Eric Holder’s Newest Witch Hunt

The Department of Justice is executing a Witch Hunt against banks. Through the DOJs Civil Rights Division, Attorney General Eric Holder is forcing banks to relax their mortgage underwriting standards and approve loans for minorities with poor credit as part of a new crackdown on alleged discrimination, according to a published report by Investors Business Daily after reviewing court documents.

The DOJ has already extorted $20 million for weak and poor credit loans from banks that settled out of court rather than battle the federal government and risk being branded racist. The DOJ admits another 60 banks are already under investigation. Holders demanding the banks sign non-disclosure settlement agreements barring them from talking while allowing the DOJ to operate behind a curtain of secrecy.

The settlements already extracted from banks force them to make prime-rate mortgages to low income blacks and Hispanics with credit problems, even if they are living on welfare. According to IBD, the DOJ has ordered banks to advertise that minorities cannot be turned down for a loan because they receive public aid, such as unemployment benefits, welfare payments or food stamps. No job; no problem!

In other words, the DOJ is forcing banks to make loans to people that they know dont qualify for them and likely wont be able to afford to repay them, which is precisely the kind of failed public policy that precipitated the financial collapse and recession in 2008.

The DOJ ordered Midwest BankCentre to provide special financing in the predominantly black areas of St. Louis for fixed prime rate conventional home loan financing for borrowers who would ordinarily not qualify for such rates for reasons including the lack of required credit quality, income or down payment.

Eric Holder and the head of his Civil Rights Division, Tom Perez were both protÃgÃs of Janet Reno who launched a similar attack on banks in the early years of the Clinton Administration. That led to an expansion of the Community Reinvestment Act, CRA, and an explosion of forced lending to low-income, poor credit risk borrowers and the sub-prime mortgage industry that collapsed in 2008. Under the weight of massive guarantees of poor quality and defaulted mortgages, the federal government was forced to seize Fannie Mae and Freddie Mac. To date about $150 billion has been required to bailout the two agencies to keep them solvent.

Like Reno, Holder and Perez are pushing their own social agenda, and ramifications to the financial sector and total economy are meaningless to them. They willingly pervert the law and leverage the full weight of the Justice Department to intimidate banks to accomplish their objectives.

Credit analysis and repayment ability of the borrower matter none to Holder and Perez. To them, if a minority is turned down for a loan, it must surely be evidence of racial discrimination. Perez has gone so far as to compare bankers to the Ku Klux Klan. The only difference between bankers and the KKK, he says, is that bankers discriminate with a smile and fine print, but they are every bit as destructive as the cross burned in a neighborhood.

Holder and Perez appointed another Janet Reno alumnus, Eric Halperin, as Special Counsel for Fair Lending. Previously, Halperin was a lobbyist for the leftist Center for Responsible Lending (CRL) where he pressed congress and the various agencies for continued relaxing of lending standards. Just how objective do you suppose this special lending cop is in applying the law?

CRLswebsite reveals their leftist perspective and agenda; lenders have strong incentives to engage in unfair, deceptive practices and to aggressively market loans designed to fail. Thats pure hooey, of course. Banks make a profit if loans are paid back. They sustain losses when loans fail. But, this phony theory of disparate impact or red-lining has been used by the left for decades to convince politicians and bureaucrats to force unsound, unsafe lending practices, the consequences of which have been manifested in the current economic mess.

The forced settlements have gone well beyond lending. The concessions that DOJ has imposed have even required banks to fund inner-city community organizers. According to IBD, lenders are being forced to bankroll Acorn clones that often exist just to shake them down for risky loans.

As DOJ strong arms banks to relax lending standards to satisfy the Obama Administrations racialist social agenda, other federal agencies are telling banks to do just the opposite. Banks are damned if they do, damned if they dont, according to Ernest Istook, a Heritage Foundation fellow and former Member of Congress who is critical of DOJ for forcing affirmative action lending.

The current economic crisis has stressed even the strongest of banks. Bank safety and soundness examiners from the Federal Reserve, the OCC, FDIC, OTS, and NCUA have put the fear of God into banks all across the nation demanding tightened credit standards. They have forced banks to increase capital, add to reserves for losses, mark down asset value of existing credit assets, and questioned virtually every loan the banks make. The CEO of one historically successful community bank told me a regulator demanded, You will not make another commercial real estate loan. How that bank was supposed to meet the needs of the small businesses in the community while not making loans on commercial real estate was of no concern to the regulator.

