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Moody's, Fitch Fret Over Billions In Student Loan ABS As Defaults Loom
Back in April we asked if the student loan bubble was about to witness its 2007 moment.
The reference, of course, was to a wave of MBS downgrades in July of 2007 which sent a series of tremors through global financial markets and triggered an asset backed commercial paper crisis in Canada which, although no one knew it at the time, presaged the crisis that would wreak havoc in the US a year later. As a reminder, on July 10, 2007 Moody’s downgraded 399 bonds backed by subprime mortgages which together totaled some $5.2 billion. Meanwhile, S&P suggested it was close to cutting ratings on more than $12 billion in mortgage-backed securities due to declining home prices and rising default rates. On July 12, Fitch Ratings placed 19 structured collateralized debt obligations on Ratings Watch Negative due to a significant deterioration in the underlying portfolios of residential mortgage-backed securities. That same day, S&P cut its ratings on 498 subprime mortgage related bonds worth some $6.39 billion.
We’re starting to see a similar situation unfolding in the market for student loan backed paper. In April, Moody’s put some $3 billion in student loan backed ABS on review for downgrade citing an increased likelihood of default. Now, Moody’s has placed more than 100 tranches across 57 student loan-backed deals totaling some $34 billion on review. The rationale? “Low” payment rates, deferment, forebearance, and IBR. From Moody’s:
Moody's Investors Service has placed on review for downgrade the ratings of 106 tranches in 57 securitizations backed by student loans originated under the Federal Family Education Loan Program (FFELP). The loans are guaranteed by the US government for a minimum of 97% of defaulted principal and accrued interest.
The reviews for downgrade are a result of the increased risk that the tranches will not fully pay down by their respective final maturity dates. Failure to repay a note on the final maturity date represents an event of default under the trust documents.
The elevated risk is a result of low payment rates on the underlying securitized pools of student loans, driven by a combination of low rates of voluntary prepayments, persistently high volumes of loans in deferment and forbearance, and the growing popularity of the Income-Based Repayment (IBR) and extended repayment programs.
And BofAML has more color:
Moody's announced that it has placed on review for downgrade the ratings of 106 tranches in 57 securitizations backed by FFELP loans. This announcement follows a similar announcement made on April 8, 2015, which stated 14 tranches in 14 securitizations backed by FFELP loans were placed on review for downgrade.
The data shows deferment and forbearance levels for FFELP Stafford/PLUS and Consolidation Loan ABS have recently trended down, although 30+ days have increased. The increase could lead to higher involuntary prepayments (i.e., defaults). A portion of the increased use in IBR plans noted by Moody’s could be a substitution effect, as certain borrowers may have reached the time limits on economic deferment and forbearance.
As we indicated in an earlier report, the use of income based repayment (IBR) plans has increased for FDLP loans. A similar upward trend is likely occurring for FFELP loans but the magnitude is likely less, especially for Consolidation loans.
To be fair, numerous payment options under the Federal student loan programs make the cash flow analysis for FFELP loan ABS relatively complex for rating agencies, issuers, investors, and other market participants. Market participants must consider payment options that are influenced by economic and legislative/regulatory factors (e.g., PAYE and REPAYE) and generally, not available in other retail loan products (e.g., auto loans), along with delinquencies, defaults, claim rejections, interest rates and payment delays, among others.
In other words, there are all kinds of reasons to expect this paper not to perform well that do not apply to ABS backed by other types of credits.
Meanwhile, as discussed at length in these pages, the Education Department is aggressively promoting the IBR program, which is bad news for taxpayers. These plans allow borrowers whose incomes are not deemed sufficient to service their debt to make monthly ‘payments’ of zero. After 300 months, the loans are forgiven. In other words, it’s theoretically possible to remain ‘current’ on a student loan and have that loan legally discharged after 25 years without ever making a single payment. It’s easy to see how this type of arrangement might negatively affect the cash flows in a student loan backed securitization and hence it comes as no surprise that the proliferation of IBR is cited by Moody’s as a contributing factor to its review.
