Delinquent and Didn’t Know It? The Mortgage Impact of Student Loans

I'm Leigh Brown. This is Crazy Shit in Real Estate. Today is a little bit weedy and wonky, but wildly important if you know anybody with student loan debt, because we've got some very important information with Brian Vaughn from Fairway Mortgage. So get your notebook and pencil, enjoy the conversation, and as always, I'll see you on the other side. Hello, Brian. How are you?

Hello, Leigh. Good. How are you?

Good. Thank you for coming on the show.

Thank you so much. Can you, can you hear me okay? We're all, all the, all the technological things are working correctly, except for my mouth, apparently.

I mean, except for the fact that technological is too many syllables, but it's a Friday that we're recording this. And so no judgment because I can hear you great and your background is blurred out. So I don't see whatever messes you have in your house.

Yeah, exactly. That's great.

So excited to have you on the show. And I'm grateful for a friend who had shared me your reel. I guess it was on Instagram or it was a TikTok, Instagram, whatever.

It was Instagram. Yep.

So why don't you start off by telling my audience, who is Brian Vaughn? What are you in and around real estate? Where are you located? Give them a little thumbnail sketch before we start talking about the really exciting world of money.

Yeah, totally. Yeah. So, so my name is Brian Vaughn. I am a co-manager of a mortgage branch of Fairway Mortgage in Burlington, Vermont. I have been with— oh my goodness, You did you do that on purpose?

It's actually my favorite water cup at the office. But when you said Fairway, I was like, oh, let me just do some branding.

Oh my God, that's amazing. Product placement. Thank you. Well, yeah. So Fairway. So Fairway Mortgage in Burlington, Vermont. And I mean, I guess if you're not familiar with Fairway, Fairway is a national mortgage company. We have branches in all 50 states. We're the only branch in the state of Vermont. But I've been with Fairway for 4, this is my 5th year and I've been in the mortgage industry for 6 years. Prior to that, I grew up in Connecticut and then spent some time in Iowa before moving to Vermont.

Woo!

Did you? Where? Oh wait, I think I heard that on a recent episode.

I lived in West Des Moines, but I traveled the entire state. Where did you live in Iowa?

I lived in Des Moines, but my in-laws live in West Des Moines. And so we moved there and stayed with them first and then we wound up buying a house in Des Moines, but.

Look, an Iowa connection for the Vermont and North Carolina conversation here.

That's right. That's right. And did I hear— did you— are you from Grapevine, Texas? Where are you from?

I lived in Grapevine for a short time.

Okay.

I'm actually from Concord, North Carolina, but I lived in Grapevine. I lived in West Des Moines. I've lived in Manhattan and Tallahassee. And here we are.

Got it. Got it. The only reason I asked that is because I was just down there for the Fairway annual meeting. They do it at the Gaylord Texan.

And I lived there before it was a Gaylord. It was Slightly older than you are, but there was just a tiny town and it was super cute. And now it's of course mega suburbia.

Yeah, totally. Yeah. Cool.

Okay. So I'm so glad to have your expertise here because my audience is a mix of real estate people and mortgage people and then regular people who are just like, what's the real scoop on real estate? And of course the real that was shared with me, I should have figured out how to add the video here, but as a middle-aged mom, I don't know how to do all the technology things. So I'll link to his social accounts in the show notes, y'all. You can go see the reel that made Brian come on the show. But I want you to talk a little bit about what you're sharing and some of this very timely information that people need to be aware of. So just dig in.

