CFPB: Student Loan Debt Holding Back Homeownership, Economy

student loan debt hurting economyThe burden of student loan debt is preventing potential home buyers from starting households, which in turn is hindering overall economic growth, according to Consumer Financial Protection Bureau (CFPB) director Richard Cordray in remarks made on September 23.

“I believe we are standing at a precipice when it comes to student loan debt in this country,” Cordray said. “That load has reached $1.2 trillion, second only to mortgages as a category of consumer finance. This burden is growing fast and the issues that flow from it are central to public policy in America.”

The rising cost of tuition is causing higher student loan debt, which is in turn causing more borrowers to default. Cordray said CFPB estimates that more than seven million Americans are in default on more than $100 billion in student loan balances. For those who default at a young age, the black mark on their credit report may prevent them from buying a home – and might even keep them from getting a job, Cordray said.

“The domino effect of student loan debt is real, and it is spreading,” Cordray said. “It is hard to erase this debt quickly – paying it back may take many long years and prevent people from achieving other financial milestones.”

Thought leaders in the industry have long believed that reform is necessary in order to reduce skyrocketing student loan debt and free up the finances of would-be homebuyers.

“If we are truly committed to promoting homeownership for generations to come, it is time to address the more than $1.2 trillion of federal student loan debt that is crippling the finances of future homebuyers and keeping them from experiencing the promise of homeownership,” Five Star Institute President and CEO Ed Delgado said last week in his remarks to industry leaders at the 2014 Five Star Conference and Expo. “If Washington wants to make a real difference for the future of our children – we must reform student education financing.”

Cordray stated that young people are not forming new households at the same rate as they used to, and the decrease in household formation is preventing economic growth. Increased student debt is causing millennials to live with their parents until a later age, or to share living arrangements with peers.

“The homeownership rate for young people peaked before the financial crisis and by the first quarter of this year was down more than 15 percent,” Cordray said. “This is very troubling because most first-time homeowners are young people who drive the market for home purchases.”

The effects of heavy student debt are not felt in just the housing sector, Cordray said.

“Student debt burdens can get in the way of young people buying a car, starting a small business, or saving for retirement,” Cordray said. “We are deeply concerned about how debt influences career choices by acting as a barrier to public service for a rising share of student loan borrowers.”

Tools are available now to assist consumers with managing their student loan debt, Cordray said. CFPB has partnered with the Department of Education to develop a set of online tools known as “Paying for College,” which helps better educate students and their families as to what their financing options are when deciding how to cover educational costs. CFPB also offers answers to common questions it is asked regarding consumer finances (including student loans) in a feature known as “Ask CFPB.” Notably, Cordray said, CFPB now handles individual consumer complaints regarding student loans. Also, many who work in public service positions are eligible for student loan forgiveness, which “can enhance the affordability of public service careers,” Cordray said.

Cordray announced that two organizations, AmeriCorps and the Peace Corps, are both signing the pledge to help consumers handle student debt. CFPB includes employees who are alumni of both organizations.

“They are pledging to talk to employees about their options for student loan forgiveness, verify that they work for a public service organization, and check in with them annually to make sure they stay on track,” Cordray said. “We have also created toolkits for employers and employees to help them understand how to take advantage of these benefits. We want everyone eligible to be signing up for the loan forgiveness that federal law provides, which they are earning by virtue of their public service work. These are great first steps toward that objective.”


Nearly 50,000 locals still underwater

Homes are lined up near Carmel Valley.
Homes are lined up near Carmel Valley. — K.C. Alfred

By Jonathan Horn

Tens of thousands of San Diego County homeowners continue to owe more on their properties than they are worth, despite the run-up in prices that has taken place over the last two years.

In the second quarter of this year, there were 46,585 county homeowners underwater on their homes, real-estate tracker Zillow reported this week. Those with negative equity make up about 10 percent of property owners in the county who have a mortgage, down from 21 percent in the second quarter of last year.

The homeowners were underwater despite an increase in the county’s median home price of more than $100,000 over the last two years.

“There were a lot of people that got caught at the top (of the housing bubble),” said Mark Goldman, a loan officer and real-estate lecturer at San Diego State University. “During the run-up, people were just out at a frenetic frenzy in 2006 and 2007. They didn’t care what price they paid for property.”

