Category: Finance

Is it possible to invest in real estate with no money? If you watch “how-to-get-rich-in-real-estate infomercials” on TV and the Internet, everyone and their dog seems to be getting rich doing just that – but can you believe them?

You can invest in real estate with little to no money upfront, but it’s more complicated than the promoters make it seem, and you’ll need to be patient. Real estate isn’t a get-rich-quick scheme.

What you won’t find here are exotic real estate investment strategies, like fixes and flips, which require a lot of capital and are more sophisticated than HGTV programs would have you believe.

Physical Real Estate Investing: Four Things to Consider

Here are four qualifiers for investing in physical real estate, whether you have a large down payment, a small one, or no down payment at all:

1. Sufficient income to carry the mortgage payment.
2. Stable employment/income.
3. Good to excellent credit.
4. Lenders may require “cash reserves” on multifamily properties.

All four qualifiers should be in good working order if you plan to purchase a physical property.

For example, you might get by with an average credit score, but your likelihood of approval will be higher with good to excellent credit. And the higher and more stable your income, the more easily you can qualify for financing.

Credit score and a verifiable income source are critical factors often glossed over by the “get-rich-in-real-estate” fraternity.

Also, lenders are more cautious when financing investment properties and multi-family homes. Lending requirements are more rigid than if you are purchasing a single-family principal residence.

They will ensure you have sufficient income to qualify for the financing you need, the source is stable, and you have good or excellent credit. If not, build your credit score as the first order of business.

How to Invest in Physical Real Estate with No Money

If your income and credit are in good shape and depending on your situation, you may be able to use one of the following six methods to purchase real estate with no money.

1.  FHA Mortgage with Down Payment Assistance

FHA mortgages are not available for investment properties. But you can purchase a 2 – 4 family property with a down payment of just 3.5% of the purchase price. That’s $17,500 on a $500,000 property.

And if you qualify for down payment assistance, you won’t need any money upfront.

Every state has down payment assistance programs, and the specific terms and requirements vary with each program. But regardless of where you live, your income will need to fall into a specific range.

For example, their requirements may be that your income cannot exceed the median household income for the area (or a percentage of the median, like 150%.)

In most cases, down payment assistance doesn’t need to be repaid as long as you live in the property for a minimum time period. You must be an owner-occupant to qualify. And unfortunately, some down payment assistance programs may limit availability to single-family, owner-occupied properties only.

2.  FHA Mortgage with a Gift

Even if you can’t qualify for down payment assistance, FHA will allow you to make a down payment with a gift from a family member. You can get 96.5% financing on the first mortgage, with the remaining 3.5% coming from the gift. You won’t need to provide any funds out of your own resources.

3.  Conventional Mortgage with a Gift

If purchasing a 2 – 4 unit property using a conventional mortgage, you will generally be required to provide at least 5% of the purchase price out of your own funds. But if your down payment is 20% or more of the purchase price, the entire down payment can come from a gift.

The gift strategy will only work if you occupy one of the units. If you are purchasing a property strictly for investment purposes, the lender may require you to provide the entire down payment from your own resources.

4.  Borrow the Down Payment from Your 401(k)

One of the fundamental rules of first mortgage lending is that you can’t borrow money for the down payment because lenders are trying to avoid 100% financing strategies and the risks they present to lenders.

But there is a workaround. Lenders will allow you to borrow down payment funds if they are secured.

For example, you can borrow against your employer-sponsored 401(k) program to cover the down payment. Under IRS regulations, you can borrow the lesser of 50% of the vested value of your plan, or $50,000. Check with your employer to see if your plan permits loans, as employers are not required to offer them.

401(k) loan proceeds can be used in connection with either an FHA or a conventional mortgage.

Note: Since a 401(k) loan is secured, lenders will generally not count the payment against you for income qualification purposes.

5.  Buy with a Home Equity Line of Credit (HELOC)

You must be a homeowner with substantial home equity to use this option. And some HELOC lenders may prohibit using HELOC proceeds to buy an investment property. If you plan to go this route, check with the lender first to ensure no such restrictions apply.

Similar to a 401(k) loan, a HELOC is a secured loan and an acceptable source of funds for a down payment. However, unlike a 401(k) loan, the lender will count HELOC loan payments against you for income qualification purposes.

But if you have equity, this is one of the best ways to avoid using cash for a down payment on a second property.

6.  Lease with the Option to Buy

The option of leasing a property before buying is not a standard form of home financing, though it does exist. But it requires two willing parties and a unique purchase contract for each transaction.

