Equifax - Consumer Information Solutions
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Student loans dampening demand for mortgages and auto loans
Student loan debt now outranks auto loan, credit card, and home-equity debt with an aggregate balance of $966 billion as of the end of 2012, and student debt delinquencies are rising. Is the growth in student debt holding down demand for mortgages and auto loans? Some experts think so.
Two economists at the New York Federal Reserve recently published a blog post titled “Young Student Loan Borrowers Retreat from Housing and Auto Markets.”

In an analysis of data from the FRBNY/Equifax Consumer Credit Panel, the economists found that for the first time in 10 years, consumers aged 30 (the median age of first home buyers) with student debt were less likely to hold a mortgage than consumers aged 30 who had no student debt. (See chart)

The situation is similar for auto loans: Looking at consumers 25 years of age in Equifax data, the Fed economists determined that student debt was correlated strongly with higher likelihood of auto debt over most of the past 10 years – until 2010 when auto borrowing for 25-year-olds with or without student debt roughly reached parity. (See chart)

But student debt still implies college, which implies earnings power. After all, that’s why economists believed that consumers with student debt were more likely to have a mortgage and an auto loan until recently. Failing to get a complete picture of a borrower may cause you to pass up consumers that may be better risks than they appear based on credit score alone.

Another factor to consider: there are efforts in Washington to ease the student debt burden. For example, the Obama administration recently directed the Secretary of Education to propose regulations to increase the number of borrowers who can cap their monthly payments on student loans at 10 percent of their income.

The burden of rising student debt might be holding young borrowers back, but the numbers show that consumers with college degrees will still make more than their less-educated peers.
EFX™ Inform > Enrich > Empower™
Proportion of Borrowers with Home-secured Debt at Age 30
Proportion of Borrowers with Auto Debt at Age 25
Source: Federal Reserve Bank of New York Consumer Credit Panel/Equifax.
Source: Federal Reserve Bank of New York Consumer Credit Panel/Equifax.
According to this presentation available on the New York Federal Reserve web site, Median weekly wages are roughly $1,200 for consumers with a bachelor’s degree or higher, versus slightly more than $600 for consumers with only a high school diploma.

If you’re not getting a complete view of your prospects, you may be passing on the opportunity to establishing a valuable relationship with a young consumer.

To learn more about how Equifax Verification Services can help give you a more complete picture of your prospects with employment and income verifications, request more information from an Equifax representative.
Compliance Challenges under New TILA-RESPA Disclosure Rules
The Consumer Financial Protection Bureau’s (CFPB) new integrated disclosures rules, which take effect August 1, 2015, introduce new urgency to the need to document compliance.

CFPB issued its nearly 2,000-page final integrated disclosure rule last November, combining the different disclosure forms required now under two federal statutes: the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA). (CFPB’s detailed summary of the rule is available here.)

The new RESPA-TILA Integrated Disclosure rule provides for two disclosures: the three-page Loan Estimate and the five-page Closing Disclosure.

The Loan Estimate replaces the Good Faith Estimate under RESPA and the initial Truth in Lending Disclosure under TILA.

The Closing Disclosure replaces the HUD-1 under RESPA and the final Truth in Lending under TILA. The new Closing Disclosure is, like the final Truth in Lending disclosure, due three business days before closing. An additional three-day waiting period is triggered if APR changes more than 1/8 of a percent, the loan product changes, or a pre-payment penalty is added. Smaller changes can be disclosed in an updated Closing Disclosure without an additional three day waiting period. As for the final Truth in Lending disclosure, “business day” is defined as any day other than Sundays and legal holidays.

The three-day rule for delivering the Closing Disclosure makes electronic process more valuable than ever. To prove your compliance, you will have to retain a series of signed and dated documents. An online application process that allows for time-stamped electronic signatures greatly simplifies your compliance task. Document retention requirements are also easier to manage with an electronic process.

Equifax Verification Services can provide additional assistance with an electronic process for verifications of employment and income that includes a time-stamped audit trail. The audit trail enhances your compliance abilities and helps with your internal quality assurance. To learn more about how we can help, request more information from an Equifax representative.