Negative equity in the county peaked at 35.6 percent of homeowners in the first quarter of 2012, but it appears those remaining underwater bought in areas with new construction completed just before the housing crash. Most of the negative equity in the county is in Chula Vista, Oceanside, San Marcos, Spring Valley and El Cajon.

As a whole, San Diegans who are underwater collectively owe $6.14 billion. That amount, however, should continue to decrease as San Diego home values rise, and people regain equity in their properties.

For example, in June, the median sale price in the county was $450,000, up 8 percent from June 2013, and 34 percent from the median in June 2012. Still, that’s a long way from the peak median of $517,500 in November 2005, according to CoreLogic DataQuick.

Zillow predicted that by the second quarter of next year, the percentage of homeowners underwater will decline to 7.6 percent in San Diego County.

“We knew it was going to take a long time to correct,” Goldman said. “There’s always going to be properties that are upside down. Is this more than normal? Yes, but we’re returning to a more stable market, and there will be people who just simply have paid too much for their property.”

Christopher Thornberg, founder of Beacon Economics of Los Angeles, said the move-up market will get a drastically needed boost as people regain equity in their homes.

“More of that equity means that people are going to have better access to capital, they’re going to have more money to put down on other properties,” he said. “The move-up buyer is the kind of buyer that drives new home construction.”

Nationwide, 17 percent of homeowners, or 8.7 million, were underwater in this year’s second quarter. Of the nation’s 35 largest metropolitan areas, San Jose had the lowest percentage of property owners underwater on their homes, with 4.6 percent, while Atlanta had the highest at 28.9 percent. July boasts the healthiest end to spring buying season in 3 years

Sunshine over sunflowers is touting data from July showing that, by its metrics, July shows the best price appreciation and inventory increases hit during the peak spring buying season in three years.

It’s been a rough year for housing overall, but’s national housing trend survey says that from April to July, price and inventory increases continued their upward trend untouched by external economic factors. 

“In July 2012 and 2013, we saw external economic factors overwhelm the healthy gains established in the housing market during the spring home buying season,” said Jonathan Smoke, chief economist for “This year, we’re ending the traditional season with high buyer and seller confidence demonstrated by price appreciation, increases in inventory and quick home sales.”

Click the graphic to enlarge.’s July 2014 national housing data reveals homeowners are more optimistic about selling than in previous years.

This month, the number of homes on the market increased 2.3% compared with last year and increased 4.5% over June. One factor fueling this uptick in inventory is a strong 7.5% increase in median list prices year-over-year.

Despite higher prices and more homes on the market, buyers are snatching up properties faster than last year. Median age of inventory for July 2014 is 82 days, three days faster than 2013.  

“This is the first time, since the beginning of the recovery, that we expect to see positive momentum throughout the second half of the year,” Smoke projected.  “While seasonal patterns are emerging in July month-to-month comparisons, all other metrics point to fundamental market health and a build-up of momentum.”

While July growth may seem modest, it is in stark contrast to the housing indicators experienced over the last two years. In April 2013, mortgage interest rates began to increase significantly, making potential mortgage payments more expensive for homebuyers.

By July 2013, this slow but steady tightening of homebuyer budgets dampened demand. As a result, month-over-month increases in inventory lessened and properties spent more time on market.

In July 2012 concerns of broad debt defaults and economic weakness in Europe influenced big decreases in the stock market. Overall economic uncertainty contributed to weak consumer confidence, which influenced potential homebuyers to remain on the sidelines while low prices made owners reluctant to list.  

As a result, July 2012 median list prices remained flat both month-over-month and year-over-year. Inventory remained at very low levels and homes spent 102 days on the market.

Mortgage applications continue fall with 2.2% drop – Refinancings drop 4% with purchases up 0.2%


by Trey Garrison

Continuing the long-term trend this year, mortgage applications decreased 2.2% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending July 25, 2014.  

The Market Composite Index, a measure of mortgage loan application volume, decreased 2.2% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 2% compared with the previous week. 