Totally. Yeah, 100%. So the reel that I shared was about student loans and what's going on with student loans right now. And so a little bit of backstory, Most people probably know that during the pandemic, student loans were placed into automatic deferment. So, you know, in 2020, all student loans were put on pause. You didn't have to make payments. And that, that wound up going on for what was about 3.5 years. And then this is the part that a lot of people don't— I actually didn't know this until I just heard about this a couple months ago. September 2023 to September 2024, there was this on-ramp period. So, hey, payments are going to resume. But we're going to give you a break, right? If it's hard to make the payments, if you miss a couple, we're not going to hold it against you. You're not going to get late fees and late payments aren't going to get reported to the credit bureaus during that time period. That ended September 2024. And so now since then, all of these payments are starting to kick back in. Now, in theory, if somebody is getting this information and they're aware of the fact that these payments are kicking back in, Okay, you obviously have to figure out how you're going to make those payments because I think maybe a lot of people have gotten used to not making those payments over the last 4 years, but you at least would know that they're coming and maybe have time to put into, put a different plan into effect or defer them longer depending on your situation. But what's been happening is that people have not been getting the notifications from student loan servicers that these are going back into it. Effect. Now, there's probably a lot of different reasons why that would be, but one of the things we're hearing a lot is that, you know, maybe the student loan servicer changed, right? The loan gets sold a couple different times during this whole time period. And/or the person who has the student loans moves to a couple different addresses, or their email address is outdated, or their phone number is outdated, or whatever. And so there's a lot of anecdotal evidence that maybe the services are trying to reach out, but they're doing it to outdated information. And so the only way that people find out that they're delinquent on these payments and that these payments have even resumed again is by notifications from credit reporting agencies. You know, people are on CreditWise or Credit Karma, or they have Experian set up or something, and all of a sudden they get notified that they have this late payment. As of the end of last year, 9.7 million student loan borrowers were delinquent on their payments. That's about 15—

9.7 million are delinquent?

15% of the total student loans that are out there. Yeah. Yep. $250 billion worth of student loan debt is delinquent right now.

All right. So how many of them find out they're delinquent when they come see you, Brian, and they say, I want to buy my first house. And then you do a credit pull and you're like, hmm, totally. What does a delinquent student loan debt do to their credit score? How big of a hit are we talking?

Yeah. So once you get to 90 days late in particular, you are seeing massive declines in your credit score. I mean, these are like the average is like over 80 points decline. But you're, you're typically seeing like, especially if you have good credit, the declines are worse. I was just looking at a graph that was like, if you have top-tier credit, the average is like 170 points decline.

170 points?

Yeah.

Holy crap.

Totally.

How do you dig out of that hole then? So, all right, so let's just start with the worst-case scenario. Somebody's watching or listening to this and then they went and checked and said, I'm that person. I had no idea because I'm over here trucking along just fine.

Totally.

How do you recover from that? What do you do?

Well, it's, this is also kind of fresh that this is still a very developing thing. So I think we don't totally know what all the options might be. If student loan servicers are going to say, I don't know, cut people a little bit of a break because this is happening in such a widespread manner. What I would say is number one, very first thing, contact the student loan servicer, make sure that you are set up, you, you have a payment plan in process. If you have to put things back in deferment or forbearance, do that. And then begin the conversation. Hey, I was never notified that these went back into effect. What can we do to get this removed from my credit history, my credit score, and see what the options might be? I suspect that's going to vary depending on the student loan servicer. And again, it's a changing environment right now. I think that beyond that, then it's going to be credit repair work, which is just make sure those payments get made on time and then start doing things that can improve your credit overall, like keep your credit usage down, make sure that you have credit history. Don't let old credit cards expire or pay them off and close them because your credit history is important. Just pay them down, but keep them open. That kind of stuff is what you can do to boost your score over time.

So would your advice be to anybody out there who has student loan debt that they call their servicer and make sure that there's no negative things going on in their account?

100%. Almost all these stories that we're hearing are people who had no idea that their, their payments have gone back into effect. I made that reel that you saw. Because internally at Fairway, there was just an email thread that went through across the whole company. I mean, across thousands of loan officers that are just sharing internally screenshots of credit reports. They're like, hey, we did a soft credit check a week ago. We just pulled this hard check. Look what's showing, right? Their score dropped by 150 points. We got to get this information out there. So people are taking it upon themselves to be proactive in checking in because the story we're hearing over and over again is that they just didn't know. Until we pulled this report for them.

So when you're counseling people on their mortgage and their credit scores, where do you tell them to go to get their actual credit check without having a hard pull from a mortgage company? Is it best to— is it that freecreditreport.com or annualcreditreport.com? One of them is for real and one of them charges. What's the difference? Do you know?

