Joe Hendren

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Tuesday, July 26, 2005

Labour's 2005 tertiary policy

As part of their 2005 Tertiary Education Policy Labour have promised to remove all interest from Student loans from next year. This is a progressive step, but long overdue. In fact, the idea comes directly from the Alliance 1999 Education policy, which called for student loans to become immediately interest free, pending an inquiry into how to get rid of the rest of the debt.

National supporting blogger David Farrar is unhappy with the policy - I will deal with his criticisms point by point.

"1) You will be insane if as a student you do not take out a student loan. 100% of students will take loans out."

With fees and student living costs continuing to rise under National and Labour Governments attempting to portray the student loan scheme as "an option" simply is not credible. I desperately attempted to avoid a student loan while I was a student (1995-2000), as I regarded the whole system as immoral as well as representing a very bad financial arrangement. As costs increased every year it became more and more of a struggle to avoid the loan - if I had not taken out a loan in my final year I would not have been able to do honours. If I had been studying a few years later, I would now have 5 years of student loan to pay off. So much for the 'free market', if you want an education a student loan is now a 'forced sale'.

This is confirmed by the statistics. In 1994 64.4% of full time students took out a student loan. By 1999 this had risen to 73.7%*. For later figures I could only find (handy) the figures for all students, including part-time students who are more able to avoid loans through part-time employment. In 1994 39.6% of all students took out a student loan, rising to 47.9% by 1999, with around 60% of all students taking out a student loan in 2003.

"2) You will also be insane if you do not borrow the maximum amount. Even to stick it in the bank. Students are not stupid and like interest free money."

Which is a darn good reason to reintroduce a universal student allowance and limit student loan borrowings to just tuition fees and course costs. Better still, reintroduce free education.

It would be ridiculous for the Nats to run this kind of argument given that their initial student loan scheme allowed students to borrow thousands in big chunks at the start of term. Thankfully they stopped this and restricted living costs borrowings to every two weeks, but this did not stop the ideological idiots at the OCED expressing regret at this change.

"3) Likewise one would be insane to ever make a voluntary repayment. Given a choice of repaying a student loan or paying off a mortgage or even sticking money in a bank, there will be zero incentive to make voluntary repayments."

David is right that interest free loans will not encourage voluntary repayments. But this is not a crushing blow - there are many things that could be done to encourage repayments under an interest free system. For example the Government could introduce a $1 for $1 scheme (as Labour promised in 1996) or offer a partial or full writeoff of the interest accured on existing loans provided people made an arrangement with the IRD to make additional payments.

In any case I doubt many people are making voluntary repayments anyway, the only people I know making voluntary repayments are those currently living overseas.

While this policy is a step in the right direction students should not be blindly voting for Labour. Their slowness to make any real changes over 6 long years and other aspects of the policy indicate Labour still should not be trusted on tertiary education issues.

On the list line of the policy is a threat that should not be ignored. "Investigate the viability of a long-term savings scheme for parents saving for their children's education". By mentioning this they are testing the water for an idea that obviously has support among right wing Labour caucus members and United Future. At election meetings people have a chance to make it clear to Labour such a policy is yet another significant break with its social-democratic heritage and a very bad idea. Make sure those Labour MPs get the message - drop it!

Despite signaling some progressive moves today, student fees will continue to rise under Labour, they only promise a system of 'caps' (fees will be even higher under National). Labour want to keep the student loan scheme.

Those that want free education should vote elsewhere.

* Source: "Inquiry into Fees, loans, allowances and the overall resourcing of tertiary education", Report of the Education and Science Select Committee October 2001.

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At 10:11 am, Blogger David Farrar said...

You are wrong. Half of all repayments are voluntary. So repayments will drop in half.

Also only 55% of eligible students take out loans at present. The 45% who do not are going to diminish very quickly under this policy.

At 12:04 am, Blogger Joe Hendren said...

The 60% figure was a 2003 figure, which is linked above.

55% was only a projected figure, based on more part-time, part-year students becoming elligible for loans in 2004. Or does your 55% figure come from somewhere else?

If it can be assume that the most significant group more likely to take up loans under a no interest scenario are part time students, as the high % of full time students already using loans suggests (as I quoted above), then any attempt to calcuate how much total student debt is expected to rise using an average loan (of all students) would result in an exageration, given that part-time students do not qualify for the living costs component of a student loan.

