Month: February 2015

OVERNIGHT FINANCE: GOP wants details on financial adviser regs

TOMORROW STARTS TONIGHT: SENATE BRACES FOR FIDUCIARY FIGHT. My take for The Hill: Senate Homeland Security and Governmental Affairs Committee chairman Ron Johnson (R-Wis.) is pressing Obama administration officials on how theyll impose looming regulations for financial advisers that Republicans say will cut access to low-income Americans. Johnson is asking Department of Labor Secretary Thomas Perez to explain how the new regulations wont adversely affect middle and low-income Americans, according to the Feb. 5 letter obtained first by The Hill on Monday.

Mystery Minister Mired in Massive Navient Student Loans

Huffington Post Reader Question

Dear Steve,

I have both federal and private student loans that are jointly signed by my parents and I. My private loans are around 76K and the federal loans are around 22K. The private loans interest rate is variable and can change: between 3.25 and 4.25 percent. My federal loans are 2.88 percent. The company I have borrowed from is Navient (Sallie Mae).

I am getting ready to be 33 years old and got my first loan at the age of 18. One undergraduate degree in philosophy and a nearly complete masters in divinity (a church ministry degree) later and I have yet to make a dent in the loans principle.

At one point when I was between jobs and taking time off from school I had a two year stretch where I paid minimum payments. For the past 3 years the loans have been in deferment as I finish my masters degree online while working. My wife and I earn a little under 60K a year together.

I read your article Top 10 Reasons You Should Stop Paying Your Unaffordable Private Student Loan and wondered: am I someone who should strongly consider your advice? If so, how do I begin to assess my situation and develop a plan to negotiate my private student loans?

Thanks for your time!

Mystery Man

Do you have a credit or debt related question youd like to ask me? Just click here. Im happy to help for free.

Dear Mystery Man,

Well the absolute primary goal should be to finish the Masters. No need to have all of this debt and not get the degree.

The problematic news on the private student loans is your parents cosigned or endorsed the loans, making them 100 percent responsible for the debt if you defaulted. And to get to the stage where lenders are willing to discuss settling the loans for less, you have to be delinquent. Im not suggesting that is logical, its just the way their process works.

Rather than suck your parents into the problems associated with defaulting, like the negative entry on their credit report, it might make sense to first talk to Navient about getting them removed as cosigners.

One strategy is to read my post Letters to Release Co-Signer From Private Student Loan. It wont cost you anything to try.

The issue here isnt if Navient will talk about settling the loans when you get about 120 days or so past due, they do. For me the issue is to not drag your parents down in the process.

Keep in mind defaulting is not without consequences. Navient will reports the loans past due on your credit report and in collections. That will leave a seven year notation on your credit report. Navient could always sue you in an attempt to collect and then try to garnish your wages if they won.

The best case scenario here might be to get the cosigner release and then if you want to try the Navient settlement route, see if your parents might be willing to lend you $38,000 towards a 50% settlement if Navient agrees. Navient likes to get lump-sum settlements but I have seen them offer payments over a short period of time as well.

Before I go I wanted to leave you with three easy action items you jump on right now to address your situation. Just click here.

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How to Pick the Right Student Loan

College financial-aid season is in full swing, which means millions of families will soon decide whether they need student loans to help cover tuition bills for the 2015-16 year.

Students generally choose between federal student loans, provided by the US government, or private loans, available at some banks and other financial institutions.

Students and their parents have been advised for years to sign up for federal loans before considering private options. But recent changes are making private loans attractive for more students–in particular those with creditworthy parents who can qualify for lower rates than are available with federal loans.

Why older investors make bad financial choices

Even for people who experienced minor cognitive changes but didnt have any overt dementia, every one unit decline in cognition reduced the average number of financial literacy questions they could answer correctly from 70 percent to 60 percent, the researchers found.

Even these subtle cognitive changes that doctors and others would consider normal in old age are driving down decision-making abilities and the financial knowledge that you need to make good decisions, said Patricia Boyle, a neuropsychologist at the Rush University Medical Centers Alzheimers Disease Center and an author of the study.

