I was just looking at the stats, you know, looks at between people 21 to 35 years old today, about 56 to 61 % of them have debt. The average is somewhere between 33, 000 42, 000 so it's a lot. Yeah. You're in the VC investing, in FinTech investing VC luncheon, so I didn't expect necessarily the topic of student debt to come up but it did. And you were saying that the you're seeing warning signs that are pretty ominous in terms of student debt. What did you mean by that? And what are some of the warning signs you're seeing ?. Quite honestly, the student debt in the entire nation is about $ 1. 6 trillion, it's a very big number. We feel that about 45 million consumers have student debt, which I think is getting to a large percentage of our population. And when the debt becomes sizable, it inhibits your ability to do other things normally that you do in your day to day activities. And clearly from a sofa perspective, we are we are interested in making the debt for the segment of people that we deal with, can we reduce the cost of borrowing? And how do we actually make their financial lives better? That's what we're looking at. But as a whole, it can delay your home buying. It can delay some other purchases that you have in life. It can delay your marriage. And those are the things, indicators that we think are important for the millennial generation Yeah, speaking of home buying you obviously at Fannie Mae, you're seeing the kind of other side of this in terms of people, this generation who has this amount of debt, how is that affecting their ability to own a home? Well, it's affecting that. It's obviously affected a bit they have more debt than other generations had at prior points in time. But if you if you actually look at, The homeownership percentage that's gone up by about 150 basis points in the last two years. The biggest increase in home buying has been millennials. And so they're in the sweet spot of forming households and wanting to own a home, which is something they still view as an attractive investment opportunity. Little so for Gen X which is before them because the Gen X folks sort of saw the saw the decline and in housing values up close and personal but the addressing the issue of student debt is something we're trying to do, to the extent we can with with technology and better understanding of Things like does that debt have a student debt have a third party guarantor? Most of it does. So if it's got a third party guarantor, we will look to excluded from the from the credit statistics for the millennial that is applying for the loan. Really. Similarly if there's a if the parents doing a cash out reef I will lean into that cashout reef I. If the Express use of proceeds is to pay off the student loan So it's something we're very mindful of. We're trying to do what we can to solve it. A biggest piece of advice for somebody that's got student, that is, finish your degree and get a good job. [ LAUGH ] Yeah, and this is also a generation many have graduated into the great recession or right after and it's not just The amount of debt but also the way the market has changed. I mean, are you seeing, you know, i guess what are the applicants or are you seeing changes just in terms of the market? Since in the last 10 years? We so I think the I think you know that everybody knows the millennial generation is bigger than the baby boomer generation. I think everybody also knows that their propensity to consume housing is not really any different but they're being delayed. In that, in that, in that effort, I know that if we did a show of hands or asking who lived with their parents after college, number of hands would go up. You know, I did and I couldn't wait to get out of there. And I think that what's happening is Millennials are staying in that situation, staying in that situation longer but the fundamental issue for them. As big or maybe even bigger than student debt is lack of affordable housing supply so the relationship between the demand for housing and the supply of housing has been completely severed since 2008. If you looked at the chart going back over time of home prices and housing stats, there'd be a very very close correlation because when prices go up, home builders build more. When prices go down, they build less. The supply response to increase demand in the last ten years has been completely inadequate, which is why we're at levels of house price to income that we haven't seen for a really long time. Yeah. And that's the fundemental issue they face. So it's a double [ UNKNOWN ]. They have a lot of debt and there's a lack of affordable housing. That's right. You know, Most, most major cities I mean, I moved last year from tri state area to San Francisco and just a young graduate coming out, even taking $ 100, 000 job, it's very difficult for them to even rent and they have to share with two or three people. So the housing. Costs are extremely high and they already carrying a student debt. So which adds to the problem. Is there any good news? Well, the good news is if you could get a job in Decatur, Illinois, the housing is really cheap. [ LAUGH ] [ LAUGH ] Yeah, I don't think you can get a job there. But I mean, it's ,- There is, there is. I mean, I think it has to be both a private Industry as well as a government intervention to kind of figure out what the solution is. From our perspective, what we do is when we do refinance student debt, we give them tools that that talk to a financial advice free advice from CFP CFAs We also give them access to firms like [ UNKNOWN ], in case they need advice on the professional side. So those are things on as the members of what would allow them to make a better decision. And most importantly if there is a rate arbitrage in terms of what they carry on their existing student loans People need to know that they can refinance when the rate goes down, and reduce the burden of- I think that, just to follow on that, because one of the things we see is that there's inadequate consumer education around what it means to buy a home- Mortgage. What it means to get a mortage, completely inadequate. And I think