Now that the 2016 election season has concluded and we have for better or worse a new President Elect in Donald Trump I wanted to look at how his policies may change how consumers and borrowers may act when dealing with debt issues in the next 4 years and beyond.
I had the chance to discuss the topic of what to expect when dealing with debt in 2017 on 1150 AM New Urban Unlimited Radio Show in Seattle which you can listen too by clicking play on the player below:
What will happen to Dodd Frank and Consumer Financial Protection Bureau (CFPB)
Mr. Trump has stated that he intends to get rid of the Dodd Frank Act or at least parts of it that came in to law in 2010 under President Obama to avoid another mortgage crisis and to tighten lending restrictions and hold lenders and debt collectors accountable for their actions. If the Dodd Frank act is stricken from law then lenders will be free to open up lending too many potentially unqualified borrowers. Once these borrowers can’t pay there is the potential that the CFPB won’t be around to hold in check the big banks and debt collectors who have caused significant harm to consumers. Just this year the CFPB has settled large disputes with Wells Fargo for opening bank accounts that nobody wanted and large debt collectors such as Midland Funding and Portfolio Recovery for unscrupulous debt collection practices.
If the CFPB isn’t around, the lending and collection industry could become the wild west once again and since lending will most likely increase to drive the economy, so too will bankruptcy filings of consumers who never should have taken out debt in the first place.
What Will Happen to Consumer Dealing with Debt Associated with Loan Modification Programs?
At the end of 2016, the federal governments homes affordable modification program (HAMP) will come to an end. This program allowed borrowers to lower their overall home payments to 31% of their gross income if they met certain requirements. With that said the governments home affordable refinance program (HARP) will still be available for borrowers.
So what does this mean for borrowers looking to get a modification from their bank? The first thing I would advise is to submit your modification application prior to the end of the year because in 2017 and beyond it may be more difficult to obtain a modification. This is because the bank will rely on their own in house programs to determine whether they want to give you a loan modification or not. This means they run their own net present value analysis and if it makes sense to give you a modification they will, but if it makes more sense to foreclose on your property they may choose that option. Therefore in 2017 I would expect to see more borrowing from lenders to cover mortgage payments which may result in more bankruptcy filings and less loan modifications being approved.
What will happen to Consumers dealing with Student Loan Debt?
Student loan debt is a major issue in this country and it is a bubble waiting to burst. Currently there is $1.3 Trillion dollars of outstanding student loan debt in the United States. Presently there are few options for borrowers to rid themselves of this albatross as student loan debt in most cases is not dischargeable in bankruptcy. In the 9th circuit we look to the Brunner test to determine dischargeablilty for bankruptcy which is a tough standard to meet. The current government offers numerous options for federal student loan debt such as Income Based Repayment (IBR) or Pay as You Earn (PAYE) to help lower the cost of student loans on a monthly basis and forgive the debt after a number of years (10 years if working in public Service), (20-25 years for everybody else depending on the age of the loans). The problem with this scenario is that if everybody pays the minimums on their debt for the required period of time, they still most likely will have a large tax bill to pay on the forgiven debt.
President Elect Trump hasn’t stated exactly what he is going to do to combat the student loan crisis but he has stated that he may lower repayment periods to 15 years while required 12.5% percent of discretionary income be paid into the plans. He hasn’t laid out any options to deal with private student loans which will continue to be a burden on consumers. With that said if consumers have a lump sum available to settle their private student loans, these lenders or associated debt collectors may accept less than the full balance on these loans.
Another option when dealing with student loan debt that Trump could consider is to make all new student loans private a keep the government out of the student loan business altogether. In my opinion this option would be a disaster as private student loans with no federal repayment options would leave borrowers struggling to pay on their loans and could force them to hire private companies to refinance the loans they are given, which in the end would benefit the banks and not the consumers.
Where do Consumers Go from Here when Dealing with Debt?
While am glad that the election season is finally over, I am concerned that the new regime and government may fail to protect and help the very people who got them into office. Mr. Trump’s background as a businessman seem to favor the fact that he will open up lending, have less regulations for consumers, lenders and debt collectors, while not addressing the $1.3 trillion dollar student loan crisis which will only cause more borrowing from consumers who are unable to make their monthly payments to student loan lenders and need to borrow from banks just to make ends meet. Unfortunately I foresee that America will be once again built up on consumer borrowing that will only benefit the big banks which may lead up to another crash.
While I hope I am wrong and that the new policies will benefit Americans in the long term and not just the short term, I am skeptical. Only time will tell and anything written in this article are just to be taken as my opinion and nothing more.
If you live in Washington State and are dealing with debt and have questions about it, give Symmes Law Group a call at 206-682-7975 to speak to a debt relief attorney and learn about your options.