“Despite mortgage backed security issuance being up 38 percent from the first quarter average, the MBA index continues to show declines.  This suggests that there are fundamental shifts occurring in the market where big players (reporting to the MBA) may be giving up market share or perhaps not holding as many loans in portfolio, thereby pushing up the bond issuance,” said Quicken Loans Vice President Bill Banfield. “In either case, the current level of activity for purchases and refinances has been directional stronger in recent months based on actual security issuance.  With home prices stabilizing from a rapid level of appreciation and interest rates either falling or holding steady recently, I expect to see continued improvements in the purchase arena.”

The Refinance Index decreased 4% from the previous week.  The seasonally adjusted Purchase Index increased 0.2% from one week earlier. 

The unadjusted Purchase Index increased 1% compared with the previous week and was 12% lower than the same week one year ago.

The refinance share of mortgage activity decreased to 53% of total applications from 54% the previous week.  The adjustable-rate mortgage share of activity remained unchanged at 8% of total applications.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.33%, with points increasing to 0.24 from 0.23 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.  The effective rate increased from last week. 

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) increased to 4.22% from 4.21%, with points increasing to 0.23 from 0.20 (including the origination fee) for 80% LTV loans.  The effective rate increased from last week. 

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA remained unchanged at 4.03%, with points decreasing to 0.00 from 0.15 (including the origination fee) for 80% LTV loans.  The effective rate decreased from last week. 

The average contract interest rate for 15-year fixed-rate mortgages remained unchanged at 3.47%, with points decreasing to 0.25 from 0.28 (including the origination fee) for 80% LTV loans.  The effective rate remained unchanged from last week.

The average contract interest rate for 5/1 ARMs increased to 3.31% from 3.21%, with points increasing to 0.40 from 0.32 (including the origination fee) for 80% LTV loans.  The effective rate increased from last week. 

California’s recovery? The truth behind the facade

san fran houses


Although it’s been five years since the financial crisis, a full on recovery has yet to be seen in California, according to a recent report from PropertyRadar.

California single-family and condominium sales grew 3.5% in May 2014; however, this is still down 11.1% from May 2013. Year-to-date sales are the lowest level since 2007.

For May, non-distressed property sales increased 5% while sales of distressed properties dropped .7%.

“What continues to surprise us month after month is that in the fifth year of a so-called recovery, year-to-date real estate sales are on track to be the lowest since 2007,” said Madeline Schnapp, director of economic research for PropertyRadar.

“Government policies that have constrained supply coupled with high demand from all cash buyers pushed up real estate prices so quickly that in many parts of California the median income home buyer can no longer afford the median priced home,” Schnapp said.

The median price of a California home reached its highest level since December 2007 in May, up $10,000, or 2.7%, to $385,000 from $375,000 in April.

The uptick in sales is primarily due to a 4.5% increase in the sales volume of higher priced non-distressed properties, which accounted from nearly 81% of total sales.

Year-over-Year, median home prices jumped 10%.

“The significant jump in median home prices this past month is being driven by the change in mix between the sales of distressed properties versus sales of non-distressed properties, rather than a big jump in actual home values,” Schnapp explained.

“Just a few years ago, distressed properties accounted for 60 to 70 percent of sales as opposed to 19 percent today. Higher priced non-distressed property sales now dominate monthly sales numbers, so it should come as no surprise that median prices are up,” she added.

At local levels, median home prices in four Bay Area California counties – San Francisco, Marin, Santa Clara and San Mateo – are close to or exceed their pre-housing bubble peaks.

Meanwhile, in only 8 of the state’s 26 largest counties – Kern, Merced, Riverside, San Bernardino, Solano, Stanislaus and Tulare – can the median income homeowner in that county afford to purchase the median priced home.  

“Real estate prices continue to march higher on declining sales volume which is an unhealthy combination,” said Schnapp. “At some point you run out of buyers willing to pay these prices setting the stage for a decline in sales volume, which we are already seeing, and later for the possibility of a price correction.”

Real estate market flattens in May

By Jonathan Horn9:49 A.M.JUNE 11, 2014

Homes are lined up near Carmel Valley.
Homes are lined up near Carmel Valley. — K.C. Alfred

Annual home price appreciation in San Diego County continues to decline in single digits after last year’s large gains.

