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New unsecured loans beckon, but should you bite


Late last summer, Jeff Whiting was going back and forth with his credit union about whose name should appear on the title of the GMC Yukon he was trying to finance. So the 35-year-old Austin, Texas, attorney went in a different direction, taking a $45,000 unsecured loan from an online lender instead. The loan he got in late August - from private lending company LightStream - allowed him to avoid having a lien on the vehicle and also allowed him to sidestep the credit union's voluminous paperwork and opinions about whether his wife should be on the title. But his interest rate - 2.19 percent - was about the same as he would have received for a traditional car loan. LightStream, the online lending division of SunTrust Banks Inc., is taking aim at a niche space: Low interest unsecured loans for highly qualified customers. It's all part of a broader bank industry plan to woo and keep so-called mass affluent customers, and to avoid losing marketshare to new peer-to-peer lending sites that cut out banks altogether, says Greg McBride, senior financial analyst for Bankrate.com. Niche loans like these "are sparsely available," McBride said. Credit unions tend to offer small, unsecured loans but at rates far higher than collateral-backed loans. Larger banks like Citibank and TD Bank have always offered personal loans, but they tend to have higher rates. For example, the average unsecured loan from credit unions is about $2,600, at an average four-year interest rate of about 10 percent, says Paul Gentile, vice president of the Credit Union National Association, an industry trade group. At TD Bank, which offers unsecured home improvement loans of up to $50,000, interest rates posted on the bank's website range from 6.63 percent to 9.2 percent for those seeking less than $10,000. Citi's website says the bank offers a personal loan of up to $50,000 at rates from 6.74 percent to 19.49 percent. SunTrust Banks Inc. quietly began offering its unsecured "AnythingLoan" of 10,000-$100,000 through LightStream.com earlier this year. To get one of these loans, the customer has to have a good credit score (the average is in the high 700s) and sufficient assets and income to reassure LightStream that repayment won't be a stretch, says Gary Miller, the SunTrust senior vice president who runs LightStream.

The customer must disclose the loan's purpose, and then the bank sets the interest rate based on the purpose of the loan. A car loan, for instance, starts at 1.99 percent and tops out at 3.59 percent (if the loan is extended to six years)for those with solid credit scores. Home improvement loan rates from the site range from 4.99 percent for three years to 7.24 percent for those borrowing less than $50,000 and repaying in seven years. (Nationwide, the average rate for a $30,000 home equity loan is 6.09 percent, according to Bankrate.com). SOMETIMES, A LIEN IS BEST

There are pros and cons to taking an unsecured loan, especially for homeowners. Those who don't have enough home equity to qualify for a second mortgage or home equity line of credit could get an unsecured loan based on their credit score and their assets. Financing could be available for 100 percent of a project rather than limiting the total loan amount to a percentage of the property's value. Borrowers wouldn't be risking their property if they failed to repay the loan. But the interest on an unsecured loan would not qualify as tax deductible, as it would be on traditional home improvement loan, McBride says. CONVENIENCE COUNTS, BUT NOT A LOT

Interest rates and terms should be more important to consumers than whether or not a loan is secured. But unsecured loans may pull in people who care more about convenience and paperwork avoidance. Most consumers will find better terms via a secured loan, says Anisha Sekar, vice president of credit and debt at the personal finance site NerdWallet.com. "If you're sure you can pay off your debt, you're far better off using a home equity line of credit or other secured loan."If the loan is for a short period of time, she suggests considering a zero-percent credit card offer, which could run for up to 18 months before the standard interest rate kicks in. ; var median = (relatedItemsTotal / 2); var $relatedContentGroupOne = $('.related-content.group-one ul'); var $relatedContentGroupTwo = $('.related-content.group-two ul'); $.each($relatedItems, function(k,v) { if (k + 1 = median) { $relatedContentGroupOne.append($relatedItems[k]); } else { $relatedContentGroupTwo.append($relatedItems[k]); } }); } else { $('.third-article-divide').append($('div class="related-content group-one"h3 class="related-content-title"Also In Money/h3ul/ul/div')); $('.related-content ul').append($relatedItems); } },500); } Next In Money Investors hold fewest net shorts on U.S. Treasuries since November: JPM NEW YORK The margin on bearish bets on longer-dated U.S. Treasuries over bullish positions shrank to its smallest since late November as bargain-minded investors emerged after the recent bond market selloff, a J. P. Morgan survey released on Wednesday showed. BlackRock's U.S.-based active funds post record 2016 withdrawals: Morningstar NEW YORK Investors pulled $19.3 billion from BlackRock Inc's U.S.-based actively managed mutual funds in 2016, Morningstar Inc estimates showed on Tuesday, a record high as the investment industry struggles to restrain an exodus to lower-cost investments. DoubleLine Total Return bleeds $3.5 billion, biggest monthly outflow ever NEW YORK The DoubleLine Total Return Bond Fund posted a net outflow of $3.5 billion in December, its biggest one-month withdrawal ever, data from research firm Morningstar showed on Tuesday. MORE FROM REUTERS window._taboola = window._taboola || []; _taboola.push({ mode: 'organic-thumbnails-a', container: 'taboola-recirc', placement: 'Below Article Thumbnails - Organic', target_type: 'mix' }); Sponsored Content @media(max-this site) { #mod-bizdev-dianomi{ height: 320px; } } From Around the Web Promoted by Taboola window._taboola = window._taboola || []; _taboola.push( { mode: 'thumbnails-3X2', container: 'taboola-below-article-thumbnails', placement: 'Below Article Thumbnails', target_type: 'mix' } ); window._taboola = window._taboola || []; _taboola.push

