Fine Print Alert: Discover’s Personal Loan Growth and FHFA Changes

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Updated on Friday, April 24, 2015

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In our weekly Fine Print Alert we call out news from the financial community and shine a spotlight on any sneaky changes in the fine print. We also share our favorite reads from the week.

FINE PRINT ALERT

Discover gets aggressive in personal loans…

Discover has been quietly building a personal loan portfolio that is now $5.1 billion in size. Lending Club, which has received a significant amount of press, has originated over $7.6 billion since it was launched in 2007. In the small market of personal lending, Discover is a meaningful player.

The team at Discover launched the product in a very intelligent way. At first, they started by cross-selling loans to their existing credit card customers. By doing this, Discover kept acquisition costs low while building risk models and infrastructure. Now, Discover is expanding into the open market, accepting applications online and via direct mail from people who may not have a Discover credit card.

FHFA changes mortgage fees, but nothing really changes for consumers…

In the Friday announcement, the FHFA eliminated the 25 basis point upfront adverse market charge. This fee was implemented in 2008, and impacted all government-backed mortgages.

However, for most borrowers there will be no change at all, because the following mortgage fees changes were also made:

  • For borrowers with both an LTV of less than 80% and a credit score above 700, the standard upfront fee will increase by 25 basis points. In other words, the adverse market fee is removed, but the upfront is increased by the same amount.
  • The upfront fee will increase by 37.5 basis points for cash out refinances, investment properties and loans with simultaneous second financing (often called “piggy-back” loans). If a loan falls into more than one category (for example, cash out on an investment property), the increase can be more than 25 basis points
  • For jumbo conforming loans, the fee increases by 25 basis points. Jumbo conforming loans are greater than $417,000 and are offered in certain high-cost locations.

For most borrowers, there will be no change to the price that you are paying for a mortgage.

The impact will only be felt by borrowers who have investor properties, are looking to take cash out, or are using a second mortgage as a down payment.

Read the full article on the FHFA announcement here.

FAVORITE READS FROM AROUND THE WEB

  • Why get scholarships is bad advice If you have financial need, colleges typically deduct the amount of so-called “outside” scholarships from the free aid such as grants and their own scholarships that they otherwise would give you. Schools don’t have to reduce the loan portion of your package unless your outside scholarships exceed the grants and other free aid they were planning to bestow. Liz Weston explains how to make school more affordable on her site Ask Liz Weston.
  • How to prioritize retirement savings? Try these 3 steps Your first priority when it comes to saving for retirement should be to make sure you’re putting away enough money. But once you’ve earmarked a percentage of pay for retirement savings, where do you put it? Research shows that if you start saving 15 percent of your pay when you’re 35, you should have enough money by age 65 to live comfortably in retirement. Sharon Epperson covers the best way to create a tax-triangle in her story on CNBC.com.
  • Actually, young people SHOULD invest in their 401(k) plans The earlier you begin saving for retirement, the more you can take advantage of compounding. The money that you start saving in your twenties will start accruing interest, and then that interest will accrue interest of its own, leading to an exponential growth in the size of your account.To see why it’s a good idea to start saving in your 20s, consider the following thought experiment. Read Andy Kiersz’s full argument on Business Insider.

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