May 5th, Monday Market Update and Mindset Call with Nikki, Cari and Angie

Mortgage interest rates experienced volatility last week due to rumors about Japan selling treasury securities but have since stabilized back into the high 6's with expectations to settle in the mid-six range throughout the week.

Student loan collections have officially begun for approximately 10 million Americans with delinquent loans

• 5.3 million borrowers are in default (more than 270 days late) while 4 million are 91-180 days late
• Collection actions can include garnishing tax returns, social security income, and up to 15% of wages
• First step for those in default is obtaining a current credit report from the major bureaus
• Establishing payment plans can begin improving credit scores after 6-12 months of on-time payments
• Loan disputes are possible if reporting is inaccurate, especially when loans have been sold
• Any federal debt delinquency makes borrowers ineligible for mortgages until resolved

If you or someone you know is dealing with student loan defaults, reach out to us for guidance on how this affects your homebuying potential or to connect with resources for addressing loan issues.

Chapters

• 1:13 Welcome and Mortgage Rate Update
• 2:49 Student Loan Default Crisis Explained
• 5:55 Impact on Low-Income Earners
• 7:49 How Defaults Affect Homebuyers
• 10:07 Steps to Fix Student Loan Defaults
• 14:17 Federal Debt and Mortgage Eligibility
• 15:19 Future Outlook and Resources

Transcript

Speaker 1: 0:38

All right, welcome to the Monday Market Update. Call Happy Cinco de Mayo to anyone and everyone out there that's either listening to the recording or watching live or on YouTube.

Speaker 2: 0:50

if you celebrate so without any hesitation, Nikki, I'll let you jump in Well, good morning everyone and, yes, like Angie said, happy Cinco de Mayo. So we had some interesting things happen with mortgage interest rates last week, which kind of picked up the volatility on the interest rates. Luckily that has settled back down into today. So what had happened is late last week Japan had talked about selling off some mortgage-backed securities or selling off some treasuries. I'm sorry, and when that happens, if they were to sell off those treasuries that would put some volatility into the market. It was more of like this rumor that had started but it created this kind of wave of increase of interest rates from a mortgage standpoint. So we kind of hit up into the sevens late last week. But Japan did go on record in saying that they are not planning on selling any of their treasuries, which has helped the market correct as of today. So we are still in those high sixes but we are expecting it to settle back down to that mid six range throughout the week.

Speaker 2: 1:50

So not a lot of economic activity happening that's going to influence mortgage interest rates. Of course I knock on wood because we never know right now with everything that's been happening and all the volatility that we're seeing, the big thing that is in the news today, and the thing that's starting today is that student loan debt that was previously put on hold, people that have defaulted, or defaulted student loans, basically, that are either in default or are behind on payments. So, of the 10 million, about 5.3 million are considered in default, which means that they are greater than 270 days late on payments. And then you have about 4 million a little over 4 million people who are 91 to 180 days late, and so basically, what that means is that the student loan companies are now starting the collection process for those people who are in default on their student loans. So they had until February 1st of this year to do something to say hey, you know what? I know that I haven't paid since 2020. Let me work out a payment plan, Let me figure this out.

Speaker 2: 3:04

And the late payments on those student loans started reporting in March, February and March.

Speaker 2: 3:09

So there was this big issue with anyone who was looking to qualify for a home if they had student loan default and they hadn't taken care of the situation before February 1st. A lot of them were showing now late payments on their student loans, late payments on their credit report, which dropped their credit scores and prevented quite a few people from actually being able to purchase homes that were affected by these changes, so they were told that this was going to happen. Who knows what the warning system was like, but it is starting to create an issue now. So of and the unfortunate thing is is of the almost 9.4 million of these student loans that are in default, or 9.4 million people that have student loans that are in default, 65% of them are considered what's considered the lower income earner, and they define a lower income earner by someone who is earning less than 200% of the poverty line. So anyone that's, you know, let's just say, the poverty line's at $35,000, anyone earning less than $70,000 is what they consider to be a lower income earner.

Speaker 2: 4:14

So, 65% of the people who have those student loans in default are lower income earners. So it's starting to become an issue and we're trying to figure out the government's trying to figure out what to do about this. Right now there is a collection process that goes on. It can include garnishing tax returns, it can include garnishing social security income and it also can include actually garnishing their earned income up to 15% through their employers, actually garnishing their earned income up to 15% through their employers. So if you think about somebody who's earning less than 200% of the poverty line, 15% of that income is a huge amount for them to be able to adjust for in order to get these student loans back in line. And so we want to keep an eye on it because it's going to start to have a trickle down effect into the housing industry and a lot of people don't think about it.