Generally, a lease purchase involves signing an agreement to rent a property for a specific period. It’s usually longer than one year and could be five years or more.

Essentially, the longer-term lease allows you to purchase the property before the lease expires.

The contract will include a specific purchase price, which you can exercise before lease expiration.

An advantage of a lease with the option to buy is that you can lock in today’s price on the property and purchase it several years in the future when it may be worth more. And if the property value declines, you can simply let the lease expire without ever making the purchase.

There are drawbacks too. For one, since you’ll be tying up the property for several years, with the owner/landlord agreeing to lock in the price, you may be required to make a larger deposit on the lease.

But I’ve also seen lease options that allocate a certain percentage of your monthly rent to the deposit. It’s possible that the applied rent payments will cover the entire deposit by the end of the lease term.

Risks Factors of Investing in Real Estate with Little to No Money

Investing in real estate with no money is possible – but it won’t be easy!

As you can see, there are multiple ways to invest in real estate with no money. But you must be aware of the limitations that come with that strategy. Here are some other considerations you will need to make.

1. Any no-money-down investment is a high-risk proposition. Zero equity means you have zero margins for error. That can become a serious problem if you purchase a house that declines in value. Also, the more you finance, the higher your monthly mortgage payment.

2. You need an emergency fund.

If you have a property with tenants, things will break and need to be fixed or replaced. That will cost money. You’ll want an emergency fund in place upon closing to be ready for contingencies.

3. You may be susceptible to high interest rates.

High interest rates are a reality in 2022. If you purchase a home with little to no money down, you may be at risk if mortgage rates suddenly rise. This is especially true for anyone living on a tight budget who can’t afford an increase in their mortgage payment.

4. It’s helpful if you are handy.

You don’t need to be able to renovate a property by yourself. But you’ll save a lot of money if you can handle most routine repairs yourself. Otherwise, you’ll go broke paying for repairs and maintenance.

5. Always get a home inspection before you buy.

During the housing boom of 2020/2021, a lot of new home buyers skipped this step. Many markets were so hot buyers were afraid to ask for one. And many sellers were turning away offers that asked for it. It doesn’t matter how much demand there is; never skip the home inspection; it should be near the top of your home buying checklist.

A home inspection is your one and only chance to find out “what’s under the hood” of the house. Fail to get the inspection, and any undetected problems will immediately become yours as of the day of closing.

Alternative Real Estate Investments

Did you know? You can invest in real estate without owning physical property and all the risks and hassles of property ownership or being a landlord. Here are two alternative real estate investments that let you start with less than $1000.

Real Estate Investment Trusts (REITs)

REITs are kind of like mutual funds that invest in commercial real estate. When you purchase units of a REIT, you are buying a small slice of ownership in office buildings, retail space, apartment complexes, and even medical or educational facilities.

REITs are designed primarily to provide income, which is paid as dividends. They are legally required to return 90% of all net revenue to shareholders. But you also have the opportunity for capital gains whenever underlying properties are sold at a profit.

REITs can be bought and sold through investment brokers like TD Ameritrade. They can generally be purchased for one share (or less) and are usually traded as easily as stocks.

Where to Buy REITs

One of the easiest ways to get started with REITs is through an exchange-traded fund(ETF). REIT ETFs are low-cost, provide diversification across the real estate asset class, and like individual REITs, they offer attractive dividend yields. If you’re interested in purchasing REIT ETFs, I recommend M1 Finance.

M1 Finance is a robo-advisor platform that uses a pie-investing approach. You can create your own “pie” with a mix of individual stocks and ETFs. For example, you could hold 3 ETFs in a single pie, one of them being a REIT ETF. For more information, check out my full M1 Finance review.

Some real estate crowdfunding platforms require accredited investor status. That means you must show minimum income and asset levels to qualify (and they’re steep!). But there are plenty of platforms that do not require accredited status.

Real Estate Crowdfunding: Where to Invest

One prominent example is Fundrise. With as little as $10, anyone can invest in non-publicly traded REITs. They have low fees and different plan levels for investors with more capital.

If you are an accredited investor, consider RealtyMogul. With a minimum investment of $5,000, you can begin investing in individual properties. These are some of the most profitable investment deals in the real estate crowdfunding space. Learn more in my RealtyMogul review.

Final Thoughts

As you can see, there are plenty of ways to invest in real estate with no money. But real estate investing carries plenty of risks, especially if you buy physical real estate. That’s why it’s critical that you do the proper research upfront. Once you do, if you’re not quite ready to jump into the real estate market, consider starting with individual REITs or a REIT ETF, and build from there.

