Ever since the housing bust began, banks have been caught between a rock and a hard place. On one side, if they foreclose and liquidate their inventory, prices plummet which prompts underwater borrowers to strategically default. The downward spiral of strategic default is in clear evidence in Nevada. On the other side, if banks don’t foreclose, borrowers know they can quit paying and live payment-free indefinitely. This method has the advantage for banks of providing an illusion of collateral value backing their loans, but recent data shows banks build an even larger shadow inventory that must eventually be liquidated. Those liquidations will most likely cause still-elevated house prices to drop.
New Jersey Housing Suffers as Defaults Exceed Nevada: Mortgages
By John Gittelsohn and Prashant Gopal on September 18, 2012
Wendell and Margret Brady haven’t paid their mortgage in more than three years, withholding the money amid a foreclosure dispute on the couple’s 11-bedroom house in Morristown, New Jersey. …
“This was like going back to day one,” said Margret Brady, 77, after she and her husband received on Sept. 15 the certified letter saying they must pay $223,730 by the end of the month or face losing the house. “It was like we hadn’t gone through any of the stuff of the last three years.”
Three year’s squatting in a Victorian Mansion? A $223,730 financial benefit, and we are supposed to feel sorry for them?
Passing Nevada
The state passed Nevada in the second quarter in the rate of homeowners with seriously delinquent loans — those 90 days late or in foreclosure — according to the Mortgage Bankers Association. Only Florida had a higher rate of serious delinquencies …
While home values increased in July from a year earlier in 42 states, New Jersey prices fell 0.8 percent, according to CoreLogic, a real estate services company based in Santa Ana, California. …
Serious delinquencies as of June 30 were up 6 percent from a year earlier in New York, Connecticut and Maryland, and up 5 percent in Pennsylvania and the District of Columbia, the Washington-based Mortgage Bankers said on Aug. 9. The rate fell by 27 percent in Arizona, 24 percent in California and 14 percent in Nevada, among states worst hit by the housing crisis.
“Shadow inventory is falling in much of the country — except for the Northeast,” said Zandi. “The implication is that house prices will be much weaker in the Northeast in coming years as these distressed properties eventually get sold.”
Keith Jurow has been writing about the upcoming collapse in the Northeast for quite a while. He is going to be proved correct.
In New Jersey, where about 60,000 foreclosures started since January 2008 still await resolution, borrowers in the foreclosure process haven’t made a payment for an average of 934 days, according to Lender Processing Services Inc. New York, at 953 days, and Florida, at 938 days, are the only states with longer time frames. The U.S. average is 742 days.
The average is approaching three years, the average. I wonder how many haven’t made payments since 2006 or 2007?
By some estimates, the visible inventory of 2.4 million homes for sale nationwide is dwarfed by the hidden supply, which may number 5.7 million, according to a Morgan Stanley analysis.
The shadow inventory is where the problems are.
“We are anticipating a glut in filings because that’s what the lending community is telling us,” Comfort said in a telephone interview. “We will do everything we can to move those in a timely fashion.”The Northeast’s path to recovery faces other headwinds. Of the nine geographical divisions tracked by the Bureau of Labor Statistics, the mid-Atlantic area, which includes New Jersey, New York and Pennsylvania, is the only region where the jobless rate didn’t fall in July from a year earlier.
Lenders are finally going to process the delinquent mortgage squatters in shadow inventory.
“You could drive down a street that looks perfectly normal, with minimal for-sale signs, and not realize that 20 percent of those homes are in foreclosure,” Cherry said. “There’s no big flag that says that a lot of these people are in trouble.”
Some sellers have backed out of short sales because they don’t want to pull their children out of school or aren’t in a rush to move because they’re living in a home for free, she said. Many others … would rather sell and move on with their lives, she said.The delinquent homeowners who remain in the shadows are keeping potential homebuyers on the sidelines amid concern that prices will fall more, Meehan said.“It has given buyers a wait-and-see attitude,” she said.
