The Nation's Financial Condition

[Farfromgeneva]

Weird mix: muni-bonds and privatized college housing.

“ NCCD-College Station Properties LLC failed to make a complete payment due July 1 for bonds issued to build the complex near the Texas A&M University campus in College Station, according to a regulatory filing.

The project, known as Park West, has struggled despite fast-growing enrollment at the school. While the complex boasts volleyball courts, three resort-style pools and a clubhouse, it is located in an area that’s far away from restaurants and entertainment venues.

An audit of the borrower by accounting firm Maxwell Locke & Ritter LLP last year said failure to refinance the debt or boost its revenue to meet the debt payments “could result in the company having to curtail or cease operations.”

A Texas conduit agency sold over $360 million of municipal bonds for the project on behalf of the company in 2015, and most of that is still outstanding, according to data compiled by Bloomberg. The sole member of the LLC is National Campus and Community Development Corp., a nonprofit that finances student housing projects.”

https://finance.yahoo.com/news/texas-lu ... 21758.html

Not that uncommon - this at least is a non profit borrowing entity, Wisconsin has a house finance agency that just rents its charter/shell out to projects even outside the state of WI.

https://www.nalhfa.org/assets/docs/Advo ... ity-Bo.pdf

[KI Dock Bar]

Quick question for you finance guys - will interest rates be coming back down in 3 years? In the spring of 2026? We have enough money in our 529 to cover the first 3 years but it appears we will have to borrow for year #4. They have offered $5500 unsubsidized loan at this point, Rather than start borrowing now, I am hoping the rates will be better in 3 years and we will borrow what we need then. Any advice is appreciated!

[Farfromgeneva]

Quick question for you finance guys - will interest rates be coming back down in 3 years? In the spring of 2026? We have enough money in our 529 to cover the first 3 years but it appears we will have to borrow for year #4. They have offered $5500 unsubsidized loan at this point, Rather than start borrowing now, I am hoping the rates will be better in 3 years and we will borrow what we need then. Any advice is appreciated!

The “market”, yield curve is inverted meaning lower in future years than today. Normally it’s positively sloping over time because typical risk of repayment is higher over longer periods. (Less extreme for the US govt than a rate curve for a junky company for example)

So the market has priced lower rates in 3yrs. Federal funds (overnight money) is described as 5.25% but it’s really a range of 5-5.25% as they control it by buying and selling money to increase/decrease the volume in the system it’s not like China where it’s whatever they say it is. That’s probably going to 5.75-6% before the fed reserve is done but that’s this year. Presumably the loan costs will inch up lockstep. They are however 20yr term loans with an avg life between 7-10yrs (prepayments make it shorter than 10) but then flatten out.

As far as being cheaper. The market can and has been wrong before. Lot of the smartest Treasury analysts I know think it’s mispriced today and that the curve will revert to it’s normally sloped shape by the further out periods in time/maturities rise in rate rather than the curve being inverted because the market thinks we hit a recession and the fed starts reducing rates. (Two types of yield curve steepener, bear steepener and bull steepener)

So all this being said and I hope this makes some sense, I need to learn to be a better teacher of what I’ve learned, the market implies lower rates in the future today but there’s real risk that rates will higher in a few years than today. Presuming this is floating rate (adjustable) it may not matter too much because the loan rate will be tied to the short term index rate (like UST or Fed Funds or SOFR) plus a spread is how loans are priced. If it’s fixed rate it would be off a 5-10yr US Treasury but I’m unfamiliar with fixed rate student loans as a govt product.

Is the question a matter of locking the rate today? If it’s floating rate debt then I would wait personally unless there’s a risk the loan won’t be available on similar structural terms. Plus if god forbid you’re kid decides to be an artist or enlist two years into college there wouldn’t be any unwind if one exists of the commitment to borrow*. Even if we flatten out 0.5% higher that’s not material for you but if inflation can get to 3-3.5% then you’ll see a 1-1.5% lower rate in 2-3yrs. That’s probably your range +0.75% - (maybe) [-] 2.00% but skewed towards flat to slightly higher next 2-3yrs.

