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Us - Why Student Loans Are Crushing The Housing Recovery In 1 Chart

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http://www.zerohedge.com/news/2014-08-05/why-student-loans-are-crushing-housing-recovery-1-chart

As The WSJ reports, loan-application data show clear signs of growing student-debt burdens. Through the first half of this year, applicants with student debt carried more than $35,000 in student loans. As most people know, a key metric that mortgage underwriters use to evaluate a borrowers' ability to repay a loan is their total debt-to-income ratio.

It’s this metric that can make student loans a big negative in the loan approval process since new rules that took effect this year place greater legal liability on lenders to properly verify 'affordability' (or debt-to-income ratio). As the following chart shows, and one lender noted, "between the approved universe and the denied universe, a few hundred dollars in student loan debt can push the debt-to-income above the approved threshold."

Simply put, homeownership rates will face pressure until student borrowing slows or until mortgage investors and lenders come up with either more flexible underwriting tools or new loan products (and that never ends well).

As The Wall Street Journal reports,

Data from a top national lender shows that loan applicants with student loans aren’t being turned down more often than those without debt. But the data also show that even small changes in the size of a loan applicant’s monthly debt payments can make a big difference in whether a loan gets approved.

...

The loan-application data show clear signs of growing student-debt burdens. Through the first half of this year, applicants with student debt carried more than $35,000 in student loans.

...

A key metric that mortgage underwriters use to evaluate a borrowers’ ability to repay a loan is their total debt-to-income ratio, and it’s this metric that can make student loans a big negative in the loan approval process. New rules that took effect this year give lenders greater legal liability if they don’t properly verify a borrower’s ability to repay a mortgage. Those rules give a greater legal shield to lenders if they verify a borrower’s total debt-to-income ratio is no greater than 43%, which means borrowers with total debt that exceeds 43% of their income could put them at greater risk of being denied.

The LoanDepot data shows little difference in average debt-to-income ratios or credit scores for loans that were and weren’t funded. But it does show that, so far this year, loan applications that weren’t funded had almost $500 in monthly student loan payments, compared to around $300 in monthly payments on applications that were approved.

20140805_housing.jpg

“Between the approved universe and the denied universe, the [borrower’s] credit is the same. The fundamental difference is a few hundred dollars in student loan debt that pushed the debt-to-income above the approved threshold,” said Anthony Hsieh, the chief executive of LoanDepot.com.

These numbers mirror the concerns of some housing analysts, who say that young adults often don’t realize how signing up for thousands of dollars of student debt could hurt their ability to borrow later. “The continual feedback that I hear from the millennials is, ‘I had no idea what I signed up for and what this meant,” said Mollie Carmichael, a principal at John Burns Real Estate Consulting, at a conference last month.

People stupidly undermining the housing ponzi so they can get a degree to get a decent job to join the housing ponzi!

It's like the system is ponzi and utterly fecked!

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We seem to have gone past the point where you have enough earning years in your life to pay for an education, house and pension.

Maybe, it will become "Education, House, Pension..... pick two out of three. If you want to breed, pick one.".

They seem to have pushed max debt all the way down to 18 year olds. It would be more difficult to get more debt loaded onto the next generation without changing contract law. Nappy supply derivatives next, just dribble on the dotted line :)

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People also forget that 50% of people who start a degree course don't actually finish it. So imagine having the massive student loan without the degree and then trying to buy a house. Oh, and whilst you were busy failing your degree course, you were not gaining any on the job skills.

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http://www.reuters.com/article/2012/03/27/us-attn-andrea-education-dropouts-idUSBRE82Q0Y120120327

DROPOUT RATES

The "Pathways to Prosperity" study by the Harvard Graduate School of Education in 2011 shows that just 56 percent of college students complete four-year degrees within six years. Only 29 percent of those who start two-year degrees finish them within three years.

The Harvard study's assertions are supported by data collected by the Organization for Economic Co-operation and Development for its report "Education at a Glance 2010." Among 18 countries tracked by the OECD, the United States finished last (46 percent) for the percentage of students who completed college once they started it. That puts the United States behind Japan (89 percent), and former Soviet-bloc states such as Slovakia (63 percent) and Poland (61 percent).

The failure to complete a college education in the United States is especially marked at four-year private for-profit schools, where 78 percent of attendees fail to get a diploma after six years, according to a 2011 report from the National Center for Education Statistics.

That compares with 35 percent of students in nonprofit private schools and 45 percent of students in public colleges who failed to graduate after six years.

REASONS FOR DROPPING OUT

Today's U.S. college dropouts are more likely to be male (57 percent of college degrees go to women), the Harvard study shows. They are less likely to be pursuing careers as lawyers, doctors or architects, where higher education has a clear correlation with obtaining a job.

Reasons for dropping out included: not being prepared for the rigors of academic work; inability to cope with the competing demands of study, family and jobs; and cost, the Harvard report says.

I wonder what the stats for the UK are?

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