The rise of a few ‘superstar cities’ hobbles the job and housing markets
Long-standing trends in the American economy are now self-reinforcing and worsening income inequality while making job markets less mobile and housing markets more sharply divided between haves and have-nots.
Investors snap up stocks at fastest pace in 3 months
More than 18,000 students who attended a now-defunct for-profit college will have $168 million in private loan debt discharged.
The loan cancellation is part of a proposed deal between the Consumer Financial Protection Bureau, attorneys general of 43 states and the District of Columbia and Student CU Connect (or the CUSO), a company that held and managed private loans taken out by students at ITT Tech. The agreement comes as the court overseeing ITT’s bankruptcy approved a settlement between CUSO and ITT’s bankruptcy trustee.
In its complaint, the CFPB outlined a scheme by which ITT students were lured into taking on high-interest private student debt managed and held by the CUSO that both the company and the school knew they probably wouldn’t be able to repay. As part of the deal, the CUSO neither admitted nor denied most of the agency’s claims.
Richard Bernard, an attorney at Foley and Lardner, representing the CUSO, wrote in an emailed statement that the CUSO worked cooperatively with the government and “is gratified” that the settlements will benefit ITT students.
The CUSO “acted properly and in good faith in entering into and administering the student loan program,” Bernard wrote. “To the extent that ITT and its management engaged in any wrongful conduct, the CUSO and these other parties were victims of, not accessories to, that misconduct.”
The CFPB’s complaint mirrors allegations against private loan programs launched by other, now defunct for-profit colleges that often preyed on students in an attempt to lure them and the federal financial aid dollars that came with them to the school.
Key to the alleged scheme was pushing students who couldn’t afford to pay for school beyond what they could get in federal financial aid. In 2008, ITT launched a temporary credit program that students could use to fill the gap between what their student loans covered and the cost of tuition, according to the CFPB’s complaint. The program was essentially a no-interest loan that students were required to repay in a lump sum, roughly nine months after they enrolled in the school.
The complaint alleges that ITT’s financial aid staff rushed students through this process and provided them with little or incorrect information about the credit program. In many cases, that meant students didn’t know they’d taken on a loan, according to the complaint. The court documents allege that ITT also knew that students wouldn’t be able to repay the loan when it came due.
That same year, ITT started to build the CUSO loan program, according to the CFPB complaint, and in 2009, ITT financial aid representatives started pressuring students to refinance their temporary credits with the CUSO loan program. ITT representatives told the students that if they did not refinance, they would have to repay the credit and pay the next year’s tuition gap or leave the school — which most couldn’t afford to do, according to the court documents.
Students who had received a temporary credit were prequalified for the CUSO loan program, regardless of their credit history, court documents allege. Roughly 79% of the CUSO portfolio was made up of these students, according to the CFPB.
The loans were pushed on students even though both the CUSO and ITT knew many borrowers would be unable to repay them, according to court documents. For the roughly 46% of borrowers with credit scores under 600, the effective interest rate on the loans was 13.75% or 16.25%, according to the complaint.
Before beginning the loan program, models constructed by ITT and the CUSO projected that 30% of the debt would default, according to court documents. Among borrowers with a credit score below 600, the projected default rate was 58.9%. By 2011, ITT’s loan default analysis consultant projected a gross default rate of 61%. Despite that estimate, ITT and the CUSO continued the loan program, the complaint alleges.
The agreement, which still requires final approval by a judge, is the latest development in the fallout of ITT, which filed for bankruptcy in 2016. At the time, the school was the second for-profit college to collapse in as many years amid allegations of luring borrowers with inflated job placement and graduation rates. More for-profit college chains have shuttered under similar circumstances in the years since.
Though students with CUSO loans will certainly welcome the debt relief, many may still be burdened by their federal student debt. Amid pressure from activists in the wake of the collapse of Corinthian Colleges, the first major for-profit college chain to fall in 2015, the Obama administration streamlined a process borrowers could use to have their federal student loan debt wipe away if they felt they had been scammed by their schools.
Betsy DeVos’s Department of Education attempted unsuccessfully to re-write the rule governing this process, known as borrower defense. Meanwhile claims for debt cancellation, which must be approved by the Department, have languished at the agency.