That’s true in the Northeast, mostly because buyers are smart enough to see through the bank’s game. The shadow inventory is larger and less well hidden.
Foreclosure delays in judicial states also are keeping capital on the sidelines and reducing borrowing options for buyers of high-end homes, according to Chris Whalen, a senior managing director at Tangent Capital Partners LLC in New York.“Here in the Northeast, we have a problem,” Whalen said in a telephone interview. “Investors won’t touch a state where they can’t foreclose on the house. They have no collateral.”
The inability to foreclose is going to be a hindrance to private lending for years to come. Who would loan money to someone knowing they had no recourse to get it back if the borrower stopped paying?
Squatting is worse than foreclosure
Lenders allowed squatting because they believed it would cost them less than foreclosure because prices would remain higher, and they wouldn’t have to recognize the losses. What they didn’t count on was the legions of borrowers who strategically defaulted once they realized they could live in the house for nothing. As the report above shows, lenders only delayed the inevitable, and in the process, they will have to foreclose on more borrowers and recognize more losses than if they had just taken out the trash.
She couldn’t wait to go Ponzi
Lenders generally make borrowers wait at least two months between new loans or refinances on the same property. If the ink still isn’t dry on the signatures on the first loan, there shouldn’t be much need to do another one. Despite this limitation, I am always astounded by the number of quick refis I see in the public records. The owner of today’s featured property couldn’t wait to get back her down payment, so she refinanced 60 days after closing on the first loan. Nine months after that, she extracted the remainder of her down payment and plus about $40,000 extra to boot. Home ownership is very rewarding.
- This house was purchased on 8/4/2003 for $410,000. The owner used a $328,000 first mortgage and a $82,000 down payment.
- On 9/30/2003 she refinanced with a $369,000 first mortgage.
- On 5/10/2004 she obtained a $82,897 HELOC.
- On 9/20/2004 she opened a $126,500 HELOC.
- On 7/29/2005 she obtained a $165,000 HELOC.
- On 11/8/2005 she refinanced with a $529,600 first mortgage and obtained a $34,500 stand-alone second.
- On 7/3/2006 she obtained a new $101,403 stand-alone second.
- Total property debt was $631,003.
- Total mortgage equity withdrawal was $303,003.
Wouldn't you be embarrassed to overpay by $100,000? Only fools buy houses without knowing neighborhood values. Don't be a fool. Don't suffer the pain of an underwater mortgage. The surest way to lose your house is to overpay for it. Our reports identify overvalued and undervalued neighborhoods. Use it to broaden or narrow your search area. Savvy buyers work with us to find bargains. We've saved thousands from financial ruin. Let us save you too. If you want peace of mind while shopping for your next home, sign up for our monthly market newsletter.
We're sorry, but we couldn't find MLS # P835155 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
Proprietary OC Housing News home purchase analysis
2750 North HEARTHSIDE St Orange, CA 92865
$401,900 …….. Asking Price
$410,000 ………. Purchase Price
8/4/2003 ………. Purchase Date
($8,100) ………. Gross Gain (Loss)
($32,800) ………… Commissions and Costs at 8%
============================================
($40,900) ………. Net Gain (Loss)
============================================
-2.0% ………. Gross Percent Change
-10.0% ………. Net Percent Change
-0.2% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$401,900 …….. Asking Price
$14,067 ………… 3.5% Down FHA Financing
3.51% …………. Mortgage Interest Rate
30 ……………… Number of Years
$387,834 …….. Mortgage
$100,509 ………. Income Requirement
$1,744 ………… Monthly Mortgage Payment
$348 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$100 ………… Homeowners Insurance at 0.3%
$404 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$2,596 ………. Monthly Cash Outlays
($259) ………. Tax Savings
($609) ………. Equity Hidden in Payment
$16 ………….. Lost Income to Down Payment
$120 ………….. Maintenance and Replacement Reserves
============================================
$1,864 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$5,519 ………… Furnishing and Move In at 1% + $1,500
$5,519 ………… Closing Costs at 1% + $1,500
$3,878 ………… Interest Points
$14,067 ………… Down Payment
============================================
$28,983 ………. Total Cash Costs
$28,500 ………. Emergency Cash Reserves
============================================
$57,483 ………. Total Savings Needed
The property above is available for sale on the MLS.