FAQ’s on Investing in Real Estate With No Money

Greenwood, a neobank aimed at serving Black and Latinx communities, added a new subscription-based product called Elevate, which, at $200 per month, allows members access to private clubs, entertainment and professional networking sites.

The Atlanta-based fintech’s new subscription membership plan is the result of two recent acquisitions. Greenwood acquired networking hub and workspace The Gathering Spot in May, followed by its purchase of Valence, a professional networking platform for the Black community, in June.

Access to those two networks, combined with Greenwood’s digital banking platform, are included in the fintech’s new Greenwood Elevate membership.

“Those partnerships create the largest combined fintech and community platform for Blacks and minorities, serving a community of over a million people,” said Ryan Glover, Greenwood’s chairman who co-founded the neobank alongside civil rights leader Andrew Young and rapper and activist Michael “Killer Mike” Render. “We’re creating an ecosystem that provides best in class banking products through Greenwood, community through The Gathering Spot and career development and access to jobs through Valence.”

For Ryan Glover, an Atlanta-based entrepreneur and founder of Bounce TV, adding professional and entertainment focused offerings to the digital banking platform is a move into familiar territory.

“I built multiple businesses over my personal career in media, entertainment and music and never had any banking capital to build any of my businesses like my non-minority friends and counterparts or other executives of my ilk,” Glover said. “Greenwood is here to change that narrative and provide individuals with personal and professional capital to build their goals and dreams.”

To help promote the neobank’s Elevate membership, Greenwood partnered with NBA star Chris Paul to gift members of his graduating class at Winston-Salem State University access to Elevate.

Paul, who graduated from the historically Black university with a degree in communications last week, deposited $100 in a Greenwood account for each of the class’s 350 graduates, and will cover each account’s Elevate membership fee for a full year.

Glover said Greenwood has been moderately releasing Elevate invitations to Greenwood account holders and plans to increase those efforts exponentially 2023.

Other products the digital banking platform plans to roll out next year include lending and credit products, Glover added.

Leaning into the subscription model

Greenwood’s launch of a subscription offering follows a growing trend in the landscape of neobank’s who serve affinity groups.

LGBTQ+-focused neobank Daylight last month announced plans to launch a subscription-based service aimed at helping the queer community navigate the financial, legal and logistical milestones that come with creating a family.

Daylight, which has yet to disclose the service’s subscription cost, said Daylight Grow will feature family planning concierges, a family-building marketplace with vetted attorney networks, in-vitro fertilization and surrogacy clinics and loan access.

The service is undergoing research and development through a pilot program, and is set to launch to the public early next year, the company said.

Majority, a neobank targeting the U.S. immigrant market, charges members a monthly subscription fee of $5.99 for its bundled services, which include a Federal Deposit Insurance Corp. (FDIC)-insured account, debit card, remittance and international calling.

Glover said he views the subscription model is the “wave of the future” for neobanks.

“My gut is, the challenger bank community will not survive, as a financial entity, solely off interchange revenue,” he said. “I believe you can better serve your community and your customer base by offering consistent products that your customers understand, need, and subscribe to.”

Not all neobanks, however, are sold on the model.

Current dropped its $36 annual fee for teen accounts in February and its $4.99 per month fee in April. 

It may be coincidence, or perhaps mortgage cases habitually get the short end of the news-coverage stick.

Wells Fargo’s September agreement to pay $94 million to settle a class-action lawsuit — alleging the bank automatically placed mortgage borrowers into forbearance if they said they were experiencing financial distress — surfaced during the same news cycle as a slightly larger settlement to end a Labor Department probe into the bank’s alleged 401(k) misdeeds.

The Wells 401(k) story received far wider coverage.

So it is again.

A federal judge in Illinois on Monday granted Wells Fargo summary judgment in a case in which Cook County alleged the bank discriminated against nonwhite mortgage borrowers during the 2007-08 financial crisis.

The ruling means the bank avoids being further dragged in to a lawsuit seeking a payout of at least $300 million. It’s undeniably a win for Wells Fargo. It just happened to come less than 24 hours before the Consumer Financial Protection Bureau (CFPB) broke news of a record $3.7 billion settlement with the bank over a litany of unsavory practices.

In the Illinois case, U.S. District Judge Gary Feinerman excluded testimony from two witnesses Cook County leaned on to support its claims that Wells Fargo and Wachovia, a bank it acquired, engaged in “equity stripping” during the 2007-08 financial crisis. By that process, banks offer bad loans and then siphon value until borrowers are pushed into foreclosure.