that that is one of the things and you heard, I think in this in these sessions and very creative ideas about how to using technology to enable people to sort of take control intellectual control of their financial future. And, we think that is, we think that's critically important. One of the things that always astounds us is that more than 90 % of homebuyer education. Is accessed after the buyer has an accepted offer. And I would have thought it would be long before then you'd want to understand what it means to buy a house. I mean technology, what innovations would you point to have made it easier We talked a little a little bit, how fast can you get a mortgage these days? Does that make it easier for this generation that has such a big debt burden? Well, there's been an enormous amount of change, although it's probably still the case, if you had a time machine and brought a mortgage banker from 1950 into the modern world, they would be dazzled and confused by all this technology. If you took them to a mortgage closing tabe, they'd feel right at home. Because it hasn't really changed that much. But it is changing. It's that the pace of change is really accelerating. So, 10 years ago, you couldn't close a mortgage in less than 10 days. Now under the right circumstance that happens all the time, and I think, but for necessary consumer protections like Truth in Lending disclosures. I think we'll get to the point where you can close mortgages homelessness only. Would it be better if there weren't as many protections there so we could just do them instantly? Well, I do think it goes back to the education question because, you know, the if you look at the pain points and there's buying a house, there's sort of the euphoric part, which is the search, and then the euphoric part sort of fairly quickly leads to the The uneuphoric part and that includes managing the process, all the contingencies, giving the same same piece of information to three people five different times. We can take those pain points out, but I think it is still super important for people to understand what they're getting into because our job is a provider of liquidity. Briefly mention you kind of breeze by you said something, government intervention, let's elaborate on that a lit bit I mean, what do you think, we are heading into a campaign season, what can the government be doing here? Right. I mean I honestly would not like to comment on the political side of the equation but I know a lot of candidates are putting forward a lot of ideas. Some of them are good, some of them are not so good. Which ones do you think are good? I think the ability to make it easier to refinance your debt clearly. People know when interest rates go down, they refinance their mortgage. It's very well known, but if somebody is carrying 80, 90, $ 100, 000 worth of debt And they don't take the opportunity to refinance. Which could save them hundreds of dollars on a monthly basis. That's a little bit of a crime. Right. And you need to be able to do that. Right. On that side I think you know the big institutions and government can play a role to make it easy for people to do that. Because You have it on, on on both on the federal balance sheets and, you know, private student loan balance sheets as well. The other thing is, you know, how do you match what somebody is borrowing to whose point you know if you are going for an extra degree in this institution paying $ 70, 000 a year and education costs are coming down. On the other hand, you could do good the same degree in another institution which is more affordable to pay off when you graduate. You got to make those logical decisions in a seamless way directly about potential tax breaks or in something even beyond that .>> I am not sure. But the one thing we could do is employers What we are looking at is employers more and more would like to help in the payment of the student loans. And I think if the regulations make it easy for them to pay down, so for example, they give a matching contribution for one K, if they paid towards the student loan, and still a matching contribution were to happen. I think that's a big win because these people have to pay down their student loan debt. Those areas that I think good, I think I think that's I think that's true. I think on the, you know, on the housing side, it's, you know, one of the things that we and other liquidity providers have moved away from is simply expanding theI think that's a big win because these people have to pay down their student loan debt. Those areas that I think good, I think I think that's I think that's true. I think on the, you know, on the housing side, it's, you know, one of the things that we and other liquidity providers have moved away from is simply expanding the The credit box because if you, if you, if you increase access to credit without changing supply, you're just making the price go up. So, what we've been spending a lot of time on is thinking about where can we are there places where we can increase supply where it's needed and private capital is not flowing in the same way. And, there's a number of. You know, a number of areas that we're exploring and hopefully can have an impact. Yeah, question over here. Please tell us who you are. Yeah. Tim Baker definitive. We're in the data business. I'm thinking so fi sitting on some really interesting data. Have you thought about publishing some of the data that you're seeing of student loans coming out of universities and colleges And perhaps creating an index so this becomes much more in the public eye. So you're saying the privacy part of the data, is that the question? No I'm suggesting that you have a lot of data for your customers, is it an idea to publish that data at an aggregated level, perhaps by college? So the students going to those college will know roughly what kind of debt they're gonna come out with because that should be part of that consideration. Yeah, I mean, part of the things we do is we provide a lot of electronically available education tools that allow people to make decisions right on how to borrow how much to borrow and we are