THURSDAY JUNE 25, 2020 VOL. 185 No. 122 AMERICANBANKER.COM Follow us on Twitter @AmerBanker Housing’s racial gap 5 will widen in coronavirus recovery: U.S. homeownership For potential higher-end homebuyers, the pandemic was merely a pause, but for those rates by race seeking affordable properties — often people of color — it created another barrier. Page 7 See story on page 5 Neobanks catering Black Hispanic Asian White 6 to self-employed see influx during pandemic 80% Challengers like Joust, Lili and NorthOne 70% that offer banking services to freelancers and small-business owners are getting record 60% levels of new customers as the traditional 50% workforce thins. Page 8 40% Mastercard buying Finicity to 30% 7 improve open banking services 20% The card brand agreed to pay $825 million to acquire Finicity. Page 9 10% 0% Banking industry renews 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1 8 opposition to Rakuten’s ILC application Source: U.S. Census Bureau report April 2020 Three banking trade associations told the FDIC that Rakuten America, even after revisions to its earlier application to the agency, would still violate the separation of dailybriefing Rosengren’s Main Street banking and commerce as well as present 3 pitch to : consumer privacy concerns. Page 10 Get in it for long haul Pandemic and protests: Participation in the Main Street Lending Trump’s latest immigration 1 How the tumult of 2020 Program for midsize companies is partly 9 order reaches the will forever change banking about public service, but the core business payments industry A global health crisis. Economic free fall. A rationale is building “a banking relationship The Trump administration is accelerating its reckoning over racism and inequality. We that continues on for some time,” the Boston restrictions on immigration, including a ban will not be the same after this — and neither Fed chief says. Page 4 on skilled workers that will make it harder will banking. Page 2 for fintechs to hire people from outside Breaking down the color the U.S. Page 10 CFPB gives mortgage 4 barriers to homeownership 2 servicers relief to help How the mortgage and housing industries NCUA’s new low-income struggling homeowners react to the current civil rights moment 10 definition will benefit A new CFPB rule will expedite the could shape policies and bridge the military, not credit unions forbearance and loss-mitigation process for homeownership divide for the Black Bankers’ criticism that the expanded consumers suffering financial hardship from community. (See chart above.) Page 5 designation would bolster the largest the pandemic. Page 3 credit unions is misguided, B. Dan Berger of the National Credit Union Administration writes in BankThink.Page 11 THURSDAY JUNE 25, 2020 AMERICANBANKER.COM PAGE 2

injustice. quickly. CRISIS MANAGEMENT The next 12 to 18 months will be critical to the massive reset that is underway. Digital banking: Once-steady shift now The banking industry can expect to moving at lightning speed Pandemic and undergo a huge transformation much faster In the early weeks of the pandemic — as than seems possible — if only by virtue of the branches shut down and bankers moved protests: How fact it is adjusting to an environment that is their workspaces from their offices to their itself transformed by such vast disruption so homes — banks with robust digital strategies quickly. tailored their products and services to meet the tumult Banks that look beyond emergency the needs of retail and commercial customers stopgaps, invest in lasting solutions and they could no longer help in person. Those of 2020 translate ideology into action stand a better going into the crisis with less ambitious chance of thriving. digital banking plans had to scramble even But how to figure out the specifics of what more. will forever to do? Now, given the likelihood of many In trying to navigate the unknown, taking permanent branch closings and an increase change stock of what is known can help. in customers preferring to bank remotely, Some longtime trends — the decline the once slow-but-steady shift toward digital of branch banking and the rise of digital banking is moving at lightning speed. banking everything and remote working — will Banks are seeing a surge in customers accelerate. So will the proliferation of what enrolling in online or mobile banking, By Laura Alix, Matthew de Paula, Allissa the consulting firm McKinsey & Co. calls “a particularly among baby boomers who had Kline, Brendan Pedersen, John Reosti new social contract” that puts people over been slow to embrace digital options, but and Kevin Wack profits. are now suddenly paying bills online and June 24, 2020 The decision by many banks to suspend depositing checks using their mobile phones. A global pandemic. Economic free fall. overdraft fees and to give newly unemployed A recent survey from FIS found that 45% of Hundreds of billions of government relief borrowers a few months off from paying consumers overall, and 49% of baby boomers, funneled through banks. A reckoning over their auto and home loans represents the have changed how they interact with their racism and inequality. beginning of this approach. Regulators may banks since the start of the pandemic. We will not be the same after this — and become a more powerful force in persuading “What we’re seeing is the greatest neither will banking. banks to take this philosophy of being acceleration of digital banking in history,” The coronavirus crisis hit a hard reset customer allies even further. said Mike Mayo, an analyst at Wells Fargo button for nearly every aspect of life, “I do think it’s an opportunity,” said Alan Securities who covers big banks. including how people and businesses bank. McIntyre, senior managing director for And soul-searching across America and banking at Accenture. “If the banks choose to Contactless payments: The future is beyond — touched off by a Minneapolis take it or not I think is a different matter.” here police officer’s killing of George Floyd and Here is a look at some of the permanent If contactless payments were once a the widespread civil unrest it sparked — is changes experts say banks must reckon with solution in search of a problem — as skeptics taking that hard reset to a deeper level. The disparity in society between the haves and the have-nots that the coronavirus threw Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 into sharp relief already had the country, Phone 212-803-8200 AmericanBanker.com the banking industry included, checking its moral compass. Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440 From the enormous death toll of COVID-19 Managing Editor Dean Anason 770.621.9935 to the enormous spike in unemployment, Reporters/Producers people of color suffered disproportionately. Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 “This crisis must serve as a wake-up call and Washington Bureau Chief Joe Adler 571.403.3832 a call to action for business and government Executive Editor, Technology Miriam Cross 571.403.3834 to think, act and invest for the common good Penny Crosman 212.803.8673 Jim Dobbs 605.310.7780 and confront the structural obstacles that BankThink Editor Rachel Witkowski 571.403.3857 have inhibited inclusive economic growth for John Heltman 571.403.3847, Allissa Kline 716.243.2679 Community Banking Editor Paul Davis 336.852.9496 years,” Jamie Dimon, the chairman and chief Hannah Lang 571.403.3855 executive of JPMorgan Chase, wrote in a May Contributing Editor Daniel Wolfe 212.803.8397 John Reosti 571.403.3864, Gary Siegel 212.803.1560 19 staff memo. Digital Managing Editor Six days later, Floyd’s death gave even Christopher Wood 212.803.8437 Jackie Stewart 571.403.3852, Kevin Wack 626.486.2341 greater urgency to the conversation around