The judge agreed with Wells Fargo that the opinions of Gary Lacefield, a financial compliance consultant, were inadmissible because he doesn’t meet the qualifications of an expert witness. 

Lacefield — enlisted to support the theory that Wells’ mortgage origination and servicing practices caused nonwhite borrowers to receive riskier and higher-priced loan products and then face higher rates of default and foreclosure — is not a statistician. But he gave outside statisticians “parameters” within which to prove that hypothesis.

The problem is, the statisticians gathered data and performed tasks beyond Lacefield’s expertise, “exercis[ing] their own professional judgment in choosing which statistical technique to employ,” Feinerman wrote in his opinion, seen by Law360.

Further, no evidence from Lacefield can establish the technique’s reliability, so Lacefield’s opinions must be excluded, Feinerman said.

Lacefield’s analysis attempted to show that certain “delimiters” increased the risk of foreclosure in loans made to nonwhite borrowers but failed to control for factors such as income, wealth or credit score “that might explain differential rates of experiencing certain treatment in servicing or in going into foreclosure,” Feinerman wrote.

Lacefield failed to compare similarly situated borrowers, so his analysis can’t prove intentional discrimination, Feinerman concluded.

Unlike Lacefield, Charles Cowan, another witness for Cook County, is a statistician. And Wells Fargo argued his opinions are unreliable because he analyzed loan products from different lenders to investigate the behavior of a single lender.

Because Cowan’s analysis considered loans for which Wells Fargo could not be liable, including ones it had no role in servicing or foreclosing, “any disproportionate effects identified by the analysis cannot properly be attributed to any Wells Fargo policy,” Feinerman wrote.

Cook County asserts Wells Fargo and Wachovia pushed Black and Latinx borrowers into mortgages without ensuring they could pay them. The banks then charged heavy fees when the borrowers couldn’t pay — and more fees when they tried to repay early or refinance, according to the suit. The foreclosures drove significant government expenditures — which is why the county sued.

“The county is correct that statistical disparities may be used to establish disparate treatment, especially where no other explanation for an observed disparity is present,” Feinerman wrote. “The county’s problem, however, is that its evidence for these disparities — the expert testimony of Drs. Lacefield and Cowan — has been excluded.”

Attorneys for Cook County did not immediately respond to requests for comment from Law360. 

Wells, however, did.

Some JPMorgan Chase shareholders feel a recent progress report on its racial-equity promises lacks clarity and that the audit process to create the report had “several deficiencies.”

SOC Investment Group, which suggested the bank conduct a racial-equity audit in 2020, said it believed JPMorgan and auditor PriceWaterhouseCoopers “approached this process with the narrow perspective of a financial audit” and that the firms “appear to have a basic misunderstanding of what a racial equity audit is and should be.”

JPMorgan’s report, released in November, outlines plans for $18.2 billion of the $30 billion it earmarked to address the racial wealth gap. The ongoing investment “is focused on the right economic drivers and it continues to learn and adapt as the work progresses,” the firm wrote at the time.

In an analysis published Tuesday, SOC Investment takes aim at JPMorgan for authoring the audit rather than having PwC do it. In sample racial equity audits provided to the bank, auditors had authored reports from Facebook, Airbnb and Starbucks.

Also noted within the analysis: The report doesn’t look at any internal diversity, equity and inclusion issues; and much of what constitutes the bank’s racial equity investment is tied to existing loans and programs at JPMorgan. Citing a New York Times report, $28 billion of the commitment “was made up of activities that were part of the bank’s normal business and were now being counted as specifically good for closing the racial wealth gap. $750 million of it went to straightforward business expenses.”

In a prepared statement following the analysis, JPMorgan told American Banker, “This report did exactly what it was designed to do: It examined our racial equity commitment to date and found that we’re making substantial progress with more work to do.”

JPMorgan and PwC did not return a request for further comment from Banking Dive.

SOC Investment’s analysis of JPMorgan’s racial-equity audit was released on the heels of a similar analysis of an audit at Citi.

Citi’s audit received higher marks from the shareholders, with Tejal Patel, SOC Investment’s corporate governance director, telling American Banker the report “was pretty well done because it does provide an objective assessment with the racial equity lens we were hoping for, and it gives very practical recommendations for Citi to proceed, which will assist them in achieving their goals.”

Citi in October 2021 became the first major U.S. bank to agree to a third-party audit on its investment in nonwhite communities, following a push from SOC Investment. The law firm Covington & Burling conducted the audit.

