In 2009, the Obama administration passed legislation to allow the government to lend directly to student loan borrowers. At the time, this meant that these loans would be available when other financial institutions wouldn't or weren't able to lend, and that the federal government could offer loans at lower interest rates than private institutions.

Now, more than 85 percent of student loans are federal loans, but that may soon change. Some credit unions and banks are realizing that as the cost of college continues to increase , the need for student loans will as well, and provide more room for private lenders. This move could also remove some of the risk within the loans made by the federal government, an article in USA Today explained, since the default rate has been on the rise for the past few years.

"Taxpayers are looking at a much riskier portfolio than a private lender would support," Amy Crews Cutts, chief economist at credit agency Equifax, told the news source. "It's risky because of the volumes. The government stepped in during a crisis to make sure those funds would be available. But we've over-stimulated that part of the market without the quality of underwriting you need."

For private lenders that plan on entering this market, lender software can help improve the quality of student loans. With credit and risk management tools, financial institutions can learn more about the borrower and his or her ability to repay, helping to cut back on many of the delinquencies now plaguing the current federal student loan industry. Investing in risk management tools will continue to become more important as more private institutions are needed to provide loans. 

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With the economy very much still in recovery, many individuals are choosing to go back to school, or go to school for the first time, with the intention of gaining an esteemed and high paying job upon graduation. However, as the unemployment rate continues to remain high, many recent graduates are finding themselves with high levels of debt and not enough opportunities to repay their loans. Now, 17 percent of all student loan borrowers are 90 days delinquent on their loans.

While this is a scary statistic for both borrowers and lenders, an article in the Atlantic proves that there are many factors to consider when looking at the delinquency rate. 

"One of the nuances that often gets lost in discussions about student debt is that the biggest borrowers aren't necessarily the riskiest borrowers," the article wrote. "There are many people who take out modest loans but have trouble paying them back, either because they fail to graduate or because their degree doesn't open many doors in the job market."

Many states that have high rates of student loan delinquencies, the article showed, don't necessarily have a high debt. West Virginia and Mississippi have some of the lowest level of borrowers in the country, yet the highest delinquency rates, likely due to high unemployment rates.

For lenders, this means it is necessary to be looking at information other than just the amount of debt a borrower is taking on. A borrower's likelihood to stay in school and find a job after college or graduating school may be what is more important. With risk assessment software, any lender can use the most information about a borrower to make an accurate decision about loans and keep delinquency rates from increasing.

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In GDS's first quarter newsletter this year, the company discussed the growth in the crowd-funding market. Crowd funding allows anyone with a business plan or other initiative to create an online account to ask for funds from the general public for a specific amount within a set time period. Only if the fundraising goal is reached does the group receive the money.

For small companies, crowd-funding sites like Kickstarter mean that instead of asking for a traditional loan from a financial institution, funds can be gained from those interested in the potential business as donations, not from shareholders or typical investors. For banks, sites like Kickstarter could change the lending industry, an article in American Banker said. Crowd-funding and peer-to-peer lending sites have allowed lenders and borrowers to go around the traditional bank when credit was unavailable after the financial crisis.

But even as banks provide more loans, these sites have still been growing. Eventually, government regulation and compliance may be required, the news source said. 

"There is nothing stopping a direct funding, or a direct payment relationship where you completely break the bank out of the equation," Jim Marous, the senior vice president of marketing agency New Control, said to American Banker. "No one is doing anything about the compliance question. Does the government, at some point, get involved, and where are the controls on funding?"

At the same time, while there may soon be more regulation, Marous added that banks can look to these sites to adapt similar services, and non-traditional lenders can invest in credit and risk management tools to make stronger lending decisions. As the range of financial services expands, having risk assessment software can help any lender stay profitable. 

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Though consumers have been waiting for banks to ease lending standards for years, a report by Moody's Investors Services explains that this attitude could lead to less protection, creating the same risk that led to the banks revoking lending in the first place. 

According to American Banker, more than two-thirds of major banks have lowered rates on loans given to medium and large-sized business, and 50 percent of banks have said that they have relaxed their lending standards, an increase from earlier this year. 

While these numbers signal an improvement in both borrower and lender confidence, it's even more important to lend to qualified borrowers as standards ease and prices fall. 