For up to date and complete coverage go to AmericanBanker.com THURSDAY JUNE 25, 2020 AMERICANBANKER.COM PAGE 3 long maintained — their moment has finally responders, coaching customers through monitoring processes driven by the digital arrived. online banking options for the first time exchange of financial data. Before the pandemic, it wasn’t much of and helping newly unemployed borrowers When the pandemic began, that balance a hassle for most U.S. shoppers to insert a navigate loan forbearances. shifted within days to the regulators physical card and type a few buttons on a Both bank employees and customers conducting basically all of their exam work terminal. Sure, some early tech adopters were in unfamiliar situations and feeling remotely. In-person meetings with CEOs and embraced Apple Pay. But most of us were heightened emotions — the results of which bank boards were supplanted with virtual content to pay in ways that, while a bit slower, can be stressful and unpleasant but also, in online meetings. were familiar, consistent and reliable. the best cases, emotionally bonding. Others said that if the downturn resulting With the coronavirus crisis, germaphobia Now, as banks cautiously start to reopen from the pandemic worsens, bank supervision is changing that calculus. “People don’t want their workplaces, it’s clear that remote work efforts may become more focused on whether to touch the terminal,” said Peter Reville, an and digitization will continue for many financial institutions are looking out for the analyst at Mercator Advisory Group. employees. But what can’t be overlooked is economic health of their customers. As recent He expects use of contactless payments — the need for so-called soft skills that bridge protests have highlighted, income inequality whether they take the form of a mobile wallet the best of the old and new worlds. is a significant problem in this country, and or a touch-free — to rise by 10% to it’s not hard to imagine future exams grading 15% as a result of the pandemic. Banking with purpose: A new social banks on their efforts to close the wealth gap. contract Small-business lending: Digital is the With banks and consumers navigating a new normal crisis they did not cause, their relationship LOSS MITIGATION After making 22,000 loans in just with each other is more hospitable than it nine weeks through the government’s was 12 years ago during the mortgage market Paycheck Protection Program, BBVA USA in meltdown that kicked off the Great Recession. CFPB gives Birmingham, Ala., has come to value speed in “I think in the pandemic and its aftermath, small-business lending. the banks have an opportunity to be a source of mortgage Loans that once may have taken weeks stability,” said Kevin Buehler, a senior partner to get into customers’ hands are now being at McKinsey. “They enter this crisis with much processed and funded in a matter of days, stronger capital and liquidity positions that servicers thanks to an automated lending platform they’ve built over the last decade.” BBVA rolled out to meet soaring demand. A McKinsey survey in April indicated that relief to help “This program has by far outpaced any banks have the benefit of public goodwill at small-business lending we’ve ever done,” least for now, with 87% of respondents trusting said Elizabeth Dobers, the executive director that their banks will “do the right thing” during struggling of business banking at the $94 billion-asset the pandemic. About two-thirds also said they BBVA. trust their banks more now than before the homeowners BBVA’s experience has played out in coronavirus outbreak. one fashion or another at hundreds of “The real challenge for the banks is going By Kate Berry institutions, big and small, that had held to be in the fall where it’s more down to them June 23, 2020 back from modernizing their small-business to decide how to react,” he said. “That’s where The Consumer Financial Protection Bureau lending processes. I think that the reputational risk really starts, will give mortgage servicers limited regulatory Behind that sense of urgency is a which is foreclosing on mortgages that people cover to offer forbearance and loss-mitigation realization business owners, forced to apply can’t pay, foreclosing on car loans, taking a options to their customers suffering financial for PPP loans remotely, have come to expect harder line around the restructuring.” hardship due to the coronavirus pandemic. loan decisions to be made quickly. And if In an interim final rule published Tuesday their existing bank can’t meet their need for Supervision: Sharp focus on tech capa- and taking effect July 1, the bureau will speed, customers will turn to a rival — or bility, customer well-being waive its requirement that loss-mitigation even a nonbank fintech — that can. The coronavirus crisis is certain to leave options only be extended to customers who a mark on bank supervision both in terms of have submitted a complete loss-mitigation Essential skills for today’s bankers: Pa- the way regulators conduct exams and the application. Borrowers facing temporary tience and empathy standards agencies set for how the industry hardships would benefit from a quicker and When the pandemic struck, it threw the serves customers. more efficient application process, the CFPB banking industry into a massive experiment The crisis has already supercharged said. it had little time to prepare for. existing trends in how bankers and examiners The rule “makes it clear that servicers do Within weeks, banks nationwide sent interface with each other. Before, examination not violate Regulation X by offering certain thousands upon thousands of employees out work was split more or less evenly between COVID-19-related loss-mitigation options of the office to work remotely. Meanwhile, personnel from the prudential regulators based on an evaluation of limited application front-line employees became financial first working physically inside banks, and off-site information collected from the borrower,” the

For up to date and complete coverage go to AmericanBanker.com THURSDAY JUNE 25, 2020 AMERICANBANKER.COM PAGE 4

CFPB said in a press release. of Boston President Eric Rosengren says the about lender registration in the Main Regulation X of the Real Estate Settlement coronavirus pandemic offers banks a unique Street Lending Program, which offi- Procedures Act requires that loss-mitigation opportunity to help steer their communities cially opened last week. How is that and forbearance options only be extended to through the rocky months likely ahead and going? borrowers who complete an application for forge lasting bonds with commercial and ERIC ROSENGREN: As of Friday, we had such relief. Tuesday’s interim final rule would nonprofit customers. more than 200 institutions going through allow mortgage servicers to extend that relief The Boston Fed has been tasked with the registration process. More institutions sooner if they meet certain criteria that benefit administering one of the central bank’s most entered the process on Friday. More are also struggling borrowers. anticipated lending vehicles, the Main Street entering today, so that’s going to continue to “There are circumstances where Regulation Lending Program, which seeks in conjuction climb, but the