the preceding year.
The analysts project the company to maintain annual growth of around 7.76% percent over the next five years as compared to an average growth rate of 10.89% percent expected for its competitors in the same industry.
Among the 23 analysts Data provided by Thomson/First Call tracks, the 12-month average price target for DFS is $63.17 but some analysts are projecting the price to go as high as $75.00. If the optimistic analysts are correct, that represents a 41 percent upside potential from the recent closing price of $53.27. Some sell-side analysts, particularly the bearish ones, have called for $56.00 price targets on shares of Discover Financial Services (NYSE:DFS).
In the last reported results, the company reported earnings of $1.33 per share, while analysts were calling for share earnings of $1.32. It was an earnings surprise of 0.80%percent. In the matter of earnings surprises, the term Cockroach Effect is often implied. Cockroach Effect is a market theory that suggests that when a company reveals bad news to the public, there may be many more related negative events that have yet to be revealed. In the case of earnings surprises, if a company is suggesting a negative earnings surprise it means there are more to come.
Discover Financial Services operates as a direct banking and payment services company in the United States. It operates in two segments, Direct Banking and Payment Services. The Direct Banking segment offers Discover-branded credit cards to individuals; and other consumer products and services, including private student loans, personal loans, home equity loans, and other consumer lending, as well as deposit products, such as certificates of deposit, money market accounts, savings accounts, checking accounts, and individual retirement arrangement certificates of deposit. The Payment Services segment operates the Discover Network, which processes transactions for Discover-branded credit cards, and provides payment transaction processing and settlement services; and PULSE network, an electronic funds transfer network that provides financial institutions issuing debit cards on the PULSE network with access to automated teller machines and point-of-sale terminals. This segment also operates the Diners Club International, a payments network that issues Diners Club branded charge cards and provides card acceptance services. The company was incorporated in 1960 and is based in Riverwoods, Illinois.
“We must halt the unscrupulous lenders from targeting the poor and most vulnerable among us,” Olson said in a statement. “In tandem, good local payday lending regulations and the proposed federal rules will greatly assist those in desperate financial straits from becoming hostages of unscrupulous payday lenders.”
Payday loans are typically small-dollar loans, due for repayment in two to four weeks, made to borrowers who don’t have access to credit cards or traditional lenders. They carry fees that translate to annual interest rates upwards of 300 percent, and can be renewed, which consumer advocates say leads to a cycle of debt.
In May of 2014, then-City Manager Tom Higgins briefed the Fort Worth council on what other Texas cities were doing. But his report suggested that the timing for regulations in Fort Worth was not good and that the council should await the outcome of lawsuits filed against ordinances in other cities.
Since then, the issue has fallen through the cracks. Shortly after issuing his report, Higgins retired. The new city manager, David Cooke, took over on June 30, 2014.
Cooke said Wednesday he has not received a letter from the diocese regarding its request, but added he’d need to do some research regarding what is covered by state and federal law before considering if a local ordinance is needed.
Mayor Pro Tem Sal Espino said he wanted the city staff to look into an ordinance two years ago, but the consensus was to wait and see what the federal government was going to do. Now Espino said he may again consider asking for a staff report on the issue.
Earlier this month, the Consumer Financial Protection Bureau issued proposed rules that would require lenders to make sure borrowers have the ability to repay their loans and stop repeated attempts to debit bank accounts for loan payments. The public can comment on the proposed regulations until Sept. 14.
The Texas Catholic Conference has made payday lending a priority issue since 2009.
In November of 2015, St. Joseph Catholic Church in Arlington, a parish in the Fort Worth Diocese, and the Texas Catholic Conference worked to help Arlington strengthen rules for payday, auto title and other short-term loans.
In Arlington, for example, loans are limited to 20 percent of a borrower’s gross monthly income and auto-title loans are limited to 70 percent of the vehicle’s value, or 3 percent of the borrower’s gross annual income.
Fort Worth is home of Cash America International, the large pawn shop chain that also engaged in payday lending. In April, Cash America agreed to merge with Arlington-based First Cash Financial Services. Both have been backing out of the payday lending business as federal, state and local regulators sought restrictions.
Instead, the new company combined company, to be based in Fort Worth, will focus on their pawnshop operations.
It really is free money, and its the first step to building wealth, says Xavier Epps, a financial advisor with XNE Financial Advising, LLC, in Alexandria, Va. Matching programs can help you grow your retirement portfolio, without any additional investment risk.
My message to the Task Force is simple: Broadening access to stable and affordable housing must be a central element of any effective anti-poverty strategy.
Policies to promote a more vibrant economy, greater wage growth, better schools, and stronger families are all critical to enhancing the life prospects of millions of Americans. But, for too long, we have underestimated the role that housing plays as a foundation for upward mobility.