Contact us for a comparative market analysis, a cost of ownership analysis, or information on how you can make an offer today!
OC Housing News FREE Guides!
Click on the book cover for more information.
Nearby Foreclosures
Gain a competitive advantage over other buyers. By locating distressed properties -- before they hit the MLS -- you can discover where tomorrow's REOs and short sales will appear. Most of these properties are not listed on the MLS, but they will be soon. Research properties in advance and get a jump on your competition. Don't miss out on another deal because you couldn't act quickly. Use this tool to your advantage! The red properties are already bank owned. As soon as REO asset managers prepare them for sale, they will be on the MLS. Get ready! The green and blue properties have owners who are not paying their mortgages. They may be offered as short sales, or they may go through foreclosure and become REO. Either way, they will also likely be available on the MLS soon. Find your next home! Be prepared to offer on these properties by researching them in advance or risk losing out to buyers who are have done their homework. Start your research today! To find distressed properties, enter your desired location and press search. Scroll through list by pressing "next."
23 Responses to “Allowing delinquent mortgage squatting causes more strategic defaults than crashing prices”
Sorry, the comment form is closed at this time.
August Pending Home Sales Dip to lowest level since April: NAR
After reaching a two-year high in July, the Pending Home Sales Index (PHSI) fell in August to 99.2, the lowest level since April, the National Association of Realtors reported Thursday. Analysts had expected the index to rise to 102.2. The index fell in three of the four Census regions.
The drop in the PHSI followed by one day a report that new home sales for August were essentially flat to July, down 0.3 percent.
The slippage in both the PHSI and new home sales – both of which are based on contracts, not completed transactions – dampens the outlook for home sales. PHSI data are generally reflected in the report on existing home sales two months out, that is the August PHSI points to weaker homes sales reported for October.
Since April, the PHSI has alternated between rising and falling: down in April, June and August while increasing in May and July. The NAR though pointed to a longer trend: even with the August drop, the index is up 10.7 percent in the last year.
The drop in the August PHSI follows a string of positive housing indicators: increases in existing and new home sales in July, increases in the Case-Shiller Home Price Indexes for July and continued increases in builder confidence in September and in housing starts in August. Both the median and average price of a new single family rose in August. The only negatives in recent reports were a slight drop in housing permits in August and in the median price of an existing home in August.
The PHSI, according to the NAR, has improved year-year for 16 straight months, up 10.7 percent in August, a slight retreat from July when it was up 12.6 percent year-year.
Regionally the PHSI improved only in the Northeast where it rose 0.9 percent to 78.2 in August and is 19.9 percent above August 2011. In the Midwest the index declined 2.6 percent to 95.0 in August but is also 19.9 percent higher than a year ago. Pending home sales in the South slipped 1.1 percent to an index of 110.4 in August but are 13.2 percent above August 2011. In the West, the index fell 7.2 percent in August to 102.5 and is 4.2 percent below a year ago, attributable, NAR said, to “broad inventory shortages.”
“The performance in month-to-month contract signings has been uneven with ongoing shortages of lower priced inventory in much of the country, and across most price ranges in the West,” according to NAR chief economist Lawrence Yun.
The index is based on a large national sample, representing about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.
So much 2012 being the year of the turn around. The “bump prices and activity” was fueled by super low mortgage rates. In one year the cost of borrowing dropped 20%! Now, rates be this low for awhile, but if have an inflation scary or something like stagflation, then rates might increase again. But if that were to happen you might see an even larger QE infinity to push them down again.