Speaker 2: 5:00

But it talks about credit scores, late payment, showing on credit, how we account for student loans in the loan process, because for us, if you are not making payments on your student loans and they're still reflecting as on-time or up-to-date, we have to use certain percentage of the balance in order to qualify you for a house.

Speaker 2: 5:19

And so it'll be. You know, once this kind of this wave comes through and these student loans are starting to go into collection, it's really going to affect how we can qualify people for purchasing homes. So it'll be an interesting thing to watch and kind of interesting to see how that effect trickles downhill. From a mortgage standpoint and from a real estate standpoint. A lot of first-time homeyers are going to be affected by this. So if you are someone who does have student loans and they are in default or you didn't make the February 1st cutoff time to be able to reset those student loans, it'd behoove you to try to contact the student loan company and set up a payment plan so that that doesn't go into the collections and so that you can prevent the damage from your credit being a long-term damage.

Speaker 1: 6:02

Wow, yeah, no, that's. I've started just hearing about it now more Again. I don't watch the mainstream media or news quite often, but yet it is just coming out on all of the different channels. And I guess, Nikki, I'd be interested to see and understand a little bit more about, like from a buyer's agent standpoint, or when we're talking to new buyers, if they're younger in their thirties, you know what are the right questions to ask or how to ask them. I know when we went through COVID and people were on deferment, you know, in some cases of their mortgages. Now, on listing appointments, we had to start and continue to have to ask did you defer your mortgage during that time? And so I guess, on the flip side of now this coming into effect with buyers, what information or key information do you need as a lender, or should we be asking or looking out for, as we're pre-qualifying or having our first initial conversation with buyers?

Speaker 2: 7:08

Yeah, I don't think it's unreasonable for you to talk through, you know, whether they have student loans or not. You know that's a very important question when it comes to lending in general, but it's also it could be a question that you know could bring value on your end as well and saying, hey, you know, do you guys have student loans and are you sure that those things that you know, where are you at with making sure that they're up to date and that you've worked out a payment plan and things like that? Because that could be an issue right off the bat for them to get pre-approved. Obviously, the best thing is to talk to a lender and to get that soft credit pull done so that we can see the activity that is actually going on with their student loans. The other option for them would be to download a Credit Karma or to download, you know, go into a credit card app and look at the FICO score, look at, you know, things like that. Credit Karma is going to give you like information on what is actually reporting to your credit, or an Experian app or an Equifax. Any of those apps are going to give you the information of what is actually reporting and how it's reporting and from there you can do some activities talking about, maybe disputing some of the information that's on there, you know, maybe talking to the creditors and saying, hey, you know, can we work something out here. I've seen it in the past and I don't know what the future is going to hold or what the plan is from, like a student loan company as far as collecting on these things. But I've seen in the past like if you set up a payment plan, a lot of times they will correct your credit report to show on time payments, because now you've set up a payment plan, who knows, we don't.

Speaker 2: 8:31

There hasn't been any real precedence set right now for this sector of the 10 million people who have these student loans, but I have a feeling that something's going to need to be done and it's going to be need to be more than just hey, you're in collections and you're screwed. So it's one of those things where the details are going to start to come out. We've known about this for a while. I've done a couple of TikToks on it, about talking about this specific thing back in January and talking about coming to in February, talking about the credit score decreases and the people that are affected, have already been affected by this. So if you do, my biggest thing is, if you do have student loans, you got to do something with them. I mean, whether in the administration is basically saying you took out a loan, you got to pay it back and we got to figure this out. So we'll see what happens on a long-term basis and how you know if there is some.

Speaker 1: 9:20

You know, forgiveness if there is some sort of payment plan that can be worked out, but from if there is some sort of payment plan that can be worked out, but from a lending side, we just it's just something that we have to keep an eye on for sure. Yep, it's like they. It had to, the trigger had to be pulled, you know. So that now it's out there and it's done so. So what now? What? And looking at how we move forward, so let's say, I come across a buyer and they are in default. They've been ignoring it, they didn't see your TikTok, they're just kind of hiding under the blanket. What is their first step to correct this issue?

Speaker 2: 9:52

Their very first step is to get a hold of their credit report and to figure out what's on it. You can also go to Experiancom, equifax or TransUnion and request a free credit report. All three of them will give you a free credit report once a year that you do not have to pay for. That'll show you exactly what's on there. From there, anytime you get a credit report, they have phone numbers and contact information for every single creditor that is on your credit report and those phone numbers are required to be accurate and required to actually be the place that you need to call to get the help that you need. So if you have a student loan, it should have the service, or let's just call it Nelnet, and then it'll have their address and it'll have their phone number right below there on that credit report so that you can get a hold of them and say, hey, here's what I'm seeing, that's going on. What are my options? How can I work out a payment plan to get this out of default and start getting on-time payments to my credit report again? You know and really it's honestly, it is just facing the music.