Lending some credence to our 2007 MBS comparison, Fitch has also moved to place 57 tranches of FFELP-backed paper on Ratings Watch Negative.
The fact that Moody's and Fitch are beginning to reevaluate student loan ABS is indicative of an underlying shift in the market. Between the proliferation of IBR and the Department of Education's recent move to open the door for debt forgiveness in the wake of the Corinthian collapse, financial markets are beginning to see the writing on the wall. Perhaps Bill Ackman said it best: "there's no way students are going to pay it all back."
* * *
Full Moody's statement:
Approximately $34 billion of asset-backed securities affected.
New York, June 22, 2015 -- Moody's Investors Service has placed on review for downgrade the ratings of 106 tranches in 57 securitizations backed by student loans originated under the Federal Family Education Loan Program (FFELP). The loans are guaranteed by the US government for a minimum of 97% of defaulted principal and accrued interest.
RATINGS RATIONALE
The reviews for downgrade are a result of the increased risk that the tranches will not fully pay down by their respective final maturity dates. Failure to repay a note on the final maturity date represents an event of default under the trust documents. Because of the government guarantee and the available credit enhancement, recoveries upon default would be very high, although the timing of such recoveries would depend on the transaction structures and voting rights upon default for each transaction.
The elevated risk is a result of low payment rates on the underlying securitized pools of student loans, driven by a combination of low rates of voluntary prepayments, persistently high volumes of loans in deferment and forbearance, and the growing popularity of the Income-Based Repayment (IBR) and extended repayment programs.
During the financial crisis, prepayment rates dropped to historically low levels. Although prepayments have risen in the last few years, partly as a result of borrowers refinancing their FFELP student loans through federal Direct consolidation loans, prepayment rates of near zero in 2008-09 slowed pool amortization rates and resulted in pool balances exceeding the original projections.
The percentage of FFELP loans in various payment plans, including deferment, forbearance, IBR or extended repayment, has remained between 20% and 30% for consolidation loan pools and between 40% and 50% for non-consolidation loan pools. Borrowers in these plans either suspend repayment of their student loans or make reduced payments of principal and interest. Although the level of loans in deferment has declined over the last two years by approximately 7%, the level of loans to borrowers in IBR has increased by approximately the same amounts and offset this recent decline in deferments. IBR and extended repayment option plans that can extend loan repayment periods up to 25 years, from the standard 10-year term for non-consolidation loans, are significantly lengthening the weighted-average life of FFELP loan collateral pools. In some FFELP securitizations, loans to borrowers in either IBR or extended repayment represent approximately 10%-15% of the balance of loans in repayment
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What kind of retard would buy or guarantee student loans?
Somebody that's tight with Janet Yellen.
Student loans, Puerto Rico, Greece, Ukraine, Oil exposure, China banking strains, geo-political tensions, China/US staredown ... Gosh.
There's Only One Solution
MOAR Cowbell, Bitchez
Another bean run wouldn't hurt.
Makes Chicago look like a virgin
Default, Bitchez.
It's not like you put up any shiny as collateral.
(shoulda bought shiny with tuition)
Shoulda paid that tuition with all those credit card offers I was being bombarded with as an 18 year old freshman.
That's what the U.S. Taxpayer is going to, or already paying for. Just going to get worse IMO.
"Well I was going down the road in my...
Tesla Model S!
I had a...
Fine foxy broad, yeah
You know that she's the best...
Scary huh? As everyone (them too) just whistles through the graveyard?
Someone who wants the maximum number of people run thorugh the ultra brainwash cycle of "higher" education.
The same people who want more dependents on the bottom of the scale.
Barack H Obama, for starters.
The University Mafia, for another.
Corporations are the ones who demand the credentialist system. People just want jobs so they can live, so they do as they are told.
Maybe lots of people are going to learn that doing what you are told by "authority" is just another word for slavery.