Yeah, freecreditreport.com, I believe, is the one that you can go to annually and you can get that free report sent out to you. And you are entitled per law to be getting one free report annual, annually, that is a complete credit report. That's the best thing to do on a regular basis because it is just going to give you the most accurate information about where your credit or your total credit history is at, at the moment. But in the meantime, the, the services that monitor your credit have gotten pretty good. Like, they update pretty quickly, almost in real— not quite real time, but almost in real time. So if you go to something like Credit Karma or CreditWise and just do the credit the credit information piece of it. Um, that's a good place to do it. Uh, and also a lot of times credit card companies now, within your own, like, the portal through your app on your phone, you can typically go through and, and get the same kind of service, but they'll report it directly through that. And it all provides the same info. It's not going to be as accurate as getting a complete credit report, but it's going to give you a solid ballpark of what your credit score is, probably within, you know, 10, 20 points, and what your trade lines are. And again, like I said, get updated pretty, pretty quickly within a week or two of something of activity happening on your credit lines.

So that means if you're in real estate, y'all, you need to be sharing this episode with your buyers and saying, hey, whether you're buying this month or in 5 years, because you're planning ahead, Go ahead and start looking to make sure you didn't accidentally get delinquent. Because I mean, to your point, Brian, I think people just got out of the habit of making payments on their student loans. And it's not like they were necessarily trying to be negligent and forget the loan. They just took those dollars and put them somewhere else and didn't think about it again, because we're definitely people who live in the moment in today's society. We're looking for a fast, convenient solution. And when We're told we don't have to make payments. People just move right on and start spending it on something else. So you've, you've gotta reel it in. So I guess if we can check it annually for free, it should be your birthday present to yourself is to pull your credit. That's maybe not the best thing for everybody to do, but you could remember it once a year, birthday month, check your credit. So if you're in real estate and you're listening to this podcast or watching it and thinking, man, I need some more Leigh Thomas Brown answers in my life. Well, guess what, friends? I have a new program that is launching right now called Answers.RealEstate, where I will give you every bit of insight I have to help you grow your real estate business, help you better respond to consumers to provide a more excellent real estate experience, so that the next time you land on crazy shit in real estate, you'll have a better solution to whatever you ran into. Answers.RealEstate, there are monthly plans available. You will love it. Get your coaching, sign up with me today. Oof. This is kind of startling. So on a, on a different angle on student loan debt, what are your thoughts about student loans coming out of the Department of Education and going into a, a different financial sector of the government? Do you think that's gonna have an impact on the way that the mortgages calculate student debt on the, the burden that it's causing to home buyers? Have y'all had any conversations about that at Fairway? Because no.

Yeah, no, totally. Yeah. Not, not, not yet. Because again, that's such new info, but yeah, 100%, it could have an impact on how things are calculated. I mean, so like for example, right now, let's say somebody has their student loans in deferment. And so what happens when that's the case is you pull a credit report, it's going to show a $0 payment on that credit report for that student loan. This is happening. I mean, this is for everybody during the pandemic. So this was a very common thing to experience. Well, when that happens, you know, Fannie Mae and Freddie Mac, the two conventional loan agencies, they each have their own separate guidance on then how you need to calculate what the monthly payment is for qualifying purposes for a mortgage on that debt. It's different between the two, but it was either 1% of the total balance or half a percent of the total balance of the student loans there. Again, if there was a $0 payment reporting on the credit report. That's guidance directly from the loan agencies in their current state. Now, if something were to change about either where student loans are and/or those conversations about what's going to happen with those two loan agencies, that guidance could get totally updated to reflect something completely different. What that would be, that's anybody's guess.

So where do you think is the best resource for mortgage officers to stay up to speed on what is a rapidly changing environment? Because I do think it's time to look at Fannie and Freddie because those conservatorships were not designed to be big buckets of money. I think there is going to be some reform involved. So where does a loan officer go for good information, especially if they're not really good at economic policy and how the big numbers work? Is it their brand? Is it HousingWire? Where do you go for information?