important thing is that we’re X may require a servicer to collect a complete with banks to provide a lifeline to small and getting banks that are registering — and that application from a borrower before offering midsize businesses that have suffered during registration process is critically important, this type of program,” the rule says. “However, the coronavirus pandemic. because we’re not able to fund the loans until that result may not serve the particular The $600 billion program is offering loans the bank is registered. needs of borrowers and servicers during the of at least $250,000 to eligible businesses that Given the complexity of the program, COVID-19 emergency.” were in sound financial condition before the and the need to make sure that we do things To qualify for the exemption during the pandemic, and have at least 15,000 employees that are in compliance and can address any pandemic, servicers must meet three criteria. or $5 billion in annual revenue. Banks will concerns you might have with wiring large Servicers must allow a borrower who became originate loans through the program, and the sums of money over time, it does take that delinquent to delay all principal and interest Fed will then purchase a 95% stake in each two to three days for an organization to go payments; refrain from charging any fees or loan made under the program’s terms. through the [registration] process in general, accrued interest while the relief is in place; and “This is the time where that banking so I’m very pleased with how things are going ensure that acceptance of a loss-mitigation relationship really becomes valuable, and so far. I think we are getting a pretty steady offer resolves the borrower’s delinquency it’s not only valuable to the borrower, it’s stream of banks as they get more familiar with status. valuable to the community and the country the program, as organizations like yourself The exception from Regulation X is at large,” Rosengren said in an interview. talk about the program. I think more banks not limited to borrowers who received Although the program has been met with are looking at it, looking at the various legal forbearance plans under the coronavirus some criticism from some who feel that banks arrangements, and borrowers are becoming rescue package enacted earlier this year, and might not participate in it and others who more informed about the program. So I thus extends beyond those mortgages held by worry that the loan terms are too onerous would expect over the next two weeks we’ll Fannie Mae, Freddie Mac, the Federal Housing for smaller businesses, Rosengren said that continue to get a significant stream of lenders Administration or any other federal agency. the program — which opened for lender that start signing up for the facility. The CFPB will accept comments on registration last week — has already attracted the interim final rule for 45 days after its substantial attention from banks looking to When do you expect the program to publication in the Federal Register. serve their customers. begin purchasing loans, and do you “These are still early days in the program, have any indication as to if banks are and we are seeing a steady stream of interest,” starting to make loans through the pro- COMMERCIAL LENDING Rosengren said Friday in a speech to the gram? Greater Providence Chamber of Commerce. Banks are able to make loans under the He added, “I anticipate that many more program right now. We’re not yet up and Rosengren’s institutions will register for the program, running for actually funding our 95% share given its benefits to them, their customers of the loan. That is likely in the next couple Main Street and the areas where they operate.” of weeks, but since the banks are able to fund The Fed is also still expanding the the loans now, it’s really not an impediment. Main Street program: Last week it asked If banks want to be in a position to get pitch to for feedback on a proposal to extend the funded when we’re first open, now is the time program to nonprofit organizations, which to start having those negotiations, having that banks: Get Rosengren thinks could allow banks to discussion with the loan participants, having establish relationships with new customers. the discussion with the borrower, getting the American Banker spoke with Rosengren legal arrangements all set. And presumably in it for long about his expectations for the program, the when a lot of that is done will be about the economy and additional actions Congress or same time that we’ll be opening for actually haul the Fed may need to take to aid the recovery. funding the loans. This interview has been condensed and By Hannah Lang edited for clarity. You mentioned Friday that you were June 23, 2020 encouraged by the interest of commu- WASHINGTON — Federal Reserve Bank You talked in your speech on Friday nity banks in the program, and I found

For up to date and complete coverage go to AmericanBanker.com THURSDAY JUNE 25, 2020 AMERICANBANKER.COM PAGE 5 that point notable because I’ve heard of Main Street is open for comment. We’re be paying attention to right now? some comments about the loan sizes then going to spend time evaluating all the I think this will be an opportunity being ill suited for smaller, “mom and various comments that we’ve got from banks where banks are very flexible working with pop” businesses. Do you think that the and from nonprofit organizations. We’ll borrowers. That’s going to be a banking current terms will enable smaller insti- try to tailor the terms of that to make it as relationship that continues on for some tutions to serve their customers, or do broadly available as appropriate. You have time, so this is the time where that banking you foresee having to adjust the terms to remember that an awful lot of people are relationship really becomes valuable and at all? employed by nonprofits when you think it’s not only valuable to the borrower, it’s We’ve already adjusted the terms pretty about colleges, universities, hospitals as well valuable to the community and the country at substantially. One of the very important as all the other nonprofits that affect low- and large. The Federal Reserve is setting up these changes that we made was we lowered the moderate-income communities. So I think programs out of a public service, but I think minimum loan amount to $250,000. For that’s a critically important expansion of there is a public service element that we think many borrowers, including borrowers that Main Street, and we still don’t have a finalized about for banks as well, in that financing frequently work with community banks, a term sheet. is the lifeblood of the economy and having $250,000 loan is a relatively small business I think other things that we’re looking at continued access to financing is critically loan. When you get the loans that are much are: Where are there holes in the economy important. lower than $250,000, they normally have where credit is either not available, or is more of an asset-based financing or personal not available on terms that are attractive guarantee — almost an upsized consumer enough that individuals or firms will borrow. RACE DISCRIMINATION loan. This program is really designed to be a That process will be ongoing as we watch cash flow lending facility, so I think that we’ve the progress of the economy, and I would hit the sweet spot for a lot of community banks highlight that the economic outlook is heavily Breaking and midsize banks for having borrowers that intertwined with how we do with