Mortgage Rates Break Low Records Again as QE3 Starts
It’s unknown whether or not the Federal Reserve’s new stimulus will be able to whip the economy back into shape, but one thing’s for sure: It’s sent mortgage rates plummeting.
Freddie Mac’s Primary Mortgage Market Survey showed new record lows in all categories except the 5-year adjustable-rate mortgage (ARM). The GSE reported that the 30-year fixed average fell to 3.40 percent (0.6 point) for the week ending September 27, down from 3.49 percent in the previous week’s survey.
The 15-year fixed also dropped, averaging 2.73 percent (0.6 point) – down from 2.77 percent.
While the 5-year ARM didn’t achieve any new lows, it did post a decrease from the week before, falling to 2.71 percent (0.6 point) from 2.76 percent before. Meanwhile, the 1-year ARM did hit a new record, dropping to 2.60 percent (0.4 point) from 2.61 percent.
The continuous drops add to an already amount of good news for the housing market.
“Fixed mortgage rates continued to decline this week, largely due to the Federal Reserve’s purchases of mortgage securities, and should support an already improving housing market,” said Frank Nothaft, VP chief economist for Freddie Mac. “For instance, the S&P/Case-Shiller 20-city home price index rose 1.2 percent over the 12 months ending in July, reflecting the largest annual increase since August 2010.”
Nothaft also pointed to new home sales, in particular the strong two-month pace set in July and August.
According to Bankrate’s weekly survey, the 30-year fixed average slid down to 3.55 percent from 3.70 percent a week before. The 15-year fixed fell along with it, averaging 2.88 percent (from 2.95 percent previously). The 5/1 ARM also fell, but only slightly – it averaged 2.68 percent for the week, down from 2.69 percent a week ago.
While the Fed may be successful in encouraging home purchases with this new round of quantitative easing, only time will tell if the stimulus will have its intended effect on the economy.
“The hope of the Fed is to juice the economy by reducing mortgage rates further, spurring home purchases and refinancings,” Bankrate said in a release. “The part about reducing interest rates is certainly working, and it will no doubt pull forward some home purchases. But there is plenty of skepticism about whether this will be enough to jumpstart the sluggish economy.”
Pending sales of existing homes fall below mark considered healthy
By Tiffany Hsu
September 27, 2012, 9:02 a.m.
After hitting a two-year high, pending sales of previously occupied homes fell in August below the threshold considered healthy, according to a trade group.
An index of signed contracts had hit 101.9 in July, reaching its highest point since home buyers swarmed the market in April 2010 to take advantage of a government tax credit. But in August, the measure dipped 2.6% to 99.2, according to the National Assn. of Realtors.
A reading of 100 is considered historically healthy. Pending sales are considered a leading indicator for the housing market, usually coming a month or two before home sales are finalized.
Compared to the August 2011 reading of 89.6, though, last month’s gauge was 10.7% higher.
The Realtors association’s chief economist, Lawrence Yun, blamed the volatility in the market in part on a dearth of lower-priced homes nationwide and widespread inventory shortages across all prices in the West.
Only the Northeast saw a boost in signed contracts. The West suffered the deepest plunge – a 7.2% monthly drop to 102.5, or 4.2% lower than last August.
Still, Yun was optimistic. Existing home sales this year will rise 9% to 4.64 million before booming another 9% next year, he predicted.
Other recent data has pointed to a gradual, if inconsistent real estate recovery. Homes sold last month at the fastest clip in more than a year. Mortgage rates are at new lows. New home sales slipped slightly last month, but prices made their largest jump ever.
Last week, the Realtors’ association said that residential construction starts and existing home sales both increased.
“Still, Yun was optimistic. Existing home sales this year will rise 9% to 4.64 million before booming another 9% next year, he predicted.”
Lawrence Yun is the most optimistic guy I know.
Yun is good at projecting boom times. Unfortunately, since none of his predictions has ever proven correct… ever, he has no credibility. In fact, he is such a joke I wouldn’t be surprised is the NAr has to replace him because it does them no good to have a head economist with the same believability as Baghdad Bob.
