Vital Financial Updates Credit – Is it good or bad?

The surprising college major many graduates now regret

The best investment, on the other hand, appears to be a degree in engineering. The vast majority of engineering students thought that the costs of their education were worth taking on.

The Feds survey overall indicates that loan payments are cutting into graduates other spending priorities.

Almost half of people who have some student debt told the Fed that making payments on their college loans has led them to cut back in other areas. One in 10 said they had to reduce other spending by “a lot” over the past year to make student loan payments. People who have not completed their degrees found it even hard to keep up with loan payments without scaling back elsewhere.

The Fed’s survey, the Report on the Economic Well-Being of US Households in 2013, was the first of its kind, and reported results about many aspects of Americans’ financial situations. It included over 4,000 respondents, but the number who reported college debt by field of study was much smaller, just 560.

Separately, the polling firm Gallup also released evidence Thursday that carrying student debt harms Americans’ well-being – not just financially, but perhaps even physically.

While 40 percent of respondents with no college debt told Gallup they were “thriving” financially, only 31 percent of those with student loans totaling under $25,000 did. Those with even more debt were less likely to be thriving.

A similar dynamic held for respondents’ physical well-being. Thirty-four percent of people with no student loans are thriving physically. Fewer people with student debt felt the same, including just 24 percent of those with over $50,000 in student debt.

The Gallup poll, conducted online with almost 30,000 respondents, is also the first of its kind.

Without historical data for comparison, it’s hard to tell in detail from either the Fed’s data or the Gallup survey how the recent run-up in student debt has affected Americans’ economic outcomes. It also cant be determined from the poll results whether student debt is making people struggle financially and physically, or vice versa.

The question of whether mounting student debt is slowing the economic recovery is one that top economic policymakers have weighed in recent months. In particular, Federal Reserve Chairwoman Janet Yellen has speculated that high student loan balances might be keeping young Americans from buying houses, slowing the housing recovery.

There is some data to suggest that people who borrowed for college have lagged in buying houses and cars following the recession.

Mortgage lenders stretch tenure to 30 years

Sometime back, mortgage major HDFC unveiled a 30 year home loan product. A home loan tenure up to 30 years is meant for customers with a particular profile. Age of the customer is one of the most important criteria apart from the creditworthiness. Our young customers who have put in some years of work experience and have a dream to own a house will feel more comfortable as the tenure of loan repayment is longer and hence finances can be managed better over a long tenure. a spokesperson from the company said.

HDFCs average loan size is currently Rs 22.7 lakh and interest rates (floating) are currently 10.15% per annum for an amount upto Rs 75 lakh and 10.50 % per annum for loans above Rs 75 lakh. Industry observers have welcomed the move. With changing demographics, a younger workforce (early twenties) and with working life extending beyond 60, the home loan product is also going in for some makeover. First of all the customer has more options in terms of choosing a 20 or a 30 year product. Also, loan eligibility will rise in case a customer opts for a 30 year home loan. With the result, he or she can opt for a bigger and better home, Adhil Shetty, chief executive officer of BankBazaar said.

In the aftermath of the 8% teaser rate home loan scheme by SBI (State Bank of India) in 2009, many banks and home finance companies launched similar schemes with an eye on the takeover business. The 8% resulted in lowering of EMI (equated monthly installment) or extension of tenure to 25 from 20 years earlier. But after that, interest rates on home loans have been on an upward spiral. In the last five years, interest rates on home loans have moved up by 2%. Plus, continued inflation and rise in property prices have put additional burden on customers. Customers want to buy good properties with better loan service terms, Rakesh Makkar, president and chief distribution officer, DHFL said. The company also recently unveiled a 30 year home loan offering.

But some companies are treading cautiously when it comes to extending home loan tenures to 30 years. For instance, Sundaram BNP Paribas Home Finance considers 30 year repayment only in exceptional cases. Indians are generally averse to longer tenure. Even when they take loan for 20-year tenure, very few loans run that long. There are foreclosures after 10-12 years, Srinivas Acharya, managing director, Sundaram BNP Paribas Home Finance said.

Another south based Repco Home Finance is not mulling a 30 year home loan offering at the moment. We believe costs outweigh benefits in case of 30 year loans and that 15-20 year loans are better. Home finance companies also stand to benefit if they lend for 15 to 20 years, V Raghu, executive director, Repco Home Finance said.

Sundaram BNP Paribas Home Aims to Raise Rs 3000 Crore

Chennai: Sundaram BNP Paribas Home Finance is considering raising Rs 3,000 crore, including Rs 1,000 crore through NCDs (non-convertible debentures), over the next nine months.