Wells Fargo commissioned a third-party racial-equity audit in September.

After a period of rapid growth, many payments companies were forced to pump the brakes in 2022, and that included trimming workforces.

Payments players across the spectrum cut employees this year, from public companies PayPal and Fiserv, to payments darlings Stripe, Klarna and Plaid, to younger startups Bolt and Amount.

Macroeconomic headwinds this year — including geopolitical conflict as well as inflation and its effect on consumer behavior — have squeezed payments and fintech companies. That’s led some to take a hard look at expenses and pursue restructuring. 

Other firms that had pegged their growth projections on COVID-19 pandemic-fueled e-commerce trends had those plans upended when shoppers returned to stores as the deadly contagion ebbed. Many payments companies were overly optimistic in that regard, said Jordan McKee, principal research analyst with 451 Research, part of S&P Global Market Intelligence.

Some firms were “hiring for a future where we continued to see dramatic e-commerce growth, and just dramatic digitization of everything, and that just didn’t play out to the scale that most anticipated,” McKee said. 

The CEOs of digital payments company Stripe and fintech Plaid were transparent about that in their web posts on job cuts, McKee noted. In November, Stripe cut 14% of its workforce, which amounted to about 1,140 employees. Plaid this month said it was cutting 20% of its workforce, or about 260 employees. 

Stripe’s leadership was “too optimistic about the internet economy’s near-term growth in 2022 and 2023 and underestimated both the likelihood and impact of a broader slowdown,” CEO Patrick Collison wrote in a web post. The company also “grew operating costs too quickly,” allowing “operational inefficiencies to seep in,” they wrote.

Buy now-pay later provider Klarna also posted publicly about job cuts triggered by economic upheaval, as did expense management startup Brex and online checkout startup Bolt. 

Klarna cut 10% of its workforce, or about 700 workers, in May, and followed that up with more cuts in September. Brex cut about 11% of its workforce, or 136 employees, in October. Bolt cut 30% of its workforce in May, which Bloomberg reported amounted to about 250 workers.

Checkout startup Fast shut down entirely in April, just months after its CEO Domm Holland promised the company would experience heady growth. Fast had nearly 400 employees, Holland told Payments Dive in January.

Higher inflation and interest rates, paired with a drop in stock market valuations, have also made it harder for private companies to find once-plentiful venture capital, which was essential to fuel their growth spurts. “They just can’t get capital as easily as they could have a few quarters back,” McKee said.

Nonetheless, large public companies such as PayPal, Fiserv and Fidelity National Information Services (FIS) have also sought to rein in expenses, in part by paring workers. As activist investor Elliott Investment Management acquired a $2 billion ownership stake in PayPal, the digital payments company pursued cost-cutting measures this year. 

Payments giant Fiserv has cut workers as it’s faced profit margin pressure and rival FIS is reported to be cutting thousands of jobs as it embarks on a $500-million savings campaign and comprehensive review of the business.  

To be sure, there was hiring happening, too. Even as the company made cuts, Fiserv CEO Frank Bisignano said the payments giant hired “thousands” this year. Brex, too, continues to hire for key roles and some replacements. Cross-border payments company Wise and payments processing company VizyPay recently said they plan to step up hiring. 

The industry is likely to shed more jobs next year, Brex’s Chief People Officer Angela Crossman recently told Payments Dive. That’s because many fintechs are now focused on profitability over growth and ensuring they have needed flexibility in case capital continues to be scarce.

“It’s going to continue,” Crossman said of job cuts. “People are letting go of really great talent to just recognize shifts in business and the environment.”

The Credit Card Competition Act bill appears unlikely to be passed by Congress this year despite a major push from its champion, the powerful Democrat Sen. Dick Durbin.

Durbin, who has waged a years-long effort to rein in what he calls the Visa-Mastercard duopoly, sponsored the bill this year in an effort to inject more competition into the card industry. The Illinois senator wrangled a Republican co-sponsor, Kansas Sen. Roger Marshall, and a companion bill also had bipartisan sponsorship in the House. A spokesperson for Durbin didn’t immediately respond to a request for comment.

The bill would have mandated that merchants have access to card networks other than Visa and Mastercard for routing credit card transactions. In 2010, Durbin successfully won passage of an amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act that imposed a similar requirement on debit transactions.

“We are focused on the next session of Congress and look forward to seeing this pro-consumer, bipartisan bill become law next year,” said National Association of Convenience Stores General Counsel Doug Kantor in an emailed statement. 