"What kind of retard would buy or guarantee student loans?"
The Gubermint
My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can't believe how easy it was once I tried it out. This is what I do... http://bit.ly/1LCjofJ
When this bubble bursts, I'll feel bad for all the people who actually paid their student loans. They are the one really being taken to the cleaners. The people who took out $50k in student loans to study 17th century Fench Lit are the liberals who will be "saved" by a government bailout. Now there's an oxymoron.
I SLAVED to save my daughter's tuition so she could graduate debt free. Worked two full time jobs for years. We only used one light at night to keep the electric bill to a minimum. No cable, no heat - I remember her begging me to turn it on. Nope! Put on a sweater!
I also refused to participate in the real estate scam. I could have easily taken out a 125% loan, lived rent free for years until I was evicted and walked with hundreds of thousands in cash.
But I sleep well at night and my pride is earned.
I went into the military due to a lack of options, but had hoped that we'd be used for the right reasons. Yes, my hope were mostly wrong.
I mostly grew up on the streets, and my kid sister went to foster-care. We had no family-support to speak of.
Out of the military, I went into college, via GI Bill, which paid at the time (pre-9/11) $350 mo... Against $4000 per-term tuition. So I worked full-time while going to school full-time. And I had to take out government-backed student loans to make-up the difference between my paycheck and my reality. Because "a college degree would get you a good job."
Long story short, I got a job in law enforcement. I flat-out was ignorant, naieve, about the corruption issues. But I was on top of the world for a while: I was an absolutely honest cop, and this may have been my downfall: but things became pretty good as I made decent middle-class (remember that?) money and was training out of that job into another that would pay almost 6-figures. Riding high, feeling good, I started a family and lived like middle-class people do.
And then things went bad.
You see, when I got the job with the agency, they didn't mention the fact that the agency was endimically corrupt. I gradually figured that out in bits and pieces. And it all came to an end when...
...The motherfuckers who'd been gunning for me set their sights on my little baby girl and her mother.
I was furious and I blamed the state, actors within the state. But baby's mama blamed me, saying that I should have know that could happen. I moved my family out of state for their safety, and these issues were very real: the Chicago mob will blow you away in front of you wife and kids-- gangbangers take their lead-- and it's a question of honor and personal respect to them, but they will not otherwise harm your family: they will not do this. But corrupt government officials will.
So, in short, I lost my career, my home, my family and was destroyed financially because of having to flee in order to protect my family's safety. Right here in the USA. The land of freedom, democracy, opportunity and all of that crap.
After fleeing from state my ex and I split, and I got hit with child support. It's bad enough trying to keep a roof over your head on one income, now try dividing that income in half.
But student loans... Life happens, as it happened to me. I wish I enjoyed the lifestyle that was once afforded to me by virtue of my degree, but I can barely pay for rent, often get my utilities shut-off and have actually passed-out from hunger. You see, the aid programs like welfare (whatever remains as such) look at "gross" and not "net-income" even though expenses are costed net-income!
Yeah, I know the struggle to pay student loans. And it can really seriously suck. But I also know the inability to pay student loans.
The difference between "deadbeat" and "debtor" is that a deadbeat can pay what they owe, but chooses not to. I will argue that there are many who are willing to pay their student loans, but who lack the ability to pay. And even so, as they could fairly demonstrate a lack of ability to pay, bankruptcy is not an available option to them. As a result, like myself, a growing majority are in limbo and cannot participate in what used to be identified as part of a middle-class lifestyle. (Vacations, movies, eating-out, a house of your own, etc.)
What really burns me is the fact that I put my life on the line both here in the USA and abroad to protect persons from violence and criminal activity, and that I got hurt by that and my loved-one got hurt by that. And that there is no recovery from that. Not here in the USA.