The newspapers are full of reports that the government has seized and closed banks, removed management and boards of directors, placed banks on written agreements so tightly drafted that the government has essentially assumed management of the bank while the shareholders, directors and management are still stuck with full risk and liability.

Banks are selling, consolidating, and closing all across America, and going with them is the access to capital and importantly the personal relationship that historically has been vitally important to the success of our entrepreneurial free-market economy. Over 1400 bank offices haveclosedin the last two years, and many more are expected in 2011. In the wake are exasperated small businessmen wondering what to do next.

If youre confused by the mixed signals and heavy-handedness of government, how would you like to be a banker? Little wonder that banks are afraid to lend and many are almost in lock down. Politicians can talk all they want about getting capital and the economy moving again, but the uncertainty and mixed signals coming from Washington are big reasons why both lenders and borrowers are hiding out in their bunkers.

Thomas Lifson,writing inAmerican Thinker about the DOJs witch hunt, notes that bankers tend to be a cowardly lot when confronted by the power of the State. Who can blame them when the government has the power to lock their doors and seize their assets?

Lipson goes on, Nobody in a highly regulated business wants the government publicly charging racism. A comparatively small group within the Civil Rights Division at the Justice Department has assumed the role of national bank regulators with the intent of favoring groups they support. Its a corruption of the legitimate role of government. Corruption may be an overly polite description.

Added to the bi-polar treatment from the DOJ and other regulators is the fact the very government that controls their every move is now a larger source of consumer credit that all of the private sector banks combined. Recently released Federal Reserve Bank datadocumentsa remarkably rapid and substantial shift to the government as the new credit goliath.

As recently as 2006, the private banking sector provided $2 in outstanding home mortgages and consumer credit for every $1 of government financed loans. The data from the Fed, however indicates that government loans and guarantees now total $6.32 trillion, up from just $4.40 trillion at the end of 2006. For the same period, the private sector market share shrunk to $6.58 trillion from $8.48 trillion.

Curiously, the Fed doesnt count the half-trillion dollars worth of guaranteed student loans as part of the governments total. Historically, local banks originated and financed the Federal Family Education Loan program and the government insured the loans against any loss. But, in 2009 as part of the ObamaCare legislation, the private sector was completely eliminated and beginning in 2010 the government took total control of the entire program. When student loans are added, the government surpasses the entire private sector totals. Even without student loans, with the current trend the government is poised to eclipse the private lenders likely within the current quarter.

The almost overnight collapse of the market for mortgage backed securities as a result of the sub-prime lending debacle – largely precipitated by misguided federal policy forced on lenders – evaporated the private mortgage market, and left Fannie Mae and Freddie Mac – that had been seized by the government – as the only game in town for home mortgages.

In the blink of an eye, the federal government went from the small player facilitator to the dominant force in the financial industry dwarfing the combined efforts of the entire private sector competitors. Additionally, the Top Dog in the credit market place is also the all-powerful regulator over the little dogs in the private sector wielding absolute and largely unaccountable authority over their every move. Through the Federal Reserve, that same government controls the price, the access, the circulation, and amount of the currency on which the rest of the market must be dependent. With a national debt of $14.5 trillion and growing, the largest supplier of loans in the world also has the worlds greatest demand for credit sucking up massive amounts of available investment capital to finance the growing national debt before the rest of the market gets a chance.

In reality, the federal government during the last two years has essentially seized the banking industry. What the government doesnt do directly, it controls by regulation, intimidation, and by sheer force and power. Obama got in the car business, the health care business, the energy business, and hes got the government holding most of the cards in banking, too. Thats the change; the hope is that he gets fired by the voters in 2012.

True-believing progressives like to flaunt their transformed definition of a Free-Market Economy: The freedom of the government to compete with the private sector. They find a little humor in it, but its far from funny. What has happened in barely two years has seriously altered the rules of the road, the natural order of things, even what it means to be American. Time will tell if these are permanent changes or just a significant deviation in our long-term course. The outcome rests with us: We the people.