The legislation built on earlier efforts by Durbin to dislodge the duopoly that he sees as having worked hand-in-glove with bank card issuers to increase interchange “swipe” fees for merchants and retailers. 

But the Senate bill didn’t win significant legislative support and never received a committee hearing after being introduced in July, and the same was true for the House bill introduced just a few months ago in September.

The bill got caught up in the years-long battle between retailers and payments companies over such curbs on electronic transactions. While the National Retail Federation and Merchants Payments Coalition egged on the legislation, arguing that it would reduce rising card interchange fees, the Electronic Payments Coalition and other card interests fought it, saying it would hurt banks and consumers. 

“With consumers and small businesses increasingly calling on Congress to do something about skyrocketing swipe fees, the question isn’t if this bill will pass but when,” said Kantor, who is also an MPC Executive Committee member. “Lawmakers know swipe fees are out of control and driving up prices for American families at a time when they can least afford it.”

A spokesperson for the EPC didn’t immediately respond to a request for comment.

The Merchants Payments Coalition unleashed an ad campaign backing the bill during the World Cup, aiming to grab attention at a major sporting event sponsored by Visa, the biggest U.S. card company.

Backers were hopeful that it might be attached to a major defense spending bill that had to be passed this year, but that didn’t happen. There could still be a last-ditch attempt to attach it to the omnibus spending bill making its way through Congress, but hope for that route has dimmed as other legislative priorities grab lawmakers’ attention in the race to leave Washington for the yearend holidays.

Tuscaloosa-based Alabama One Credit Union said Monday it would acquire First Bank of Wadley, marking the fourth proposed purchase of a bank by a credit union in a two-week span. 

The deal would be the 15th of its kind this year — one shy of 2019’s record 16 credit union-bank tie-ups.

Financial terms of the transaction, which is set to close by the second quarter of 2023, were not disclosed.

The move would add five branches to Alabama One’s 18-location footprint, expand the credit union’s presence into the eastern part of the state, and push its asset total past $1 billion. Alabama One counts roughly $956 million in assets; First Bank counts $130 million.

“Over time, we’ve seen many banks move out of rural communities. Their strategic goals are different than ours,” Alabama One CEO Bill Wells said in a press release. “It is our mission to partner with the communities we serve, and we do this by bringing more than just brick-and-mortar branches to a small town.”

Monday’s transaction is not Alabama One’s first bank purchase. It proposed buying First Bank of Linden, an $82 million-asset, single-branch institution, in September 2020.

“We are acquiring an exceptional, seasoned team from First Bank [of Wadley] who care deeply for its customers,” Wells said Monday. “Introducing these valued customers to our well-rounded suite of products and services designed for rural banking needs is very exciting to us.”

Credit unions are announcing bank acquisitions at a furious pace in December. The sector saw nine such deals over 2022’s first six months, followed by a summer lull. But in the past 14 days, Veridian Credit Union agreed to buy American Investors Bank and Mortgage; Dort Financial Credit Union agreed to acquire Flagler Bank; and LGE Community Credit Union said it would purchase Greater Community Bank. And now the Alabama One deal.

“We appreciate Alabama One’s recognition of the deep roots First Bank has in our communities,” Royce Ogle, chairman of First Bank of Wadley, said Monday. “I believe that this will be a win-win for all parties involved.”

Continued bank acquisitions by credit unions will likely displease trade groups like the Independent Community Bankers of America (ICBA), which argues that credit unions’ tax-exempt status allows them to offer a higher purchase price and lets them grow more freely than banks.

While 2022’s final tally won’t be the “25-plus” Honigman attorney Michael Bell predicted in January, it does back up Bell’s assertion last month that “a few more [would] announce prior to year’s end.”

Bell told Banking Dive last week that once the economic tumult stabilizes, there will be a sharp rise in activity.

“I think continued geographic expansion [and] diversity will occur,” he said. “You’re going to see these deals occur in places where they haven’t before.”

The Southeast is no stranger to credit union-on-bank M&A. The year’s first two credit union-bank deals also took place in Georgia: Atlanta-based Georgia’s Own Credit Union proposed buying Smyrna, Georgia-based Vinings Bank in February. And Warner-Robins, Georgia-based Robins Financial Credit Union announced it would acquire Forsyth, Georgia-based Persons Banking Company in March. Last week’s tie-up between LGE and Greater Community Bank also centers on Georgia.

Ties between traditional financial institutions and cryptocurrency were a hot topic last week, with an international governing body and U.S. lawmakers both addressing what to do about them.

