MReport June 2017

TheMReport — News and strategies for the evolving mortgage marketplace.

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62 | TH E M R EP O RT SECONDARY MARKET THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T Tackling the Student Debt Problem Fannie Mae offers three new payment programs for borrowers with student loan debt. S tudent loan debt is one of the top barriers to homeownership today, and Fannie Mae is work - ing to put a stop to it. With a series of new policies, the GSE is looking to help more borrowers with existing student loan debt buy a home, regardless of what their loan balance may be. According to Jonathan Lawless, VP of Customer Solutions at Fannie Mae, the organization is looking to help alleviate one of the biggest issues facing the housing industry in the current market. "We understand the significant role that a monthly student loan payment plays in a potential home buyer's consideration to take on a mortgage, and we want to be a part of the solution," Lawless said in April. "These new policies provide three flexible payment solutions to future and current homeowners and, in turn, allow lenders to serve more borrowers." Recognizing the variety of borrowers it serves and "be - cause there is rarely a 'one size fits all' approach to this issue," Fannie Mae's new policies will offer three payment solutions to borrowers with student debt. Under these solutions, a bor - rower can choose to pay down his or her high-interest student loan debt while refinancing for a lower mortgage rate or exclude his or her non-mortgage debt—like car loans, credit cards, and student loans that are paid off by a parent or other party—from their debt-to-income ratio on their loan application. The third solution allows lenders to ac - cept student loan payments that are included on applicant credit reports. "These innovations ad- dress challenges and obstacles to homeownership due to a signifi- cant increase in student loan debt over the past decade and provide access to credit for qualified bor- rowers," Fannie Mae stated. Approximately 42 percent of millennials are currently living with student debt, with the aver - age debt per person estimated at around $37,000. It's currently one of the top homeownership hur- dles for millennials—and potential buyers of all kinds. Ever-rising rental costs (which make saving for a down payment difficult) is also a major obstacle for many potential homebuyers. Housing Outlook Remains Optimistic Without a clear picture of the administration's policy plans, Fannie expects economic growth to rebound this quarter and anticipates more rate hikes from the Fed. F annie Mae is looking ahead with conservative opti- mism. While its growth forecast for this year re- mains at a modest 2 percent, Fannie predicts in its April 2017 Economic and Housing Outlook that the com- ing two years will also see steady economic and housing growth. One big question mark for the future, including the near future, is the effects of policy changes. But as there have been no major policy shifts under the Trump ad - ministration so far, Fannie Mae is taking the conservative approach and not altering its forecast. "We continue to await details on the new administration's plans," said Fannie Mae Chief Economist Doug Duncan. "We're intrigued by the disparity between elevated con - sumer and business optimism and signs of decelerating first quarter economic growth. However, we ex- pect growth to rebound this quarter as special factors that weighed on growth partially unwind." Duncan said that with the firm - ing of the Fed's preferred measure of inflation, reduced labor market slack, and the more hawkish tone of the Federal Open Market Committee at its March meet - ing, "we foresee that the Fed will hike rates two more times this year, in June and September, and announce a change to its reinvest - ment policy in December." Overall, Fannie reported, the likelihood of meaningful economic change is low, given the similar unlikelihood of significant policy change. In the meantime, the GSE is watching those aspects of gover - nance and economy that could af- fect future forecasts‒‒the potential for a government shutdown that Fannie said could hiccup consumer confidence weighed against market indicators that are proving benefi - cial to consumers. Long-term Treasury yields have trended sideways this year as a result of looming government shutdown, Fannie reported. Rates dipped to the lower-end of a nar - row range; and weak economic news, along with increased geopo- litical risks, have moved long-term interest rates lower. Fannie expects the 10-year Treasury bond yield to finish 2017 at 2.5 percent and increase to 2.6 percent by the end of next year. Fannie's outlook on employment remains guarded, especially in light of the most recent Bureau of Labor Statistics report on underwhelm - ing job growth in February. The GSE projects unemployment rates to stay flat through next year, around 4.5 percent. The outlook is also cautious about the overall economy. Fannie expects the GDP to drop slightly, from $2.4 trillion to $2.2 trillion by the end of 2018. Housing activity through February fared better than other hard economic indicators, partly due to the warm winter weather, and the ESR group expects that a seasonal uptick in listings going into the spring selling season will help alleviate extremely tight inventory, Fannie reported. Recent declines in mortgage rates may also motivate some homebuyers to enter the market before rates pick up as the Federal Reserve continues to normalize monetary policy. Fannie expects growth in hous - ing starts to increase from almost 10 percent to almost 11 percent between now and 2018. The GSE anticipates new starts to increase steadily over each quarter this year, from the current 843,000 to a year-ending 880,000.

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