Read More: For many Americans, retirement wont be golden

Recipe for disaster

The decline in financial decision-making ability wouldnt be quite so bad if people were retiring with defined benefit pensions. But those pensions are going out of fashion, and more and more aging investors are facing the prospect of managing their retirement finances on their own.

These days we have 401(k) plans and lots and lots of choices that never confronted our parents. We have to choose how to invest our 401(k) plan balances. We have to choose at what speed to draw them down. We have to worry about the tax consequences. We have to worry about fees, said Anthony Webb, a senior research economist at the Center for Retirement Research at Boston College, which published the recent study.

If you are really smart and you are in your 50s, this is something that you can handle, though the evidence is that a lot of people have difficulty even then, said Webb. The problem for the future is, what do we do if we have a whole load of 80-year-olds who have Alzheimers and have $1 million in their retirement plans? Its a recipe for disaster.

Regulators release guidance on private student loans with graduated repayment …

On January 29, the federal financial regulatory agencies, in partnership with the State Liaison Committee of the Federal Financial Institutions Examination Council, issued guidance for financial institutions on private student loans with graduated repayment terms at origination. This guidance provides principles that financial institutions should consider in their policies and procedures for originating private student loans with graduated repayment terms. The principles, in brief, enunciated in the release issued by the Federal Deposit Insurance Corporation, are as follows:

  • Ensure orderly repayment. Private student loans should have defined repayment periods and promote orderly repayment over the life of the loans. Graduated repayment terms should ensure timely loan repayment and be appropriately calibrated according to reasonable industry and market standards based on the amount of debt outstanding. Graduated repayment terms should avoid negative amortization or balloon payments.
  • Avoid payment shock. Graduated repayment terms should result in monthly payments that a borrower can meet in a sustained manner over the life of the loan. Graduated increases in a borrowers monthly payment should begin early in the repayment period and phase in the amortization of the principal balance to limit payment shock to the borrower.
  • Align payment terms with the borrowers income. Graduated repayment terms should be based on reasonable assumptions about the ability to repay of the borrower and cosigner, if any. Lender underwriting should include an assessment of a borrowers (and, if applicable, a cosigners) ability to repay the highest amortizing payment over the term of the loan.
  • Provide borrowers with clear disclosures. Financial institutions that offer private student loans with graduated repayment terms should provide borrowers with disclosures in compliance with all applicable laws and regulations.
  • Comply with all applicable federal and state consumer laws and regulations and reporting standards. Private student loans with graduated repayment terms must comply with all applicable consumer protection laws. These include, but are not limited to, the Electronic Fund Transfer Act, the Equal Credit Opportunity Act, federal and state prohibitions against unfair, deceptive, or abusive acts or practices, and the Truth in Lending Act.
  • Contact borrowers before reset dates. Before originating private student loans with graduated repayment terms, financial institutions should develop processes for contacting borrowers before the start of the repayment period and before each payment reset date.

The guidance has been criticized by industry representatives as both overly restrictive and opaque.Some representatives questioned the notion of gauging the ability of an 18-year-old college freshman to repay.

Read the press release here.

Baseball is swinging for the financial fences

As Major League Baseballs Rob Manfred, now chief operating officer, succeeds retiring Commissioner Bud Selig on Sunday, MLB is heading into a new season in its best financial shape in years. In fact, some sports economists argue the sport is gaining ground financially on the National Football Leauge, the most lucrative and popular professional sport.

Revenue from MLBs 32 teams hit a record $9 billion in 2014, a 12.5 percent increase from 2013, thanks to increases in broadcast fees and gate receipts along with gains from the leagues digital media business, Major League Baseball Advanced Media (BAM).

FDU’s Financial Planning program again named to top 35

FLORHAM PARK – For the third year in a row, Financial Planning Magazine has named Fairleigh Dickinson University as one of the top 35 Great Schools for Financial Planning.

In selecting the universitys Financial Planning Certificate Program, part of the Petrocelli College of Continuing Studies, the magazine relied on a group of national experts consisting of both financial planners and academics. The program is the oldest and largest in New Jersey registered with the Certified Financial Planner Board of Standards, Washington, DC

Hedge Fund BlueMountain Capital Unveils Ocwen Financial Short, Claims …

BlueMountain Capital Management on Fridaysaid it was shorting the stock of Ocwen Financial and one of its publicly traded affiliates Home Loan Servicing Solutions. The Andrew Feldstein-run hedge fund, which profited from JPMorgan Chases JPMorgan Chases multi-billion dollar London Whale trading loss in 2012, also delivered a notice of default against a receivables trust that is a key funding source for Ocwen.