The Basel Committee on Banking Supervision (BCBS) unveiled guidelines Friday for banks playing in the digital-asset space. That same day, the Financial Stability Oversight Council (FSOC) called for such regulation in its annual report.

The BCBS outlines standards for two groups of crypto assets. Group 1 are tokenized traditional assets and stablecoins. Group 2, meanwhile, are riskier products that are unbacked and don’t fit Group 1 standards.

Group 1 assets are subject to capital requirements based on underlying exposures as set out in the existing Basel framework. For Group 2 assets, the finalized guidelines limit bank exposure to 1% of their Tier 1 capital.

Chen Xu, an attorney at Debevoise & Plimpton in New York, told American Banker the Basel Committee regulations have little impact on U.S. banks because they’re prohibited from holding some of the assets regulated by the framework. Most crypto assets, he said, fall into Group 2.

The finalized framework “is significant, if for no other reason than it establishes a common baseline from which global regulators can build,” Xu told American Banker.

“If and when the U.S. and other jurisdictions ever do get around to introducing or implementing capital requirements for crypto asset exposures, they’re going to turn to Basel for guidance,” he said.

The FSOC, meanwhile, said in its report that lawmakers need to step up their game in writing laws that give federal regulators rulemaking authority over the spot market for crypto assets that are not securities. Steps should be taken “to address regulatory arbitrage, since crypto-asset entities offer services similar to traditional financial institutions but do not have a consistent or comprehensive regulatory framework,” the FSOC said.

Interconnections between the crypto world and banks “broaden the effects of shocks that originate inside the digital asset ecosystem,” the report said.

The reports come as potentially more than 1 million creditors worldwide roil in woes caused by the November collapse of cryptocurrency exchange FTX. Direct ties to FTX impacted several banks, including Moonstone Bank in Washington state.

Roughly 2.7 million FTX accounts were held by U.S. customers, according to bankruptcy filings. Sens. Elizabeth Warren, D-MA, and Tina Smith, D-MN, penned letters this month to the Federal Reserve and the Office of the Comptroller of the Currency, calling for the regulators to look at U.S. banks with assets caught up in the FTX fallout. Moonstone, the senators asserted, received an $11.5 million investment from FTX’s sister company, Alameda Research.

The senators also named Provident Bank, Metropolitan Commercial Bank, Signature Bank, Customers Bank and Silvergate Capital in their letter. Silvergate reportedly had crypto deposits accounting for “90% of the bank’s overall deposit base, amounting to $11.9 billion.”

The Senate confirmed Martin Gruenberg to a six-year term as Federal Deposit Insurance Corp. (FDIC) chairman Monday with a 45-39 vote.

The move effectively puts to rest the partisan struggle within the agency that erupted last December, when Gruenberg and Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra, both serving as members of the FDIC’s board, published (on the CFPB website) a review of bank merger policies without the approval of the FDIC’s then-chair, Jelena McWilliams.

McWilliams, a Republican, argued that only the chair controls the FDIC board’s agenda. Gruenberg and Chopra said a majority of directors also possesses that right.

Republican lawmakers at the time alternately called the December 2021 dust-up a “power grab” and a “failed, publicity-seeking attempted coup” — and many rehashed the incident during Gruenberg’s nomination hearing last month.

“You can’t unring that bell, so I have great concerns about how the FDIC will operate in the future,” Sen. Thom Tillis, R-NC, said at the hearing.

McWilliams ultimately resigned Dec. 31, and President Joe Biden named Gruenberg the FDIC’s acting chair in February.

Gruenberg is no stranger to leading the agency. He served as the FDIC’s chair from 2012 to 2018 and has been on the regulator’s board since 2005 — points that Senate Banking Committee Chair Sherrod Brown, D-OH, emphasized Monday ahead of the vote.

“Since joining the FDIC board, Mr. Gruenberg has served as chairperson, vice chairperson, acting chairperson and member,” Brown said. “I have served on the Banking Committee since 2007. I do not remember any FDIC nominee having come before the committee with that level of expertise.”

The Senate on Monday also confirmed by voice vote two Republicans to serve on the FDIC board. Travis Hill, a former adviser to McWilliams will become the board’s vice chair. Jonathan McKernan, who once worked in the office of Sen. Pat Toomey, R-PA, will sit on the board as a member. 

Toomey, the Senate Banking Committee’s ranking member, limited his comments to the confirmed Republicans. 

Hill’s “significant experience,” Toomey said, “will deepen the FDIC board’s expertise and enhance the quality of its deliberations.”