The company is looking to raise around Rs 3,000 crore in the next nine months including Rs 1,000 crore through NCDs and over Rs 500 crore through commercial paper, the Chennai-based company said in a statement.

Sundaram BNP Paribas Home Finance is a 50.1:49.9 per cent joint venture between Sundaram Finance and BNP Paribas.

Meanwhile, Sundaram BNP Home Finance has registered a 12.2 per cent jump in net profit at Rs 42.14 crore for the first quarter that ended on June 30, 2014.

The company had reported a net profit of Rs 37.54 crore during the corresponding period of the previous year.

Home loan disbursements during the quarter ended June 30, 2014 declined to Rs 485 crore from Rs 653 crore registered during the corresponding period a year ago.

We expect the real estate market to improve in the second half of the year and prices to firm up subsequently, Sundaram Home Finance managing director Srinivas Acharya said.

Sundaram Home Finance has 107 branches across the country, the release added.

The heavy burden of college aid

With a default rate of 10.2 percent for all borrowers, the federal government loses billions of dollars every year on bad debt. Washington has taken some important steps to make it easier for former students to repay their college loans. Congress recently reduced the interest rate on most new student loans, and the administration has capped monthly payments at 10 percent of income for millions of borrowers, with loan forgiveness after 20 years.

To save taxpayer dollars and spare more borrowers a crippling hit to their creditworthiness, federal policy should center on increasing the chances that borrowers will actually graduate from college.

President Barack Obama has taken a key step in that direction. His administration made a college scorecard available online that provides data on individual schools, such as the cost of attendance, the percentage of students who graduate within six years, the typical amount students borrowed for undergraduate study and the loan default rate. Thats useful information for students and their families looking for the best return on college spending. But Congress should make it even more useful by tying the availability of federal financial aid to a schools graduation and loan default rates.

Right now federal dollars go indiscriminately to schools that graduate almost all their students, those that graduate almost none, and diploma mills where students take on huge debt only to leave with degrees that are all but worthless.

Congress should set minimum performance standards for graduation and default rates. Schools that dont meet them should be given a reasonable amount of time to improve. If they dont, Washington should shut off the financial aid spigot.

Repco Home Finance Ltd to consider Q1 results on August 9, 2014

A meeting of the Board of Directors of Repco Home Finance Ltd is scheduled to be held on August 09, 2014, to consider and take on record the Un-audited financial results of the Company for the quarter ended June 30, 2014.

The Trading Window for dealing in securities of the Company shall remain closed for the Directors, Officers and designated employees of the Company from July 30, 2014 to August 11, 2014 (both days inclusive) as per the Code of Conduct of the Company under the SEBI (Prohibition of Insider Trading) Regulations, 1992.

Shares of REPCO HOME FINANCE LTD. was last trading in BSE at Rs.436.15 as compared to the previous close of Rs. 447.05. The total number of shares traded during the day was 9589 in over 719 trades.

The stock hit an intraday high of Rs. 450.9 and intraday low of 431.2. The net turnover during the day was Rs. 4198223.

No further FII purchases allowed in Repco Home, South Indian Bank

The Reserve Bank of India (RBI) on Friday said foreign investors cannot purchase shares of Repco Home Finance and South Indian Bank as their shareholding in these companies has crossed the threshold limit.

In the case of Repco Home Finance, the shareholdings by Foreign Institutional Investors (FIIs)/Registered Foreign Portfolios Investors (RFPIs) under Portfolio Investment Scheme (PIS) in the company has crossed the limit of 24 per cent of its paid-up capital, the central bank said in its release.

Therefore, no further purchases of shares of this company would be allowed through stock exchanges in India on behalf of FIIs/RFPIs.

In the case of South Indian Bank, the RBI said the foreign shareholding through FIIs/ RFPIs/ Non Resident Indians (NRIs)/ Persons of Indian Origin (PIO)/ Foreign Direct Investment (FDI)/American Depository Receipts (ADRs)/Global Depository Receipts (GDRs) in the Bank has crossed the prescribed threshold limit as per extant FDI policy.

Hence, further purchases of equity shares of the Bank would not be allowed through Stock Exchanges in India on behalf of FIIs/RFPIs/NRIs/PIOs and through FDI/ADRs/GDRs.

CFPB report suggests remittance transfer history offers little value for …

On July 3, the CFPB published areporton its study of the use of remittance histories in credit scoring, which found that (i) remittance histories have little predictive value for credit scoring purposes, and (ii) remittance histories are unlikely to improve the credit scores of consumers who send remittance transfers. The report follows a2011 CFPB report on remittance transfers, which was required by the Dodd-Frank Act and assessed, among other things, the feasibility of and impediments to using remittance data in credit scoring. At that time, the CFPB identified a number of potential impediments to incorporating remittance history into credit scoring, and noted the need for further research to better address the potential impact of remittance information on consumer credit scoring.