Last month, the median price for a home sold in the county was $440,000, a post-Great Recession high that is up 8.2 percent from the $406,500 median in May 2013, real estate tracker DataQuick reported Tuesday. However, that appreciation rate pales in comparison to the 21.3 percent gains seen from May 2012 to May 2013. The county is now on the brink of hitting its lowest year-over-year appreciation in home prices since 7.9 percent in August 2012.

“The sort of price spikes we saw this time last year – annual gains of 20 percent or more – are less likely today given affordability constraints, higher inventory (compared to last year) and the drop-off in investor purchases,” DataQuick analyst Andrew LePage said in a statement.

The higher median values are also dampening sales. In May, 3,654 transactions closed, 10 fewer than in April. Typically, activity jumps into the spring and summer months, which are considered peak buying season. In May 2013, there were 4,236 transactions, 444 more than in April 2013.

BALBOA PARK GOLF COURSE PLAN GETS GO-AHEAD City attorney’s office deems funding method sound

Architect's rendering of clubhouse expansion

  • Architect’s rendering of clubhouse expansion

The City of San Diego, golfers who frequent the Balboa Park Golf Course, and pedestrians who traipse and cycle the the winding road where the clubhouse is located hope to replace the 1930s clubhouse, pathways, and the adjacent dirt parking lot. They hope to do so by using cash from the Golf Enterprise Fund, an extra fee tacked on to the green fees golfers pay to play the 18-hole city-owned golf course. Good news for them: the city attorney’s office has changed their opinion and is now allowing the city to use those funds on non-golf-related portions of the project.

The change of heart comes amid questions over whether or not tapping into the “Golf Enterprise Fund” violated Proposition 26, the state law requiring any tax or fee’s approval by two-thirds of the electorate unless the revenues of said fee are used specifically to benefit those who pay the fee. Because the renovations include a bicycle and pedestrian path, updated wedding facilities, a new bar and restaurant — amenities that will be used by the general public and not solely golfers — using those revenues were at first thought to be contrary to the law.

Of course, the city has been stung by that provision before, most recently in the case of the Greater Golden Hill Maintenance Assessment District. In that case, the city was forced to dissolve the maintenance-assessment district for (among other issues) failing to address the specific benefits for residents who paid the assessment and the improvements benefiting the general public. The city continues to defend several lawsuits over special assessments.

Oddly enough, the same community that won the lawsuit wishes to use the golf revenues on the non-golf-related items.

In February of this year, the Greater Golden Hill Planning Group voted to deny the clubhouse expansion solely because, at the time, pedestrian improvements were not included in the plans. In fact, before the vote, city staffers were under the impression that the Golf Enterprise Fund could not be used for any pedestrian improvements.

This from a February 15 article by the Reader’s Ian Anderson:

[Project manager Todd] Schmit indicated the Golf Enterprise Fund, which would be paying for the new development, would or could not be used for improvements to Golf Course Drive, which also cannot be funded by the city’s Street Division because it is considered a park road.

While private developers would be required to provide pedestrian-access considerations, work on the public golf course seems to exist in a bureaucratic gray area, where the project does not seem to be accountable for maintenance or improvements to its access road.

Since siding with the residents, the city attorney’s office has given the council and city staff the green light to move forward with the plan.

“The use of Golf Enterprise Funds to construct special event facilities at the proposed Balboa Park Golf Course Clubhouse is a permissible use of those funds if the special event facilities are for the operation, maintenance and development of the golf course,” reads a May 27 memorandum from the city attorney’s office.

“Similarly, the use of Golf Enterprise Funds for pedestrian and bicycle improvements to Golf Course Drive as part of the proposed Balboa Park Golf Course Clubhouse Project is a permissible use of these funds if these pedestrian and bicycle improvements are for the operation, maintenance and development of the golf course.

“The use of the Golf Enterprise Funds for these purposes is likely exempt from Proposition 26 under the ‘specific benefits or privileges’ exemption or the ‘use of property’ exemption, or both, although the ‘specific benefits or privileges’ exemption requires that a determination be made that these improvements provide a specific benefit to the payors, and that the fees charged do not exceed the reasonable cost to the government of providing that benefit or privilege.”

The city council is expected to weigh in on the expansion project during an upcoming hearing.

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