*lot of the student debt problem is people who don’t graduate, I work with a private newer student lender that makes income based repayment loans which I love conceptually but they developed the product in 2019 off the backs of old Income Sharing Agreements which aren’t quite legal contracts and thus can’t be made to 4yr title IV students must coding boot camp type schools, but they aren’t even lending w/o a co signer below Jr yr matriculation and only Nursing and STEM majors for now to ensure early production is cleaner to develop data for the “new” product.

Hope this is helpful and not too much. If you’re 3/4 of the way there you’re better off than I am figuring fully funding two kids in a decade I’ll need between $500-$750k and they’ve got less than $100k set aside of sr for that but I have 9 more years to figure it out.

[youthathletics]

Quick question for you finance guys - will interest rates be coming back down in 3 years? In the spring of 2026? We have enough money in our 529 to cover the first 3 years but it appears we will have to borrow for year #4. They have offered $5500 unsubsidized loan at this point, Rather than start borrowing now, I am hoping the rates will be better in 3 years and we will borrow what we need then. Any advice is appreciated!

If this question is solely a concern for college tuition and you are only concerned about the final year.....you are sitting pretty. Not sure if you have already run the FAFSA and received your Financial Aide Notification offer from the school. But you still have 4 years (assuming they are entering school for the 23'/24' year) 3+ years of contributions while your child is attending school. And keep in mind, the school will also offer payment options, to ease stroking that fat check each semester.

Freshman year is typically the most expensive b/c they force you to live on campus and purchase all the goodies and top end meal plan. Do not overlook scholarships.....there are tons out there and quite easy to apply; you just need to look around. My line of work offered a couple, and we found out no one was applying for them.....received 10k each school from soph - senior year.

And telling your child they will be accruing debt that they will have to pay back is a very good thing IMO, it makes certain that they have skin in the game. Whether you want to cover that at the end is then entirely up to you and can be a graduation gift if the satisfy their end of the bargain.

Good Luck!

[KI Dock Bar]

Thanks for sharing your expertise! We got nothing from FAFSA (2 teachers, go figure) and JMU offered $5500 for 2023-24, $6500 for sophomore year, and $7500 for junior/senior year. We are investing $9600k/year ($400/month) right now in the 529 so that will diminish the amount we will need for the 4th year. Hopefully it will be 20k at the most, and hopefully the stock market will continue to be our friend. I tell every young parent how we have benefitted from our 529. The amount we have now is more than double what we invested along the way! Yes, Youth I agree with your strategy of having some skin in the game. If he comes out of college with 15-20k in debt he should be thankful, right?

[Farfromgeneva]

Thanks for sharing your expertise! We got nothing from FAFSA (2 teachers, go figure) and JMU offered $5500 for 2023-24, $6500 for sophomore year, and $7500 for junior/senior year. We are investing $9600k/year ($400/month) right now in the 529 so that will diminish the amount we will need for the 4th year. Hopefully it will be 20k at the most, and hopefully the stock market will continue to be our friend. I tell every young parent how we have benefitted from our 529. The amount we have now is more than double what we invested along the way! Yes, Youth I agree with your strategy of having some skin in the game. If he comes out of college with 15-20k in debt he should be thankful, right?

You’re in good shape. And great area. Used to go to Massanutten as my mother had this time share for years, kids learned young to ski there, and we’d go to Harrisonburg often for meals or whatnot. Love the entire region from basically front Royal down to Roanoke. Hope he spends time in the Shenandoah valley mountains outdoors and skyline drive. The topography is almost like Ireland to me.

[youthathletics]

Quick question for you finance guys - will interest rates be coming back down in 3 years? In the spring of 2026? We have enough money in our 529 to cover the first 3 years but it appears we will have to borrow for year #4. They have offered $5500 unsubsidized loan at this point, Rather than start borrowing now, I am hoping the rates will be better in 3 years and we will borrow what we need then. Any advice is appreciated!

