Mortgage Business

The Student Loan “Crisis”

20140309-080351.jpgA recession is like an earthquake. There are many aftershocks and if the earthquake is really bad, some of the aftershocks can be strong earthquakes in themselves. We have been dealing with the aftershocks of the recession for many years because of the severity of this recession. Today we are dealing with another one in the form of student loans. The President this month moved to ease requirements for those buried in student loans. Congressional action is being considered. How did we get here? The recession.

During the recession, younger people could not find jobs, so more went to college. Of course, they borrowed money to do so and when they graduated they have been burdened with big student loan debts. Only getting jobs was still not so easy. While this generation struggles with the debt loads and finding their way, it has affected household formation which affects our real estate market as well as other sectors of the economy. Easing repayment requirements will help, but in the long run this is another obstacle that must be overcome over time. Time may not heal all wounds, but a better job market solves many of the foundational problems we have faced.

Speaking of the jobs market, next week we approach the July 4th Holiday on Friday. We have major economic releases to assess this week such as personal income and spending as well as consumer confidence. But next week we have the early release of the employment report because of the Holiday. We know this is a time of celebration of our Nation’s birthday. However, the fireworks may be starting early as the report will be released at a time when many analysts and traders are leaving town. This could make for an interesting week for the markets.

  New homes – those that are four years old or less – can be cheaper to maintain than older homes, according to data from the American Housing Survey. Twenty-six percent of home owners spend $100 or more a month on various routine maintenance expenses for their home. However, the study shows that 73 percent of new home owners spend less than $25 a month on routine maintenance costs. Home owners of new homes tend to spend less on energy costs too. Home owners on average spend 81 cents per square foot per year on electricity. In comparison, home owners of new homes tend to spend 68 cents per square foot per year. Utilities tend to be less expensive too. All home owners spend, on average, 28 cents per square foot per year on water bills. But on new homes, home owners tend to average 22 cents. The studies suggest that owners of new homes also tend to pay less on insurance too: The median cost of all home owners for property insurance is 39 cents per square foot compared to 31 cents per square foot for new homes. “These data highlight that a new home offers savings over the life of ownership due to reduced operating costs,” according to the National Association of Home Builders’ Eye on Housing blog. “These reduced expenditures represent one of the many reasons that the current system of appraisals needs updating to reflect the flow of benefits that comes from features in a new home.” Source: National Association of Home Builders

Finances are the biggest roadblock to home ownership for millennials, but a new survey shows they’d rather ask their parents to pony up a down payment than give up their cars. About half of millennials looking for homes have to go to their parents for help, according to a new study by Trulia. Debt, poor credit and a lack of savings were the chief reasons millennials were unable to come up with their own down payments, the survey reported. “Saving up for a down payment is a big obstacle and it can make the home buying process even more intimidating,” said Trulia real estate expert Michael Corbett. “Millennial home buyers need to know that if they are going to turn to bank of mom and dad for a down payment they should treat it like a loan. Write up a contract and determine what is best for monthly payments. This will and can avoid money woes among family members.” Among those for whom loans from parents aren’t an option, 37% plan to work a second job, while 22% said they would use state or federal programs to help them into home ownership. What many of them wouldn’t do, however, was give up certain luxury items in order to save for a down payment. Most millennials – 68% — are looking for a home under $200,000, according to Trulia. But nearly half don’t know how much they would need for a down payment, and almost 2 out of 5 among those who do know would put down less than 10%. Source: MPA  Editors Note: Before following Mr. Corbett’s advice regarding turning to parents for a loan, they should check with their lender and financial advisor as to the best way to fashion this help so that it fits within mortgage program and IRS guidelines. 

President Obama announced an expansion of a program that helps student loan borrowers manage their debt which will expand the criteria for an alternative repayment program capping monthly payments for certain federal student loans at 10% of a borrower’s discretionary income. The changes would allow an additional 5 million borrowers to qualify and will be available beginning in December 2015. The alternative payment programs are designed to help borrowers struggling under the weight of student loans. They include forgiveness programs for on-time payments and public-sector employees. Teachers can have their balance canceled after ten years, for example. Low-income borrowers can have their balance canceled after 20 or 25 years of on-time payments. Borrowers who don’t qualify for forgiveness but use a repayment program find their monthly payments reduced but spread out over a longer period of time. That means they will pay more over the lifetime of the loan, as there is additional time for interest to accrue. Income-based repayment and Pay As You Earn aren’t available for borrowers who turn to private institutions rather than the government. Obama also supports a proposal on Capitol Hill that would allow borrowers to refinance their student loans. The proposal by Sen. Elizabeth Warren would extend current rates for new borrowers to those with outstanding loans at higher rates. “While Congress decides what it’s going to do, I will keep doing whatever I can without Congress to help responsible young people pay off their loans,” Obama stated. Source: CNN/Money 

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