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President Trump signed a measure yesterday that seeks to remove the bureaucratic barriers for permanently disabled veterans to qualify for student loan forgiveness, which he said would save 25,000 wounded warriors an average of $30,000, the New York Times reported. “I am proud to announce that I am taking executive action to ensure that our wounded warriors are not saddled with mountains of student debt,” Trump said. The savings projected by the Trump administration represents a small fraction of about $1.6 trillion in overall student loan debt in the U.S., which has become a point of emphasis among many of the Democrats running for president.

The New York Federal Reserve’s quarterly household debt survey last week showed few portents. What it did show is that more Americans are defaulting on their student loans, and that government budget officials have vastly underestimated the future taxpayer charge, according to a Wall Street Journal editorial. Defaults have fallen for most forms of consumer debt as the economic expansion continues. Mortgage delinquencies last quarter hit a historic low. But severely delinquent student loans have soared since 2012 and are now 35 percent of “severe derogatories” — more than credit cards (23 percent), auto loans (21 percent) and mortgages (11 percent). About 10 percent of the $1.5 trillion federal student-loan portfolio is 30 days or more past due. Another 20 percent is in deferment or forbearance, and about 30 percent is in income-based repayment plans that allow most borrowers to cap monthly payments at 10 percent of discretionary income and discharge the remaining balance after 20 years or 10 for folks in “public service.” Congress created these nifty plans in 2012 for new borrowers, but then the Obama Administration expanded them retroactively to reduce defaults. The government is spending more to administer student loans than originally forecast. In 2010 the government spent $800 million on “administrative costs,” which CBO projected would increase to $1.2 billion in 2019. The government’s overhead tab this year was $2.9 billion. Income-based repayment plans have also encouraged schools to raise prices and enroll students who probably won’t earn enough to pay off their loans. Read more. (Subscription required.) 

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

More than a decade after home loans triggered the worst financial crisis in a generation, the strict lending requirements put in place during its aftermath are starting to erode, the Wall Street Journal reported. Home buyers with low credit scores or high debt levels as well as those lacking traditional employment are finding it easier to get credit. The loans have been rebranded. Largely gone are the monikers subprime and Alt-A, a type of mortgage that earned the nickname “liar loan” because so many borrowers faked their income and assets. Now they are called non-qualified, or non-QM, because they don’t comply with post-crisis standards set by the Consumer Financial Protection Bureau for preventing borrowers from getting loans they can’t afford. Borrowers took out $45 billion of these unconventional loans in 2018, the most in a decade, and origination is on track to rise again in 2019, according to Inside Mortgage Finance, an industry research group. Such mortgages aren’t guaranteed by government agencies and typically charge higher interest rates than conventional loans. Proponents of unconventional loans argue that mortgages became too hard to get in the aftermath of the crisis and that their proliferation will open the housing market to sound borrowers who had been shut out of it. But some worry that the competition for customers could drive lenders to loosen standards too much.

A national bank regulator is touring the country to sell his plans to modify lower-income lending requirements and overcome resistance from other regulators, banks and community advocates, the Wall Street Journal reported. Comptroller of the Currency Joseph Otting, who took office in 2017, has made it a priority to revamp rules implementing the 1977 Community Reinvestment Act, which requires banks to serve borrowers of all income levels who reside near their branches. The law was intended to combat the practice of redlining, or banks carving out poor and minority neighborhoods from their lending and investment plans. But at a time when many banking services are provided online there is growing consensus that the rules implementing CRA should be updated. Otting is seeking to judge banks’ CRA performance by giving them dollar targets based on how many deposits they hold in different areas. Currently, banks are graded on the amount and quality of loans, investments and services they provide to poorer neighborhoods near their branches. Bad performance can bar banks from merging with or acquiring other banks.