The disclosure adds new headwinds for Ocwen after 12-months of regulatory sanction that’s caused investors to question the future of the companyand its four publicly traded related parties, HLSS, Atisource Asset Management, Altisource Portfolio Solutions and Altisource Residential Altisource Residential.

Currently, the fourth largest servicer of mortgages nationwide and the largest servicer of subprime mortgages, Ocwen’s shares were rattled in December by a settlement with the New York Department of Financial Services, which caused founder William Erbey to step down from an executive position. This month, regulators in California threatened torevokeOcwen’s mortgage license in the state, after the company failed to respond to inquiries into complaints about its servicing and foreclosure practices.

BlueMountain believes that regulatory sanctions against Ocwen have put some of the company’s funding sources in position of default. As a result, the hedge fund has bought what it believes are defaulted notes, and shorted both the stock of Ocwen and HLSS.

On Friday, the hedge fund delivered a notice of default on the notes it owns, Series 2012-T2 and Series 2013-T3 Notes issued in connection with the HLSS Servicer Advance Receivables Trust, and said “the facts establishing these Events of Default are irrefutable.” BlueMountainalso said it’s directed the trustees for some RMBS investors “to investigate and/or take action with respect to Ocwen Loan Servicing.”

Late in the day, law firm Gibbs amp; Bruns25% of voting rights in 119 Residential Mortgage Backed Securities Trusts that count Ocwen Financial as a master servicer issued a notice of non-performance to their trustees BNY Mellon, Citibank,Deutsche Bank, HSBC, US Bank, andWells Fargo.Those trusts contain an original mortgage balance of $82 billion, Gibbs amp; Bruns said.

When delivering its notice of default,BlueMountain cited Ocwen’s recent consent order with the NYDFS and its issues with theCalifornia Department of Business Oversight (DBO). “These (and other) agencies’ findings and enforcement actions demonstrate Ocwen’s systemic, long-standing and continuing servicing failures and disregard of applicable and analogous laws,” BlueMountain said.

Regulatory sanctions, in addition to other settlements, breach covenants because they “materially increase the risk of loss on the Notes that are collateralized by receivables affected by Ocwen’s standing as a servicer,” BlueMountain said. Those sentiments were echoed by Gibbs amp; Bruns, in its suit.

“Based on a lengthy investigation and analysis by independent, highly qualified experts, the Holders’ Notice alleges Ocwen has failed to perform, in material respects, its contractual obligations as Servicer and/or Master Servicer under the applicable [pooling and servicing agreements],” Gibbs amp; Bruns said. It cited Ocwen’s use of trust funds to pay for borrower relief, conflicts of interest that enriched affiliates like Altisource and HLSS, and the company’s poor record keeping.

One issue, the potential California mortgage bar, was settled favorably by Ocwen on Friday, making it a mixed day for the troubled servicer.

The California DBO said late in the dayit reached a $2.5 million settlement with Ocwen Loan Servicing, and will drop an effort to suspend the company’s mortgage license, which it filed in a California court in October.

“The Department is committed to supporting a fair and secure financial services marketplace for all California consumers,” DBO Commissioner Jan Lynn Owen, said in a statement. “This settlement allows us to move forward and ensure that Ocwen is meeting its obligations under the law.”

As part of the settlement, Ocwen will be prohibited from taking new California customers until the DBO determines it is in compliance with state laws such as the California Residential Mortgage Lending Act and the 2012 Homeowner Bill of Rights. Under theconsent order, Ocwen will allow a third-party monitor to review its compliance with the DBO’s information requests and state laws. The monitor will also audit Ocwen’s loan servicing procedures, processes and staffing levels.

The settlement is likely to be taken positively. Had Ocwen lost its mortgage license in California, the sanction would impact 378,132 loans that the company services in the state. Those loans currently carry a unpaid principal balance of $95 billion or roughly 23% of Ocwen’s total UPB due, according to analyst estimates.