Housing, of course, is shelter, a necessity of life. But it is also the bridge that links us to our neighbors, communities, and the world beyond.
Research shows that stable, affordable housing is critical to academic achievement. That’s no surprise. After all, how can a child be academically successful if she must repeatedly move – changing schools, losing mentors and friends, and missing out on key parts of the curriculum – simply because her family cant afford the rent? What kid is ready to focus and learn in class when the night before his bed was in an abandoned van or a shelter?
Ask yourself: Could you have succeeded under these circumstances?
The location of housing is also critical. A home located in a good neighborhood close to jobs and other opportunities can serve as a gateway to economic success. Those families who cannot afford to live in these communities are often relegated to unsafe neighborhoods with few employment prospects.
Many residents of these low-opportunity communities are forced to spend excessive amounts of time and money on long commutes to their jobs.
In desperation, some among us forego housing altogether. Yet how can we expect a person to win and hold a job if his bed is a park bench?
Unfortunately, for some families, these struggles with housing stability and affordability span generations, a fact vividly demonstrated by Harvard sociologist Matthew Desmond in his new book, Evicted: Poverty and Profit in the American City.
Today, a record number of households, 11.8 million, spend in excess of 50 percent of their income just on rent. That means fewer dollars for other essentials like medical care, nutritious food, and education.
A severe shortage of affordable rental homes is a key driver of these high rental-cost burdens. It’s estimated there are just 31 affordable and available rental homes for every 100 “extremely low-income” households. Federal rental assistance programs provide much-needed help, but fewer than one in four eligible households receives aid. Most assistance is distributed through long waiting lists and by lottery.
With rents rising across the country, fewer Americans are able to save for a mortgage down payment. The national homeownership rate has dropped nearly six percentage points from its high in 2004. The homeownership rates for minority households and young adults have plummeted. Millions of creditworthy families are now excluded from the wealth-building opportunities that homeownership can provide.
In the coming decade, these twin problems – rising rent burdens and diminished access to homeownership – are likely to worsen because of powerful demographic trends, most notably the increasing diversity of the US population.
For me, the conclusion is inescapable: If you want to fight poverty and promote upward mobility, start by repairing our nation’s failing housing system. When they release their anti-poverty plan, House Republicans have a great opportunity to make this critical connection. However, if the plan ignores the central role of stable, affordable housing in helping people lead productive lives, it will be fatally flawed.
Lazio is a member of the executive committee of the J. Ronald Terwilliger Foundation for Housing Americas Families and a partner at the Jones Walker law firm. He served four terms in the US House of Representatives.
Other highlights from CoreLogics first-quarter report:
- Nevada had the highest percentage of homes in negative equity at 17.5 percent, followed by Florida (15 percent), Illinois (14.4 percent), Rhode Island (13.3 percent) and Maryland (12.9 percent). Combined, these top five states account for 30.2 percent of negative equity in the US, but only 16.5 percent of outstanding mortgages.
- Texas had the highest percentage of homes with positive equity at 98.1 percent, followed by Alaska (97.8 percent), Hawaii (97.8 percent), Colorado (97.5 percent) and Washington (97.2 percent).
- Of the 10 largest metropolitan areas by population, Las Vegas-Henderson-Paradise, Nev., had the highest percentage of homes in negative equity at 19.9 percent, followed by Miami-Miami Beach-Kendall (19.6 percent); Chicago-Naperville-Arlington Heights, Ill. (16.7 percent); Washington-Arlington-Alexandria, DC-Va.-Md.-W.Va. (10.9 percent); and New York-Jersey City-White Plains, NY-NJ (6 percent).
- Of the same 10 largest metropolitan areas, San Francisco-Redwood City-South San Francisco had the highest percentage of homes in a positive equity position at 99.4 percent, followed by Houston-The Woodlands-Sugar Land, Texas (98.3 percent); Denver-Aurora-Lakewood, Colo. (98.3 percent); Los Angeles-Long Beach-Glendale, Calif. (96.1 percent); and Boston (94.3 percent).
- Of the total $299.5 billion in negative equity nationally, first liens without home equity loans accounted for $166 billion, or 55 percent, in aggregate negative equity, while first liens with home equity loans accounted for $134 billion, or 54 percent.
- Among underwater borrowers, approximately 2.4 million hold first liens without home equity loans. The average mortgage balance for this group of borrowers is $244,000 and the average underwater amount is $68,000.
- Approximately 1.6 million of all underwater borrowers hold both first and second liens. The average mortgage balance for this group of borrowers is $307,000 and the average underwater amount is $84,000.