See more top stories from Townhall Finance:

And another thing …

Twenty or so years ago, people of the suburban persuasion started talking about wealth-building. Coupled with this was the idea of the market – if allowed to run free — would deliver to those who had pledged their faith. While the stockmarket has gone all over the place like a madmans breakfast, the housing market has gone nuttily upwards. The result, according to a Grattan Institute report released this week, is a prosperity that could leave our children with a lower living standard. The most pressing consequence may well be the need to reassess our values and vision for what a good life and society.

Did you Buy a Lemon?

When you bought your new car, everything seemed to be working perfectly. But youve since realized that the starter is prone to malfunctioning. After a few mornings of almost being late for work and a trip to the mechanic, the problem doesnt seem to be any better. Were you sold a lemon? And, if so, what do you do next?

Find Out All That You Can

Just like dealing with doctor, your car can benefit from a second opinion. Before you write your problem off as solely the cars fault, take your car to a second mechanic, and if the issue remains unresolved after this visit, then start your research and prepare to move on to the next step.

  • Ask around. Use online forums, chat boards and reviews to see if other buyers are having similar problems with the type of car that youve purchased.
  • Check recall lists. If a manufacturing error has affected enough vehicles, a recall may be issued. And while you should be notified by mail if your car has been included in a recall, you should still check all public notifications just to be sure.
  • What is your states law? All 50 states have lemon laws, but not all state lemon laws are the same. For example, find out how many repair attempts must be made within a certain amount of time before you can open a complaint with your dealer.

The Lemon Process

While each state defines a lemon a little differently, at least two points are consistent across the board. 1) Do you use the vehicle for personal/family/household purposes? A car that is used strictly for business will not qualify for buy-back or replacement. 2) Is the vehicle under warranty? Generally, lemon laws only apply to defects that are covered by warranty.

  • Start with the dealer. Take the paperwork from your service visits to the dealership where the car was purchased. State your case clearly, and ask your representative if you are eligible for a buy-back or a replacement, in accordance with the state lemon law. If the dealership agrees with the petition, then your work is done. Otherwise, you will have to pursue legal action.
  • Consider Hiring an Attorney. If your dealer is uncooperative and youre forced to take your complaint to court, you may want to obtain a lawyer. Even though you’ll have to pay more out of pocket for the benefit of council, youll increase your chances of winning the case.
  • Have your day in court. If it is determined by the court that you have been sold a lemon, as defined by your states law, the dealer will be forced to make amends. They will either be ordered to buy the car back at a price that includes your purchase price, taxes and any dealer-installed options, or they will have to give you a replacement vehicle that is either identical or comparable to the original vehicle.

Do you Need to Start Over?

If the car that youre driving is a safety hazard just because it is too old and unreliable, we can help you get better transportation with an auto loan that you can afford. And dont let a troubled credit history hold you back. Here at Auto Credit Express, we are special finance experts who are able to work with almost every kind of credit. Just fill out our fast and secure online application to get started today.

7 Reasons for Begging Your Employer to Offer a Roth 401(k)

A Roth 401(k) is a remedy to this dilemma. Unlike a regular 401(k) plan, your contributions to the plan are not tax-deductible when made. But just like a regular 401(k) plan, any investment earnings that accumulate within the plan are tax-deferred. Based on these two facts alone, it appears that a traditional 401(k) plan is superior to a Roth 401(k).

But heres where a Roth 401(k) makes a radical departure from a regular 401(k): Money withdrawn from a Roth 401(k) plan is completely tax-free, not merely tax-deferred. The only requirements for this status is that you have to be at least 59frac12; when you begin taking distributions, and you have to have been a participant of the plan for a minimum of five years.

While the news on income taxes favors regular 401(k) plans prior to retirement, the advantage shifts entirely to a Roth 401(k) plan when you are retired. And thats the time that it will really count.

2. Income Tax Diversification

Tax deferral is probably the main reason why so many people take tax-sheltered retirement plans. Its a way to shield current income from high taxes and defer taxes on investment earnings within the plan.