If this question is solely a concern for college tuition and you are only concerned about the final year.....you are sitting pretty. Not sure if you have already run the FAFSA and received your Financial Aide Notification offer from the school. But you still have 4 years (assuming they are entering school for the 23'/24' year) 3+ years of contributions while your child is attending school. And keep in mind, the school will also offer payment options, to ease stroking that fat check each semester.

Freshman year is typically the most expensive b/c they force you to live on campus and purchase all the goodies and top end meal plan. Do not overlook scholarships.....there are tons out there and quite easy to apply; you just need to look around. My line of work offered a couple, and we found out no one was applying for them.....received 10k each school from soph - senior year.

And telling your child they will be accruing debt that they will have to pay back is a very good thing IMO, it makes certain that they have skin in the game. Whether you want to cover that at the end is then entirely up to you and can be a graduation gift if the satisfy their end of the bargain.

Good Luck!

Thanks for sharing your expertise! We got nothing from FAFSA (2 teachers, go figure) and JMU offered $5500 for 2023-24, $6500 for sophomore year, and $7500 for junior/senior year. We are investing $9600k/year ($400/month) right now in the 529 so that will diminish the amount we will need for the 4th year. Hopefully it will be 20k at the most, and hopefully the stock market will continue to be our friend. I tell every young parent how we have benefitted from our 529. The amount we have now is more than double what we invested along the way! Yes, Youth I agree with your strategy of having some skin in the game. If he comes out of college with 15-20k in debt he should be thankful, right?

Farfromgeneva is correct....you are sitting nicely.

If this is your first go at a kid in college, the moment you stroke that first check is the hardest, thereafter, it becomes far easier as you learn not much will change in your quality of life and your bank account. And as noted earlier, you'll continue to save over the next 3-4 years and the only real added expense you may want to consider, if not already accounted for, is transportation for them while away.

In any event....congratulations, JMU is a great school. That part of Va is really growing as more and more people head further south from Dulles, Manassas, Loudon County area.

[KI Dock Bar]

Geneva - much of what you shared is way over my head but thank you. I watch a lot of CNBC because over the years I have found the magic of the stock market. Steve Leisman commented yesterday that the yield curve was less inverted and somehow that was good. Half the time I don't know what those folks are talking about, I just try to follow the trends. The shows of Scott Wapner at 12:00 & 3:00 are my favorite. Josh Brown, Joe Terranova, Jim Lebenthal, Stephanie Link...I could go on forever. Malcolm Ethridge and Gregory Branch are two of my favorites. Tom Lee recently said the S & P could be over 4800 at the end of the year but I'm not buying it. I am hoping 2024 and beyond are good to those of us that love the growth stocks!

Youth - this is our first to go to college. Our daughter is 5 years older, she did not attend college so we transferred some of her 529 to my son's account to help pay for his catholic high school tuition. You can use up to $10k/year for education purposes prior to college as recent as about 6-7 years ago. It is the only reason we were able to make that happen for him.

[PizzaSnake]

Weird mix: muni-bonds and privatized college housing.

“ NCCD-College Station Properties LLC failed to make a complete payment due July 1 for bonds issued to build the complex near the Texas A&M University campus in College Station, according to a regulatory filing.

The project, known as Park West, has struggled despite fast-growing enrollment at the school. While the complex boasts volleyball courts, three resort-style pools and a clubhouse, it is located in an area that’s far away from restaurants and entertainment venues.

An audit of the borrower by accounting firm Maxwell Locke & Ritter LLP last year said failure to refinance the debt or boost its revenue to meet the debt payments “could result in the company having to curtail or cease operations.”

A Texas conduit agency sold over $360 million of municipal bonds for the project on behalf of the company in 2015, and most of that is still outstanding, according to data compiled by Bloomberg. The sole member of the LLC is National Campus and Community Development Corp., a nonprofit that finances student housing projects.”

https://finance.yahoo.com/news/texas-lu ... 21758.html

Not that uncommon - this at least is a non profit borrowing entity, Wisconsin has a house finance agency that just rents its charter/shell out to projects even outside the state of WI.

https://www.nalhfa.org/assets/docs/Advo ... ity-Bo.pdf

Everyday’s an education. Thanks.