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Things To Know And FAQ's About Loan Modification
These are common questions that are asked about Loan Modifications or Mortgage Modification
1. What Is A Loan Modification?
A Loan Modification is a negotiation between a lender and a borrower that results in the terms of the existing loan being restructured without refinancing. The rate and terms of your loan are restructured to fit your current financial situation.
2. How do you do It?
In these market conditions, the banks and lenders have been mandated by the Federal government to do everything they can to work out a payment plan with their borrowers. This is great for today's borrowers, especially for those who are running late on their payments or are having trouble making them on time. The banks and lenders would rather take less money and keep you in your home making a payment that you can afford, rather than go through the expense foreclosing on the home, hiring a listing agent, rehabilitating a home, and letting it sit empty on the market for months, only to lose thousands in the process. We currently work with almost every major lender and several small lenders and banks to secure a Loan Modification to help them help you. In many cases we actually have taught smaller banks and lenders how to go about completing a Loan Modification. Within 24 hours after receiving your package, our legal team will contact your lender to notify them that they will be negotiating a Loan Modification on your behalf. From then on, they will be working with you and your lender in order to find a solution to your mortgage problems.
3. Are lenders and banks really willing to negotiate?
Definitely! Lenders do not want to foreclose on your home, unless they have no other alternative. If you can present them with a realistic professional proposal that makes sense, they are very open and receptive to the Loan Modification process.
4. Who qualifies for a Loan Modification?
Anyone who can prove they are having a tough time. Especially those who are currently a few months behind, those with negative amortizing loans, those with loans that are about to adjust, those who are upside down on their loan and those who would rather keep their home than do a short sale.
Basically, the bigger the hardship you are having, the more negotiating power you have with your lender. Remember, they don't want to foreclose on you. They would rather keep you in your home and create a solution that will be affordable to you rather than go through the cost and expense of foreclosing on your property.
5. Why didn't my mortgage lender tell me about this?
Your mortgage lender is in the business of originating and/or servicing loans. Modification of existing loans and foreclosures are simply a result of being in the business they are in and, as such, they aren't a priority for the mortgage lender.
This program is not that costly and quite frankly, they are so busy dealing with other homeowners who are already going through tough times, that they don't have time to deal with your situation.
6. Why should I choose a Loan Modification?
If you are having trouble and behind on your payments you have several different options to fix your problem.
Reinstatement Plan - Where your lender will reinstate the original terms of your loan once you are caught up.
Repayment Plan - Where your lender will tack on an extra amount onto each payment for a set period of time.
Loan Modification - Where you negotiate a restructure of your current loan terms without
Loan Refinance - Refinancing may be an option if you have the equity and credit required.
Forbearance Agreement - Where your lender negotiates a repayment plan and may force you to list your home for sale.
Short Sale - You sell your property for less than you owe but your lender accepts it as payment in full.
Pre-Foreclosure Sale - You agree to sell your property before foreclosure takes place.
(requires equity).
Deed-in-Lieu of Foreclosure - You agree to sign your property back over to your bank and walk away.
Bankruptcy - You have to file bankruptcy to protect yourself, but if you miss one payment you will be right back in foreclosure.
A Loan Modification is a good solution if you cannot refinance, are behind on your payment or struggling to make your payments, have experienced a genuine hardship, and you want to stay in your home.
A Loan Modification is a permanent solution to your situation and is not meant to be used as a temporary stop to the foreclosure process.
7. Can I negotiate a Loan Modification myself?
In short, yes you can. You can contact your lender or your bank and see about going through the process of Loan Modification.
But, keep in mind that your bank has their best interest at heart. They neither have the time nor the inclination to hear about what troubles you might be experiencing. What usually occurs is that the bank will negotiate an agreement that helps them, but still leaves you with only a temporary solution.
This also takes many hours of communication and back and forth information exchanges in order to accomplish. It is not easy to complete on your own and the outcome may not be favorable to you. When you contact the bank, they will ask for a "hardship letter" from you. When they receive that letter, they will usually tell you that they will get back to you in about 8 weeks. By the time you get back with them, or if you are lucky enough to get a call from them, you're already in worse shape than when you first started negotiation.
8. How Come You Have More Success?
Our attorneys have been doing hundreds of Loan Modifications every month, working with virtually every bank and lender. They have open lines of communication with most lenders, which gives them the ability to negotiate directly with the person who is in charge of making a decision on your loan.
We also create a professional legal file on your behalf which includes all of your financial data such as income, assets, expenses, and unexpected intangible expenses. They couple this with a full property analysis and package this together in a file that makes it easy for the lender to read and understand, allowing for a more comprehensive and quicker response than you would get through other forms of negotiation.
9. How much does it cost?
The costs associated with an attorney based Loan Modification will vary depending on the value of your property, the type of loan, the lender, and the number of loans held against our property.
The modification cost usually comes close to equaling the same as about one month's mortgage payment. Since every Loan Modification is different, it requires a varied amount of negotiation. After your initial application is reviewed and if the attorneys accept your case, your Loan Modification representative can help determine what the exact cost of your Loan Modification will be.
Our primary goal is helping homeowners who want to keep their homes, find a beneficial solution for their situation. We will work with you to ensure that we can obtain an affordable solution for your Loan Modification needs.
10. What do you need from me to get started?
If our attorneys believe they can help you and accept your case, then we will need to submit a complete Loan Modification file that outlines your current financial situation.
