2015-08
Support the Under-Banked with Bridge Financing Options
SENATOR IRIS MARTINEZ (IL)
To provide greater access to credit for the under banked, the unbanked and consumers with low credit scores through the establishment of bridging bank depository institutions; assisting the financially underserved to rehabilitate their credit history and transition them into mainstream banking with greater financial literacy, better credit credentials and access to affordable credit.
WHEREAS, over 7.2 million families in the United States hold subprime home mortgage loans (“subprime mortgages’) that total over $1.3 trillion; and
WHEREAS, more than 2.3 million American homeowners faced foreclosure proceedings in 2008, an 81 percent increase from 2007, with homeowners with subprime mortgages most atrisk; and
WHEREAS, African American and Hispanic borrowers are overrepresented among consumers in the subprime mortgage market and often targeted for risky loan products, and are therefore particularly vulnerable to an increase in foreclosure rates; and
WHEREAS, the presence of vacant foreclosed homes has been demonstrated to lead to increases in neighborhood crime rates; and
WHEREAS, foreclosure-prevention programs created to provide immediate relief to at-risk homeowners have had limited success, with relatively low participation and significant redefault rates; and
WHEREAS, a substantial number of subprime mortgage loans will not qualify for loan modification programs currently proposed by federal agencies and mortgage loan servicers; and
WHEREAS, modified mortgages remain at risk if homeowners lack access to supplementary sources of traditional credit that (a) provide flexibility in meeting their financial obligations and (b) build or rebuild their credit scores, in order to be a part of the financial mainstream and positively contribute to the economy; and
WHEREAS, over 40% of Americans are estimated to have FICO credit scores below 660 and are thereby considered financially underserved borrowers; and
WHEREAS, a lender’s reporting of a mortgage loan as seriously delinquent (90 days late) or worse to credit reporting agencies will significantly lower the homeowner’s credit score from such agencies, pushing even more consumers into the financially underserved category; and
WHEREAS, credit scores are used in a growing number of transactions and situations such as opening and maintaining a checking account, determining eligibility for employment, auto insurance, apartment rentals, connection to utilities, as well as traditional consumer credit; and
WHEREAS, underwriting for the financially underserved often requires customized analytics based on significant historical and individualized consumer data which is not part of traditional bank underwriting that relies heavily on credit scores designed to be broad-based and not reflective of financially underserved consumers unique characteristics; and
WHEREAS, traditional lenders, because of their lack of focus on the financially underserved, lack the resource commitment and data availability to prudently service and effectively lend to the financially underserved; and
WHEREAS, non-traditional lenders have also failed to adequately meet all of the needs of the financially underserved due to their focus on certain limited products, higher funding costs and limited regulatory transparency; and
WHEREAS, all forms of consumer lending are being reduced dramatically (including a lenderforced reduction in credit card lending that is estimated to reduce available consumer credit by $2 trillion over the next 18 months), creating the unintended consequence of further disenfranchising the financially underserved from financial services; and
WHEREAS, without a comprehensive solution, millions of American families will be tragically consigned to permanent financially underserved status, without any clear path to rejoin the financial mainstream, further retarding the growth of the national, state and local economies during this recessionary period; and
WHEREAS, since traditional methods used to service consumers with credit scores in the higher bands do not sufficiently meet the needs of the financially underserved, a separate financial institution is needed to meet the needs of the financially underserved while encouraging, educating and supporting the success of consumers as they seek to graduate into the financial mainstream; and
WHEREAS, in order to create fair and equal access for essential services for many hardworking consumers Congress should enact legislation that will establish a new type of federal financial institution designed expressly to meet the ongoing financial needs of the financially underserved, including the restructuring of subprime home mortgage loans; and
WHEREAS, such financial institutions should create and adopt specialized procedures, policies, programs and simplified communications and disclosures to support their mission of helping bridge the financially underserved back to the financial mainstream; and
WHEREAS, on July 10, 2009, Congressman Joe Baca introduced in the United States House of Representatives, the Bridging Bank to Recovery Act of 2009 (“H.R. 3171”) to help stabilize and restore the economy by providing for a comprehensive banking solution, including greater access to credit for the underbanked, the unbanked, and consumers with low credit scores through the establishment of bridging bank depository institutions, and for other purposes; and
WHEREAS, H.R. 3171 will facilitate the process of providing greater access to credit to the underbanked, the unbanked and consumers with credit scores at or below 680 (the “Financially Underserved”); and
WHEREAS, H.R. 3171 will assist the Financially Underserved rehabilitate their credit history and transition them into mainstream banking with greater financial literacy, better credit credentials and access to affordable credit; and
WHEREAS, H.R. 3171 will encourage savings by the Financially Underserved, which, in turn, will help them to develop a more helpful buffer for addressing any cash flow shortfalls; and
WHEREAS, H.R. 3171 will facilitate the process of increasing the number of mortgages to be modified; and
WHEREAS, H.R. 3171 will have the effect of decreasing the number of foreclosures; and
WHEREAS, H.R. 3171 will assist the Financially Underserved establish or strengthen their relationships with a banking institution; and
WHEREAS, H.R. 3171 will help the economy by encouraging more responsible lending and more responsible borrowing; and
WHEREAS, H.R. 3171 will facilitate a process to match more closely lenders, who have the appropriate expertise and experience to properly underwrite credit facilities, with borrowers with credit scores in the lower bands; and
WHEREAS, H.R. 3171 will facilitate the stimulation of economic growth and benefit the economy overall; and
WHEREAS, H.R. 3171 will assist other traditional banking institutions by promoting referrals to Bridging Banks from other financial institutions that are not able or willing to provide those consumers access to affordable credit; and
WHEREAS, H.R. 3171 will allow for the creation of a new class of financial institutions whose primary mission will be to address the needs of the Financially Underserved;
THEREFORE, BE IT RESOLVED, that The National Hispanic Caucus of State Legislators (NHCSL) recognize, support, promote and urge others to recognize, support and promote the enactment of H.R. 3171 by Congress and the signing into law by the President (a) to assure comprehensive affordable financial services to the Financially Underserved, (b) to facilitate individually-focused financial literacy for the Financially Underserved, (c) to ensure the enrollment of the Financially Underserved into a graduation program designed to rehabilitate their credit profile and increase their credit scores, (d) to empower the Financially Underserved to make better financial decisions, (e) to encourage a more transparent process through reports to Congress, which will allow public access by policymakers and others to provide helpful data to aid the continued improvements to financial products and services and ensure appropriate consumer protections designed to help the Financially Underserved, (f) to encourage the Financially Underserved to save more to provide a buffer for cash flow shortfalls and downturns in the economy, and (g) to provide a Bridging Bank to help the Financially Underserved more easily transition into mainstream banking services.
This resolution was adopted on July 25, 2009, at the National Hispanic Caucus of State Legislators Executive Committee Spring Meeting held in Philadelphia, Pennsylvania and ratified at the NHCSL 2009 Annual Meeting held in Santa Monica, California, November 21, 2009.