New York State is known as the nation’s financial capital, yet nearly one in 10 of its residents do not have a checking or savings account.
And while Texas is densely populated with banks, nearly a quarter of households in the Dallas-Forth Worth area have gone to a pawn shop or check cashing company recently to carry out a simple financial transaction.
Those were just a few of the findings of a new government survey released Wednesday on Americans’ access to basic banking services.
The survey, which tallied responses from roughly 54,000 U.S. households, marks the first time that the Federal Deposit Insurance Corp. has published such data.
Perhaps one of the biggest revelations of the study was that approximately 7.7% of all U.S. households, or 17 million Americans, were considered "unbanked," meaning they did not have any sort of a checking or savings account.
The most common reason cited, according to the study, was a lack of funds. More than a third of those considered "unbanked" said they did not have enough cash to warrant having a bank account.
In fact, nearly 20% of all U.S. households earning $30,000 or less per year did not have a bank account.
The study also found that almost a quarter of all households headed by someone who didn’t finish high school were considered "unbanked." Meanwhile, nearly one of every five African-American or Hispanic households do not have a checking or savings account, according to FDIC data payday loan.
Another key finding of Wednesday’s survey, was that many Americans that actually have bank accounts still look elsewhere to cash their checks or borrow money.
In fact, nearly 18% of all U.S. households have relied on payday lenders, pawn shops or check-cashing outlets at least once in the past five years.
Such businesses have often been criticized for charging consumers rates that would even make loan sharks blush. In some instances, borrowers pay the equivalent of an annualized interest rate as high as 500%.
People who were polled, however, said they continued to use these services simply because they were convenient or because it was easier to get a loan from them.
Hoping to migrate consumers away from such expensive options, the FDIC has enacted a number of initiatives including a short-term loan pilot program it launched in February 2008.
As part of the program, a select group of banks have agreed to offer short-term loans of up to $2,500 to low-income Americans.
Wednesday’s survey report was yet another effort to expand consumers’ access to basic financial services, agency officials said.
"By better understanding the households that make up this group — who they are and their reasons for being unbanked or underbanked, we will be better positioned to help them take that first step," FDIC Chairman Sheila Bair said in a statement.
Canadian Tire Corp., one of the nation’s most iconic retailers, introduced a dollar coin on Wednesday to complement its multi-hued, low-denomination stable of widely hoarded bills.
The move, first reported in the Star on Wednesday, puts an end to speculation that Canadian Tire was ready to eliminate its popular paper money loyalty program.
"Over the years the high-valued program has evolved to include electronic "Money" on Canadian Tire branded credit cards, as well as the addition of special promotions which now includes this limited edition $1 Canadian Tire coin," Canadian Tire Retail president Mike Arnett said in a release this morning.
The coin was created by the Royal Canadian Mint and will be given to customers who spend $25 or more at a Canadian Tire store on Dec. 5th or 6th.
The company held a press conference this morning to make the announcement, where Arnett also announced the company would develop and test a new rewards program throughout 2010.
However, a copy of a flyer destined for Canadian Tire stores in Quebec, obtained by the Star on Tuesday, shows an ad for a limited edition one-dollar coin. Images of the coin had also been posted on collectors’ websites, revealing it to look a bit like a quarter, with the Canadian Tire logo on one side and the beaming fictional Scotsman Sandy McTire on the other.
In a digital economy, Canadian Tire money is quite literally throwback to an era of physical cash and human interaction that scarcely exists in this online age of speedy and efficient consumption.
But a decision to cancel the paper money program would surely shock the nation - not least, the money’s ardent collectors - even if the retailer has already moved to a parallel electronic rewards program using a credit card and electronic Canadian Tire money.
"Whenever my dad went and got stuff for the house, he’d give me the money," said Roger Fox, 64, who has been collecting Canadian Tire bills since 1963, is a past-president of the Canadian Tire Coupon Collectors Club and wrote a chapter on the subject for a book published by the Royal Canadian Numismatic Association. The coin is a dramatic introduction for collectors such as Fox: Is it a heartbreakingly thrifty move away from paper money or a reassertion of the importance of the rewards program?
"They may be cutting back their printing costs while at the same time not eliminating Canadian Tire money altogether, but replacing say, the 50 cent, dollar, and two dollar (bills) with a coin," Fox said, adding, "I’m just thinking out loud, that’s all. I have no proof."
Canadian Tire has been making a gradual shift away from emphasizing its paper money.
The company’s exclusive credit card, Options Mastercard, introduced in 2000, lets shoppers accumulate Canadian Tire money wherever they shop, at a better rate than using cash.
In its promotions, the company refers to it as "Canadian Tire money rewards" - with quotation marks around money.
Customers now receive paper money only if they use cash or debit.
Jerome Fourre, a collector since 1985 from the Montreal area, said that after a golden age of 5 per cent Canadian Tire money returns - $5 for every $100 spent - the current return is more like 0.4 per cent, or 40 cents for every $100 spent.
The company does not release such details on the loyalty program and refused, not for the first time, to comment on Fourre’s calculations.
"Canadian Tire money was originally to get people to pay cash," said Fourre.