But an often-overlooked strategy in retirement planning is income tax diversification. Its important to realize that the general assumption that you will be in a lower tax bracket when you retire may not be what happens. This is particularly true if you do have a variety of income streams. Consider the potential income sources you could have in retirement:

  • Your Social Security benefit.
  • Your spouses Social Security benefit.
  • The annual distribution from your regular 401(k) plan, especially if it has a very healthy balance.
  • Any pension income that either you or your spouse have.
  • Rental real estate income.
  • Non-tax sheltered investment income.
  • Any income from employment, self-employment or passive income arrangements.

Taken individually, none of these income sources may be enough to put you in a higher tax bracket. But if you have several of these sources — and chances are you will — the possibility of being in a high tax situation cannot be ignored.

If thats the case, your cash flow will be helped immensely if at least some of your income is derived from non-taxable sources. Because withdrawals from Roth 401(k) plans are tax-free, these plans qualify as a form of income tax diversification for retirement.

This is even more important since Social Security is subject to income tax, based on your overall income. If your investment income is high, a greater percentage of your Social Security be subject to income tax. If a substantial amount of your income is tax-free, such as distributions from a Roth 401(k) plan, then less of your Social Security benefits will be taxable.

You wont be able to do much to change that arrangement by the time you retire. Thats why its important to do something now.

3. If Youre In a Low Tax Bracket Right Now

If you are in a low tax bracket right now, say the 10 percent or 15 percent marginal rate on the federal, you should have even greater interest in participating in a Roth 401(k) plan.

When youre in a lower tax bracket, the benefit of income tax deferral from regular 401(k) plan contributions is minimal. For example, if you are in the 15 percent bracket, youll save $1,500 this year by contributing $10,000 to your regular 401(k) plan.

Now everyone can use extra $1,500. But lets say that your retirement income turns out to be higher than your income during your working years, and youre in the 28 percent tax bracket. You will pay $2,800 on a $10,000 withdrawal from your regular 401(k) plan. That means that while you saved $1,500 when you made the contribution, youll paid an additional $1,300 when you withdraw the money in retirement. ($2,800 – $1,500). Using a Roth 401(k), youll pay the $1,500 in tax now, but save $2,800 in retirement.

The calculation is actually more complicated, because between the time you made the contribution and the time you withdrew money, you also invested the money and generated tax-deferred income. But the point still stands — youll be paying 28 percent on withdrawals of money that saved you only 15 percent at the time you made the contributions.

Thats a negative exchange, even factoring investment income tax deferral. However if you have a significant amount of money in a Roth 401(k) plan by the time you retire, the distributions that you take have a plan could very well keep you out of that higher tax bracket in the first place. Not to mention that at least some of your income will be completely tax-free.

4. Youll Probably Still Get the Employer Match

Even people who do have a Roth 401(k) plan at work often fail to take advantage of it out of fear that they wont get the company matching contributions the way they would with a regular 401(k) plan. While its true that not all employers provide the company match for a Roth 401(k) plan, some do. You need to investigate this.

Employers that do extend the company match to the Roth 401(k) plan typically place the match into the regular 401(k) plan. If they do that, its OK. It will enable you to have all the benefits of a Roth 401(k), while also helping to expand contributions of your regular 401(k).

5. No Required Minimum Distributions

One of the lesser-known benefits to a Roth 401(k) plan is that it does not impose the required minimum distribution rule. On virtually every other tax sheltered retirement plan, you are required by the IRS to begin taking mandatory plan withdrawals — subject to income tax — no later than age 70frac12;. The withdrawals are at least loosely based on your remaining life expectancy, and there are stiff penalties if you fail to take them.

We can think of this as the governments way of forcing money out of tax-sheltered plans, where it can finally be taxed as ordinary income. If you are trying to minimize your income tax liability by deferring withdrawals from tax-sheltered plans, that strategy will only work until you turn 70frac12;.

The Roth 401(k) plan is exempt from RMDs. You can allow the money in the account to grow for the rest of your life, enabling you to pass the full amount of the account on to your heirs. Thats an excellent estate planning strategy, and it also provides you with 100 percent control over all of the money and income that you have in the account.

6. More Flexibility for Your Life in Retirement

Having a well-funded Roth 401(k) plan gives you options for retirement.