[Farfromgeneva]

Geneva - much of what you shared is way over my head but thank you. I watch a lot of CNBC because over the years I have found the magic of the stock market. Steve Leisman commented yesterday that the yield curve was less inverted and somehow that was good. Half the time I don't know what those folks are talking about, I just try to follow the trends. The shows of Scott Wapner at 12:00 & 3:00 are my favorite. Josh Brown, Joe Terranova, Jim Lebenthal, Stephanie Link...I could go on forever. Malcolm Ethridge and Gregory Branch are two of my favorites. Tom Lee recently said the S & P could be over 4800 at the end of the year but I'm not buying it. I am hoping 2024 and beyond are good to those of us that love the growth stocks!

Youth - this is our first to go to college. Our daughter is 5 years older, she did not attend college so we transferred some of her 529 to my son's account to help pay for his catholic high school tuition. You can use up to $10k/year for education purposes prior to college as recent as about 6-7 years ago. It is the only reason we were able to make that happen for him.

Glad you are into your finances, just remember CNBC is about ratings and entertainment so you only get one perspective in that regard. Better than being blind as I see many are you their futures and you’re doing well as far as paying for your kids education goes.

This explains the term structure of interest rates if interested. https://www.investopedia.com/terms/t/termstructure.asp

[Farfromgeneva]

New paper I was alerted to that’s quite interesting

https://papers.ssrn.com/sol3/papers.cfm ... id=4396502

FinTech Lending with LowTech Pricing
Fisher College of Business Working Paper No. 2023-03-008
Charles A. Dice Center Working Paper No. 2023-08
52 Pages
Posted: 12 Apr 2023
Mark J. Johnson
Brigham Young University - Department of Finance

Itzhak Ben-David
Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Jason Lee
U.S. Securities and Exchange Commission

Vincent Yao
Georgia State University - J. Mack Robinson College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: April 11, 2023

Abstract
FinTech lending—known for using big data and advanced technologies—promised to break away from the traditional credit scoring and pricing models. Using a comprehensive dataset of FinTech personal loans, our study shows that loan rates continue to rely heavily on conventional credit scores, including 45% higher rates for nonprime borrowers. Other known default predictors are often neglected. Within each segment (prime/nonprime) loan rates are not very responsive to default risk, resulting in realized loan-level returns decreasing with risk. The pricing distortions result in substantial transfers from nonprime to prime borrowers and from low- to high-risk borrowers within segment.

Keywords: FinTech, Personal loans, Credit score, Nonprime borrowers, Market segmentation

[KI Dock Bar]

just remember CNBC is about ratings and entertainment so you only get one perspective in that regard.

Can you expound on this please? Thanks!

[Farfromgeneva]

just remember CNBC is about ratings and entertainment so you only get one perspective in that regard.

Can you expound on this please? Thanks!

It’s geared for retail finance/investing which is not pejorative but limiting even if one is a retail investor. I am too, just work on the other side. Retail investing is worse odd big picture than in a casino from a relative perspective of the institutional counter-parties. Part structural, size with higher spreads in smaller transactions like everything, plus regulatory capture, information asymmetry, etc.

Anyways CNBC is really feeding only the retail perspective and analysis more like an aggregator of that portion. Bloomberg I understand is dry but better though obviously the more you want to dig ultimately you’ll have to investigate other mediums. I like it well enough as to have it as background noise when I’m doing desktop work so don’t hate it just make sure to point out its limitations.

[PizzaSnake]

Nothing like good, old-fashioned bi-partisanship..,

“As soon as the CARES money was announced, we started seeing squawking on the dark web, criminal groups in China, Nigeria, Romania, and Russia — they see our systems are open,” Talcove says. He estimates that “the United States government is the single largest funder of cybersecurity fraud in the world.”

https://www.rollingstone.com/politics/p ... 84448/amp/

[NattyBohChamps04]

Nothing like good, old-fashioned bi-partisanship..,

“As soon as the CARES money was announced, we started seeing squawking on the dark web, criminal groups in China, Nigeria, Romania, and Russia — they see our systems are open,” Talcove says. He estimates that “the United States government is the single largest funder of cybersecurity fraud in the world.”

https://www.rollingstone.com/politics/p ... 84448/amp/

If only we could have seen it coming.