To conduct its supplemental analysis of the potential effect of including remittance histories in credit models, the CFPB collected a random set of 500,000 consumers from a single remittance transfer provider. The CFPB was able to match approximately 212,000 of those remitters to a credit record held by one of the three major consumer reporting agencies. The CFPB analyzed the remitter data set in comparison to a control set of 200,000 consumers with credit records.

First, the CFPB estimated a credit scoring model that used only credit history information to serve as a baseline estimate of the level of predictiveness that credit history information alone produces. The CFPB then evaluated how large of an increase in predictiveness results when remittance histories are added to that baseline model. The CFPB determined that including remittance histories in credit scoring models is unlikely to increase the predictiveness of the models enough to warrant generating scores for otherwise unscorable credit records. The report cautions that the CFPBs analysis of the predictiveness of remittance histories is limited in numerous ways.

Second, the CFPB assessed the impact of remittance histories on the credit scores of three different populations: (i) remitters without credit files or who could not be matched to a credit filethe majority of the original 500,000 sample size; (ii) remitters with credit profiles insufficient to be scored (unscoreable); and (iii) remitters with credit scores.

The CFPB determined that for remitter sample members without credit records remittance histories likely would not allow those individuals to develop a credit profile. The CFPB hypothesizes that given the limited utility of remittance history for predicting future performance, credit model builders would not construct a credit scoring model for this population without any credit records. Similarly, although the CFPB found that although remittance transfers appear to be associated with better credit outcomes for the small segment of remitters with unscorable credit, model builders still would be unlikely to score these consumers because remittance histories offer little with regard to predictiveness,. Finally, the CFPB reported that for remitters who already have credit scores, remittance history information appears to drag down credit scores.

The report adds that remittance transfers also are likely to correlate with race or ethnicity, which could raise fair lending risk for credit model developments. Further, the CFPB states that the credit scoring value of remittance histories appears even less valuable compared to other potential alternative dataspecifically rental and utility payment data. The bureau suggests that future efforts to enhance consumer credit scoring models should focus on activities that involve regularly scheduled payments, as opposed to voluntary payments like remittance transfers.

FICO to discount medical debt from credit scores

A move by personal credit score provider FICO to leave out or discount medical debt from its scores will boost the credit ratings of many borrowers, while helping lenders to better assess risk.

Moreover, FICO won’t consider past overdue bills borrowers have already paid,the Wall Street Journal reported Friday. The new score will be available to lenders through US credit reporting agencies starting this fall, FICO said.

Lenders have become extremely wary of anyblemishes on borrowers’ credit scores, following the economy-crippling sub-prime mortgage crisis of the late 2000s, where banks wrote predatory adjustable rate mortgages for years to people who were not creditworthy. As the house of cards collapsed, their interest rates shot up to levels they couldn’t pay.

With FICO’s new rules, negotiated between lending groups and the US Consumer Financial Protection Bureau (CFPB), that era of tight lending practices could be coming to an end — increasing the chances that borrowers will get their loan applications approved or pay lower interest rates.

The FICO change comes after the CFPB said in a report this year that credit scoresoverly penalize peoplewith medical debt compared to other types of debt.

Given the critical role that credit scores play in consumers lives, we welcome steps by industry to adjust how it weighs medical debt in order to be as precise as possible in predicting the creditworthiness of a consumer, a CFPB spokesman said on Friday.

In the previous arrangement, after a debt collector calls, a consumer might pay the debt immediately but still take a hit to his or her credit score, according to the CFPB.

The new scoring system will do a better job of identifying risky borrowers and help sub-prime lenders mitigate the risk of doing business with such borrowers, said John Ulzheimer, a credit expert and a former FICO employee.

I am not exactly sure what impact this is going to have on sub-prime lenders, because for the score to be meaningful to the customers, the lenders have to actually start using that score, Ulzheimer said.

When calculating credit risk, the credit scoring company, formerly known as Fair Isaac Corp, said on Thursday that it would ignore overdue medical payments and other bills that have already been resolved.

Medical debt represents about half of the debts that go to collections in the United States, according to the Federal Reserve.

More than a third of Americans have had a collections agency after them,according to a recent Urban Institute study. According to the Wall Street Journal, the number is about 64 million, citing Experian, another credit-rating group.

The new model will also discount overdue medical payments yet to be made under the new scoring model, helping improve the median FICO score by 25 points for consumers who mainly have unpaid medical debts, the company said in a statement.