They will contact you directly if other paperwork is required by the lender in order to negotiate a successful Loan Modification. They will also determine the current value of your property and put together a professional proposal for your lender.
11. What makes you different from other companies?
We are not a store front Loan Modification company, but a service provider helping you find the right legal representation needed to negotiate on your behalf. Loss mitigation departments at major banks and lenders give much more credence to modification proposals submitted by attorneys. Maybe it is fear of a lawsuit if they do not negotiate in good faith, but banks and lenders are much more responsive to attorneys than they would be with the actual homeowner or other third party negotiator.
12. Will I have to meet with my lender or deal with any of their paperwork?
Absolutely not. We take care of all the paperwork and all of the negotiating on your behalf.
13. How long does the process usually take?
It can be completed in as little as five days but usually takes from 5 - 12 weeks depending on the lender, type of loan, and individual situation.
14. What paperwork do I need to complete the process?
We provide you with a complete list of the documents the attorney will need in the file to complete the process and will help prepare the file. Of course, no legal representation can begin until counsel has been properly retained and you have given written authorization to proceed.
After we receive these items from you, we can begin your Loan Modification process.
Please contact us with any other questions or concerns. Remember that time is not on your side, so if you are having problems or struggling to keep up with rising mortgage payments, don't delay and call us immediately for a free and confidential consultation.
We want to help you keep your home, period.
15. By utilizing the Loan Modification option to bring an asset current, can the mortgagee include all fees and corporate advances?
Mortgagee Letter 00-05, page 21, paragraph F, "Allowable Provisions" states: "All or a portion of the PITI arrearage (principle, interest, Taxes and Insurance) may be capitalized to the mortgage balance. Foreclosure costs, late fees and other administrative expenses may not be capitalized.
16. Does the repayment plan have to be completed prior to completing the Loan Modification documents, or can the mortgagee attach the plan once the option has been completed?
It is a mortgagee decision as to when to complete the repayment plan for outstanding fees, costs and administrative expenses.
17. When utilizing a Loan Modification option, can a mortgagee capitalize an escrow advance for Homeowner's Association fees?
HUD Handbook 4330.1 REV-5, Paragraph 2-1, Section B, Escrow Obligations states:
Mortgagees must also escrow funds for those items which, if not paid, would create liens on the property positioned ahead of the FHA-insured mortgage.
18. Will HUD subordinate a Partial Claim, should a mortgagor subsequently default and qualify for a Loan Modification?
If a mortgagor subsequently defaults and qualifies for a Loan Modification, HUD will
subordinate the Partial Claim.
19. When an asset is modified is the homeowner eligible for the upfront premium refund at payoff of the loan?
It depends upon when the closing date occurred. For assets closed: After July 1, 1991 but before January 1, 2001, the 7-year unearned premium refund schedule shown in Mortgagee Letter 1994-1 remains in effect. On or after January 1, 2001 that are subsequently refinanced, the 5-year refund schedule shown in the attachment of Mortgagee Letter 2000-46 applies. On or after December 8, 2004, refunds of upfront MIP are eliminated except, when the mortgagor refinances to another FHA insured mortgage. The refund schedule attached to Mortgagee Letter 2005-03 has been modified to a 3-year period.
20. Can a mortgagee qualify an asset for the Loan Modification option when the mortgagor is unemployed, the spouse is employed, but the spouse name is not on the mortgage?
The mortgagee should consult with their legal counsel to determine the legality and validity of such a mortgage instrument.
21. I'm unemployed. My spouse does have a job, but her name isn't on the mortgage. Can I qualify for a Loan Modification?
This isn't a simple question that can be answered "yes" or "no". What typically happens in situations like this is that the mortgagee - your lender - will conduct a financial review of your household income and expenses to determine if the spouse's income is sufficient to meet the new modified mortgage payment, but insufficient to pay back the arrears. Once this process has been completed your lender will then get together with their legal counsel to determine if you're eligible for a Loan Modification, since the spouse is not on the original mortgage.
22. Are there any guarantees on the outcome of my Loan Modification?
It would be impossible for us to guarantee that some other entity (the lender) will do what we suggest that they do. We can say we have a VERY high success rate in obtaining
modifications for our past clients. If no modification is achieved, then you get some or all of your retainer back.
23. How does Loan Modification affect my credit?
If we are successful in obtaining a modification for you, the loan will, from that point forward, be reported as being paid as agreed. Assuming you make all of your payments on time, you may see your credit begin to get better over time. Obtaining a Loan Modification is the least damaging to your credit when compared with a short sale or a foreclosure.
24. Will having a Loan Modification affect my taxes?
We are not CPA's or enrolled agents and therefore can't offer you tax advice. We suggest
you check with your tax professional.
25. Do I have to be behind on my mortgage to qualify?
No. Although falling behind on your mortgage payments is an obvious indicator of financial hardship. Some clients are forced use reserves or credit cards to keep there mortgage payments current. In this situation it is only a matter of time before they fall behind. If an obvious fanatical hardship exists a modification may be possible although the payments are current.
26. Do I have to owe more than my house is worth to qualify?
No. The basic formula is to have less than 20% equity in your home. The less equity you have in your home, the more the investor stands to lose in a foreclosure situation. If you
have negative equity, that is even more incentive for your lender to work with us.
27. Can I have my 1st and 2nd mortgage combined?
Yes. In some cases where the first and seconded mortgage are with the same investor that investor may elect to combine both mortgages into one. Keep in mind if the investors are
different a combined mortgage outcome is VERY unlikely.
28. I'm about to or already filed for bankruptcy, is it too late?
No. If you are currently in bankruptcy and your property is not included in your bankruptcy and you meet all other qualifications you are eligible immediately. If your property is included in your bankruptcy you may be able to ask your bankruptcy attorney to remove it from the bankruptcy. Keep in mind your bankruptcy attorney may charge an additional fee for service to pull the property out of your bankruptcy.
29. I already have a sale date for my home, can I still save my home?
Yes. Traditionally we need a minimum of ten days prior to the sale date to be able to achieve a postponement of the sale. In some cases we are able to postpone the sale as late
as the day before..