- The bulk of positive equity for mortgaged residential properties is concentrated at the high end of the housing market. For example, 95 percent of homes valued at $200,000 or more have equity compared with 87 percent of homes valued at less than $200,000.
That fact, added to the fact that were experiencing a bit of an inventory shortage, could make this a tougher than normal spring buying season for purchase money lenders. Zillow reports that there are 5.9% fewer homes for sale in the US than a year ago.
Even though the Federal Reserve has backed away from committing on additional interest rate increases this year, no one believes that mortgage interest rates will stay low forever or will return to their historically low rates, giving few homeowners reason to refinance. In fact, most people in the industry expect rates to rise eventually, further stifling the refinance business.
One part of the business that could benefit from these two trends is home equity lending.
With the value of a homeowners property increasing and no incentive to refinance, the only way to cash out is through a home equity loan. In fact, according to USA Today, consumers already realize this.
In a recent story, USA Today cited Equifaxs announcement that lenders originated home equity lines of credit with limits of $146.1 billion in 2015, up about 20% from 2014 and the third straight year of growth at that level or higher.
When the story came out in March, average home prices were up 35% from 2012 and were just 4.9% off of the 2006 peak, according to Samp;P/Case-Shiller, also quoted in the article. But executives at Equifax pointed out that underwriting was still strict.
Annamaria Andriotis, writing in the Wall Street Journal in the same time period, wasnt so sure. She pointed out that some lenders are already allowing borrowers with high credit scores to withdraw up to 95% of the homes equity and making home equity loans to borrowers with credit scores as low as 660.
Andriotis pointed out that competition for home equity borrowers is heating up, quoting LendingTree as saying that 37% of homeowners who have less than 20% equity in their homes and who applied for HELOCs through its website in February were contacted by lenders interested in possibly giving them a new line. Just 9% of those homeowners were contacted a year prior.
It appears that this spring-buying season, many lenders will be left either trying to entice Millennials into the first-time homebuyer market or chasing home equity loans. Either path will have its challenges, but the latter will be significantly easier with the right information. We have found that there are really two key pieces of information that a lender must have to effectively target and prospect home equity borrowers.
Those lenders who develop good systems for gathering these two sets of information will be more likely to find homeowners who are in the home equity buy zone ahead of their competitors.
The first piece of information is the customers credit profile. The second is the public record information relating to the real estate. When the information gathered in these two areas lines up, it suggests that there may be an opportunity.
The credit report is straightforward. While there has been talk for years about moving away from Fair Isaacs FICO score toward a more inclusive measure of a consumers credit capacity and character, nothing has come close to replacing the industry standard.
Each lender will have its own underwriting standards and since many home equity loans are held in portfolio, each lender will determine their own risk appetite.
Still, the credit report is an excellent go/no go gate with which to begin the process.
If the borrower is creditworthy, the next step is to gather information about the subject property. Many changes can occur that impact the property after the loan is boarded into the servicing system. Even if the institution services its own loans, it cannot be sure that the situation is the same as it was when the original loan was underwritten.
At a minimum, the lender must know
- The current owner of the property or vesting information
- Property conveyance from the prior owner to the current owner
- About any open mortgages
- About any Judgments amp; Liens
- Tax information and status
- The complete legal description
Comprehensive property reports exist that can provide all of this information in a very short timeframe. Thats important because for home equity lenders, time is of the essence.
When consumers need to access their home equity, they are likely to have a pressing need. This will reduce the size of the window of opportunity and drive borrowers to the first lender that agrees to work with them on the loan.
Borrowers often assume that the underwriting process for a home equity loan or line will be shorter than that of a purchase money loan. Often, that is not the case. Many large lenders alert borrowers on their websites that the underwriting process for these loans can take 45 days to complete, from the time the application is submitted.
That makes it vitally important that lenders who hope to compete for home equity loans identify prospects ahead of their competition in order to be the first to approach the borrower.
In order to move quickly, lenders should seek out a vendor partner that can provide both credit information and property information, allowing them access to all of the information they need to advance an offer as quickly as possible. Choosing the right information provider will also reduce risk during the underwriting process as the information acquired will be accurate.
This bundled services approach to home equity loan prospecting works quite well for community banks and credit unions that already have a portfolio of loans that they are servicing that quite often have HELOC opportunities hiding within them. There are not very many bundled services offerings in the market that can meet this need, but quality options do exist.
Although you wont get a 0% interest rate, taking out a personal loan or a home equity loan or line of credit may be a safer way to get cash. Personal loans have lower interest rates than credit cards, depending on your credit score. Home equity loans also have lower interest rates, and the interest you pay on the loan is tax-deductible, just like mortgage interest.
