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Student Loan Bubble Blowback: Morgan Stanley Warns Average Debtor Can't Get A Mortgage
Via Morgan Stanley,
Amid rising tuition costs, an increasing share of students rely on debt to fund their education. Student loan delinquent balances have been on the rise since the early 2000s and those with student loans are likely to be less credit worthy than those without (Exhibit 50 & Exhibit 51). As a result, consumption for the student debt-laden population may be depressed. To be sure, the share of consumption driven by college age consumers has been in decline since 2003.
These challenges are further compounded under the Qualified Mortgage (QM) regulatory regime that became effective in January 2014. The QM definition relies on the back-end Debt-to-Income (DTI) ratio not exceeding 43%. This ratio takes not only mortgage debt servicing but all debt servicing into consideration.
Outstanding student loan debt has grown from around $375 billion in 2005 to over $1.1 trillion today to become the second largest outstanding category of debt. The first-time home buyer age cohort bears a disproportionate share of this burden – almost 60% of the outstanding student loan debt is owed by the under 39 age group.
As a result, despite the low level of interest rates, mortgage affordability for first-time buyers remains roughly at the long-term average levels whereas the aggregate home buyer's affordability remains well below the longterm average. As the servicing of student loan debt is part of the DTI calculation, the new regulatory regime compounds the already substantial challenges confronting the first-time homebuyer's access to mortgage credit.
We believe the average student debtor is likely unable to secure a typical home mortgage due to their debt-to-income ratio. A simple calculation yields startling results: the average student loan debtor's DTI ratio was 0.48 in 2012, up from 0.41 in 2002. With nearly half of their income going to debt payments, the average student borrower would face challenges qualifying for an FHA mortgage.
Researchers at the New York Fed have found that prior to the financial crisis, a positive correlation existed between student loan debt among 30-year olds and the rate of homeownership. The relationship suggested that someone with student loan debt was likely to be more affluent, having secured a well-paying job after college, and therefore be more likely to purchase a home.
But following the financial crisis, the authors found that the correlation had turned negative.
In other words, carrying student loan debt has become an impediment to home buying, primarily because the borrower no longer qualifies under stricter debt-to-income guidelines. Compared to their peers without student loans, 30-year-olds with student loans are much less likely to have a mortgage (Exhibit 52). In general, data from the New York Fed reveal higher credit risk scores (higher=better) for “no student loan” borrowers compared with borrowers that carry student loans (Exhibit 53).
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Give OboMAOrtgages to everyone regardless of silly things like credit ratings, employment, debt-to-income ratios, etc.
Yes, I am serious. Forward!
This is just what the great minds represented by Dr. Paul "When Aliens/Martians Attack!" Krugman would absolutely love to see (yes, I am serious; ask Krugs - he'd LOVE it).
Put a reasonable cap on the taxpayer-backed mortgage (FHA, which holds the bag on 88% of new home mortgages underwritten currently, anyways) is a generous minimum of $500,000 BernankBux.
"He gave us a phone, he gonna do more!"
STNELLOCs -
Student Negative Equity Loan Lines of Credit
MOAR Debt
Debt securing MOAR Debt
I could buy a house if i wanted to, but I ain't gonna.
Fuck you bankers!
Working towards an all cash lifestyle baby, yeah!
Regards,
Cooter
$11 an hour job. Part time 30 hours a week. Student loan debt. Obamacare health insurance.
Dumpy houses go for the $200,000s. You need 3% down bare minimum. As if first time buyers have $7,500 just laying around. Then it's about $1,200 a month mortgage for 360 months.
If you want to do a classical 20% down. Ha $40,000 down? Yeah right!
Plus houses are cheaply made so EVERY Weekend you need to do a home repair of some sort.
If you're under 40, you're a renter, or living at mom's house. Sucks to be you.
New Normal!
"He gave me Obola, the gift the keeps on giving!"
incredible, we can't provide acceptable liquidity
to the usury monetary system by increasing debt
servitude and credit to debt slaves. do we just require
more debt slaves to sustain the fictional pricing of
real estate and education? is that it? or do we live
in a elitist ponzi scam based on fraud and the good nature
of the average mark?
united states of debt slaves
Sure, the banks just don't have any money to lend.
Why, even Bernanke can't get a mortgage refi.
Those poor banks! *cough*
Debt jubilee overdue!
debt jubilee? not enough... that keeps the system in perpetuity. the debt overlords must be removed from power, their tentacles around humanity severed, their position above the law cast down. and end to the debt slavery usury empire. nothing less is worth fighting for.
Correct, aside from the serious supply-line problems a jubilee would cause, leaving the same criminals alive changes nothing.
Agree with both of you.
Wall Street had their debt jubilee in 2008-present & on our backs.
Time for our debt jubilee and hangings of the crooks; then sound money and rule-of-law.
Hello ebworthen, You might find this interesting since you mentioned the rule OF law. I suggest everyone read this.
http://imprimis.hillsdale.edu/current?utm_source=News%20Box&utm_medium=Website&utm_campaign=Home%20Page
It's not that he wouldn't be a good risk and likely pay his loan back.