Yeah, honestly, I'm spoiled because internally at Fairway, we always have this in this thread going. So that's usually the first place that I'm getting a lot of my information. Because people are so quick to just share articles and, and get things out there. So, so join Fairway, number one is my plug there. But barring that, yeah, I mean, I've also just set up on my phone, like I have an iPhone. If you go into your news app, you can just like select the topics that you want to be notified about. So just have set up like national mortgage news, real estate news, whatever. And then once a day I can click in there and scroll through the headlines. And if there's something that I'm like, oh, that's relevant.— that's where I get that info. And then from there, I can certainly go like look up more articles and maybe better articles than what show up on there. But that's a good starting point.

Well, and if you're a real estate agent who's watching this, obviously talk to your local preferred lenders. But if they're not watching the macro environment of the economy as it relates to the mortgage stuff, you better have somebody who is because we are in a wildly changing environment right now. But it's going to impact homebuyers and whether it's good, bad, or indifferent. When it has an impact, you have to know about it. So the last thing I want to ask you about is actually totally unexpected for you. But hey, you're stuck on the show now. There was a guideline coming down in March that was going to take medical debt out of the calculation for debt-to-income. That got pushed off till June. What is Fairway doing internally to prepare for that? Because as an agent, I am so super excited about the idea of medical debt that not count against your situation so you can buy a house. That's going to free up so many of my buyers who totally have just been burdened by the system. So what are you hearing about that and what should we be preparing for on that front?

Yeah, so, so mostly it's just like be prepared, right? It's kind of the general, the general advice, which is just knowing it's coming, right? Being aware of when this is happening and when right now if we're doing credit checks for folks and we are seeing medical debt show up on those credit reports, it's just making a note. That like, if that is impacting their eligibility right now and to the point where they can't get to where they want to be, well, we need to make a note to follow up with them come June to make sure that this is going to be reflected, assuming it doesn't get pushed back again. But it's really just being cognizant of the fact that this is something that's coming so that you can relevantly follow up and make sure that you're not leaving people hanging who, yeah, 3 months from now, um, could be looking at a completely different Picture. Now it's also knowing that like, okay, it's June. Does it take time? Does it take another cycle for the credit bureaus to update all the info to reflect the credit scores? So a little dance there, but fortunately, like you, we can do like soft credit checks as like a starting point to see where things are in terms of general reporting so that then we can confirm that changes have been made and then flip to maybe a hard credit check after we confirm that that's actually being reported the way that it needs to be for eligibility purposes.

Long story short, every viewer and listener should know that that rule change is coming. And right now we've been told June, but you should be aware of it, which means if you're in real estate and you have buyer prospects who are saddled with medical debt, you need to make sure your lender knows to keep an eye on them. And you need to make sure that your preferred lender has a system in place like Brian does to say, this is a file I need to revisit when the rule changes. So that somebody can have a chance at homeownership and not be stuck renting forever. All right. So Brian, the last thing I want to ask you, since we've been in a very nerdy, weedy, wonky territory here, but it's really impactful stuff for buyers and sellers and agents to make sure people are educated.

Yeah.

The premise of the whole show is the crazy shit in real estate. It's a little crazy to me when we've got debt that hangs out there and then winds up being a hangman's noose on people and they didn't know what was happening. But in your personal life, what's the craziest thing you've ever encountered in the course of conducting professional real estate services?