the public are big enough to need a [commercial and health part. So if we don’t do a very good down the industrial] loan. It probably doesn’t address job of controlling the pandemic, as we get the concerns of very, very small borrowers, into the fall, that’s going to have economic but those are probably under very different repercussions both for individuals and firms color barriers underwriting conditions than what the whose finances are already fragile. So I think Boston Fed’s facility is designed to do. that’s something that we’re going to have to to homeown- monitor very closely. You, along with some of your other colleagues at the Fed, have said that What considerations do you have to ership you believe it’s likely the economy take into account when working with will need more monetary and fiscal nonprofits as opposed to traditional By Paul Centopani, Brad Finkelstein and support. What else can the Fed do at Main Street businesses? Bonnie Sinnock this point to stem long-term economic Many nonprofits have limited banking June 19, 2020 damage, and are there any fiscal poli- relationships. I would say that it’s not unusual For PKL Homes owner Pamela Loveless, cies in particular that you think Con- for hospitals to have either loans or debt. They “what is happening now in the Black Lives gress should consider? sometimes have bank loans, but sometimes Matter movement ... [is] just a piece of The Federal Reserve provides lending do not, so I think this is going to be a new the larger conversation that needs to be facilities, it can provide loans, but for many market for banks. happening in this country.” individuals and many firms, it may be I think this will provide an opportunity for Loveless and members of her family are much more effective to give direct transfer banks to have deeper relationships with the Black, and some of them have experienced payments to those organizations and nonprofit sector than they have, particularly being taken into police custody after having individuals. That’s not something the Fed can educational organizations, hospitals, other been mistakenly identified as suspects. This do. That’s only something that fiscal policy large nonprofits, where they may not have happened even though they complied in can do, so hopefully Congress over the course immediately thought to turn to banks for each instance and have family members that of the summer will get a program together their financing needs. But I think that is an serve on the force. One young man was tazed, that takes into account that an awful lot of important sector of our economy, probably a another was thrown down on the ground people are still unemployed, that an awful lot sector of our economy that could benefit from with his date after being stopped on their way of firms are still closed. If we really want the more bank lending, and I think this facility to dinner. kind of recovery that everybody’s hoping for, will hopefully facilitate both needed lending “Someone judging you negatively when more fiscal support is necessary. at a time of great distress, but hopefully they don’t even know you is awful. Once you On the monetary policy side, I would say provide relationships that continue on once experience that feeling, you never forget it,” that we’re continuing to look at our lending the economy is no longer so distressed. said Loveless, who previously worked in the facilities to see what more we can do. As I mortgage industry for over two decades. mentioned in the talk, the nonprofit part What do you think our readers should The police killings of George Floyd,

For up to date and complete coverage go to AmericanBanker.com THURSDAY JUNE 25, 2020 AMERICANBANKER.COM PAGE 6

Breonna Taylor and Ahmaud Arbery have group that aims to combat homelessness in efforts, starting at the college level,” said kicked off protests on racial injustice New York. “This isn’t necessarily the work Patty Arvielo, president of New American across the country and ignited a national of some racist politicians from the deep Funding, a mortgage lender based in Tustin, conversation about social and economic south with redneck ideas making nefarious California. “My personal goal is to interface inequalities that are the result of deeply legislation. It’s a continuum of what’s with communities of color to let them know ingrained racist attitudes and institutional happened previously. The majority of white about the opportunities in the mortgage practices in American culture. families passed down some kind of wealth.” business. Color matters. Representation As the country reckons with centuries- Those gaps can be blamed in part on matters. And we’re going to make sure that long discriminatory systems and policies, the last century’s redlining practices. Black that message never gets lost.” housing and homeownership are under the people already faced a stacked deck before Loveless, who founded PLK Homes to spotlight as a sphere of severe inequity for the racist practice put up another housing address short-term workforce housing people of color. Data from the first quarter of barrier in the 1930s. Redlining pushed and student rental needs, said greater 2020 shows homeownership rates of 73.7% segregation, devalued neighborhoods of representation within the real estate and for whites and 44% for Blacks, according color and made it nearly impossible for mortgage communities is a crucial way to to the Census Bureau. Such discrepancies, Black people to obtain mortgages. help the Black community at large. which also show lower homeownership And even though the Fair Housing Act “Most of the mortgage companies have rates for Hispanics at 48.9% are a sign that should have eradicated redlining, the act programs for inclusiveness, and they are federal civil rights laws banning housing only holds power if it’s enforced. Cases constantly tweaking those,” she said. But the discrimination are not working as intended. surfaced in recent years, including a 2019 recurrence of regulatory and legal actions The housing and mortgage industries can undercover Newsday investigation, which suggest the industry could still do a better and should respond to these deaths and revealed widespread discriminatory job when it comes to engaging in equitable other issues the Black community faces, behavior among Long Island’s real estate practices as required by law. according to the National Association of agents, and resulted in new state regulations She advises lenders to be particularly Real Estate Brokers. to strengthen the law. careful bias or discrimination does not come “Black Americans are simultaneously Credit issues create another obstacle for into the picture when it comes to manual battling COVID-19, as well as the virus of potential buyers of color. underwriting used to make exceptions. racial injustice, the virus of discrimination, “You can’t get a mortgage without at least “Where you can override or make a the virus of prejudice and the virus halfway decent credit,” Ryan said. “Again, it’s manual decision, that’s when companies of inequality,” said Donnell Williams, disproportional to communities of color. You can get into a little bit of a gray area,” president of NAREB. “This is a historic time. also have a disparity in the criminal justice Loveless said. A new birth is taking place. In the future, system. If you go to apply for an apartment you will be asked, ‘what’d you do?’ What’d to get on track to be fully housed and a step Programs for the people you do when the homeownership gap closer to buying a home, most will require Releasing a statement of solidarity is between Blacks and whites hovered around credit check and background checks, which merely lip service until a company actually 30 percentage points? What’d you do when could be problematic. Indiscretions with the puts action behind it. Myriad ways exist for Black men were shot and killed for jogging law shouldn’t matter if you served your time the lending industry to help Black borrowers in Georgia or physically restrained to death and are no longer on probation or parole.” and many have taken steps to counterbalance in Minneapolis?” Predatory lending also targets Black the issues. Those in the mortgage industry offer and Latino borrowers, leading to financial At the beginning of June, some thoughts on how we got here, what’s devastation. During the housing boom prior committed $1 billion over the next four years being done to fix it and how much further we to the Great Recession, Black and Latino to communities of color disproportionately need to go. borrowers were twice as likely as whites to affected by the coronavirus. As the pandemic receive high-cost subprime loans. Black spread and the economy shut down, lenders The inherent problems and Latino families making over $200,000 tightened their underwriting standards and Homeownership is a foundation for annually were more likely to be given a shied away from non-QM loans. In turn, it building wealth. Purchasing a home is subprime loan than a white family making became more difficult to secure a mortgage, a sound investment, boosts net worth $30,000 a year, according to a report from predominantly for low-income consumers. and becomes an asset to be passed down Bloomberg. However, New American is one lender that generationally. Over time, the effects of that The dearth of minority representation kept its low FICO, FHA, manual underwriting compound. Intrinsically, a racial wealth gap within the industry also points to and bond programs going through these dovetails with the homeownership gap. why rules and regulations are shaped uncertain times. “Within the past few years, if a Black disadvantageously for people of color. Because many homeowners of color can’t family was at the poverty line, the average net Getting more diversity, especially with top rely on their parents to borrow money, coming wealth was $0. At the same point in time, a positions would help level the playing field. up with down payments presents a great white family under the poverty line typically “We have to work to get more people challenge, particularly in high-end markets, had $18,000 in wealth,” said James Ryan, of color into the mortgage business. sources said. While some see down payment president of Time For Homes, an advocacy We’re going to do employment outreach assistance programs as controversial — HUD

For up to date and complete coverage go to AmericanBanker.com THURSDAY JUNE 25, 2020 AMERICANBANKER.COM PAGE 7 wants to put restrictions on these programs, homeownership. However, making numerous decreases equitable access to government- arguing they benefit the provider not the equitable policy additions and adjustments backed down payment assistance.” borrower — perception doesn’t totally mirror could combine to tip the scales. In this vein, the government can look at reality, according to the National Association In the near term, how the government and expanding programs like HUD Section 184. of Hispanic Real Estate Professionals. lenders handle the coronavirus fallout could Established in 1992, the section allows Native “People forgot that we’ve had great success help to limit further hardships. But housing Americans to get a mortgage for 2.25% down with programs with very high LTVs — namely advocates are bracing for a surge in financial with flexible underwriting. VA loans and FHA loans — and have done instability and homelessness following “I can’t tell you how much help that would so historically,” said Gary Acosta, cofounder forbearance periods ending. be to amend that section and add African and CEO of NAHREP. “The correlation “With the unemployment rate still high, Americans,” Williams noted. “What a stimulus between defaults and LTV is real but not as and that affecting mostly people making that would be.” challenging and prohibitive as I think lenders under $50,000 a year, they are not going to be Advocates like PLK Homes’ Loveless are sometimes treat it. So you should reap the able to catch up,” NAREB’s Williams said. “I’m hopeful that the activism that has sprung benefits for more loans with down payment afraid that after the forbearance ends, they are from this historic moment will lead to positive assistance especially in higher cost markets, just going to line people up for foreclosures change. She’s gotten some community but it shouldn’t translate into more defaults and evictions.” support to that end, but she also noted or foreclosures, if they’re done well.” Williams wonders whether loan-level instances in which she has faced compounded Through its Chenoa Fund, the South pricing adjustment fees could be removed. discrimination and hostility from strangers Jordan, Utah-based CBC Mortgage Agency The GSEs implemented these fees after the making false assumptions that anyone Black specializes in down payment assistance housing crash. The LLPAs exist more to was part of a multiethnic group of rioters that to creditworthy borrowers, particularly protect the U.S. government, the GSEs and the damaged property during the protests. communities of color. Over 54% of its DPA goes MBS investors than the lender. And they cost With the spread of the coronavirus having to minority borrowers and the Chenoa Fund already-strapped borrowers more money. a disproportionate effect on the Black sponsors the UHOUSI Initiative — an effort to Government-sponsored enterprises community, things could get worse before they increase responsible homeownership among shouldn’t operate at a hindrance to any get better, Loveless said. But her experience African Americans. segment of society, particularly those already of prevailing after facing multiple hardships However, government policy in recent at a financial detriment, said makes her hopeful that things can get better years has discouraged the use of DPA in part “I’ve always felt the federal government even when times are tough, with persistence. because of the potential risks of foreclosure. does not need to be in the mortgage lending “I look at things now and say where do we go Breaking long-held and possibly outdated business, unless they’re going to be there to from here? How do we address this?” Loveless beliefs surrounding homeownership could reach segments of the population not being said. “You start with inclusive practices and be another factor in closing the gaps. As reached adequately,” NAHREP’s Acosta said. training, and go from there.” with wealth, if Black borrowers don’t have “So if you look at Fannie and Freddie and the generational knowledge of how to their book of business, my sense is — this is buy a house passed down, their vision of just my opinion — that they probably do more UNDERSERVED getting there could be blurred, according business than they need to in the affluent POPULATIONS to Steve O’Connor, SVP of affordable segments of the marketplace and a lot less housing initiatives at the Mortgage Bankers business than they probably should be doing Association. in the first-time home buyer, less affluent Housing’s Located in the nation’s capital, the MBA segments of the business.” represents every facet