It was only a matter of time when record low inventory = record low sales. This is pretty simple math. Unless things change drastically regarding inventory, record low sales are here to stay!
Lawrence Yun is so full of shit, he could double as a septic system!
So far, I haven’t seen any sign the inventory situation is changing. The banks did increase their intake of REO last month, but that’s still several months away from reaching the market.
Second-quarter U.S. growth cut to 1.3%
WASHINGTON (MarketWatch) — The government chopped its estimate of U.S. growth in the second quarter, as consumers and businesses spent and invested less than initially believed.
Gross domestic product in the April-to-June period increased by 1.3% instead of 1.7% as previously reported, the Commerce Department said Thursday in its third and final review of second-quarter growth.
A severe drought in the Midwest, which reduced crop yields, resulted in lower farm inventories. That accounted for much of the downward revision.
Economists surveyed by MarketWatch had expected second-quarter growth to be left unchanged at 1.7%. The economy grew at a 2.0% pace in the first three months of the year.
“The magnitude of the downward revision to GDP for the second quarter was a surprise, but clearly reaffirmed the fact that the economy remains mired in a protracted period of slower growth,” said Jim Baird, chief investment strategist at Plante Moran Financial Advisors.
The main culprits were consumer spending and business investment outside of housing. Consumer spending rose 1.5% in the previous quarter instead of 1.7% as initially forecast.
Business investment, excluding residential housing, was revised down to a 3.6% increase from 4.2%. The bulk of the decline was attributed to lower farm inventories stemming from a severe drought in the Midwest.
Slower net export growth was also a contributing factor. The increase in exports was lowered to 5.3% from 6.0%, a larger change compared to the revision in imports. Import growth was trimmed to 7.0% from 7.3%
Uh guys, the QE aint working then, now, and never will. This is a classic example of the law of diminishing returns.
Low rates are simply allowing gov and citizens to borrow more. What could go wrong?
The Federal Reserve believes they can solve all the world’s problems by getting people to borrow more money. It’s a convenient point of view when all your members are bankers.
Maybe a stupid question here, but I thought if you refinance your first mortgage in California, the loan then becomes recourse at that point. I know seconds and HELOCs are wiped out in foreclosure action, but if this person refi’d a first mortgage at $529,600 and walked away, isn’t she then personally liable for the difference amount between the foreclosure sale price and the outstanding first mortgage balance?
She should be, but lenders are not pursuing deficiency judgements against these debtors, so in a foreclosure, whatever they get out of the property is all they get. If the lender had opted to do a judicial foreclosure, they could have pursued a deficiency judgement, but this is rare in California.
And technically, the HELOCs are not wiped out, they are just detached from the property. The lender who had the HELOC could still pursue the borrower for a deficiency as they have not exercised their “one action” under the law. Most lenders write these off because they can’t get blood from a stone.
There is an new law in California that will make purchase and refinance non-recourse to the original loan balance starting in Jan 1. 2013. So, yes and no.
“There is another twist on the tax issue for California homeowners. Original purchase loans in California are “nonrecourse,” meaning the lender can’t pursue the mortgage holder for unpaid balances. Some refinances for the same amount as well as cash-out refinances where the money is used for home renovations, are also nonrecourse.”
Read more: http://www.sfgate.com/business/article/Clock-ticking-on-forgiven-debt-tax-break-3872721.php#ixzz27noPS8cf
IR, may I ask what may be a dumb question? When a ‘loan-owner’ converts to a full-on non-paying squatter for several years, who pays the real estate taxes? Here in TX if I should fail to pay my annual taxes my house will likely get auctioned off at the courthouse steps sometime in the following year. Is it the mortgage servicer who is paying the taxes? Seems like somewhere in there is a way to get rid of the squatters…
Nobody pays the taxes here. At the auction, the back taxes are paid in full.