"In 2009, cash is not what they want."
For its part, the company said it has no immediate plans to cancel the beloved bills, though it is obviously trying to yank its rewards program into the modern era.
Collectors such as Fourre and Fox - part of a national subculture of clubs, meetings and exhibits devoted to Canadian Tire money - want to see the paper bills survive, though eliminating them would probably up the value of their stashes.
"When it’s on plastic it’s not something you have tangible in your hand," Fox said.
"It’s as if you’re getting something for free.
"Who doesn’t want something for nothing?"
The U.S. manufacturing sector grew in November for the fourth consecutive month, but at a slower pace than anticipated, according to an industry report released on Tuesday.
The Institute for Supply Management said its index of national factory activity decelerated to 53.6 in November from 55.7 in October. The median forecast of 70 economists surveyed by Reuters was for a reading of 55.0 in November.
Readings above 50 indicate expansion in the manufacturing sector, while numbers below 50 show contraction.
The ISM report was “a bit less-than-expected but overall still a strong number when added to the previous monthly levels that were greater than 50,” said Tom Sowanick, chief investment officer with the Omnivest Group in Princeton, New Jersey.
“Note that China ISM was also up last night which confirms that we are in a global recovery,” Sowanick added.
The ISM report also said its employment index for the manufacturing industry slipped to 50.8 in November from 53.1 in October, which had been the strongest showing since April 2006.
The U.S. dollar trimmed gains against the yen after the manufacturing report.
Prices paid slipped to 55.0 in November from 65.0 in October.
New orders rose to 60.3 in November from a 58.5 reading in October.
Some economists warn that although the brisk rebound of new orders hints that capital spending will recover, because industrial output is so depressed, companies may not ramp up spending much, if at all.
(Reporting by John Parry; Editing by Chizu Nomiyama)
Option-ARMs: File under, "It sounded good at the time."
These exotic mortgages allowed homebuyers to come to closing with little cash and choose, monthly, how much to pay: interest and principal, interest only, or a minimum amount less than the interest due.
Of course, the last option is the one 93% of option-ARM buyers selected, according to a new report released this week by Standard & Poors.
But eventually, everyone has to pay the piper.
Nearly all of the 350,000 option-ARM borrowers owe more than when they first bought their homes thanks to the unpaid interest accumulating. And many loans written during the first big wave, which started in 2004, are getting ready for their five-year reset, when they become standard amortizing loans. Additionally, some newer loans will reset early if the accumulated interest has pushed the loan-to-value ratio above 110% to 125%.
That means borrowers are about to start paying very hefty prices for their homes. In one scenario outlined in the S&P report, the payment on a $400,000 mortgage jumps from $1,287 to $2,593.
25% default rate
But that doesn’t just spell bad news for borrowers. Some industry pessimists say the looming default problem could have the power to derail the nascent housing market recovery. "The crux of the matter is that as soon as these mortgages recast, the history is that they will default," said Brian Grow, one of the S&P report’s coauthors.
And the newer the loans, the worse they will perform, the report said. The last year that any option-ARMs were issued was 2007. In the first 20 months after issuance, this vintage of option-ARMs had an average default rate of just over 22%.
That includes all option-ARMs issued in 2007. But if you calculate default rates for only 2007 option-ARM borrowers who are now underwater, the default rate jumps to 25% after just 20 months, according to S&P.
So, while there may not be an awful lot of these loans out there, their high default rates will have an outsized influence on housing markets, adding to already bloated foreclosure inventories and driving prices down further.
Bubble markets
And the markets where they’ll produce the most foreclosures are still among the most vulnerable in the nation.
Option ARMs were most popular in bubble markets — California, Nevada, Florida and Arizona — where double digit home annual price increases put the cost of buying a home out of reach.
In fact, 60% of these loans went to residents of California and other Western states, places where prices have fallen the most, according to report coauthor Diane Westerback. "The geography is negative for these products," she said.
Many borrowers in these places could only afford a home if they chose the option ARM. Many counted on continued hot market conditions to add value to their homes. The extra equity could then be tapped to pay their bills.
We all know how that worked out.
Home prices in many of the markets where option ARMs are most concentrated have fallen 30%, 40% or more. When the loans recast, most borrowers will find themselves severely underwater.
"Because borrowers of [options ARMs] are in a much worse position," said Westerback. "You’ll see defaults rising very rapidly."
And most option ARM borrowers will not be good candidates for refinancing or mortgage modifications because their loan-to-value ratios will be far too high. Under the administration’s Making Home Affordable program, for example, mortgages with balances that exceed 125% of the home’s value are not eligible for help.
Not so white lies
There is another little problem that many option-ARM borrowers seeking refinancing would face: "Upwards of 80% of were stated-income loans," said Westerback.
These are the so-called "liar loans" in which lenders did not verify that borrowers earned as much money as they said they did. Lenders may not be able to modify mortgages because many of the borrowers’ income could not stand up to the scrutiny. Borrowers may also not want to go through underwriting again because they could be held legally liable for deliberate inaccuracies on their original applications.
Add to those conditions the still fragile economy and high unemployment rates, and you have a recipe for disaster.
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