Many more students have defaulted on or failed to pay back their college loans than the U.S. government previously believed, the Wall Street Journal reported today. Last Friday, the Education Department released a memo saying that it had overstated student loan repayment rates at most colleges and trade schools and provided updated numbers. When the Wall Street Journal analyzed the new numbers, the data revealed that the Department previously had inflated the repayment rates for 99.8 percent of all colleges and trade schools in the country. The new analysis shows that at more than 1,000 colleges and trade schools, or about a quarter of the total, at least half the students had defaulted or failed to pay down at least $1 on their debt within seven years. The changes could have implications for federal policy. Some lawmakers have endorsed the idea of punishing colleges if enough students aren’t paying back the loans.
Analysis: The Mortgage Market’s $1 Trillion Pocket of Worry
Bonds backed by certain risky single-family mortgages topped $1 trillion for the first time in November, crossing that threshold amid rising warnings for one corner of the housing market, the Wall Street Journal reported today. These mortgages are insured by the Federal Housing Administration and typically go to borrowers with small down payments and lower credit scores. Banks have pulled back from issuing these types of loans and from packaging them into bonds sold to investors. The result: In the first three quarters of 2016, banks accounted for 9 percent of mortgage dollars originated by the FHA’s top 50 lenders, versus 62 percent for all of 2010, according to Inside Mortgage Finance. Nonbank lenders accounted for 80 percent of mortgage bonds backed by single-family FHA loans in July 2016 versus 9 percent the same month in 2010. That is worrying the Government National Mortgage Association, or Ginnie Mae, the government-owned corporation that guarantees the bonds backed by FHA loans. Ginnie Mae head Ted Tozer, who is leaving his position Friday, has said nonbank lenders may lack the financial wherewithal to withstand future stress in the housing market. In the worst-case scenario, problems could saddle taxpayers with losses.
Commentary: The Myth of the Medical Bankruptcy
One of the predictions that was made with great fanfare when Obamacare was passed was that our nation’s bankruptcy epidemic would finally come to an end, according to a Bloomberg commentary on Tuesday. Medical bills, however, did not singlehandedly account for more bankruptcies than anything else, according to the commentary. This is an exaggerated half-remembering of a series of studies, authored by (among others) Elizabeth Warren, that were themselves exorbitant exaggerations, according to the commentary. These authors have an aggressive tendency to employ any technique that ratchets the count of “medical bankruptcy” upward, while not using similar techniques that would tend to ratchet up other categories and diminish the number of bankruptcies counted as medical, and to present their results in misleading ways so as to obscure, for example, the fact that by their own accounting, the number of medical bankruptcies actually fell by hundreds of thousands between 2001 and 2007, according to the commentary. While medical bills likely contribute to or cause a significant number of bankruptcies and while Obamacare must have prevented some medical bankruptcies, the commentary explains that a lot of unrelated trends have whipsawed bankruptcy statistics around over the last decade.
Research: When Cities Are at the Financial Brink: The Case for "Intervention Bankruptcy"
Many local governments are on the verge of insolvency, including Atlantic City, N.J.; the Chicago Board of Education; and Hartford, Conn. The risk of insolvency for large cities is now higher than at any point since the federal government first passed a municipal bankruptcy law in the 1930s, according to a new report from the Manhattan Institute. To strengthen governments’ ability to address municipal insolvency, the report argues that federal bankruptcy and state intervention, which are often posed as alternative approaches, should be combined in an approach that the Manhattan Institute calls “intervention bankruptcy.” Crucially, state governments, whose consent is legally required for any locality to file for bankruptcy, should intervene at the outset and appoint a receiver before allowing a city or other local government entity to petition for bankruptcy in federal court, according to the report.
Commentary: Why Dodd-Frank Has Little to Fear from Constitutional Challenges
One of the ways that businesses have fought back against greater financial regulation since the financial crisis has been to claim that the new oversight threatens the bedrock principle of separation of powers, according to a commentary yesterday in the New York Times. These arguments have earned some sympathy from the federal judiciary. Courts in Denver and Washington, D.C., have recently declared some aspects of the 2010 Dodd-Frank Act to be unconstitutional on separation-of-powers grounds. But these declarations have been almost entirely empty of content, according to the commentary. The courts have fallen over themselves to assure everyone that the unconstitutional agency powers should continue to be exercised almost exactly as before. It is these hollow remedies, rather than the findings of liability, that are the most interesting aspects of these challenges.
Record Number of Small Business Owners Sold Their Companies in 2016
Sales of small businesses reached record levels in 2016 as a total of 7,842 closed transactions were reported last year, the Washington Post reported on Saturday. That is the highest annual total of small business sales since online business-for-sale marketplace BizBuySell first started tracking data in 2007, according to the company’s quarterly Insight Report published last week. Sixty-three percent of respondents to the survey also said that they experienced more deals in 2016 than in 2015. Many small businesses had a good year in 2016: The report found that businesses that were sold had grown both their revenues (5.2 percent) and cash flow (5.4 percent) over the prior year.
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New on ABI’s Bankruptcy Blog Exchange: To Cap or Not to Cap: Will the Mortgage Forgiveness Debt Relief Act Be Extended?
The Mortgage Forgiveness Debt Relief Act, which became federal law in 2007 to allow taxpayers to avoid income taxes on unpaid mortgage debt, including debt reduced through short sale, mortgage modification or foreclosure, had been extended through 2016, according to a recent blog post. However, it is unclear whether a Trump presidency or Republican-controlled Congress will seek to extend this homeowner protection.
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