Trump removes watchdog tapped for $2T virus rescue oversight

“I’ll be the oversight,” Trump declared as lawmakers were finalizing the rescue plan.

If the IG and others had been in place, there would have still been a lot of scams. But...

[Farfromgeneva]

I’ve never been a fan of artificially constructed 30yr fixed rate mortgage with convexity risk due to open prepayment combined with the (“always taxpayer on the book even long before 2008”) GSEs but there is a good point made about the taxpayer paying for the change in rates. You want it in the FDICs Deposit Insurance Fund or you want it more directly in the form of reduced subsidies/higher costs to homeowner/consumers. Like a bad Re remic CMO (type of mortgage bond) you’re paying for the structure of something that’s ultimately going to break the band and become a pass through with less juice (spread to index) and less secondary liquidity while the I/O owner runs away with the alpha. Better off have the transfers be direct and with less structure than these silly indirect ways we do things that just add cost to everyone.

https://www.axios.com/2023/07/11/intere ... rica-chart

Chart: Why homeowners weren't crushed by the Fed's rate-hiking campaign

Emily Peck
Data: FRED; Chart: Axios Visuals
Most mortgage holders aren't feeling the pain of higher interest rates.

Why it matters: It's one reason the U.S. economy has so far proved resilient in the face of the Fed's aggressive rate-hiking campaign.

State of play: More than 60% of existing mortgage holders are sitting on rates below 4%, per a BlackKnight report out Monday.

Mortgage interest payments as a percentage of disposable income have remained relatively flat even as mortgage rates have soared, the St. Louis Fed noted in a recent blog post.
That's left homeowners in the U.S. fairly insulated from rate shock. Unless, of course, they need to sell their house.
Meanwhile, the 30-year mortgage is a uniquely American thing. In other countries, loans are shorter and homeowners are forced to frequently reprice at current market terms.

Most mortgages in the U.K. reprice every two years, so interest rates have a direct effect on discretionary income.
U.K. homeowners will be spending as much as 30% of their income on mortgage payments, up from about 20% previously, according to an estimate from Barclays CEO C.S. Venkatakrishnan.
The bottom line: Those golden handcuffs that are keeping homeowners from moving are likely buoying the U.S. economy.

[youthathletics]

Bankers are really just crooks : https://twitter.com/nytimes/status/1678 ... gr%5Etweet

[DocBarrister]

Good news for the President’s “Bidenomics” campaign strategy, as the CPI is now down to 3% year-over-year and core inflation is down to 4.8%.

https://finance.yahoo.com/news/june-cpi ... 48137.html

With a labor market (jobs creation market) that is still strong, the “soft landing” of the economy has been achieved.

Now it’s a question of whether the Federal Reserve will mess things up by raising interest rates too much.

DocBarrister

[MDlaxfan76]

https://www.cnbc.com/2023/07/12/inflati ... eases.html

Very, very good news.

Listened to some interesting commentary about what FED is likely to do, the importance of patience, but are they going to be?

On the other hand, Rick Santelli made some interesting comments about wage pressures next year because of the massive investments under the Infrastructure and CHIPs acts. Tremendous building projects, manufacturing and construction, and surrounding services...his concern was not enough workers trained to be able to do the tasks.

[Farfromgeneva]

https://www.cnbc.com/2023/07/12/inflati ... eases.html

Very, very good news.

Listened to some interesting commentary about what FED is likely to do, the importance of patience, but are they going to be?

On the other hand, Rick Santelli made some interesting comments about wage pressures next year because of the massive investments under the Infrastructure and CHIPs acts. Tremendous building projects, manufacturing and construction, and surrounding services...his concern was not enough workers trained to be able to do the tasks.

Depends on skill sets. I’ve talked to a lot of CFOs who jammed their capex budget and spending into Q1 & Q2 because their capex spending plans and ROI profile has changed such that they won’t be investing the next two years. It’s going to be a shift from software and related to other skill sets in need.