At 1:38 pm, Anonymous Anonymous said...
We will work with you to develop a plan that best serve your particular needs. We will then negotiate with your lender to incorporate any changes that are needed to make the plan acceptable both to you and to your lender. Keeping you in your home is advantageous to the lender. Our job is to help them appreciate that advantage.

You may have been told that a short sale is your only course of action. What you may not have been told is that you may be dealing with the consequences of that action for many years.


We understand that you may be facing immediate deadlines and that any delay can mean a loss of meaningful options for relief.


Though we are happy to assist you with bankruptcy, should that be necessary, we believe it is an option that is avoidable more often than people realize.


Restructuring plans may include:

Adding delinquent payments and any foreclosure fees to the back end of the loan. This may include a permanent reduction in your interest rate.

Forbearance plans may be used to temporarily halt the foreclosure process for up to four years while you make payments to become current with the lender.


In our negotiations with your lender we are seeking to lower your payments, lower the interest rate, mitigate any negative impact on your credit rating, and keep your home from going into foreclosure. The lender benefits by continuing to receive payments on the mortgage, and saving on the costs that would be incurred in a foreclosure.


We will need to document your income and expenses for the last two years. Documentation will include pay stubbs, tax returns, bank statements and property tax bills, and all of the paperwork associated with your mortgage. We will need copies of your bills to document your financial situation and the factors that led to your falling behind. Please provide any other letters or notices that demonstrate that you faced a reduction in your income or higher than expected expenses.


We will ask you to prepare a draft letter that explains in your own words what factors have led to your need for a modification from the lender. It is important that you author this letter, and that it is not generic. Please include the details that bring to life the financial difficulties that you have faced. If you feel that you were not properly and fully informed regarding the terms of your loan, please describe the process by which you came to sign the loan papers and what your understanding of the terms of your loan was at that time.

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