I found this article on the subject:
Owning a home brings many financial responsibilities. Two of the most crucial are paying a home mortgage loan and paying real estate taxes. Failing to pay either can bring dire results for homeowners, but most homeowners know more about the possible ramifications of defaulting on mortgage payments than about what happens when a property tax bill goes unpaid. In times of financial hardship, some homeowners might opt against paying property taxes in favor of making a mortgage payment, but there are consequences.
Function
Tax liens are attached to real estate when income and property taxes are unpaid. The tax lien is a legal document that says the lienholder has a financial claim on the property. The tax lien is defined by a dollar amount. The lien is dropped if the property owner pays the amount due. If a homeowner sells the home, the tax lien is paid at closing from the homeowner's equity. If the lien is not paid, other action is taken to secure the debt, and this action can include foreclosure on the property.
Types
Homeowners face potential foreclosure for non-payment of multiple types of tax. Nonpayment of county property taxes often leads to a tax lien. These liens sometimes lead to foreclosure. The federal government and some state governments also uses tax liens to secure payment on income taxes. Some programs used by state and local governments allow homeowners to avoid or eliminate a tax lien without paying the full amount of the debt.
Features
Tax foreclosure on a tax lien occurs if the homeowner does not respond to the lien by paying it. To avoid a tax foreclosure, homeowners must pay more than the original amount of the tax bill. In addition to fees for late payment, the IRS and state and county tax collectors recover the costs of securing the lien. In some cases, tax liens lead to tax-certificate sales. These sales allow investors to inherit the debt. The investors bid on how much interest they will accept on the tax debt, and homeowners must pay interest on top of the debt originally owed under the tax lien. When homeowners fail to pay these investors, the investors can request a foreclosure sale. The investor then receives payment from the new buyer.
Effects
In California, tax certificates are not sold to investors. Instead, a levy is placed on property when the property owner fails to pay off a tax lien. A levy gives the taxing body ownership of the property. The taxing body then prepares to sell the property at auction. In states where tax certificates are sold, the holder of a tax certificate can begin foreclosure on a property when a tax certificate has not been paid after a certain period of time. In New Jersey, the property owner has two years to pay the debt. The home is sold at public auction via the foreclosure process and the highest bidder takes full ownership of the property.
Time Frame
For a foreclosure to take place after a tax lien is attached to the property, certain deadlines must pass. In California, for example, property owners are given 30 days to pay overdue property taxes before the tax lien is recorded. These notices include details about how to avoid the lien. In states where investors purchase tax certificates, there are requirements for how long homeowners have to pay their debts before the holder of the tax certificate can request foreclosure.The Internal Revenue Service, by law, can keep a tax lien in place for only 10 years. The IRS, though, also can seek a tax levy to recover the costs. A tax levy allows the IRS to seize the property. The IRS then sells the seized property. Although the IRS has authority to seek a tax levy at any point, the government agency often waits until the 10-year window on the tax lien is about to close before taking such action.
Misconceptions
Many homeowners think mortgage lenders cannot foreclose when timely mortgage payments are made. However, mortgage companies have the right to foreclose on properties when a tax lien is attached to them to protect their investments. According to a June 2010 story in the "St. Petersburg Times," the Federal Housing Administration and giant mortgage lender Fannie Mae are instructing their mortgage lending partners to initiate foreclosure when homeowners fail to pay property taxes and home insurance. According to the story, foreclosure is particularly being urged for reverse mortgage lending.
IR,
Thanks for the info. Looks like the tax folk here in TX are a lot more “hard-ass” than in CA. Maybe you guys need more “courthouse steps” auctions…
California goes out of their way to make it difficult to foreclose. Private lending will be slow to return here because it’s becoming more difficult for lenders to get their money back.
Lenders monitor the taxes and will pay them, when necessary, to prevent a tax foreclosure. Otherwise, they go unpaid. Also, in some cases it’s more beneficial to let the property go to tax foreclosure because it would cost a lender more to foreclose than the home is worth (think Detroit.).
