July, 2015

Here’s the Real Reason College Grads Aren’t Getting Homes


The debt cycle goes psychological.

StudentDebtA recent post from Liberty Street Economics, the blog from the Federal Reserve Bank of New York, gave the public finance perspective on student loan debt.

As you all may be aware, the current administration is looking at ways to help college students receive a greater proportion of tuition assistance.

The Fed’s Director of Research, James McAndrews, in remarks to the National Association of College and University Business Officers, cited higher tuition costs coupled with more people attending college as the primary reason for the big jump in the nation’s student loan debt.

Which, by the way, is jaw-droppingly staggering:

“Between 2004 and 2014, the total student debt in the U.S. tripled from $364 billion in 2004 to $1.16 trillion in 2014,” he said.

That’s a lot of debt. And we know it’s keeping grads from buying homes.

But there is more to it, when looking deeper at the numbers. And, by doing so, we can learn how this debt is shackling generations out of the housing market.

Warning: There is no near-term upside to this conclusion.

In McAndrews’ remarks, we learn that college grads aren’t just renting because they’re waiting to pay down student loan debt first.

No, it’s much worse. In truth, more and more college grads can’t even pay down their student debt in the first place!

Read this passage, the bolding is mine:

So what is causing the withdrawal from home and car purchase markets? It is likely that rising student debt and an uncertain economic outlook have depressed demand. But most likely, declines in credit supply play an important role as well. Our analysis shows that average credit scores have fallen for student debt holders relative to those with no student debt. Clearly for the substantial and growing group of student loan borrows who are delinquent or have defaulted on their debt, access to credit is reduced through potentially long-lasting negative effects on credit scores. Better data is required to evaluate the extent to which the decline in car and home loan originations is concentrated among those delinquent on their student loans and those who dropped out of college, or whether it is more widespread among all those with student loans.

As of the fourth quarter of 2014, about 17%, or 7.3 million borrowers, were 90 days or more delinquent on their student loan payments. That’s nearly double the rate in 2004.graduate-coming-home

But more worrying is that the more delinquent, the more likely one is to still live with their parents. And let’s be honest, an extended period of living at home leads to behavioral changes over time. The longer they stay, the less likely they feel an immediacy to leave.

As Raphael Bostic said, at some point, they’ll eventually pair up and move on.

But in the meantime, questions remain as to when any meaningful change to the tuition-financing mechanisms may actually take place.

McAndrews makes the case that none of this should ultimately prevent someone from getting a college degree. Lifetime earnings, he says, will eventually even it out.

Having employed and managed more than a few college grads in my time at HousingWire, I strongly disagree. I’ve seen firsthand how little a job can help dissolve one’s psyche when crippled by massive student loan debt.  It’s common and it’s a curse.

The Fed is looking for solutions, but so far has more questions than answers, and though it clearly wants to reform the system, it doesn’t yet know how.

“We at the New York Fed will continue to search for new facts to put on the table and push the debate forward,” said McAndrews, and I believe him.

Especially after learning how awful it can be for these college grads with little financial freedoms. They are those robbed of both their choice and their liberty to create a community.

It’s one thing to sacrifice short-terms hopes and dreams at the expense of higher education.

It’s another, more real and more tragic, phenomenon to lash financial neophytes with mountains of debt that cannot even be discharged in bankruptcy.

For these graduates, there is literally no way out anytime soon. And though that’s the real reason they aren’t buying homes, it’s also not the real reason we need to be worried.

By Jacob Gaffney/Housingwire.com

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Saying Goodbye to Real Estate as We’ve Known It (The End of the HUD-1 Era)


RIP HUD-1It’s time to say goodbye to real estate closings as we’ve known them for the last several years.  The infamous HUD-1 Settlement statement, which is used by title companies and closing attorneys in nearly every real estate transaction, is officially being retired.  The much-maligned and often criticized Consumer Financial Protection Bureau (birthed out of the chaos from the mortgage and real estate meltdown of the Great Recession) has implemented a new rule, set to go into effect October 3rd, 2015, that will significantly change the closing process.

The new CFPB law is set to outline new rules for integrated mortgage disclosures, and involves forms required under both the Truth-in-Lending Act (TILA) and the Real Estate Settlement and Procedures Act (RESPA).  Instead of the current “Good Faith Estimate”, a new “Loan Estimate” will take its place.  Additionally, the long trusted HUD-1 Settlement Statement will be replaced with a new form referred to as the “Closing Disclosure”.

For those of you who are new to the real estate business, The HUD-1 Settlement form, is used to itemize fees and services charged to the borrower, by the lender or broker, when they apply for a real estate loan.  It is usually delivered to the buyer one day prior to the closing, and is an important form to review, as it accounts for all charges and credits (your MONEY!).  The HUD-1 Settlement statement includes both credits and deductions taken from each party and helps determine the total amount the buyer is required to bring to closing, and how much the seller will receive as a result of the sale.

While I know HUD-1’s aren’t exactly the sexiest topic for a blog post (unless you’re a real estate nerd like me), but since they are used in nearly every real estate closing, it’s definitely a form you should familiarize yourself with, and you should also understand the changes that are coming in the next couple of months.

Closing Disclosures

Starting this summer, creditors must now provide a new final disclosure, which reflects the actual terms of the transaction.  This is known as a Closing Disclosure.  The form, the H-5 form (pg. 55) integrates and replaces the final TIL disclosure and the existing HUD-1 for these transactions.  Unlike the HUD-1, the new form is longer, and must be delivered three-business-days before consummation of the loan.  So don’t forget the date!

General Requirements (Good Terms to Know!)

  • The Closing Disclosure must contain the actual terms and costs. Creditors may estimate when these are not readily available, but are expected to provide corrected disclosures, containing the actual terms, at or before consummation.
  • The disclosure must be in writing, with the information prescribed in § 1026.38 of the CFPB.
  • A three-day waiting period may be allowed if the creditor provides a corrected disclosure. This in turn, may also allow a three-day grace period for the consumer, prior to consummation.

 Consummation not Closing – There’s a Difference Now!

Although consummation seems similar to settlement or closing, as it commonly occurs at the same time, you should be aware that the two events are considered legally distinct. Consummation begins at the point in time when the consumer becomes contractually obligated to the creditor on the loan. When this may occur, generally depends on your State law. You should always verify your State laws to ensure a timely delivery of the Closing Disclosure.

Change can be Good

Ushering in a new system, into what had become a well-oiled machine, can be an incredibly daunting task. This is why the original date to implement these changes of August 1st has already been pushed back twice, and also includes a “grace period” that is expected to last until the end of the year. However, this change might come as a breath of fresh air, as not only are consumers better protected, but it puts more transparency on a market that has been roundly criticized since the market crash of 2007/2008.

What are your thoughts on the new changes? I’d love to hear your thoughts in the comments section below!

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