An American born in 2007 can expect to blow out the candles on her 100th birthday cake — and maybe a few more after that.
Life expectancies have been expanding the last few decades, and a longer life means working longer to earn enough money to last those additional years, according to a recent report by the World Economic Forum, a Cologny-Geneva, Switzerland-based nonprofit that researched international financial affairs. Someone born in 1947 might have had a life expectancy of 85, but in 2007, that lifespan is about 103.
About half of the babies born in the U.S. in 2007 are predicted to live to 104, compared with the United Kingdom, where it’s 103, and Japan, where it’s 107, the report stated. General life expectancy has been increasing one year every five years since the middle of the last century.
More life is a blessing, but for some, it might seem like a curse. “You have to worry about getting unlucky and living to 100,” Richard Thaler, the 2017 economics Nobel Prize winner, said during a Brookings Institution event earlier this year. Thaler was referring to the fact that many Americans focus on saving for retirement, but not spending down those assets — or preserving them for the decades they may have in retirement.
Not only will lifespans extend, but the number of years someone will be healthy in that time will be longer as well. A healthy 60-year-old male who regularly exercises and has a healthy diet and body-mass index can expect an additional 13 healthy years of living — on top of what he was already going to have — compared with his unhealthy counterpart, according to the Goldenson Center for Actuarial Research.
There are numerous other challenges affecting future retirements: lack of access to pensions (in the U.S., the number of companies offering pensions in the private workforce have dwindled significantly); a long-term, low-growth environment for investment returns; low levels of financial literacy; a high degree of individuals’ responsibilities to manage their own investments (such as the actual investment choices in a 401(k) plan or knowing if and when to roll over accounts); and inadequate savings rates.
The workforce will have to adjust to keeping or finding roles for older workers, according to the WEF report, something that’s already happening in the U.S. The number of workers 65 and older tripled in the last 30 years, and workers 75 and older almost quadrupled during the same time, according to the Bureau of Labor Statistics. The rate of older workers is speeding up, while the participation rates for younger workers has declined or flattened between 1988 and 2018 (although, it’s important to note there are more younger workers in general than those 65 and older).
Not all older Americans will be able to stay in the workforce though, even if they’d like to work. Some may face age discrimination or bias, making it challenging to find a good job, and others may fall ill or become disabled, curtailing their potential earnings.
And then there’s the amount of money people are saving — or not saving. The U.S. has the widest retirement savings gap of the eight developed nations the WEF analyzed, and it’s only going to get worse, the report showed. The gap, which defines how much people have and should have, was $28 trillion in the U.S. in 2015, and that figure is expected to rise to $137 trillion by 2050. The country adds $3 trillion to the gap every year. The savings gap in other countries, like China and India, are also expected to swell, by 7% and 10%, respectively. The WEF noted a decent nest egg would require investing 10-15% of one’s salary (and some advisers suggest closer to 20%), but many individuals aren’t able to put away that much.
The arguments in favor of a “yes” answer are widely known, of course. Starting next year, the Social Security Administration will be paying out more in benefits than what is paid into the system. These yearly deficits will gradually eat away at the system’s large current reserves, and those reserves are projected to be completely depleted by 2034. At that point recipients will only receive around 80 cents per dollar they otherwise would be owed.
Making this already-dire situation even worse, according to some: The Social Security system’s large current reserves don’t really exist. That’s because, they argue, those reserves were deposited with the U.S. Treasury, where the money has long since been spent.
To continue reading, please subscribe.Already a Subscriber? Log in
As we get older, it becomes increasingly popular to profess being young at heart and say things like “60 is the new 30.” Who wouldn’t want to feel and act younger? Unfortunately, the latest trend in turning back the clock isn’t quite so enjoyable.
Research shows that student loan debt isn’t just for younger people anymore. According to the Consumer Financial Protection Bureau (CFPB), the number of Americans aged 60 and older with student loans ballooned from 700,000 to 2.8 million between 2005 and 2015. With an estimated $66.7 billion in debt outstanding in 2015, these older Americans represented the fastest-growing segment of the student loan market.
That’s not exactly how you want to feel younger as you approach retirement. It means that millions of Americans now carry a hefty burden that threatens their ability to enjoy financial freedom in their golden years.
