Subprime Lending News 7/28/16:
Shuttered for-profit colleges delivered another legal blow in Minnesota, young buyers slam lenders for bad customer service, and low-income communities are better off without payday lenders.
By Caroline Thompson
Read on to find out why Millennials are pushing for better customer service from their mortgage lenders, the reason Citi is worried about the coming student loan crisis, and the millionth reason why you should avoid payday loans like the plague.
Younger buyers turned off by mortgage lenders’ poor customer service.
As millennials enter the housing market, mortgage companies have seen “significant declines” in customer satisfaction. A new survey from J.D. Power found that, after years of steady improvement, mortgage customer satisfaction was significantly down this year. The reason for this may be that younger borrowers are dissatisfied with the customer service provided by major lenders. According to CNBC, the survey showed a “significant jump in the number of customers saying that their mortgage servicer is focused more on profit than customer experience,” and nearly 10 percent of respondents reported they felt their time was wasted during customer service interactions. Millennials have a reputation for favoring digital tools, but according to Craig Martin, senior director of mortgage practice at J.D. Power said that’s not entirely true. “The truth is their heavy online reliance is research-based, but they’re also using in-person and calling channels more often than not for mortgage originations. They are oriented toward that expert and advisory piece,” he told CNBC reporters. Quicken Loans, which boasts a very customer-focused operations model, came in first place in customer satisfaction on the J.D. Power survey, and more mortgage servicers might move to emulate the online lender if they want to boost customer moral.
Citi finds link between student debt and subprime mortgage crisis.
In a recently released report, Citi noted striking similarities between the growing student loan crisis and the mortgage crisis. Post-grads are having an increasingly hard time paying back their loans, and as a result, defaults and 90-day delinquency rates on student loans have hit a staggering 11 percent. To put this in perspective, the Citi report cited numbers from 2010, when mortgage delinquency rates peaked at 11.5 percent. According to a report from the Federal Reserve Bank of New York, total student debt in the U.S. hit $1.34 trillion at the end of March, a $34 billion jump from the previous quarter.
Minnesota Supreme Court ruling may wipe out $20 million in student loans
6,000 former students of the recently closed for-profit Minnesota colleges Globe University and Minnesota School of Business may be in for some serious financial relief. The Minnesota Supreme Court ruled Wednesday that the two schools violated state law by issuing student loans without a license, and charging unlawfully high interest rates on those loans. State law caps student loan interest rates at 8 percent, while both colleges were charging up to 18 percent in interest. The schools were closed earlier this year after a Hennepin County court found them guilty of defrauding students in a criminal justice program. Minnesota Attorney General Lori Swanson said she would seek a court order to void all illegal loans issued by the defunct universities.
Avoiding payday loans can significantly improve your finances.
In a recent research paper, economist Brian Baugh found that restricting access to payday lending in economically distressed communities can have a net positive outcome for the financial health of the people in those communities. Baugh’s report looked specifically at the impact of a 2013 DOJ shutdown of a number of unlicensed online payday lenders. He found that when these lenders shut down, the people who were habitually borrowing from on average saw their finances improve. Average spending in these households was up, not down, former borrowers bounced 17 percent fewer checks per month, and made fewer overdrafts on their bank accounts.