"Thinner pricing and weaker covenants mean that when loans start to go bad, you have less protection for those loans," Megan Snyder, a Moody's analyst, told American Banker. "To the extent they give away those covenants by not including them in loan documents, they give away their level of protection."

The report added that more regulations since the crisis have helped keep risky lending practices from getting out of hand. Still, with the "competitive nature" of banks, it can be easy for the short-term benefits of risky loans to overshadow the long-term benefits of having more worthy borrowers. 

However, tools can help lenders both compete with low rates while lending to qualified borrowers. With credit and risk management software, lenders have more information about borrowers and their ability to pay back a loan. With more information, lenders can make more accurate decisions while continuing to lower rates and prices, avoiding potential defaults while increasing profits. 

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For large corporations and companies, using Big Data is nothing new. Taking large volumes of information to make complex decisions and increase profits has been a common practice for many financial institutions as technology allows information from credit card transactions, mobile devices, social media and other resources to find trends among consumers and cater to specific customers based on past purchases. 

But it's not only large companies that can benefit from this information. MasterCard and IBM are pushing for small mom and pop shops to use Big Data to increase their profits as well. In an article for Newsday, small stores purchase data to compete with other similar businesses. 

"A pizza parlor in Westchester near our office cannot possibly know enough about their competitors and what's going on. But if they self-identify their competitor … I could tell them when they run a promotion, when the other guy runs a promotion, where their usage comes from. Very valuable information at a very reasonable price," MasterCard CEO Ajay Banga said to the news source.

Ed Abrams, the vice president of midmarket business at IBM also said that he's noticed places he goes to are using data analytics to increase profits. Since he drops off a coat for dry cleaning on a consistent timeline, he has begun receiving coupons for coat cleaning on his off weeks. 

Obtaining this information is also becoming easier. Along with data engine software, payment companies like Square provide users with credit card information from its iPad application, and MasterCard and American Express both sell this type of data. 

As Big Data becomes both more accessible and affordable, small mom and pop stores may find that this is the norm, not the exception. 

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As the effects of the recent financial crisis are still on the minds of many consumers, homeowners or potential homeowners are careful not to bite off more than they can chew. With this new mindset, default rates for credit cards and other financial tools have been decreasing as owners are realizing the potential damages that resulted in 2008. At the same time, there is still a lot of uncertainty regarding the future of the lending industry and how lenders are adjusting to having less resources than before. Fortunately, with credit and risk management tools, financial institutions can find more information about applicants and borrowers and make better decisions regarding their qualifications. 

One example of the still-recovering industry can be found in the Mortgage Bankers' Association (MBA) recent National Delinquency Survey. The MBA found that in the first quarter of this year, the number of mortgages that were either in foreclosure or one payment past due fell to their lowest level in four years. The report also said that the number of homes in foreclosure decreased in 40 states.

While this is clearly positive news, the MBA also found that the mortgage delinquency rate, which does not include homes in the foreclosure process, increased in the first quarter, compared to 2012. Additionally, there were 33 states that had an increase in foreclosure starts, again pointing to the "uneven nature of the economic recovery," as an article in American Banker pointed out. 

"We remain in a period of slow and uneven economic and job growth in the U.S. and there are still many borrowers without stable, full-time employment, or that are still unemployed," Michael Fratantoni, the MBA's vice president of research and economics, said in the report. 

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At the end of last month, we wrote about how regulatory changes for the Small Business Administration has led to additional funding for business loans. The agency has announced that it may be waiving a fee for banks guaranteeing loans for small businesses, which would likely help those with smaller budgets compete with applicants interested in loans that may appear more profitable for the bank.

Now, more good news has arrived for small businesses looking for financing. A survey by the FICO's Professional Risk Managers' International Association found that 70 percent of risk managers at U.S. banks expect that demand for loans from small businesses will rise in the next six months, and over half said that more credit will be given to these businesses. Additionally, more than half of respondents said the increase in demand will be me and more than three-quarters believe that the delinquency rate will either stay the same or decrease. 

In all, those institutions that are controlling the money that may be given to small businesses are relatively positive–something that couldn't be said for the past few years. 

"In the past, the banking professionals we survey haven't been as optimistic about credit for small businesses as they have been for other types of lending," Andrew Jennings, FICO's chief analytics officer, said in a press release. "The upbeat sentiment makes me think it's possible that we'll see small businesses picking up the pace of investing and hiring in the months ahead."