I am rapidly becoming an enemy of "America," or at least the rich-person's version. I want to see Jeb Bush treated like the connected trust-fund baby in "America Me." I want to see Hillary Cinton washing dishes in a prison canteen. I want to see the revenue-rats and rule-enforcers who call themselves cops stoned to death by young children. I want to see the policy-enactors who wage war on the poor and working stiff-- I want to see their heads on pikes lining the way to the statehouse....
But...
"Law is for the Rich,
Jail is for the Poor,
And Justice is for Fools!"
Fuck the USA. Fuck it all to hell. And fuck all of those who support the laws, policies and culture that fucked with my kid and me and our well-being.
Once, not so long ago, this country coud afford to pay a broom-sweeper a wage enough to provide for a family. Once we could afford to think high-minded thoughts and indulge in whimsy and fantastical thinking. Once one could quit a job one day and hired the next... But this country has changed much from those days, and there are still many who choose to ignore our present reality in order to live in those past, presently non-existant days, and who pass bad information to those who lack experience in life, who naievely believe in trusting in one's more experienced elders.
I feel bad for those who literrally kill themselves to meet their obligations, and especially bad for those who DO kill themselves because they cannot meet "their obligations."
Chief Seattle was right when he described "...the end of living, and the beginning of survival."
Student loans are the worst kind of debt that can be foisted upon a person. With a mortgage, you just lost your house. Debt to a bookie will cost some temporary pain and brorken legs that will heal...
...To escape student debt, you must die.
Can't and never will be able to claim bankruptcy on a student loan. What will happen more likely is that the balance will be put on a credit card, then claim bankruptcy. If a person does not do that then one of two things will happen.
1. Social Security will be used to pay off loan as will any tax refunds.
2. Credit card bankruptcy will not be allowed due to transfer of debt from student loan to credit card debt.
Either way, forget about buying a house, car loan, even getting married. Who would want to get into that financial mess.?
Wrongo. There are 10 ways to default on student debt.
The easiest is being nuts.
The hardest is being 'dissapeared'.
Easiest is being "disabled". They go *poof*.
https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/disabi...
A total and permanent disability (TPD) discharge relieves you from having to repay a William D. Ford Federal Direct Loan (Direct Loan) Program loan, Federal Family Education Loan (FFEL) Program loan, and/or Federal Perkins Loan (Perkins Loan) Program loan or complete a Teacher Education Assistance for College and Higher Education (TEACH) Grant service obligation on the basis of your total and permanent disability.
How do I show that I am totally and permanently disabled? If you are receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) benefits, you can submit a Social Security Administration (SSA) notice of award for SSDI or SSI benefits stating that your next scheduled disability review will be within five to seven years from the date of your most recent SSA disability determination.The CURSE is piling it on.
https://biblicisminstitute.wordpress.com/2014/07/17/is-america-cursed/
Nazi click bait, for those interested in playing along at home.
But, to the larger point...
Yes, America is probably cursed as of Friday June 26, 2015.
Has nothing at all to do with the Jews and everything to do with the straying American flock themselves.
Once upon a time .... some folks got blessed with freedom .... until they threw it away !
It takes an independent minded man to appreciate freedom. Most Americans are parasites.
These rating agencies will be COFER(ing) in the porcelain shit throne.
IMF Data
The time is ripe for Obama the savior to swoop in and "forgive" all the outstanding student loan debt....in exchange for "serving your country" fighting ISIS. Everyone will be so grateful that Obama will be crowned king!
Canada will soon be over populated in 3...2...1... Soon immigrants from Mexico, South America will skip the U.S. or just pass through U.S. to get into Canada so they would not have to be drafted. Remember Vietnam?
Soetorojugend
"We Soetoro'd some folks".....
Moody's, Fitch, S+P? Are they still in business?
I thought they died of embarrassment a few years ago.
(Downgrade student debt? Yo're 'avin a laff mate. There shouldn't be any lower step in the ladder for it to go!)
They're as broke as Manhattan...
Never Forget!
