We experienced a Mortgage Debt Crisis 10 years ago, are we setting the table for another?
by: Constance d’Angelis
As United States Bankruptcy attorneys during the financial decline fostered by the substantial mortgage debt default commencing in 2007, my colleagues and I reviewed the government activities including the Home Affordable program; and considered other possibilities that could keep an even keel on the financial crisis that played out in the bankruptcy courts. We created a court-ordered Mortgage Modification Mediation program, which has been adopted by a majority of U.S. Bankruptcy Courts around the country. Were we pioneers? I suppose one could say that.
Many of us are now considering the substantial defaults in the payment of student loan debts, the considerable interest rates, capitalization of interest, securitization of debt, inability to discharge debt, high collection fees and costs and the pure geometric rise of debt to approximately $1.4 Trillion. This unsecured debt rivals secured consumer debts such as home mortgages and car loans. and tops the field of unsecured debt in the United States. More than 44 million consumer borrowers are affected.
The current administration, through the Department of Education and government budget is altering interest rates upward, increasing collection costs, minimizing income-based repayment plans, reducing forgiveness programs even in the face of fraudulent loans perpetrated by for-profit schools, and eliminating the Public Service Loan Forgiveness program.
These actions line up with a budget plan that cuts $3.9 billion in funding for the Pell Grant program, eliminates subsidized student loans that keep interest costs low for recent graduates and could give all loan servicing business to one company. Although, there appears to be a shift in the single student loan servicer plan as of August, 2017. If the single servicer plan does occur, the biggest player for taking on the business is the former Sallie Mae affiliate, Navient. This servicer was sued by the CFPB (Consumer Finance Protection Bureau) and two states earlier this year “for failing borrowers at every stage of repayment”. (see our blogs at AnytimeCLE.com).
It is interesting that in a Navient response to the lawsuit it claims that it is under no obligation to help student loan borrowers. The CFPB reports a 429% increase in complaints related to student loan servicing.
Note: the fate of CFPB, which is charged with consumer protection from predatory lenders, banks, servicers and collection firms is also in peril under the current administration.
Query: will this course of action worsen or lessen the student loan debt crisis?
Many of us believe that we are hastening a consumer borrower assault that will increase the cost of education, the likelihood of default, judgments against borrowers, and the total amount of debt; while destroying the ability of student loan borrowers including co-signers such as parents and grandparents from buying homes and operating a reasonable financial life.
So, what can we do about this? First, we have to educate ourselves about the issues. It won’t help to bury our heads in the sand like an ostrich. Pay attention to whom is to be hurt.
It appears that low to middle-income households will be hurt the most. Having to borrow money for college at all, and the cost of college becoming more expensive due to the current budget plan and program diminution will severely impact our average people.
Most of us who seek education realize that education is important, a mechanism for obtaining reasonable jobs, and supporting ourselves and our families. I have personal experience in that if it were not for Pell Grant funding I would not have been able to obtain my undergraduate degree (B.S. cum laude), which opened the door to obtaining my Juris Doctor degree from Stetson University.
Any action each of us can take, whether it be to make our voices heard through our political system, educating student loan borrowers, or communicating through articles, blogs or presentations will be an asset to the understanding that needs to take place within our society.
Where private law firms are being hired to sue, obtain judgments against borrowers and collect student loans on behalf of creditors, many of the firms in the forefront are those which were the major collection firms during the mortgage crisis. As a disclosure, I have provided legal services as local counsel for creditor collection cases. I guess one could say; I can go both ways. Chuckle.