Toomey said he knows “firsthand” that McKernan’s “knowledge of banking and housing finance issues will equip him well to serve on the FDIC board,” adding he is “confident that the agency will count both his thoughtful approach and his depth of knowledge as great assets.”

With the addition of Hill and McKernan, all five of the FDIC board’s seats will be occupied for the first time since 2015.

Since becoming acting chair in February, Gruenberg has “wasted no time getting to work for the American people,” Brown said.

On his first day in office, Gruenberg rattled off a list of five priorities for 2022: the Community Reinvestment Act (CRA); climate change; the Bank Merger Act; crypto assets; and the Basel III capital rule.

The agency unveiled guidance in March to help banks navigate climate-related risk; proposed crypto guidance in April; and contributed to a multiagency refresh of the CRA in May.

Dive Brief:

• Wells Fargo reached a record $3.7 billion settlement with the Consumer Financial Protection Bureau (CFPB) over a slew of consumer abuses related to auto loans, mortgages and deposit accounts, the regulator announced Tuesday.
• As part of the settlement, the bank agreed to pay more than $2 billion to redress consumers, in addition to a $1.7 billion civil penalty for legal violations across several of its largest product lines, the CFPB said.
• Tuesday’s settlement far surpasses the $1 billion the CFPB levied against Wells Fargo in 2018 for overcharging consumers on mortgages and mishandling auto loan insurance. The move also falls in line with CFPB Director Rohit Chopra’s mission to impose stricter penalties on firms the agency has identified as repeat offenders.

Dive Insight:

Tuesday’s CFPB action and other amounts related to litigation and customer remediation are expected to spur an operating loss of $3.5 billion before taxes for 2022’s fourth quarter, Wells Fargo said in a statement. 

Wells Fargo’s consumer abuses affected more than 16 million accounts, the CFPB said. The $1.7 billion fine will go to the bureau’s Civil Penalty Fund, where it will be used to provide relief to victims of consumer financial law violations, the CFPB said.

“Wells Fargo’s rinse-repeat cycle of violating the law has harmed millions of American families,” Chopra said in a statement. “The CFPB is ordering Wells Fargo to refund billions of dollars to consumers across the country. This is an important initial step for accountability and long-term reform of this repeat offender.”

The bank indicated in October that a fine was forthcoming after it disclosed in a regulatory filing that the CFPB was investigating its automobile lending, consumer-deposit accounts and mortgage lending practices. 

The bank set aside $2 billion last quarter to deal with “historical” regulatory matters and said it was in “resolution discussions” with the CFPB. Sources told Bloomberg last month the settlement could top $1 billion.

In a statement Tuesday, Wells Fargo said it is pleased to bring closure to the issues outlined in the settlement, and said the required actions related to the bank’s consumer abuses are “already substantially complete.”

Wells Fargo CEO Charlie Scharf called Tuesday’s settlement an “important milestone” in the bank’s work to transform its operating practices.

“As we have said before, we and our regulators have identified a series of unacceptable practices that we have been working systematically to change and provide customer remediation where warranted,” he said in a statement. “We have made significant progress over the last three years and are a different company today.”

Scharf, in his first earnings call as CEO in January 2020, stressed that his “primary focus has been on advancing our required regulatory work with a different sense of urgency and resolve.”

While Tuesday’s settlement marks another step in Scharf’s efforts to put the bank’s past transgressions behind it, other recent missteps have muddied the bank’s reputation. 

Federal prosecutors, as of June, were reportedly investigating whether Wells Fargo violated federal laws by conducting sham job interviews in an effort to meet diversity goals. The probe came less than a month after current and former bank employees told The New York Times that Wells held interviews for nonwhite and female job-seekers for positions that had already been offered to other candidates. The bank paused its policy mandating that half of candidates interviewed for open positions paying $100,000 or more be women, nonwhite or otherwise disadvantaged. It updated that policy in August.

Wells Fargo’s conduct led to billions of dollars in financial harm for thousands of customers, including the loss of vehicles and homes, the CFPB said Tuesday.

“Consumers were illegally assessed fees and interest charges on auto and mortgage loans, had their cars wrongly repossessed, and had payments to auto and mortgage loans misapplied by the bank,” the CFPB said. “Wells Fargo also charged consumers unlawful surprise overdraft fees and applied other incorrect charges to checking and savings accounts.”

The bureau in 2016 fined the bank $100 million for opening fake consumer accounts. The scandal prompted the Federal Reserve to put the bank under a still-active $1.95 trillion asset cap in 2018.