He expects other businesses will open up, too. Hilliard Lyons, a financial advising company located across the alley from the store, had a ribbon cutting ceremony recently. People from out of town are investing into the downtown area, Badger said.
By Stephen Hart
Learn more about Stephen on NerdWallets Ask an Advisor
About a year ago, the CFP Board — the association that grants certificates and sets standards for the certified financial planner designation — began running commercials to promote the credential. In one commercial, a clean-cut gentleman in a nice suit is giving financial advice to several individuals. He ends the meeting by asking if they trust him, which they all agree they do. He then reveals that he has no financial background and is, in fact, a club DJ who got a nice haircut.
This commercial reminds consumers of the importance of knowing that their advisor is a trustworthy and qualified financial professional — but the truth is that there are a host of pathways to becoming a financial advisor. It would be easiest to say that you should work only with someone who has a certain designation, but I know many qualified and knowledgeable advisors who don’t have any.
No matter whom you choose to advise you, there are key areas you should ask about before you get started. In particular, learn about your potential advisor’s education, designations and licensing.
When interviewing potential advisors, find out about their education and what they do to ensure they are up to date on the ever-changing economic environment and industry best practices. Ask:
- What is your educational background and how did you arrive at financial advising as a career?
- What experience do you have working in the industry?
- Are you required to take regular continuing education courses? If not, how do you stay current?
Some designations — such as CFP, chartered financial analyst or certified public accountant — require applicants to have a college degree or higher. On the other hand, most licensing exams — the most common are the Series 6, 7, 63 and 65 — dont require a degree, though this can vary by state. (More on the distinction between designations and licensing below.) It’s not a hard-and-fast rule, but you probably want to work with someone who has earned at least a bachelor’s degree. CFPs, CFAs and CPAs also must meet additional education requirements to receive the designation.
Most designations also require advisors to earn CE credits regularly once theyve received the title. Individuals whove passed licensing exams arent necessarily required to earn these credits, but like all working professionals, they should seek out ways to stay current in their field. If you ask your advisor about this, and his or her answer is, “I read The Wall Street Journal sometimes,” it’s probably best for you to move along.
Designations vs. licensing exams
Generally speaking, designations are granted by industry associations and require more in-depth proficiency in a specific area of the industry than licensing, which your state handles. Licensing exams test basic knowledge about financial products and the laws regulating them.
Think of it this way: The SAT and ACT test your general knowledge and help you get admitted to a university. Beyond that, you must meet certain requirements to be admitted to a specific college or degree plan. Similarly, a licensing exam allows an advisor to function within the broad investment world, but a designation shows that he or she is an expert in a specific field.
Financial advisors must have the appropriate licenses from their state to give investment advice, buy or sell securities, or sell insurance and other products, but theyre not required to hold a designation. Yet many designations require licensing in a specific area.
In other words, your advisor could be licensed as an investment advisor — having passed the Series 65 — but not be a CFP. Or your advisor could hold the CFP designation and be able to recommend a product but not actually sell it. (This is OK, because your advisor usually can help you find an investment professional or insurance agent who can.)
Unfortunately, the various licenses can be confusing. Requirements vary by state, type of product and even the size of the advisor’s firm. On top of that, some designations, like being a CFP, exempt you from certain exams, like the Series 65, in some states. And the Financial Industry Regulatory Authority currently recognizes more than 150 designations, including CFP, CPA and CFA. That’s why it’s important that you ask your potential advisor:
- Which licenses or designations have you obtained, and what does each allow you to do?
- Are you licensed to sell the products you recommend?
- Have you had a license revoked or disciplinary action taken against you?
The good news is that it’s nearly impossible for an advisor to operate in any area of the market without the proper licensing. But it’s still important to ask. If your advisor has trouble answering these questions or has a history of regulatory issues, you probably want to find someone else. If you still have questions about various licensing requirements, use FINRA’s tool to compare designations or check with your state securities regulator.
Do your research
Once you’ve gathered this information, validate your advisors answers with FINRA’s BrokerCheck site. Industry regulators FINRA and the Securities and Exchange Commission share a database of information on financial advisors and their credentials, licenses and disciplinary histories.
You should also understand how your advisor is compensated and how you will be charged. And beyond that, of course, you should like your advisor and feel comfortable with his or her frequency and type of communication. Will you meet once a year or quarterly or more? Will you be able to call whenever you have a question or issue?
Understanding your advisor’s qualifications is a crucial step in the evaluation process, but it’s just as important that you trust him or her — just as long as it’s not based only on a haircut. Your goal should be to find an advisor you feel confident about and will enjoy working with.
Stephen Hart is a senior financial planner and wealth management advisor at Talis Advisory Services in Plano, Texas.