For financial institutions that will be lending to these small businesses, credit management risk tools can help both extend credit while keeping delinquency rates down. As more small businesses apply for loans, having the necessary risk tools can help banks keep up with lending while bringing down defaulted loans.

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GDS Link's fourth quarter newsletter, released this March, discussed the credit and risk management company's success at the end of 2012 and its new products that customers may soon be seeing, namely a commercial credit score for a Turkish credit bureau. In April, the company released its first quarter newsletter. 

Highlights in the beginning of this year included a new Consumer Credit Bureau system for the the ALJ Group in Saudi Arabia. The system includes a new alert feature that tells customers when their credit profile is changed, as well as informing them of new trade or credit inquiries. The goal is to help cut back on identity fraud, so customers are fully aware of their financial information. The new system also allows users to monitor and compare their trades as a stronger way to determine risk.

Another event that happened this quarter was a partnership with Indian firm Athena Credit Counseling Pvt Ltd. The company works with lenders and insurance companies to help them use credit information as efficiently as possible, with assistance interpreting and analyzing data. 

"A credit bureau is not just about 'catching the defaulter' (although that does happen!) – its about identifying the good borrower, rewarding them, using bureau value add products for increasing business and profitability and laying the path to moving towards risk based differential pricing," the newsletter explained about Athena Credit Counseling Pvt Ltd.

Lastly, the report examined the recent industry trends of peer-to-peer lending, for both individuals and hedge funds. More investors have been turning to lending through online P2P sites as an investment tool, with both high returns and low risk as advantages over other tools.

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Though microlending - the idea of providing small loans at low interest rates to individuals in rural areas – gained a favorable response when first created, other common tools in developed countries, like savings accounts and insurance, have not made their way to developing nations. 

Fortunately, one microlending company is hoping to change this, according to an article in Business Week. Accion, a non-profit that provides microloans worldwide, has announced that it will be investing $10 million between five startup organizations looking to create more finance opportunities in developing countries. Accion managing director Paul Breloff said that while microlending is a "hugely important part of the puzzle," there are still many other parts needed to help the global, low-income population prosper. With more help achieving financial stability individuals won't have to turn to microlending as a form of insurance or to purchase necessities like food or healthcare. 

This isn't the first time Accion has helped other organizations.  Previously, it invested in an organization providing healthcare for low-income Mexico residents, and another improving the credit scoring system in Hong Kong.

One of the reasons microfinancing has taken off when other financial tools haven't is because of the profits gained from these loans, making the service self-sustaining once in place. However, with new technology like credit and risk management tools, financial services that haven't made their way to more rural or low-income areas of the world can do so for less money than in the past. And now, if these new investments from Accion are any indication of what is yet to come from other organizations in the finance industry, residents of developing countries may soon see their financial options improve. 

The post Microlender to invest $10 million to help fund global poor appeared first on GDS Link.

As the auto and auto loan industries heat up – both have seen an increase in sales in the past year – some questionable lending practices have led the Consumer Financial Protection Bureau (CFPB) to begin to look more closely into auto lenders. According to an article in the Wall Street Journal, some car lenders have been found adding on extra products and interest rates without informing the borrower. 

Specifically, some lenders were discovered to add insurance and extra warranties when putting together a car loan. Since these extras are included in the overall price, the CFPB has issued subpoenas to some auto lenders to ensure the borrowers are aware of what they are purchasing. Car lenders, however, have said that customers are fully aware that these add-ons are optional. 

"In the past few weeks, the CFPB has issued civil subpoenas to banks as well as the finance arms of auto makers, a move that could lead to civil charges and fines. The regulator has asked several dozen questions and made requests for data on auto lenders' practices, including sales of warranties and insurance," the Journal said, citing Alan Kaplinsky, a Philadelphia lawyer who represents financial companies.

This increased scrutinization by the CFPB is adding to previous concerns that some car lenders are raising interest rates more than necessary for low-income borrowers and keeping the extra revenue. 

Both of these possible practices may lead to more regulations, and more investigation of the industry. Data aggregation software, however, can protect lenders during audits and evaluations. Should more regulations be put in place by the CFPB, having strong data practices can help lenders adapt accordingly. 

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