Lets say that rather than waiting until 65 or 67 — or what ever the Social Security Administration determines your age of normal retirement to be — you decide that you want to semi-retire at 60, while you are waiting for Social Security benefits to begin. A Roth 401(k) plan can help you.

You can choose to live on a mix of part-time employment or business income, along with regular distributions from your Roth 401(k) plan. The tax-free nature of the withdrawals from the plan will be especially important since the portion of your income that is earned from a job or business will be subject to FICA taxes.

You can take distributions from a Roth 401(k) plan in lieu of Social Security income. You can also rely on Roth 401(k) distributions, so that you wont have to touch your regular 401(k) plan before you fully retire.

With people living longer than ever, worrying about out-living your money has become a common retirement concern. But a Roth 401(k) plan is one of the best solutions to that problem.

Since there are no RMDs, you can leave the money in a Roth 401(k) plan for as long as you want, and it will continue to grow. In the meantime, you can live primarily on your regular 401(k) plan, and when that begins to deplete, you can begin taking withdrawals from your Roth 401(k) plan — at any age you decide upon.

You can think of it as a two-tiered retirement strategy, with one plan to cover you in the early stage of retirement, and the other — the Roth — continuing to grow so that it will take care of you in the later stages of your retirement.

7. Advance Protection From Widely Anticipated Income Tax Increases

A lot of experts predict that income tax rates will only get higher in the future, probably much higher. When you consider the size of the national debt — now officially at nearly $18 trillion — and the retirement of tens of millions of baby boomers — higher taxes in the future are practically a given.

The current top federal income tax rate is 39.6 percent — but additional taxes on high income earners push the effective rate into the mid-40s. But that rate is reasonable by historic standards. The top federal income tax rate hit 94 percent during World War II, and it remained no lower than 70 percent until 1981. A budget crisis or a swamping of the Social Security and Medicare systems could push tax rates much higher than we can imagine right now.

The Best Credit Repair Companies of 2014 are Ranked

PR Web

Los Angeles, CA (PRWEB) December 11, 2014

Top 5 Credit Repair Companies, a website that helps people who need to improve their credit score by featuring helpful and thorough reviews of five of the best credit repair companies, has just finished ranking the top companies for 2014.

The founders of the Top 5 Credit Repair Companies website truly understand just how much a low FICO score can negatively impact peoples lives. They too once had poor credit scores, and worked with credit repair services to try to make them better. As they found out the hard way, not all of the companies are created equally, and some are much better at repairing a low credit score.

We have been in the same situation and want to make sure that you learn from our mistakes, noted one of the founders.

Recently, after reading through hundreds of customer reviews as well as conducting thorough research on five of the most reputable credit repair companies in the country and with whom we have an advertising relationship, the founders have named Lexington Law as the top credit repair company. The company has helped over hundreds of thousands of clients since 2004, it is rated with the Better Business Bureau, and it features a sophisticated and technologically-advanced web based user platform that allows clients to easily track their progress.

As an article on the Top 5 Credit Repair Companies website titled How Does Bad Credit Affect Me explains, consumers will definitely benefit from working with a top credit repair company like Lexington Law. Credit scores determine much more than a persons loan worthiness–they are also used to see if a person qualifies for an insurance policy, what interest rate he or she will pay on a loan, and what the loan term will be.

Usually you have to take out a loan in order to buy a car, a house, or even appliances such as a television, the article explained, adding that the rate of these loads depends on the applicants credit score.

If you have an excellent credit score, then you will have a greater chance of having better loan terms and lower interest rates. If you have bad credit, then these loan lenders will be less likely to trust you and make it more difficult to take out a loan.

In addition to the in-depth reviews of the top credit repair companies, the Top 5 Credit Repair Companies website features other helpful articles that can help people learn all they can about improving their FICO score, as well as related topics. For example, one article that is getting a lot of attention lately from readers explains what identify theft is and how people can prevent it from happening to them.

Anybody who would like to learn more about Top 5 Credit Repair Companies is welcome to visit the website where they can read through the helpful reviews.

Survey shows many not ready to pay for care as they age: "Own Your Future …

Research shows that 70 percent of people 65 and older will need long-term care at some point in their lives. Despite these projections, the 2014 Department of Human Services State Fair Survey shows more than 30 percent Minnesotans do not know how they would pay for that care. An additional 13 percent of respondents said they would rely on government programs to pay for long-term care.