constantly working on that. So the data that we would have, although we don't we may not have the full spectrum of data, because we are very strong in certain segments and large loan sizes. And a large percentage of our people are graduate students, so I wouldn't call it full, but whatever is available on an aggregate basis, we would provide that in a palatable format that would be easy for people to say This is what the debt we have consumed and how long it'd take to pay down that debt and what's a favorable interest rate? Things like that. [ UNKNOWN ] we have another question here from Fortune Editor, Matt Heimer. Hi. Unfortunately that or Mannheimer was sending this seemed to have a lot of promise but has not panned out so far was the government's efforts to make loan forgiveness more to extend that to people who work in essentially teaching and other public service jobs and whose incomes are low, Do either of you see an avenue from maybe the private sector to handle that better than the government has since, as by all accounts, they've kind of botched it? That's a tricky subject, right? So I don't know how, I mean, there's a pros and cons I don't think we have a definitive view on loan forgiveness. I don't know if you have. Well, I think we've during the financial crisis, we were able to provide forbearance provide loan modifications in order to keep people in their homes rather than a foreclosure is expensive. It's devastating to the families That's the kind of thing we were able to do. But mortgage rates are six and a half percent .>> Right .>> Now the tools that you have at your disposal as rates get lower or fewer. But I do think that there's an when you said the private sector, I mean, you can look at it in a commercial way and say this is the right outcome for, Us and our shareholders and it's the right outcome for the home owner where the where the bar. We just have to find that balance. Where I was going in the beigining was that if there was a broader agreement on refinancing, a way of doing that would be through an assisted refinancing at a lower cost, which should benefit for tha consumer, that would be an easier path. In my opinion. Speaking of the [ UNKNOWN ], I mean, sofa, I don't believe you're eligible for sofa refinancing. And unless you have a credit score that's 680 or higher. I mean, if you don't, if you're below that, Albequrque you too, what are the prospects for you in terms of owning a hope? I mean how much more difficult is it if you have debt and a lower credit score. Well, I think that we look at the I miss the Four C's, it's Credit, Capacity, Character, and Collateral. And our ultimate protection in a lending decision is the value of the home. But we look at a person's, do they have reserves? What's their credit score? What has been their debt payment history? And that we turn that into a Fannie score. It's not something we'd wanna brand necessarily. But I think that you can make decisions. We do plenty of lending to people with less than a 680 FICO. And if you looked at our quarterly supplement you'd realize that's a lot of capital that's being deployed in that sector. We have an insurance company model so we have folks that have a lesser credit profile and folks that have a better credit profile but across that whole portfolio of risk, we're looking to produce a certain return and some risks balance out the others. On our side, we obviously, I mean in addition to what he said, We look at capacity to pay, right? But the broader thing is where we are looking forward to is how do we help that person get to a higher score? What are the things they have to do in their day to day payments, managing their existing debt that we get them. To a decent level so that they can refinance. So you don't simply wanna ignore them, you also want to see. You might offer tools. Do those exist yet? No, as we speak, we are building them. Okay, good to know. One thing we were also talking about too, it effects the housing picture and there's differeing opinions about The effect of Airbnb, and it's interesting to me because the users of Airbnb, the I guess renters or the users who people who rent their houses, overlap a lot with the student debt generation. But there's also effects on their ability to get mortgages and also the housing market. You had some interesting thoughts about this. I think you looked at some of the data. Well I think that there's some there's Some controversy around it because people look at the pool of, a lot of people don't know this, but you've got single family unoccupied houses that are 70 million. Then you've got apartment units that are 18 million, you've got 23 million single family rental units. It's bigger than the apartment market because people have a preference to live in a house. Some people feel that when an Airbnb host is has turned at home into a hotel effectively that is taking housing out of the potential long term rental stock or the ownership stock. So that is that is an issue that people are sensitive to. We on the other hand, view it in some cases as a positive because the one thing about Airbnb is that they have data so we can actually underwrite the rental stream of that home and that enables us to provide a better mortgage to The homeowner then helps them stay in that home. So there's two sides to it. But we view it as an opportunity for hosts to actually be able to afford who are owner- occupied to afford the homes that they live in. I mean it you mentioned a family story sounds like something not you're not so much considering but could you, I mean, you're taking in different types of data into account. Well we have an enormous amount of data where we've been gathering it for decades, and it was really more just what it's called because it's Fanny score, so, [ LAUGH ] It's not that we don't have a score, it's just what it's called. Yeah, well that's all the time we have. Thank you both so much for being here. Thank you. Thanks a lot. [ APPLAUSE ] [ BLANK_AUDIO ]

Brainstorm Finance 2019: Generation Debt

Finance

How new lenders and payment models help cash-strapped generations achieve their dreams.