Since we are talking about loan defaults…Again if students default and can’t get jobs, who are going to purchase the starter homes.
Student-Loan Default Rates Rise as Federal Scrutiny Grows
By John Hechinger and Janet Lorin – Sep 28, 2012 1:32 PM PT
More than one in 10 borrowers defaulted on their federal student loans, intensifying concern about a generation hobbled by $1 trillion in debt and the role of colleges in jacking up costs.
The default rate, for the first three years that students are required to make payments, was 13.4 percent, with for-profit colleges reporting the worst results, the U.S. Education Department said today.
The Education Department has revamped the way it reports student-loan defaults, which the government said had reached the highest level in 14 years. Previously, the agency reported the rate only for the first two years payments are required. Congress demanded a more comprehensive measure because of concern that colleges counsel students to defer payments to make default rates appear low.
“Default rates are the tip of the iceberg of borrower distress,” said Pauline Abernathy, vice president of The Institute for College Access & Success, a nonprofit based in Oakland, California.
The data follows complaints that commission-driven debt collectors the government hires aren’t telling students about affordable options to repay their debt, especially a plan that lets them make payments tied to their incomes. Students have borrowed $1 trillion to pay for higher education, surpassing credit-card debt.
More Disclosure
Congress is also examining the often deceptive letters that college financial-aid offices send to admitted students that play down the cost of attendance by making government loans seem like grants. Barack Obama’s administration, as well as Republicans and Democrats in Congress, are calling for more disclosure about college costs and student outcomes.
On the stump, President Obama has touted an executive order that eases the process for applying for a loan program that lets students make lower payments tied to their income — easing their burden and making it less likely they will default.
Republican challenger Mitt Romney said that initiative encourages students to take on more debt. Romney advocates cutting education regulation and encouraging colleges to become more efficient, lowering costs partly through the use of online instruction.
The government tracks default data to protect taxpayers and keep students from attending programs that don’t prepare them for employment.
School Accountability
“We continue to be concerned about default rates and want to ensure that all borrowers have the tools to manage their debt,” U.S. Secretary of Education Arne Duncan said in a statement. “In addition to helping borrowers, we will also hold schools accountable for ensuring their students are not saddled with unmanageable student loan debt.”
Under the new three-year measure, colleges with default rates of 30 percent or more for three consecutive years risk losing eligibility for federal financial aid. Schools can also be barred from the program if the rate balloons to 40 percent in a single year. The sanctions don’t take effect until results are released in 2014.
Today’s report covers the three years through Sept. 30, 2011. For all colleges, the 13.4 percent rate exceeded the two- year rate of 9.1 percent — the worst in 14 years — and up from 8.8 percent a year earlier.
By the new three-year yardstick, the default rate at for- profit colleges was 22.7 percent. Based on the two-year period, they reported a 12.9 percent default rate.
Under the three-year-period, public colleges reported an 11 percent rate while private nonprofit schools had a rate of 7.5 percent.
Rate Manipulation
Some for-profit colleges encourage students to defer payments in their early years, in an effort to keep down default rates that could jeopardize their federal funding, according to a report by the Senate Committee on Health, Education, Labor and Pensions released in July.
The report accused for-profits of using the tactic to manipulate their default rates. It singled out the role of SLM Corp. (SLM), the largest U.S. student-loan company commonly known as Sallie Mae. A subsidiary, General Revenue Corp. counsels for- profit colleges on keeping down default rates. University of Phoenix, owned by Apollo Group Inc. (APOL), is a customer, according to the Congressional report.
[...] HELOCs are wiped out in foreclosure action, but if this person … … See original here: Allowing delinquent mortgage squatting causes … – OC Housing News ← The Debt Forgiveness Tax Break May Not Be Extended » OC Housing [...]
[...] shows banks build an even larger shadow inventory that must eventually be liquidated. … – OC Housing News ———— Why Is Redwood the Maytag Repairman of Jumbo MBS? – Paul Muolo [...]