Since the survey was launched in 1998, respondents consistently have said they do not know how they would pay for long-term care. At the same time, losing health coverage and needing care register as major concerns for those surveyed. Nearly 48 percent said losing health was their biggest worry, while 34 percent identified running out of money, 11 percent said being a burden to family and 7 percent said not being able to save for retirement.

In response to these trends, the Dayton-Prettner Solon Administration launched Own Your Future in 2012. The initiative is designed to help Minnesotans plan for their long-term care needs, including how to pay for care.

The private financing of long-term care is critical to reducing undue pressure on public programs and helping older Minnesotans gain access to the care they deserve, said Lt. Governor Yvonne Prettner Solon. More important, when Minnesotans are able to plan for their long-term care, they have more choice, control, and peace of mind.

Own Your Future currently is analyzing a variety of long-term care financing options that may be attractive to middle-income Minnesotans. In addition to long-term care insurance, these include new types of life and health insurance and new ways to tap home equity and savings plans.

The need for Minnesotans to prepare for their long-term care becomes more urgent when we consider that the number of Minnesotans over age 65 will double between now and 2030, said Human Services Commissioner Lucinda Jesson. By 2030, one of every four Minnesotans will be over 65 compared to one in eight today.

Of the 2,624 people surveyed this year, 32 percent said they do not know how they would pay for long-term care while an additional 13 percent said they expect to use government programs.

Of the remainder, 22 percent said they would use personal savings and 24 percent said they would use long-term care insurance.

More than 40 percent of the State Fair survey respondents said they dont know where to go if they wanted to purchase a product to pay for long-term care. Other respondents said they would go to their financial advisor (29 percent),

insurance agent (22 percent), the Own Your Future website (11 percent) or the Senior LinkAge Line (17 percent), which is an informational and assistance service of the Minnesota Board on Aging.

More information about financing long-term care and a copy of the survey report is available at mn.gov/ownyourfuture.

Business Development Companies Reveal Risks

As is often the case, the larger the dividend yield, the more risky the payout. I talk about this quite a bit in this video: Dividends, Dividends, Dividends. Please have a look. All else equal, we tend to prefer cash-flow-based operating companies such as Microsoft (NASDAQ:MSFT) rather than opaque, risky structures such as business development companies (BDCs), where traditional fundamental analysis is less informative.

It almost goes without saying that the biggest threat to BDC profitability is movement in interest rates — and not just in one direction. With interest rates collapsing over the past several years, investors of all types have been forced to chase riskier assets for yield. This means that new competitors have emerged in the form of hedge funds and other investors seeking to finance lower-middle market and middle-market businesses. In its regulatory filings, Triangle Capital (NYSE:TCAP), for example, lists such competition as a major risk factor, saying:

We operate in a highly competitive market for investment opportunities. A large number of entities compete with us to make the types of investments that we make in target companies. We compete for investments with other BDCs and investment funds (including private equity funds and mezzanine funds), as well as traditional financial services companies such as commercial and investment banks and other sources of funding. Moreover, alternative investment vehicles, such as hedge funds, also invest in lower middle market companies. As a result, competition for investment opportunities in lower middle market companies is intense. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of capital and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments than we have. These characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than we are able to do. We may lose investment opportunities if we do not match our competitors pricing, terms and structure.

Conversely, an increase in interest rates would increase the cost of borrowing for BDCs, potentially reducing net investment income margins while hurting the value of existing securities held on their books. In its regulatory filings, Main Street (NYSE:MAIN) agrees, listing rising rates as a major risk factor, saying:

Changes in interest rates may affect our cost of capital and net investment income. Some of our debt investments will bear interest at variable rates and the interest income from these investments could be negatively affected by decreases in market interest rates. In addition, an increase in interest rates would make it more expensive for us to use debt to finance our investments. As a result, a significant increase in market interest rates could increase our cost of capital, which would reduce our net investment income. Also, an increase in interest rates available to investors could make an investment in our securities less attractive than alternative investments, a situation which could reduce the value of our securities. Conversely, a decrease in interest rates may have an adverse impact on our returns by requiring us to seek lower yields on our debt investments and by increasing the risk that our portfolio companies will prepay our debt investments, resulting in the need to redeploy capital at potentially lower rates. A decrease in market interest rates may also adversely impact our returns on idle funds, which would reduce our net investment income.