Rpt northern trust support shows money fund wrangle


* $69.7 mln for Norwegian lender's notes* Minor event still yields "pound of flesh" - Ohio State professor* Funds trade group calls case a red herringBy Ross KerberBOSTON, July 2 Oslo may seem far removed from Chicago, but the downgrade of a Norwegian lender's debt rating last fall led U.S.-based Northern Trust Corp to step in with $69.7 million of support for two of its money market funds. The unusual backstop - shown in filings and which the Chicago trust bank acknowledged to has become a flashpoint in the debate over the future of the $2.5 trillion U.S. money fund industry. At a time when regulators are urging tighter rules for the funds, some specialists say the support shows how even developments in distant lands can affect fund companies."This seems to be a really small event, and it's still extracting its pound of flesh," said Rene Stulz, an Ohio State University professor who has led calls for new rules such as requiring money funds to build up their reserves. Northern Trust executives would not comment on the policy debate, but sent a statement to Reuters describing the support as a routine decision after Moody's Investors Service downgraded the Norwegian lender, Eksportfinans, in November when it lost its role as sole operator of an export loan system. Eksportfinans notes were held by two money funds that Moody's would have downgraded as well, Northern Trust said, had it not bought the paper. Northern Trust said the notes paid off at par, meaning it did not suffer losses. Others say even though the notes paid off, the support shows how the fund sponsor took on some extra cost and risk.

"If Northern at the time of the transaction thought they were not subsidizing the funds, (then) I have a lot of bonds I would like to sell (to) them," said Kenneth French, director of investment strategy at Dimensional Fund Advisors and a Dartmouth College finance professor who has worked with Stulz on matters aside from money fund policy. A fund industry trade group said Eksportfinans is a special case that should not figure in the money fund regulatory debate. Officials at the U.S. Securities and Exchange Commission declined to discuss specific funds. Northern Trust is one of the largest custody banks. Its money funds are among many that have looked to hold securities from institutions in Northern Europe amid debt concerns further south. LATEST CHALLENGE

The shift away from countries like Greece and Italy is the latest challenge for money funds, which play a central economic role as major buyers of commercial paper and other instruments. During the financial crisis one well-known fund failed to maintain the $1 per share net asset value that investors typically expect, dragged down by its holdings in the collapsed investment bank Lehman Brothers. Many other funds struggled to avoid "breaking the buck," an industry term used to describe falling below $1 a share. New rules in 2010 made the funds more liquid and transparent. Some like U.S. Securities and Exchange Commission Chairman Mary Schapiro still want more controls. Draft SEC rule changes would give funds two options: allow their net asset values to vary from $1, or adopt capital buffers and restrictions on some withdrawals. Fund executives worry the changes could drive away investors, and note the funds managed through the 2011 debt limit debate under the current rules. A point of contention is how much support the funds have needed in the past. Schapiro told Congress on June 21 her staff found more than 300 cases of funds getting support from their sponsors since the 1970s. Fund executives have lashed back. In a blog post Sean Collins, analyst for the fund industry trade group the Investment Company Institute, called the figure of 300 "highly misleading" and contrasted it with a study by Moody's Investors Service. It found at least 36 cases of support for U.S. funds from 2007 to 2009.

FACING A DOWNGRADE Support can come in other forms than cash, Collins wrote, and it does not necessarily mean a fund is in danger of breaking the buck. For instance, a sponsor may just wish to maintain a credit rating. Since the 2010 reforms his group knows of just one case when support was required, the one involving Eksportfinans. Some U.S. funds held Eksportfinans notes around the time like First American Prime Obligations Fund, run by U.S. Bancorp . A spokesman said the notes either matured or were sold, and that no support was needed. A February 3 SEC filing states Eksportfinans notes also were held by two Northern Trust funds, Diversified Assets Portfolio and Prime Obligations Portfolio. On November 25 they sold the notes to their parent for $50.3 million and $19.4 million, respectively. Northern Trust's statement said the sales stemmed from Moody's plans to downgrade funds that held the notes."While Northern Trust acknowledged the Moody's downgrade, our credit research team believed that Eksportfinans had strong credit and would repay its maturing debt," the statement said. Other funds not rated by Moody's continued to hold the notes, it said, and both sets of notes paid off at par in 2012. The ICI's Collins did not name Northern Trust. But he called the Eksportfinans situation "a red herring" as far as the policy debate over money funds, since the challenges funds faced around its notes were different than the broader euro zone debt concerns that fund critics have raised. Also funds faced no danger of breaking the dollar, he wrote. Henry Shilling, the Moody's analyst who authored the report cited by Collins, said the support to the Northern Trust funds showed how money funds remain exposed to what he called "idiosyncratic events" that crop up. A problem in money funds, he said, is that they can have little room to absorb a credit event while maintaining their $1 per share net asset value. "That's a vulnerability in their construction," he said.