of real estate finance. Ridding the industry of the stigma racial gap The association’s affordable housing initiative surrounding down payment assistance would provides strategies and tactics to bridge the pave the way for many. If the majority of homeownership divide. minority borrowers do not possess the upfront will widen in “We are collaborating around and means to purchase a home, they should not be addressing key gaps in homeownership in the excluded from doing so, advocates say. coronavirus minority community, mainly the knowledge “HUD should stop attempting to restrict gap where people have misinformation about creditworthy, mostly minority, borrowers what’s required to become homeowners, like from having the ability to acquire DPA from recovery: they need 20% down and perfect credit,” a governmental entity,” said Tai Christensen, O’Connor said. “So how do we get reliable director of governmental affairs at CBC Redfin information into their hands? Because Mortgage Agency. “Any restrictions to DPA they’re self-selecting out of the market right programs should be viewed as a direct attack By Brad Finkelstein now.” on Black homeownership. If we as a society June 23, 2020 wish to close the racial wealth gap and bring The economic recovery from the Change at the top healing to our communities of color, HUD coronavirus shutdown will only exacerbate No silver bullet exists to close the chasm in must not enter into any rulemaking that the existing racial divide in the housing

For up to date and complete coverage go to AmericanBanker.com THURSDAY JUNE 25, 2020 AMERICANBANKER.COM PAGE 8 market, a Redfin report said. a Redfin agent in Detroit. “Buyer demand “As people are looking for their next For the upper end of the market — people is insane here, and nearly every home is a employment opportunities, we think a lot of in white-collar positions, who have cash on multiple offer situation.” those people are going to try freelancing, and hand and access to credit — the pandemic Redfin’s demand index for Detroit rose by they’re going to need a bank that understands was merely a pause in the house hunt. The 58% even as April’s local unemployment rate their unique challenges,” Conway said. quick bounce-back of the Mortgage Bankers was 24.4%. Since real estate was not deemed Those challenges could include separating Association’s purchase application index was essential in Detroit, the city saw a drop in personal and business activities, tax just one sign of that. activity during the pandemic, Redfin said. planning, budgeting for an irregular income “With record-low interest rates and relative The metro with the highest unemployment and handling payments. job security in spite of the recession, higher- rate in April at 33.5%, Las Vegas, had the fifth Lamine Zarrad, co-founder and CEO of income homebuyers are already coming largest rebound in demand at 25%. Joust, acknowledged that many freelancers back into the housing market,” Taylor Marr, Meanwhile, the market with the lowest are also losing business right now. Redfin lead economist, said in a press release. unemployment rate in April, Minneapolis, “But we see that as a short-term “Because of this quick bounce-back in home- with a rate of 9.9%, only had a 7% increase impediment to the sector,” he said. “We’re buying demand, this recession is playing out in demand during Redfin’s timeframe. going to have a V-shaped recovery, probably very differently than the Great Recession, Minneapolis is the epicenter of the protests in the next eight to 12 months, where society and we’re not seeing much impact on home following the death of George Floyd at the is going to get adjusted to a new way of life and prices so far.” hands of a local police officer. there are constant, predictable opportunities For potential buyers with lower income, Meanwhile, the nation’s capital, for freelancers. Then they will need tools like it’s another story. Washington, which had the second lowest ours that put things on autopilot for them.” The shutdowns had the largest impact unemployment rate (9.9%), actually had a 1% Eytan Bensoussan, co-founder and CEO on those who work in sectors that typically decline in demand. of NorthOne, said his company saw activity pay out low wages, such as service and In Phoenix, demand was unchanged, even dip and rise at different rates over the last few hospitality. Black and Latino people who though it had the fifth lowest unemployment months, depending on where customers live. make up a large part of that workforce had rate among the cities listed at 12.3%. “So much will depend on the second wave been priced out of the housing market even and whether or not it is material, but right before the pandemic. now, we are seeing a lot of optimism among The record levels of unemployment SMALL BUSINESS our customer base,” he said, estimating that continue to hit the lowest earners the hardest. 80% of customers expect revenue to increase The Federal Reserve’s May employment over the next 12 months. survey found that while over one-third of U.S. Neobanks The companies declined to give exact households had an annual salary of $60,000 figures, but said they are continuing to attract or less, the unemployment rate for this group catering an audience. was 21%. For those with income of $100,000 Zarrad said March was his company’s or more, it was just 10%. highest-growth month. Redfin then cross-referenced this data to self- Bensoussan estimates that NorthOne with the Bureau of Labor Statistics monthly opened 30,000 to 40,000 accounts by March, report, which broke down unemployment employed see but the monthly growth since has been at data by race. least 100%. For whites, May’s unemployment rate Lilac Bar David, co-founder and CEO of was 10.7% — below the overall rate of 13.3%. influx during Lili, said her customers number in the tens of For Blacks, the rate was 16.8%. Redfin noted thousands and that the pandemic has been that the six percentage point gap compared pandemic “an encouraging period.” with whites was twice as high as the normal In a report from July of 2019, Javelin three percentage point gap. For Asians, By Miriam Cross Strategy & Research stated that 16 million unemployment was at 15% and Hispanics it June 23, 2020 Americans were either entrepreneurs or self- was 17.2%. Some challenger banks that offer banking employed consumers. But the saying “all real estate is local” rings services to freelancers and entrepreneurs But the number of people who count true when taking a closer look at the data. say demand for their services is growing as freelance work or sole proprietorship as their Take the example of Detroit, which had the more freelancers enter the workforce, either primary source of income has grown rapidly second highest unemployment rate in April. by choice or necessity, as a result of the since the pandemic started, said Ian Benton, The city had the largest increase in demand coronavirus pandemic. senior analyst in digital banking at Javelin. comparing the week of May 31 to the week of “A lot of jobs will not be coming back The number of business neobanks has March 1, according to Redfin. next year,” Ryan Conway, head of business grown as well. “People who are still employed and development at Oxygen, a digital bank for Azlo and Bank Novo were two of the first confident in their continued employment freelancers and contract workers, said in a and launched a few years ago, said Benton. still really want to buy,” said Tony Orlando, May interview. Lili and NorthOne launched in the summer