Competition for deals and interest rate movements make for a difficult competitive environment, and sure enough, a dividend cut at Prospect Capital (NASDAQ:PSEC) came in a warm holiday package recently. The business development company announced that it would reduce cash dividends to shareholders to $0.08333 on a monthly basis with the following record and payment dates:

8.333 cents per share for February 2015 (record date of February 27, 2015 and payment date of March 19, 2015);

8.333 cents per share for March 2015 (record date of March 31, 2015 and payment date of April 23, 2015); and

8.333 cents per share for April 2015 (record date of April 30, 2015 and payment date of May 21, 2015).

Prospects expected dividends will mark about a 25% reduction from its prior dividend of $0.1106. You may ask: Why are we writing about a firm that just announced it has cut its dividend? Well, for one, the lure of a monthly cash dividend payout has attracted many a financial advisor to scoop up shares to satisfy clients monthly income needs. Second, even after the dividend cut, Prospect will have a forward yield of 11.7%, luring new individual investors to the table. To us, we see it as our responsibility to inform financial advisors and individual investors of the significant risks related to BDCs — not only related to the sustainability of the dividend, but also related to the material risk of capital erosion, which has been the case at Prospect for some time. The business models of BDCs are not as transparent as we would prefer.

(click to enlarge)

Prospect (PSEC) said that the reason for the dividend cut centered on electing in the past year to take on less risk and focus on higher earnings quality by increasing (the) percentage of first lien loans and accepting lower interest rates in this yield compressed environment. Though we give credit to management for not chasing higher yields on investments with abnormal risk profiles, that doesnt mean its income investors are happy. Instead, it speaks to the challenging competitive environment of a BDC, and the entitys inextricable ties to the interest rate markets. Management threw in a teaser in the press release for dividend growth investors, nonetheless:

We believe there may be upside to our new reduced dividend level, a dividend level we believe we can sustain over the next year and longer even with no dividends or fees from portfolio companies. We also believe we should wait for upside events to occur before committing to any increase in our dividend. If we earn one penny per quarter or more in dividends or fees from portfolio companies, we expect to earn $1.00 per share or more in NII over the next twelve months (25 cents per share or more on average each quarter). As a result, we believe 8.333 cents per share per month is a sustainable payment from NII over the next 12 months. To the extent our taxable earnings continue to exceed NII as well as our regular dividends, we may need to declare additional special dividends to meet our requirement as a tax-efficient regulated investment company to distribute 90% of our taxable income to shareholders.

In any case, our opinion on BDCs should be clear: were not interested in running out and adding a company that slashed its dividend to the Dividend Growth portfolio, nor do we think its BDC peers are worthy of consideration given that they are operating in the very same environment. Lets just say that we pay close attention to Warren Buffetts rule No. 1: Never lose money.

In case you missed clicking on the video at the top of this article, it can be accessed here. Thanks for reading!

A list of BDCs: American Capital (ACAS), Apollo Investment (AINV), Ares Capital (ARCC), Blackrock Kelso Capital (BKCC), CorEnergy (CORR), Equus (EQS), Fidus (FDUS), Fifth Street Finance (FSC), Full Circle (FULL), Gladstone Capital (GLAD), Golub (GBDC), Hercules Technology (HTGC), Horizon Technology (HRZN), KCAP Financial (KCAP), KKR Financial (KFN), Main Street (MAIN), MCG Capital (MCGC), Medley Capital (MCC), Monroe Capital (MRCC), MVC Capital (MVC), New Mountain (NMFC), NGP Capital Resources (NGPC), Oxford Lane (OXLC), Pennant Park (PNNT), Prospect Capital (PSEC), Solar Capital (SLRC), Stellus Capital (SCM), TCP Capital (TCPC), THL Credit (TCRD), TICC Capital (TICC), Triangle Capital (TCAP), Whitehorse Finance (WHF).

Complete FS appointed by MCI Club

Complete FS has been appointed by the specialist mortgage distribution channel of the newly launched, Mortgage Compliance and Insurance Club (MCI Club).