Older Americans taking on more student debt
To continue reading, please subscribe.Already a Subscriber? Log in
A child’s wedding day can be one of a parent’s proudest moments, an occasion to mark with the perfect ceremony and reception. Whether parents plan to pay for their child’s wedding entirely, or just help out with flowers or the band, the expense of a wedding celebration can become so large that it eats into money that had been earmarked for retirement.
In recent years, the average cost of a wedding in the United States has reached $35,329, not including the honeymoon, according to wedding planning website, TheKnot. But this figure varies widely depending on where the happy couple decides to tie the knot — a wedding in Manhattan averages $78,500, for example, compared to $19,500 in Arkansas.
As social media has everyone looking to create picture-perfect, shareable moments, many couples are enhancing the experience with a destination wedding or personalized gifts for their guests. There also may be an element of keeping up with the Joneses, or wanting to mimic the glamour seen in celebrity weddings. All of this adds up.
To continue reading, please subscribe.Already a Subscriber? Log in
America has the widest retirement savings gap of these developed nations — and it’s only going to get worse: Americans born in 2007 are expected to live near or in their 100s, and yet they risk not having enough saved to last many of the years in their old age. The U.S. isn’t alone, either.
Elder abuse is frighteningly common — at home and in nursing facilities: Two studies show the vulnerability of seniors, and that not all cases of abuse or neglect in medical facilities are reported. There are signs to watch out for, whether it’s for you or a loved one.
What are you doing to make sure you’ll be able to keep working?: Many Americans may work past 65 years old, some because they want to and others because they need to. Regardless the reason, there are a few steps you may need to take now to ensure you can work in the future, should you choose.
To continue reading, please subscribe.Already a Subscriber? Log in
To cap it all off, mortgage rates have continually fallen throughout 2019 to date. Currently, the 30-year fixed-rate mortgage is averaging 3.82%, roughly a two-year low, according to Freddie Mac. So far this year, mortgage rates have only increased on a weekly basis six times.
Historically, that’s been a recipe for a home-buying frenzy. “We are in an extremely interest-rate-sensitive housing market,” said Daren Blomquist, vice president of market economics at Auction.com.
In the past, home buying activity has gone up when rates have gone down, and vice versa. “There’s a lot of hopefulness that cycle will repeat in 2019,” Blomquist said.
And yet, consumers haven’t shown much interest in buying homes these days. Last week, mortgage applications for home purchases only rose 10% from the previous week, despite mortgage rates being at a two-year low. And the week before that, mortgage applications for home purchases actually dropped by 2%, according to data from the Mortgage Bankers Association.
The most recent data for home sales isn’t much more positive. Pending home sales fell for the 16th consecutive month in April, according to data from the National Association of Realtors. Economists had predicted a 0.5% increase; instead sales dropped by a seasonally adjusted 1.5%.
So why haven’t home sales rebounded? Here’s what housing market experts had to say:
Move-up buyers are facing a ‘triple whammy’
In recent years, some have suggested that there could be a large swath of homeowners who were “rate-locked.” The argument goes that many people who already own their homes are sitting on extremely low interest rates — and the higher mortgage rates that were the norm throughout much of last year acted as a deterrent keeping them from shopping for a new house.
If that were broadly true, though, you would expect home sales to rev up more than they have. “Rates are clearly not the only factor people consider,” said Danielle Hale, chief economist at Realtor.com.
(Realtor.com is operated by News Corp NWSA, +0.00% subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a subsidiary of News Corp.)
‘A lot of the financial incentives that a move-up buyer would have had a couple years ago no longer exist.’
Interest rates are just one piece of the puzzle for move-up buyers, those who already own a home and are looking to buy a larger or otherwise more expensive property. While the pace of price appreciation has slowed, home prices are nevertheless at all-time highs across many housing markets nationwide, offsetting the savings a move-up buyer could expect thanks to today’s interest rates. (Not to mention that many of today’s homeowners who bought their homes after the housing crisis have even lower mortgage rates than what’s on offer today.)
Making affordability matters worse, inventory remains quite constrained except at the luxury end of the market. As a result, move-up buyers have few options of properties to move to and will face more competition for homes, which can raise prices.