It's that the centralized bank and the cetralized government together cannot tell a good risk from a bad risk. So they have created a minefield of obstacles to getting a loan, none of which lends to a better loan decision.
Life was better when you did your banking locally and they knew both you and your neighborhood. A lot less fraud was possible as well.
Damn right the system has collapsed! As the Ebola gets kicked off in the world I would not be sending my kid to a residential college. Looks like online is a good option now.
Check out oplerno.com--it is ready for the SHTF.
"These challenges are further compounded under the Qualified Mortgage (QM) regulatory regime that became effective in January 2014. The QM definition relies on the back-end Debt-to-Income (DTI) ratio not exceeding 43%."
Recently when buying a house my son and significant other just snuck in under this threshold with a 42.4% ratio, half of which was student debt and most of the remaining two auto loans.
Reports coming in that Kim jung un or oh or whatever...got his ass kicked by his sister and she runs tHe joint....
Who run barter town?
You mean these same student loans that Obama is promising to fogive if our fellow comrades come to work for the government?
You can't make this shit up...
the answer is simple, another gubbermint program to help the overindebted get a mortgage. /s
Just tell the mortgage broker its educated fog.
"and those with student loans are likely to be less credit worthy than those without (Exhibit 50 & Exhibit 51). As a result, consumption for the student debt-laden population may be depressed. To be sure, the share of consumption driven by college age consumers has been in decline since 2003."
Doubtful
much of the borrowed $$s from student loans ended up in Apple, Dominos, and Starbucks pocket while student still in school.
Now, if you're talking about young people - out of school - but laden with student loans. By all means, consumption down.
Debt is stupid.
"The QM definition relies on the back-end Debt-to-Income (DTI) ratio not exceeding 43%."
sheesh, anyone buying a home with DTI > 40% has no business buying a home ... ie: They're toast
Doesn’t a home warranty cover unaffordability?
If I were a girl, I'd do porn to pay off my debts.
People with student loans are kinda like porn stars, except they borrowed to get fucked, instead of being paid.
Do male on male, and you'll make moar than a girl.
Where’s Jeff ‘Bull Dog’ Gannon today?
And you'll suffer the same fate at the space shuttle, a blown out o-ring. Both result in shitting the bed.
I think I’ve become squarely middle aged.
I got to bailout the Autoworker Pension plans and will bailout the students who took loans.
Boo fucking hoo for the builders, Fraud street, the NAR, and president Ebola.
FINE, forgive the student loan. BUT, they forfeit the degree. Fair is fair.
Couldn't agree more.
For Sale, University degree. Never used. Take over payments.
More relevantly:
End the enormous government subsidies to the BigEducation criminal enterprise.
Force education to perform in the rigor of the free market. You would see the "cost of education" plummet like a stone.
Tons of academics live hideously easy, non-demanding, leisurely lives on the backs of these kids. And soon to be on the backs of generations of the unborn, when this shit show is "forgiven".
We already gave you a free i-phone, EBT card, sub-prime auto loan, a student loan and now you want a house too...waddya think this is 2006? No liars loan for you....yet.
What will happen is government will give those carrying this debt being so young and all a nicel little deal on affordable housing just to keep them all sweet. Those a little bit older never got that deal and struggle even without the debt but no sweet deal for them.
That policy is currently being implemented by the UK government.
If government decides to go that way the same deal should be given to all else not at all.
"Student Loan Bubble Blowback: Morgan Stanley Warns Average Debtor Can't Get A Mortgage"
100% of bubbles burst and deflate. The student loan bubble will work to deflate the housing bubble.
"Amid rising tuition costs, an increasing share of students rely on debt to fund their education."
Amid rising cash cow status, student tuition costs are rising. Put an end to the student debt cash cow for universities and tuition will fall dramatically.
Once the dollar or any fractional reserve currency is debt saturated, it's game over. There is no way the .gov can make up for consumer credit expansion in a growing economy. All they are doing is shoveling money into a broken system.
The loans aren't the issue. My parents finally paid off their own student loans just as my brother and I started college. In the meantime, they bought a house and cars and did the usual things (while making loan payments). Also, there are loads of loan forgiveness programs these days.
The issue is strictly jobs. If you have a decent job, you can make reasonable student loan payments and also buy a house. There are vanishingly few decent jobs.
As if not getting a mortgage is a bad thing,
In reality no mortgages = no MBS sales for these thieving mothers.
Oh please mr morgan stanley putz, please dont take aaythe debt slavery you wish to impose on me,
I hope to watch your copany die from the lack of CDO, MBS, you filthy ebola ridden fly covered corpse
Hey all those student loans really paid off for car dealers and pot heads.
After all the supreme leader knows a thing or two about pot and buying cars on student loan.
Hey, funding multi-million dollar pensions for 25-30 years each is expensive!
This is I guess the saddest part here. Student loans may prevent you from getting approved for mortgage loan. And sometimes, there is just no way out. Our economy is very unstable and employment market cannot offer decent jobs. So, first you spend at least four years writing or buying custom essays online and then you can’t find a job to begin paying off your huge debt. Finally, you’ve found a job. But by the time you did you have a bigger debt and you can forget about mortgage loan.