The team will see Complete FS as the only preferred referral point of MCI Club members for specialist mortgage cases, which include bridging and commercial, near prime, buy-to-let, credit repair and declined mortgages from the high street.

The MCI Club, which launched in November, is open exclusively to users of the Mortgage Keeper CRM service and had over 1000 potential users as they aim to drive quality mortgages business to lenders.

Director at Complete FS, Tony Salentino, said that the MCI have made a big impact in the short space of time theyve had in the intermediary market.

The specialist lending arena continues to gain momentum and there is certainly growing intermediary demand for specialist products, services and support, he said.

As such more and more brokers are looking to utilise the services of specialist distributors to assist in the placing of complex and non-mainstream cases.

It is testament to our experience, expertise and tenure of over 21 years, that we have been invited to enter into such an important strategic partnership at this stage in MCIs development. We hope it will grow into a long lasting and complimentary relationship.

The MCI Club is in the process of building an extensive lending panel and building select relationships across a number of sectors within the mortgage market and Managing Director, Paul Whitehouse, says the link-up with Complete FS will help them progress.

I have known the team at Complete FS for many years. They possess a consummate knowledge of the specialist markets combined with strong service values that mirror those of MCI, he said.

This partnership will ensure that our members receive the best possible support and have access to a range of specialist solutions for even the trickiest of cases.

Specialist distributors havent had an easy ride in recent years but its clear that those offering a closer, more personal service and the ability to provide an array of suitable product solutions are playing an increasingly important role for brokers.

China to Boost Yuan Use for Offshore Securities

China has been actively trying to expand the role of the yuan on the global stage, hoping to give the currency a
bigger share of the nations trade and investment. Ultimately, it hopes to see the yuan become a key reserve currency
alongside the dollar and the euro.

The newspaper didnt say how much yuan it expected to see put in use in support of these offshore investments.

It didnt give a formal start date for the program, though it appeared to be in effect already. The newspaper said
only that the central bank had issued a notice on the program recently.

Write to William Kazer at William.kazer@dowjones.com

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SIGN OF A SLOWDOWN: Personal loans, once growing at 20%, down to 4.2% in …

BANK Negara Malaysia does not expect to see an increase in personal financing with the implementation of the Goods and Services Tax (GST) next year.

Its governor Tan Sri Dr Zeti Akhtar Aziz Its governor Tan Sri Dr Zeti Akhtar Aziz said the segment, which was a matter of much concern between 2010 and 2012 as it was growing at an above 20 per cent momentum, had moderated to 4.2 per cent in the third quarter as a result of greater financial literacy and macro-prudential measures.

“Personal financing moderated at 4.2 per cent for the third quarter ended September 30 2014 from five per cent in the previous quarter,” she said at a media briefing on Malaysia’s third-quarter gross domestic product (GDP) performance, here, yesterday.

“This shows the effects of macro-prudential measures not only in the banking sector but also in the non-banking sectors, such as shadow banking, cooperatives and other credit agencies.”

The central bank expects personal financing to grow at the same moderate pace until the end of the year and throughout the GST implementation.

“We expect it to continue to stabilise and not increase with the GST as consumers from the lower income group are being supported by income transfers to help them meet their living expenditures,”Zeti said, referring to the 1Malaysia People’s Aid (BR1M) programme.

According to a Bank Negara report yesterday, the bankruptcy level in Malaysia had also moderated to 5.5 per cent in the third quarter.

On the decline in savings among businesses and individuals, Zeti said it was not at worrying levels as investment activities were strong.

She said the decline translated into narrowing surplus in the balance of payments, which accounted for three per cent of gross national income.

“Yes, we are seeing some moderation in savings activity but this has not put a limit on access to funding.

“This is proven by investments that have continued to grow significantly,” she added.

On fiscal debts, Zeti said Bank Negara was well aware of the need to remain prudent in managing the increase in national debt and its contingent liabilities.

“The government is looking at measures to lower the debt and this is proven with the declining of its debt ratio to the GDP from 55 to 52.8 per cent.

“We are also pleased that the deficit trend is declining as well, demonstrating the government’s commitment to deal with the issue,” Zeti added. -NST