NYC declared a Moratorium back in the 70's as opposed to Default. (shits and giggles time) Gave a Whole New Meaning to a Big MAC
Imagine the prospectus on this junk. "This is an exciting new market for zero-collateral bubble loans!"
In the meantime, Egan Jones probably got banned from rating this by Ben Goldenfarb of US Department of Fraud.
Zero Coupon Perpetual No Collateral Loans
Also known as Fiat Currency; It's a liability of the Central Bank that pays no interest and has no maturity.
Some slick shit, huh?
Did you piss somebody off today knucks,,,you got a serial junker following you around
Looks like the man crushes .... I'm the recipient of .... once in a while !
Moody's Assigns an SQ3 to Caliber Home Loansas a Servicer of ...
Asset Backed Securities. For Asset substitute Asshole.
So does the bank who processed the loans call Moody's or do Moody's have a Human Resource Dept. who ring up the list of students in each tranche ( maybe some sleeping in trenches) every month to ascertain the likelihood that they're going to pay their loans this month?
What about packaging Saudi or ISIS beheading's?
CNS Network – Greenlight loans scam : Cash Express – www ...
Craigslist Wanted: looking for a washed up Robosigning clerk.
That Robosigning was BS .... all our FRNs are "Robosigned" .... a technicality that is harmless .... shouldn't null and void .... a legitimate debt !
Legitimate debt ahahahahahaha
So the US Government is now selling student loans to 3rd parties? Is that why they got rid of the overt bank loan guarantees, so that cronies could make them into derivatives instead?
In one month the Federal Reserve printed $14 trillion and gave it to European banks, Goldman Sachs, and JP Morgan. But hey, what's really important is that this welfare program they created for the University system (which must be paid back by the peasantry, nice!) needs to remain derivativized for the crony douchebags to keep their balance sheets good enough to keep those huge bonuses coming in.
don't worry ....the fed/us gov will say they are helping the students with debt forgiveness by printing money to buy the securities and put them onto the fed balance sheet. AND THEN THEY WILL SAY THAT IF THEY DIDN'T DO THIS SCHOOOLS WOULD GO BANKRUPT SO THAT THEY ARE THEREFOR HELPING MAKE SCHOOL AFFOREABLE FOR STUDENTS BY KEEPING HTE DEBT BUBBLE INFLATED.
this is treason. by the time the whole thing collapses the nazis will have a vicious round 2 setup for the morons we call the american public. and they will , like the german public did, acquisce or even cheer on the rise of the next hitler while anyone pointing fingers at the junkers and westphalian traitors who raped the country by way of government 'programs'---------------will be killed or silenced in a targeted manner when the time comes.
Any monetary system based on debt, where any expansion in the money supply occurs through additional debt, must exponentially expand that debt in order to meet the previous debt interest obligations, until all cash flow goes towards paying interest on debt.
So, all of you need to run out there and go as far into debt as you possibly can in order to keep the ponzi scheme going, and only those who actually pay principal are the suckers. If debt slows down, and the interest cannot be paid, then the fiat debt system turns on itself like a cancer and begins a cascading default into bankruptcy and insolvency, and no one gets out alive.
So, they will run this one up the flagpole until the last homeless peron is given a loan and is put in debt, and then the whole house of cards comes crashing down. There is no other way out, student or otherwise.
So, load up, drink and be merry until the music stops!
It's all ODIOUS debt. It's illegal and unenforceable.
The masters of the student loan debt are too politically corrected for it to go away.
Welcome to the age of student loan serfs.
I just finished a, book, that my daughter gave me, written by a young man, who graduated with $32,000 in Student Debt. He was freaking out about it. His best friend was $58,000 in debt and couldn't even get a job, anywhere. The author, decided to tackle his debt and if you want to read an epic journey and real life , adventure, that is a masterfully written, buy Ken Ilguna's book, 'Walden on Wheels'. 4.5 Stars, 466 reviews. An excellent read from start to finish, with a lot of perspective on the Student Debt debacle , and the state of our Nation, from a Millenials view.