Student Debt Developments

By rchrisman@robchrisman.com

 

Did someone say golf season is here? How about some quotes to put us in the mood?

The ball retriever is not long enough to get my putter out of the tree. ~ Brian Weis

Swing hard in case you hit it. ~ Dan Marino

There is no similarity between golf and putting; they are two different games, one played in the air, and the other on the ground. ~ Ben Hogan

Professional golf is the only sport where if you win 20% of the time, you're the best. Jack Nicklaus

I never pray on a golf course. Actually, the Lord answers my prayers everywhere except on the course. ~ Billy Graham

If you watch a game, it's fun. If you play at it, it's recreation. If you work at it, it's golf. ~ Bob Hope

While playing golf today I hit two good balls. I stepped on a rake. ~ Henny Youngman

If you think it's hard to meet new people, try picking up the wrong golf ball. ~ Jack Lemmon

You can make a lot of money in this game. Just ask my ex-wives. Both of them are so rich that neither of their husbands work. ~ Lee Trevino

I'm not saying my golf game went bad, but if I grew tomatoes, they'd come up sliced. ~ Lee Trevino

 

We're off to a running start on a new quarter, with many mortgage bankers reporting great March's and ample pipelines ready for funding in April. But there are some big changes in the lender landscape with news coming from Kinecta Federal Credit Union, Chase, and Freedom. And overseas, perhaps to the surprise of no one, China may have a subprime housing problem as the government tries to absorb a glut of vacant housing. This has resulted in a surge of risky subprime-like lending, in particular the practice of borrowing money to make down payments.

Isn't the first, won't be the last. Kinecta Federal Credit Union announced that it will exit the Third Party Mortgage Origination channel and will focus solely on growing core Retail business going forward. "...the Credit Union is no longer accepting TPO applications. If Kinecta has already received an intent to proceed and/or a request for a loan estimate from an applicant, or if Kinecta receives an intent to proceed from an applicant within 10 days of the issuance of a Loan Estimate by Kinecta dated on or before April 4, 2016, all such TPO loans currently in the pipeline shall proceed through the normal course. If a Loan Estimate has been issued, but the applicant does not provide an intent to proceed to Kinecta within 10 days of the issuance of the Loan Estimate, all such TPO loans currently in the pipeline shall be considered withdrawn. If a Loan Estimate was issued more than 10 days prior to April 4, 2016, and no intent to proceed has been received by Kinecta, then all such TPO loans shall be considered withdrawn by Kinecta." (Any displaced employees can post resumes - for free - at www.LenderNews.com.)

 And there are changes in the stodgy rural development channel! Last week the Federal Register noted some changes in the Rural Housing Service regarding QM, and then two days later, on the 31^st, retracted them. Stay tuned!

 PennyMac Correspondent Group has posted a new announcement regarding rural housing: 16-12: Rural Housing Updates to the Technical Handbook.

 And Chase is "transitioning" its rural housing business to Freedom Mortgage. "#16-03 Chase Transitioning its Rural Housing Business. Moving forward, we have decided to simplify our model and focus on loan originations through Chase bank branches, our Consumer Direct business and our traditional Correspondent business. As a result of our strategic decision to simplify, Chase will be transitioning our Rural Housing originations business to Freedom Mortgage, who is investing in this business and our talented team of Rural Housing employees. Chase will continue our strong partnership with the USDA to perform mortgage servicing for our existing USDA portfolio."

 Employees, of course, are left scratching their heads about moving from a bank to a non-bank. "The same dedicated Rural Housing leadership team and employees who have served your Rural Housing lending needs over the last 23 years will continue to provide the expertise and services needed to support your rural and low-to-moderate lending initiatives. Chase and Freedom Mortgage will work together to ensure the transition is handled without service disruptions or liquidity gaps for your Rural Housing production. The transition outlined in this Announcement is effective on July 1, 2016."

 In conference news I received a nice note from Kristin Messerli, Managing Director of Cultural Outreach. "Hey Rob! Hope you're doing well. I attended the MBA tech conference today and enjoyed a session on mobile usage that I thought you and your audience may be interested to hear about. The session panelists consisted of leading industry experts in mobile technology, discussing how mobile has become an integral part of communication and business for both Realtors and consumers. Erin Lantz, VP of Mortgage for Zillow, shared that Realtors spend an average of 44% of their time doing business on their mobile phones, and Millennials are increasingly inclined to start their home buying search online, on their mobile devices.