Consumers end up with medical debt for different reasons than they incur other debt, such as home loans or credit card debt. For starters, it’s involuntary. Incurring debt due to severe, expensive illness or injury isn’t the same as buying an unaffordable sports car.

With medical debt, sometimes borrowers don’t realize their insurance companies haven’t paid the entirety of their bill, and their arrears get kicked over to collections agencies that won’t take no for an answer.

The FICO score changes will address that by weighing medical debt less heavily than unpaid credit card debt and other collection information, according to the statement.

Al Jazeera and Reuters

SPAIN: Research is key in planning for college

Q. My neighbor’s daughter has a master’s degree. She has been unable to find a job in her field and is a clerk. My co-worker’s son has a degree in physics and is working in the oil fields. Our son will be a high school senior this year. We have always had the expectation that he will go to college. Due to a variety of financial mishaps we will not be able to help our son financially if he chooses to go to college. We want to help him make the best choice regarding his education so he doesn’t end up with a lot of debt and no job. Based on all the people that you see, can you offer any guidance?

A. That’s an excellent question and one that many parents are currently struggling with. College is an investment in your son’s future. Any investment needs to be evaluated to make sure that it is a good investment. The goal should be to get the best education possible, with the lowest amount of student loans, with the highest possibility of a job in the field he chooses upon graduation. This takes research.

Anyone considering continuing their education should research the fields they are interested in. Are there available jobs in this field and if so are the demand for these jobs increasing or decreasing? What kind and level of degree does this kind of job require and prefer? What is the average pay for a college graduate entering the work force with this type of degree? Where are available jobs located, and is the young graduate willing to move to where the jobs are located?

The cost of college varies greatly. Is going to an out-of-state college worth the investment versus an in-state college for the degree the student is seeking? Can the student live at home to save on expenses? Are scholarships and work study available to keep loans to a minimum? Can the student would part-time in the school year and full time in the summer?

Whether you attend vocational school or college, keeping college loans reasonable is important and our state supported vocational schools and colleges offer a great value to students and parents. In a recent article in the Gallup Business Journal they state:

“For students, here’s the bottom line: We found that it really doesn’t matter what type of college you go to – whether it’s public or private, large or small, very selective or not selective. The type of institution has little to no bearing on your long-term life well-being and engagement at work. But how you go to college makes all the difference to your future. Finding a college that provides you with the support and experiential and deep learning should be your top goal.”

The reality is the cost of college is high and the student with student loans will need a job to repay the student loans. Since you are going to pay for a college education, you will want a job when you graduate.

Students need to be reminded that money borrowed has to be repaid. Even if a student would later find him or herself in bankruptcy, in many cases students loans still have to be repaid. Defaulting on a student loan can also bar you from certain professions.

Students don’t want to invest two, four, or more years advancing their education and incurring school loans to find out there are very few jobs in their career choice. With research an advanced education is still a good investment in your son’s future.

Your Money Matters: Student loans and 529 savings plans

Kathy Roesser

Kathys Tips:

At the current rate of inflation, the cost of college in 18 years could be $442K total or $110K per year.

If you dont start saving now, your kid may have to take on more debt than they would have had to and you are missing out on the tax advantages of certain education savings accounts. For example, With any 529 savings plan, the money that you invest will grow without being subject to federal income tax. And you’ll also avoid paying federal income taxes on any money that you take out of the plan–as long as you use it to pay for qualified educational expenses, such as room and board, tuition and books.

Don’t let signing up for a 529 paralyze you. You can always change if the one you pick doesn’t end up working for you. Don’t put off savings because you think that your child will score a full ride on a scholarship as an athlete or a merit scholar. You may be right, but full rides are rare — and you don’t want your kid to suffer the consequences of your misplaced optimism. If your child does get a scholarship, you can transfer a 529 savings plan to a sibling or another beneficiary — even yourself– to be used tax-free for qualified education expenses

The President signed a new law that makes it easier for students to pay back their federal college loans. Starting in 2014, new borrowers will pay no more than 10 percent of their disposable income, and the President recently proposed accelerating this benefit for current students. The law also allows any remaining debt to be forgiven after 20 years. Those engaged in public-service professions–such as teachers, nurses, or members of the armed forces–will have any remaining debt forgiven after 10 years if they make their payments on time.

The 529 plan really makes a difference. If you can afford to only put away $50 a month it is worth it. You will be amazed on how it can grow over time and might mean less loans and debt in the future.

It is never too late to add to 529 plans, you just need to make sure you invest in the appropriate investment strategy/fund.

Morgan Stanley
www.morganstanley.com

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