Speaker 2: 10:52

I have some clients actually that I'm working with right now that they had student loans that were actually went into default, were sold off to another student loan company student loan servicer. They are working with the current student loan servicer. They are working with the current student loan servicer to make on-time payments, but the other the original student loans are still reporting to their credit and still reporting all late payments currently, even though those loans were sold off. They have all the information. They got the emails, they got the documents saying hey, we're selling these loans to this servicer. The new servicer is actually reporting accurately.

Speaker 2: 11:26

They went to go back to the old servicer and said, hey, this is wrong and they couldn't get any help. So they went directly to the credit bureau agency, uploaded all their documents and said, hey, this is reporting incorrectly, we're disputing this and they're able to get those things removed off their credit because they were reporting inaccurately. So we're talking someone who has a 560 credit score that's probably gonna end up somewhere around 700 because of the mistakes that were made on the student loan side. So there is. You do have options to correct it. You do have options to start showing those on-time payments and most of the time, if you're in default and you can work out a payment plan. Most of the time that credit score is gonna go up after you're making six to seven payments on time, and then after the 12 month mark or the 12 on time payment marks, a lot of times that credit score can be increased even more.

Speaker 1: 12:16

That was my next question, perfect. How long does it take? And I love that you mentioned pulling the credit, because they have to keep it up to date. So if it has been sold and you don't know where it's had, or you're just not certain, haven't got the mail or whatnot, it's there, it's there for you and it's it is like you said, just face the music and start now. Now's, now's the time, for sure.

Speaker 2: 12:40

Yeah, and just as a side note, um, so anytime anyone is in default on government debt or federal debt no matter if it's student loans or any other kind of federal debt they will not be able to get a mortgage until they take care of it. So that's very important to know. If you are in default or delinquent on any federal debt at all, you cannot get a mortgage until it's made current. So that's just something that is a question on every single loan application that we take is if you are default or delinquent in any federal debt, student loans are considered federal debt.

Speaker 1: 13:14

Perfect, good to know, yeah, wonderful. Well, yeah, I think that's a hot topic, absolutely. So I'm glad that you covered that today because I think and I think there's a lot of people out there that know someone, maybe in their family or their children, that this has happened to. So I think, yeah, it's definitely something to highlight and I will be interested in meeting with you again and doing this every week. What now, like, do you have any? I know you don't have a crystal ball, but if you were to speculate I know you don't have a crystal ball, but if you were to speculate, have you heard any speculations of what the administration or what will happen to help correct these? You said 10 million defaults are behind loans.

Speaker 2: 14:04

Right now, the administration is just saying you got to pay, and however that is, if we can't get ahold of you. If we can't, you know, if you don't take action, we're going to start garnishing wages because we need to be paid back. It's you know. Unfortunately, there were some lending practices in the student loan world that weren't exactly ideal for students, and whether they knew what they were getting themselves into or didn't you know, kind of, when we talk about that whole mortgage, you know, crash in 2008,. Like, did the people who got mortgages know exactly what they were getting themselves into? That's still up for debate.

Speaker 2: 14:34

The point being that now that the debt is there, you got to do something with it, and it's it's. You got to start paying it back in one way, shape or form. And I don't know if they have different. Like I said, I haven't heard if they have different payment plans. I don't know if they have income-based payment. Well, I know that student loans do have income-based payment plans, but it's unclear on whether the ones that are in default or delinquent are allowed to go on an income-based payment plan. So that like and is it going to be 2% of the balance? Is it going to be 1% of the balance. Is it going to be income? We don't know. So it's just one of those things where you know time will tell and, like you said, update over time and kind of just see what the trends are and what the offerings are.

Speaker 1: 15:20

Well and, as the year progresses, if you have any questions on it or if you come across a buyer, reach out to Nikki and she'll be able to do that Soft pull, take a look, or, if they've already pulled it, it's so, so important to partner with someone. If you don't have a financial advisor or someone that can really help you, or even if you do, nikki is definitely the resource that you'll want to reach out to or have your buyers reach out to, or she'll do a call with both of you on it. So, so, very helpful, and I just appreciate you, nikki, how you show up here every week and in taking care of my buyers and many, many agents out there.

Speaker 2: 15:58

So I appreciate you. Yes, I appreciate being on here and, like I said, if you do have any questions about this or anything else, I'm always available, so or?

Speaker 1: 16:06

anything else, I'm always available. Well, again, thank you for your time Everyone. Have a fantastic week. Reach out to Nikira if you need anything at all, and happy Cinco de Mayo All right guys, Bye.