 Garth Graham, moderator and Senior Partner at STRATMOR Group, brought up the issue that while lenders have a great opportunity to utilize this channel of communication to garner more business, lenders often struggle to know how to effectively and compliantly adopt mobile technology. The panel responded by sharing how the industry must adjust their understanding of the customer experience and see the immediate value to mobile adoption.

 And Dave Savage, Founder/CEO of Mortgage Coach, shared, "The most important thing is to give options. Borrowers want to self-educate and do research. Your job is to put those options in the hands of consumers in a way they can understand and share with others." The panel agreed that mobile technology usage is critical to moving forward in the market. Lantz stated, "The lenders who are not responsive and engaged on mobile simply will not compete in our market."

 Speaking of younger folks, which leads one to think about student debt, a recent and disturbing survey by the student loan marketplace found 28% of respondents would agree to name their firstborn daughter Sallie Mae in exchange for student loan debt forgiveness. And 40% of respondents said they would be willing to reduce their life expectancy by 1 year in exchange for having their student debt erased.

 Folks who pay attention to these things note that student debt has now surpassed home equity loans/lines of credit, credit cards and automotive debt. The problem has escalated to the point where it's having a deep effect on people's financial well-being. A recent report by the American Student Assistance finds that 73% of borrowers carrying student loan debt have put off saving for retirement and 75% say the debt has affected their decision or ability to buy a house.

 The cost of higher education has clearly exploded far beyond the rate of inflation of most other things in our life. Companies like SoFi are actively refinancing student debt successfully. Banks, however, have designed some products to help their customers pay down debt. Gate City Bank in Fargo, ND, recently began offering a program that targets qualified individuals with student loan debt who want to finance a home purchase through the bank. The new student loan program, announced late last year, carries no fees and has a 1% APR. (Is it still okay to say APR?) Borrowers have 10 years to repay loans through the program. To participate, borrowers must have a 2Y or 4Y degree, have made at least 12 consecutive payments on existing student-loan debt, and they must be buying a home and financing it through the bank. There is a $50k per household limit on the student loan.

 Banks are educating customers about student loan refinancing or debt consolidation services, and the impact of student debt on finances in later life. They are also helping their own employees who may be struggling under the weight of their student loans. Fidelity Investments offers a program to its employees who have been with the company for more than 6 months. Fidelity will pay $2k a year towards their student loans, up to $10k. The benefit is not tied to retention, so employees don't owe anything if they leave the company. According to Fidelity, fewer than 3% of companies are helping their employees dragged down by student loan debt. Banks might not even realize their employees are having these issues, so it's worth investigating.

 The New York Fed asked the question, "Hey, what happens when you lock a bunch of policymakers, academics, practitioners, and mortgage bankers in a room with ample food and beverages, then ask them to examine mortgage design and market innovations?" The conference held earlier this summer, "Mortgage Contract Design: Implications for Households, Monetary Policy, and Financial Stability" was organized by the New York Fed in association with the Center for Real Estate Finance Research at the NYU Stern School of Business. I draw attention to the four panelists who discussed, what I assume has been uttered and argued from every originator from Wells to the smallest broker shop over the past seven years, and that is product development.  

 J.P. Morgan posted its projections for MBS supply. The numbers remain largely unchanged and "we still expect $150 billion in net issuance for 2016. With HARP set to expire at year end, and the possibility that pre-HARP borrowers may not have access to the new GSE high LTV refi program," the question will be the level of impact of streamline refis on recent HARP speeds.

 And Nomura addressed the changing landscape. "However, as the presence of relative value investors in the agency MBS market has steadily declined over the past several years, changes in supply trends - including those that come from the strength in the housing market, housing seasonality and the timing mismatch between originator selling and reinvestment of pay-downs on refinanced loans - have become important drivers of relative value assessment in the MBS market. We estimate that the net supply of agency MBS in 2016 will be $185-190bn assuming first-lien residential mortgage loan holdings of banks increase by $50bn. Our current estimates for the annual net supply are almost unchanged from our projections in November 2015 but our confidence level in these projections is higher now. In addition, as housing seasonals are turning around, over the next 6 months, the market should see higher monthly gross and net issuances than what these annual numbers are indicating."

 The bond markets were quiet yesterday with only a couple minor pieces of news (January factory order data was revised lower, and the ISM - New York index fell to 50.4 in March from 53.6 in February).

 Today we've had the February Trade Balance ($47.1 billion versus $45.9 billion in January), and coming up is the March ISM Services number. We closed Monday with the 10-year at a yield of 1.78% and this morning it is sitting around 1.73% with agency MBS prices better between .125-.250.