For up to date and complete coverage go to AmericanBanker.com THURSDAY JUNE 25, 2020 AMERICANBANKER.COM PAGE 9 of 2019, while Joust had its public launch in For example, Joust created a Paycheck January. Oxygen Bank rolled out its services Protection Program calculator that estimates M&A to the public in May, and Wave Money loan and forgiveness amounts for customers, expects to be widely available by the end of and refers them to one of two preferred the summer. lenders. It also ramped up publicity of its Mastercard to “A lot of these guys are filling in where PayArmour platform, an invoice payment banks have dropped the ball,” Benton said. tool that allows customers to get a portion buy Finicity “Banks haven’t innovated in small-business of their invoices funded on the same day, or banking for a long time.” a guaranteed receipt of payment within 30 days, for a 6% or 1% fee, respectively. to improve What they offer NorthOne, which charges monthly fees of Business neobanks tout low or no fees $10, $20 or $50 depending on a customer’s open banking and a slick digital-only experience, meaning transactions, removed fees for three months customers can onboard their accounts within from customers in the restaurant business minutes at home. (At last count, only eight of and those in the hardest-hit states, including services the top 30 U.S. banks offer digital onboarding California, Louisiana and New York. to customers.) The company increased its live support By David Heun Some of the challenger banks also provide hours to accommodate the growing number June 23, 2020 help with expense categorization, cash flow of users who were chatting longer and Mastercard has agreed to acquire Finicity analysis, taxes, invoicing, payments and seeking emotional as well as business for a reported price of $825 million, a move other tasks that entrepreneurs normally do support. NorthOne also partnered with the card brand says will strengthen its open manually. Radius Bank for the first round of PPP loans banking platform and expand financial Many solo entrepreneurs and small- and more recently with Cross River Bank to services through more real-time access to business owners “are kept outside of banking help its customers get funding. data. and forced to use consumer products that Lili created blog posts with resources, Finicity’s financial data technology are not designed for business use, so they such as information about grants and loans. currently powers platforms for Quicken compile these Frankenstein solutions of Direct-deposit customers could also get their Loans Rocket Mortgage, Experian Boost and 10 different tools just to engage with their stimulus payments or PPP funds up to two others throughout North America. clients,” said Zarrad, whose company days early. The addition of Finicity’s technology to developed a banking platform that caters to existing Mastercard open banking solutions solo business owners, or what he refers to as Looking to the future will help Mastercard advance its partnerships “solopreneurs.” Benton said that he’s bullish on the long- with fintechs and financial institutions, Joust is merging with a similar company term trend of business neobanks, but that expand service offerings to businesses and to build out its services. Zarrad said that many freelancers continue to use personal consumers and further the company’s secure when the merger is completed, in about 90 or small-business bank accounts that are data practices. days, the combined company “will provide ill-suited for their needs, unaware that these “Open banking is a growing global trend a small business with virtually everything options exist. and a strategically important space for us,” they need, from incorporation to document “If one of the larger banks developed a Michael Miebach, president of Mastercard, management and access to credit, all on one standalone app or brand for the freelancer said in a press release Tuesday. “With the dashboard.” and entrepreneurial type or even if Square addition of Finicity, we expect to not only NorthOne, which focuses on businesses or QuickBooks created an app and acted as advance our open banking strategy, but with 20 or fewer employees, offers mobile a bank account, that’s where you would see enhance how we support and accelerate check and cash deposits, dedicated accounts [this type of service] take off,” Benton said. today’s digital economy across several for taxes, cash flow reporting and more, He concluded in his 2019 report that markets.” and connects to accounting software and traditional banks should offer digital account The use of next-generation open banking payment processors. opening, invoicing and payment acceptance APIs and clear consumer approvals using Lili, which serves full-time and part-time tools, mobile and online loan origination, the financial information Finicity can deliver freelancers, generates expense reports, expense tracking and tax tools, and cash flow streamlined loan and mortgage processes, lets customers automatically set aside a analysis and projection. rapid account-based payment initiation and percentage of each deposit into a separate “These neobanks are not necessarily personal financial management solutions, “tax bucket,” and notifies customers of each a competitive threat today, but they are Miebach added. transaction so they can swipe right or left on showing you how small-business banking The acquisition continues a trend for their phones to categorize it as a personal or should look in the future,” Benton said. “I Mastercard in the open banking sphere, as work expense. think the real danger right now is silent it launched various solutions in Europe last These companies have also been helping churn, where you keep a checking account at year. out their customers during the pandemic. your bank but the bank is not the relationship “Enabling people to access and control you care about.” their data, while ensuring best practices

For up to date and complete coverage go to AmericanBanker.com THURSDAY JUNE 25, 2020 AMERICANBANKER.COM PAGE 10 to protect that data, will continue to drive their opposition to the Rakuten application, tremendous innovation that increases pointing to McWilliams’s own words in FINTECH financial literacy, inclusion and health,” March, when the FDIC issued a proposal to Steve Smith, CEO and co-founder of Salt codify how it approaches industrial banks in Lake City-based Finicity, said in the release. the digital era. McWilliams said, according Trump’s latest “This partnership with Mastercard helps us to the letter, that decisions about businesses accelerate this mission globally.” that mix banking and commerce involve immigration Mastercard expects the deal to close by the “complicated policy trade-offs that are best end of the year. addressed by Congress.” “We agree with the FDIC that the Rakuten order reaches application’s precedent-setting nature ILCS warrants deferral to Congress,” the letter said. the payments “Therefore, unless and until there is federal legislation that specifically addresses this Banking issue, the FDIC should shelve, or alternatively, industry disapprove the Rakuten application.” industry In a statement, a spokesperson for the By John Adams proposed Rakuten Bank America said it June 23, 2020 was “confident that the revised application The Trump administration is accelerating renews is stronger and is responsive to the its restrictions on immigration, including FDIC’s feedback. Rakuten Bank America a ban on skilled workers that will make opposition to is committed to transparency with our it harder for fintechs to hire people from constituents and to cooperating with federal outside the U.S. and state agencies during the regulatory Trump’s executive order ties the restriction Rakuten’s ILC review process.” to the impact of the coronavirus, and includes The U.S. banking sector has opposed H-1B visas and L-1 visas that often cover application Rakuten Bank America’s application for technology workers such as programmers deposit since it materialized last and engineers. By Brendan Pedersen year, arguing that the firm would compromise “It has affected us. And not even H-1B. But June 23, 2020 America’s traditional separation of commerce L-1, which should be simpler to obtain,” said WASHINGTON — Three bank trade and finance. Many large U.S. corporations Chen Amit, co-founder and CEO of Tipalti, a associations have renewed their opposition own ILCs today, such as General Motors and San Mateo, Calif.