Two research papers about small servicers in mortgage lending and the experience of student loan borrowers in income-driven repayment (IDR) programs were issued by the Consumer Financial Protection (CFPB) Friday.
The paper on small services, the bureau said, found that smaller servicers, such as community banks and credit unions, play an “outsize role” in rural areas, that the loans those institutions service are less likely to be sold to Fannie Mae or Freddie Mac or to be government-backed. The report also documented that, during the financial crisis, the smaller services experienced lower delinquency rates.
The CFPB said its report found 74% of borrowers with mortgages at small servicers said having a branch or office nearby was important to them in how they chose their mortgage lender, compared to 44% at large servicers. It also found that delinquency rates on loans at servicers of all sizes increased substantially starting in 2008, but peak delinquency rates were much lower for small servicers than for large and mid-sized servicers; and smaller servicers have a greater share of mortgages in non-metro or completely rural counties.
With regard to IDR plans on student loans (designed by the federal government to reduce financial distress for borrowers by setting payments for federal student loans based on borrowers’ incomes and family sizes), the CFPB report describes how borrowers fare on the plans.
Among other things, the CFPB report details which types of student loan borrowers use IDR, how their delinquencies on student loans and other credit products evolve as they transition onto IDR and thereafter, and borrower experiences with the enrollment recertification process. The report found that IDR borrowers include both those who obtain only temporary payment relief as well as those who will enroll for multiple years, and both those struggling with high delinquency rates as well as relatively affluent borrowers with high balances.
“Income-driven repayment plans offer temporary relief for some borrowers and provide more sustained relief for others,” the report stated. “At the same time, a large share of borrowers continues to struggle while on an IDR plan, and many move in and out of forbearance.”