Loans

Skintech? Fintech Lenders in China Accept Nude Photos As Collateral

Some online lenders in China are taking an invasive application process to a whole new level, according to People’s Daily, a Chinese state-owned newspaper. To increase the likelihood of repayment, applicants may be required to upload a nude photo of themselves while holding an ID card, along with contact information for their friends and family members. And if they don’t pay, they’ll threaten to distribute it to all of them accordingly.

People’s Daily wrote that the borrowers tend to be educated university students and they are willing participants to these harsh terms if it means they can get the loan they seek. After all, they actually have to take the photos and upload them to the lender in the first place. Insiders reportedly said that naked IOUs have been a practice for a long time.

A reporter for Sixth Tone, a hip media company overseen by the Chinese government, was able to find a student lender online during their journalistic investigation that indeed requested a nude photo and family contact information. The ability to actually repay the loan was not assessed by the lender.

Fu Jian, a lawyer at Yulong Law Firm based in Zhengzhou that was interviewed by Sixth Tone said that the use of a naked photo as collateral is not forbidden by law, even if it does raise ethical questions. Were the photo to be leaked, only then would the law have been broken. “The online lending industry is like a food chain with some huge financial groups on the top, followed by the platforms, then the middlemen,” Fu said to Sixth Tone. “Students, sadly, are just the prey.”

The highly predatory practice is obviously carried out by unscrupulous players and is not representative of the fintech industry in China.

Throwback to 2008? Credit Card, Auto Debt Soars to $1 Trillion

Subprime borrowing is back, this time with auto loans.

Vehicle loans and leases held by subprime consumers increased by 11 percent in Q1 this year and the for the first time since the recession,  balances on auto loans hit the $1 trillion mark, up from $905 billion last year.

Non-bank finance companies and credit unions saw the largest spike in loan growth market share with 26 percent and 16 percent respectively.

“With more and more consumers relying on financing, it is important for lenders to keep a close eye on delinquency trends to ensure the market remains healthy,” said Melinda Zabritski, senior director of automotive finance for Experian, which conducted the study.

However there is some respite in the overall percentage of total delinquent loans remains relatively low when compared to pre-recession levels.

And it’s not just auto loans that are soaring, credit card debt is also pushing the $1 trillion mark inching scarily close to recession peak of $1.2 trillion in 2008. According to Federal Reserve numbers, outstanding balances touched $952 billion in the first quarter, up 6 percent last year, and the highest level since August 2009.

Are Subprime Auto Loans Showing Cracks or Not?

Subprime auto delinquencies are even higher now than they were during the height of the most recent recession, according to Fitch Ratings. The 60-day-plus delinquency rate of the subprime loan group that Fitch evaluates reached 5.16% last month, compared to 5.09% in January, 2009.

Fitch attributed this to weaker underwriting standards as well as sharp origination growth and increased competition.

The prime sector is mostly stable, they say. Further weakness is anticipated across all credit categories, though the outlook is stable.

But while Fitch spoke of weaker underwriting and nearly unprecedented delinquencies, consumer credit reporting agency Equifax spun a different picture just four days later when they announced the results of their own auto lending study.

“Lenders are making more informed lending decisions and the underwriting process has been strengthened as a result of new data and technology that is available to the marketplace,” said Amy Crews Cutts, chief economist at Equifax.

Indeed, the rates of both early delinquency and serious delinquency as a percentage of dollar balances are nowhere near recession levels, at least according to Equifax’s data set.

Both Fitch and Equifax agree there has been an increase in auto loan originations.

In a WSJ interview, hedge fund manager Ben Weinger said that demand for auto debt has led lenders to systematically loosen underwriting standards.

Equifax’s Cutts recently said however that “credit performance is still excellent, showing that lenders are prudently extending credit to well-underwritten borrowers.”

Who’s right?

CFPB (and others) Not Amused By Quicken’s Push-Button Mortgage Ad

Is Quicken in the right place at the wrong time?

Imagine a world where you could get a mortgage at the push of a button. And then imagine like literally pushing that button while you’re sitting in a dark auditorium watching a magic show. As the magician saws a woman in half, you agree to a $400,000 loan payable over 30 years. That pivotal moment, according to Quicken’s vision for American prosperity, will lead to a “tidal wave of ownership” that will flood the country with new home owners.

Consider the implications of that commercial on its own merits (or watch it below of course) and then imagine watching it after you’ve just seen The Big Short in theaters. Given that the movie is a true story about the build-up of the housing and credit bubble in the 2000s that led to a near catastrophic global collapse, a mortgage “tidal wave” might not be the best way to describe your new mobile app.

After Quicken’s push-button mortgage commercial aired during the Super Bowl, the Consumer Financial Protection Bureau responded on twitter:

While the mortgage process shown on TV looked overly ambitious, a Quicken customer service rep who I chatted with while posing as a borrower, said that it really can be all done online, even if the mortgage was for like $600,000. When I inquired about what documents I’d need to provide through that process, I was told all I needed to do was state the address of the home.

A no-doc process?

According to the Wall Street Journal, “borrowers can authorize Quicken to access their bank and other financial information directly, eliminating the need for sending pay stubs, bank statements and tax returns back and forth.” So there’s still documents, they’re just electronic and retrieved via APIs.

Having scanned the process, there is clearly more than just one button to push (I counted 9 steps), but it may actually be possible to get a mortgage while watching a magic show. Apparently a lot of people on twitter don’t think that’s a good thing:

Meanwhile, Rana Foroohar, Assistant Managing Editor and Columnist for Time and Global Economic Analyst for CNN, argued that the backlash is unfounded. “No, the Rocket Mortgage Ad Is Not the Sign of Another Financial Apocalypse,” was the headline of her Time story published on Monday. Her evidence? Nobody can afford a mortgage anyway so there’s nothing to worry about, she basically says.

Private equity firm Blackstone has become the largest buyer of single family homes in the country over the last few years. […] Most ordinary Americans need mortgages to buy real estate; at current housing prices and incomes, it would take a typical family more than twenty years to save even a 10% down payment for a home plus closing costs. But they can’t get the loans, because in our post-crisis world, banks are still keeping credit tighter than usual. Besides, many individuals simply don’t have the secure employment, nest egg, and increasingly high credit scores needed to obtain a mortgage these days.

– Rana Foroohar
http://time.com/4212259/rocket-mortgage-super-bowl-ad/

See? There can’t be a bubble brewing because nobody can possibly qualify.

So when Quicken makes wildly provocative sales pitches like this:

What they’re really apparently trying to say is that the process for those that qualify is supposedly more transparent and therefore better for borrowers:

Of course, it probably doesn’t help when their legal help page is titled “legal mumbo jumbo.”

Quicken CEO Bill Emerson tried to clarify the message of the commercial to the WSJ. “What we’re saying is that a strong housing market filled with responsible homeowners is important to the economy,” he said.

Don’t worry about the mumbo jumbo folks, just push button, get mortgage.

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What do you think? Is Quicken walking down a slippery slope?