-based firm that processes to the Japanese e-commerce conglomerate Home Depot, but banks have warned for payments for companies that have disparate Rakuten’s bid for an industrial loan company years about the risks of a large commercial staffs, or use contractors, among other charter, arguing again that it would “not companies using company banks to finance payment products such as FX. present a viable business model on a stand- below-market loans and possible trigger a Amit said Tipalti sought an L-1 visa for alone basis.” credit crisis. a veteran operations person from Israel The groups’ stance, outlined in a letter Although many banks’ concerns about that Tipalti wanted to bring in as part of a Tuesday to Chairman Jelena McWilliams of Rakuten have not changed, the prospects knowledge transfer for the company’s San the Federal Deposit Insurance Corp., comes for new industrial banks have improved Mateo team. “He is a fintech veteran and as the agency weighs a second application considerably in the past year. In March, manages part of the work that we want to for deposit insurance from Rakuten. With an the FDIC approved the first ILC for deposit transfer to the U.S.,” Amit said, adding the ILC charter pending in Utah, Rakuten first insurance since 2008 when it signed off on transfer would eventually help create more applied to the FDIC for deposit insurance applications for the small-business payments jobs in the U.S. last year before withdrawing in March and giant Square and Nelnet, a student loan The L-1 was refused, Amit said, adding the reapplying in May. servicer. refusal was “technical” in nature and Tipaliti “We believe that the revised application The trade group letter sent Tuesday was would appeal. “I’ve been involved in many has not materially changed and does little signed by Timothy Keehan, vice president L-1 applications and never heard of a refusal.” to address the fundamental question of and senior counsel at the ABA; Dafina H-1B visas and L-1 visas, which cover mixing banking and nonfinancial activity as Stewart, senior vice president and associate existing overseas staff of U.S. companies, raised by the initial application, including general counsel at the Bank Policy Institute; allow U.S. firms to sponsor workers with concerns involving the use, privacy and and Jenna Burke, vice president and associate special skills for other countries. The jobs security of customer information,” according general counsel at the Consumer Bankers cover engineering, chemistry, journalism, to the letter, signed by policy executives of the Association. health care, education and the arts, though American Bankers Association, Bank Policy most H-1B visa holders are technology Institute and Consumer Bankers Association. workers from India. These visa holders In the letter, the bank trades reiterated usually have a bachelor’s degree and work

For up to date and complete coverage go to AmericanBanker.com THURSDAY JUNE 25, 2020 AMERICANBANKER.COM PAGE 11 in the U.S. under a three-year term and can was well-intentioned and designed to help work for only the sponsor company while in members of the military secure needed the U.S. . More so, it was meant The Trump administration argues the ban, to assist military members who are often which is in effect until the end of 2020, is younger, just starting their careers, frequently designed to protect American jobs. Other anti mobile and likely targets for unscrupulous H-1B arguments in the past have suggested predatory lenders. And yes, those with low the visas lower U.S. technology wages. incomes. About 219,000 workers would be blocked The NCUA simply made a technical because of the ban, reports CNBC, which also correction to its methodology to be more quoted technology executives from Google, inclusive of military members. Previously, the Apple, Amazon, Facebook and Twitter in agency only included the incomes of military opposition to the ban. members with a physical street address. This In a statement on its site, TechNet left many service members who have Army, President and CEO Linda Moore also Air Force (APO) and Navy (FPO) mailing expressed opposition, saying the “executive addresses out of the evaluation. order only hinders the ability of businesses to The recent change was an important step make decisions on how best to deploy their toward promoting financial inclusion, and existing workforce and hire new employees. will sincerely help people. This will slow innovation and undermine the Underneath the criticisms of this new work the technology industry is doing to help policy is a request that policymakers treat for- our country recover from unprecedented profit banks the same as local, not-for-profit events.” credit unions when it comes to nominal leases on military bases. Two of the biggest benefactors of this BANKTHINK policy request would be Bank of America and Wells Fargo — institutions that have garnered large profits while being fined for consumer NCUA’s new harm since the 2008 financial crisis. In reality, community banks can already low-income obtain nominal leases if they demonstrate to the Department of Defense how their services would benefit the military, something credit definition unions have been doing for years. There are clear reasons why credit union will benefit members rave about the services they receive. Credit unions have their members’ best interests at heart, which has been military, not documented time and time again. With bank lobbyists’ continued calls credit unions for limiting credit union service to their communities, including to help the By B. Dan Berger nation’s military members, it is important June 23, 2020 policymakers do not take the bait. As the nation struggles with economic Credit unions will continue focusing on difficulties, the global coronavirus pandemic providing the most affordable products and and racial inequality, bank lobbyists were services to American consumers as possible. on cue with a push to stifle credit union Banks should retire these old, worn-out competition that will ultimately, maximize arguments and focus on helping consumers. their profits. In a recent editorial, bank lobbyists B. Dan Berger is president and CEO of the took issue with the National Credit Union National Association of Federally-Insured Administration’s effort to consider certain Credit Unions. q members of the military to be low income when determining a low-income credit © 2020 Arizent and American Banker. union (LICU) designation. All rights reserved. Contrary to what the op-ed said, the policy

For up to date and complete coverage go to AmericanBanker.com