And then there is the fallout from the recent changes to the tax code. Current homeowners are grandfathered into the previous mortgage interest deduction, which is higher than what consumers can get nowadays. Plus, would-be move-up buyers may be wary of higher property taxes, now that the deduction for state and local taxes has been capped.
“You’re facing a triple-whammy right now,” said Rick Sharga, a mortgage industry veteran and CEO of CJ Patrick Company, a real-estate and financial services consulting firm. “A lot of the financial incentives that a move-up buyer would have had a couple years ago no longer exist.”
In many ways, first-time home buyers stand to benefit most from today’s lower mortgage rates because of the real savings they represent.
Between May 2018 and May 2019, the median U.S. home listing price rose to $315,000 from $297,200, according to data from Realtor.com. But a homeowner who makes a 20% down payment could expect to spend nearly $45 less on monthly mortgage payments, for an annual savings of more than $500, thanks to today’s lower rates.
But lower-rates haven’t stirred up activity among existing homeowners. “If people aren’t moving up, that tier of housing they’re living in isn’t available to people who are starting out,” Sharga said.
Forecasts don’t provide much comfort
Real-estate buyers remain upbeat about what the rest of 2019 holds.
Throughout the year, there has been a substantial increase in investors purchasing homes at foreclosure auctions, Blomquist said. “These are typically folks who are going to flip homes,” he said. “And they are counting on the market to bounce back.”
Whether low interest rates will play a role remains to be seen though. Economists predict that the Federal Reserve will soon cut rates — mortgage rates follow the path of the 10-year U.S. Treasury note TMUBMUSD10Y, -0.38% — but that interest rate cut may already be baked into the mortgage rates currently on offer.
‘It’s really difficult to forecast where rates are going to go right now because there’s so much uncertainty.’
A lot also depends on the broader state of the economy and namely, whether the trade war will continue.
“It’s really difficult to forecast where rates are going to go right now because there’s so much uncertainty,” Hale said. “Anytime there’s a lot of uncertainty that just sets the market up for disappointment.”
The back story: For many, peanut butter is a beloved food going back to childhood, as in the proverbial PB&J sandwich. But who would think that peanut butter might be the “it” flavor among the craft-beer crowd?
Yes, brewers are incorporating the food into their offerings, often in tandem with chocolate and even jelly (or fruit) flavorings. Mother Earth Brew Co., a craft producer that was founded in California nine years ago, has found particular success with its Sin Tax peanut-butter beer.
The Mother Earth team admits it was inspired by another California brewer that concocted a peanut-butter cup porter. So it tried its own version, but in the form of an imperial stout, a higher-alcohol variation (8.1 % ABV in the case of Sin Tax) on the popular dark-colored stout style. Either way, the beer maker says it’s about playing into our love of peanut butter. It “is a very rich and somewhat decadent ingredient that reminds people of dessert, or even childhood, so there is a nostalgic factor at play,” says a company spokesman.
As to how the beer is made, Mother Earth won’t give away too many secrets. But the company says it uses a peanut-butter “derivative” (as opposed to actual peanut butter) and it claims the beer is thus safe to drink even for individuals with a peanut allergy.
The peanut-butter stout has emerged as one of the brewer’s most popular sips and is carried widely. (Mother Earth is distributed in 19 states, plus internationally.) In fact, it is often combined in a glass with another popular Mother Brew beer, Cali Creamin’ Vanilla Cream Ale. The result has been dubbed a “Cali-Tax.”
What we think about it: This is proof that craft brewers will try just about anything. And we’re all for experimentation — provided the idea works. In the case of Sin Tax, the peanut flavor is very subtle — more like a nutty sweetness than an actual explosion of peanut butter. That might make it a little disappointing to hard-core fans of the food, but we actually think it works in the beer’s favor and gives it a rounded taste that complements the overall richness of the stout style. We also detected a jelly note, but the brewer says that might have been wishful thinking on our part (we do love a good PB&J).
How to enjoy it: The beer does indeed pair perfectly with a PB&J, the brewer says. But it also goes well with chocolate desserts or a plate of barbecue, the Mother Earth team adds. Oh, and you can use it recipes, too — think cupcakes and brownies.