Well, you know what, I'll, I'll share one actually. I'm gonna, I'm gonna do, uh, it's gonna kill two birds with one stone here because there's another piece of the student loan story that I do want to share with folks cuz it's like a little bit more granular, but it also is related to a crazy story that literally just happened like a couple of weeks ago. So had a client, had a client come in and they're trying to, you know, buy a home before they sell their current one, right? Kind of a classic situation. And it was like, man, how do we make this work? Is there a way that we can figure out how to get this to work for them? And kind of reviewing all the different options. And they were like, we look at all the numbers and it's like, they're just over on the debt-to-income when we are accounting for all, all of the, the, the debts. But we start talking about student loans and had this person had some student loans that were reporting as in deferment on the credit report. When we spoke about it, they mentioned, well, yeah, so I have applied for the SAVE plan and I'm just waiting for my student loan servicer to process that. That is a Biden-era plan that was an income-based repayment plan that, but it was going to calculate like your, your total gross income adjusted in a different way. And so it was going to overall kind of reduce people's burdens, monthly payment burdens overall. And so They had applied for this, but then that got tied up in court in February. So that, that plan overall was kind of on hold. So he said, but this is where I think like my estimated monthly payment is going to be once this goes into effect. He said, okay, great. If I use that payment, it makes the whole thing work. But here's the deal, guys. I have to be able to use that payment. If it goes, if we go under contract and we then find out that not approved or it's a different payment or something. That could, it could change this whole thing. Well, they, they make an offer, they go under contract, goes back to the servicer, and they explain at that time, hey, because of the court order, we're actually not processing any of these applications. So literally, we're not even going to do anything with them. But also, you can't apply for any other programs until this gets settled. So basically they were in purgatory. Exactly. And so now this pushes us back to that calculation I was mentioning previously where you got to use, you know, a percentage of the total balance of the loans. And now we're in a position where this doesn't work again. So now we're back to the drawing board. We're scrambling, finding all the different options, right? We're laying out— there's bridge loan options. There's a couple different like bridge loan types. There's co-signing for certain folks. It's all these things. We're laying out all these options. I then get a follow-up email like the next Monday. Hey, actually, I just took a new job and this should solve the whole thing. And what you're doing right now, you know, for folks who are listening to this, Leigh's covered her face and eyes because most of the folks in the industry will know that that is usually not a good piece of news. But this is the crazy part. This is the crazy shit in real estate part, Leigh. This job fixes everything. It is enough money and it is a pay type that totally makes the whole thing work. So we're like, okay, so all of these things we just laid on the table here, we're just gonna swipe the whole desk, throw all that on the floor. Uh, this just functions as a totally normal transaction now for you guys.

Oh, yay. They didn't lose the house.

They didn't lose the house. No, they're like, they're in good shape. They'll be there. They're totally fine. But, uh, That was nuts. And I think is the only example I can think of where somebody is under contract and they told me that they're changing jobs and it didn't create problems.

Just for the record, y'all, we're not talking about a promotion. So if you are work level 8 and you go to work level 9 at the same company, that's a good thing. But if you are changing professions altogether and you said, I'm leaving my 9 to 5 and I'm going into real estate, that is not helpful. For your prospects getting a mortgage until you've stayed established in that new job for a couple of years. So just FYI, before you make big life changes while you're buying houses, talk to your lender and talk to your realtor because we might tell you to just hang tight, just for a short amount of time. Just be patient, little grasshopper patient, and then make your changes 30 days from now.

Yeah, exactly. Exactly.

All right. So Brian, if somebody wants to reach out to you to find out about home loans or student loans, or they want to reach out to a lender, maybe it's a realtor in Vermont who needs a great local contact, what is the best way for them to find Brian Vaughn?

You should go to my Instagram, which is Brian Vaughn Mortgages. That's my handle. That's the best place. All my other contact info is there, but, uh, you can also message me directly on that platform.

And he does respond. That's how I got him on the show. And by the way, always follow people with really good, helpful content that is not about themselves, but it's about your best interest. And Brian, that's what I appreciate about your content. You're trying to make other people more successful. So thank you for what you're doing to help your dream along its path.

Thanks for sharing. I appreciate it. Thanks for having me.

All right, guys, say something nice about Brian in the comments. Make sure you hit the bell to subscribe and come back and see us next time. By the way, friends, don't miss my brand new coaching program at Answers.RealEstate, where you can have access to Leigh Thomas Brown, submit your questions, have them answered, meet like-minded professionals, have an entire library to help you build your business no matter what happens in the market. Get signed up today. I promise you'll be glad you did. So if you found value in this episode, please like and subscribe to this channel. Turn on the bell. And catch another amazing episode by clicking above. Crazy Shit in Real Estate is also available on all of your normal podcast apps. So if that's where you like to hang out, go find me, click subscribe, and most importantly, leave me a review that says you think I'm awesome, my guests are awesome, or this content is just exactly what you were looking for. And then by the way, if there's something you need, you want to learn about something, You can comment below anytime. You can also send me a direct message if you need to remain anonymous. No judgment. But anyway, I'll only judge if you forget to subscribe and click. I'll see you next time.