Did Navient Cheat Student Loan Borrowers Out of Billions?

Federal regulators at the Consumer Financial Protection Bureau (CFPB) are suing Navient, the nation’s biggest student loan company, claiming that it cheated borrowers out of billions of dollars by giving them bad information, processing payments incorrectly, and failing to act on complaints. According to the CFPB’s lawsuit, Navient, along with two subsidiaries—loan servicer Navient Solutions and collection arm Pioneer Credit Recovery—failed to provide the most basic functions of adequate student loan servicing at every stage of repayment for both private and federal loans.

The CFPB also claims that Navient illegally cheated struggling borrowers out of their rights to lower repayments through federal programs, which caused them to pay much more than they had to for their loans. “For years, Navient failed consumers who counted on the company to help give them a fair chance to pay back their student loans,” said CFPB Director Richard Cordray in a statement. “At every stage of repayment, Navient chose to shortcut and deceive consumers to save on operating costs.”

The Bureau is seeking restitution for those affected, as well as money penalties. The lawsuit was accompanied by two others filed by the states of Washington and Illinois that alleged similar deceptive practices. Navient disputes the allegations in all three cases, calling the Bureau’s suit a politically motivated “midnight action” taken just before the arrival of a new administration. “We will vigorously defend against these false allegations,” it said in a statement.

The case returns attention to an issue raised during the presidential campaign, as student debt loads hit record levels. In October, a study by the Institute for College Access and Success (TICAS) found that class of 2015 graduates who took out loans in order to attend college–almost 7 in 10 college seniors–left school with an average burden of $30,100.

“This average is higher than ever before, and it represents a huge range of average debt loads at different schools, from $3,000 to more than $50,000,” said Lauren Asher, the President of the Institute for College Access and Success. “These growing numbers signify that in the United States, more and more people are having to borrow to get a college education.” The study found that the average debt load for members of the class of 2015 varied from state to state, from $18,873 in Utah to $36,101 in New Hampshire.

Student debt loads are not just being shouldered by young people, either. In December, a Government Accountability Office report found that tens of thousands of Baby Boomers were bogged down under the weight of old student debt, drawing from retirement or disability benefits to pay off loans taken out decades ago. Some had returned to school as older students, and others had co-signed loans for family members. Many defaulted on their loans, leading the government to cut the Social Security retirement or disability benefits of some 114,000 people over age 50. Some saw their monthly incomes drop to below the federal poverty line, according to the report.

Formerly part of Sallie Mae, Navient is one of several student loan servicers to come under scrutiny by regulators in several government agencies. It handles more than $300 billion in loans from 12 million borrowers, according to the CFPB, including 6 million under an arrangement with the Department of Education. It is not the first time it has drawn rebuke from federal authorities. In May 2015, the Justice Department announced that nearly 78,000 military service people would be reimbursed as part of the terms of a $60 million consent decree with Navient, after they were charged excess interest on student loans.

Citations

1. http://bit.ly/2iJvJru Christian Science Monitor
2. https://yhoo.it/2jBAIYl – Yahoo Financial News

Proctor & Gamble Feels the Lift from Upscale Brands

Procter & Gamble Co.’s (P&G) drive to sell more upscale skincare, grooming, and housecleaning products is beginning to show up in its bottom line. Sales of its premium brands helped lift earnings to $1.08 a share last quarter, excluding some items. Analysts had estimated $1.06, on average.

The results reflect a crusade by Chief Executive Officer David Taylor to get consumers to pay a bit more for the items in their bathroom cabinets and kitchen pantries. P&G’s premium SK-II skincare brand helped sales in the beauty division last quarter, and scent beads and Tide pods for high-efficiency washers boosted the homecare unit, giving the company a leg up on sellers of bargain health and cleaning products. “Over half of their product lineup is premium-oriented, so with an improving domestic economy, those products are doing well,” said Jack Russo, an analyst at Edward Jones & Co. Shares of P&G rose as much as 3.9% on the news, the most in almost three months. The stock gained 5.9% last year, trailing the 9.5% increase for the Standard & Poor’s 500 Index.

While total revenue slipped 0.3% to $16.9 billion, that topped analysts’ $16.8 billion average estimate. Organic sales—which exclude the effects of acquisitions, divestitures, and currency exchange-rate fluctuations—rose 2%, Cincinnati-based P&G said in a statement. Sales by that measure rose 3% in the beauty division. Organic sales gained 7% in health care, driven by innovation in oral-care products. Organic sales increased 1% in the grooming, fabric & home care, and baby, feminine & family care units.

The company reiterated its forecast that earnings per share, excluding some items, will gain at a mid-single-digit percentage this year. Organic sales may increase as much as 3%, up from a previous projection of 2%.

Taylor, who took over as P&G’s CEO in November 2015 after 35 years with the company, pledged to make the owner of Tide, Pampers, and Olay a more nimble and innovative competitor. Once known for churning out hit products like Swiffer mops, P&G has struggled to invent new blockbusters in recent years.

P&G has built significant scale by acquiring popular brands such as Gillette, Wella Professional, Iams, and Ambi Pur. Due to softening revenues and profits in the past few years, P&G is moving away from product portfolio expansion to a brand consolidation strategy. In 2015, P&G announced that it would divest 100 under-performing and non-core brands and will focus only on 70 brands in 10 business categories. These top 70 brands account for over 90% of P&G’s revenues and 95% of net profit. P&G has announced the sale of Duracell to Berkshire Hathaway. It also exited its China-based batteries joint venture. It announced the sale of its Camay and Zest soap brands to Unilever and in July 2015, P&G announced the mega sale of 43 beauty brands (including cosmetic brands, Cover Girl, Max Factor, and fragrance brands like Hugo Boss, Gucci, and Dolce & Gabbana, and other hair styling brands) to cosmetics company Coty Inc. in a $12.5 billion deal.

The challenges faced by P&G are not unique. New brands, particularly those with natural or organic ingredients, have attracted younger shoppers, a trend that prompted Unilever’s acquisition of Seventh Generation Inc. last year. Large consumer companies also are coping with higher ingredient costs, sluggish demand, and a stronger U.S. dollar according to Goldman Sachs Group Inc. analyst Jason English in a report downgrading the household products sector to cautious. English also lowered P&G to a sell rating this month.

Citations

1. http://bloom.bg/2jwoznw – Bloomberg
2. http://bit.ly/2kcZ2yV – RevenuesandProfits.com

The Good News Is . . .

• U.S. homebuilding rebounded more than expected in December, suggesting that the housing market contributed to economic growth in the fourth quarter. Housing starts jumped 11.3% to a seasonally adjusted annual rate of 1.23 million units last month, the Commerce Department reported. November’s starts were revised up to a 1.10 million-unit rate from the previously reported 1.09 million-unit pace. Economists polled by Reuters had forecast housing starts increasing to a 1.20 million-unit rate in December.
• Check Point Software Technologies Ltd., a global banking services firm, reported earnings of $1.46 per share, an increase of 21.6% over year-earlier earnings of $1.20 per share. The firm’s earnings topped the consensus estimate of analysts by $0.21. The company reported revenues of $487 million, an increase of 6.0%. Management attributed the results to triple digit growth across its focus areas of mobile and advanced threat prevention, and double digit growth in its security gateways business.
• Essilor of France said that it would merge with the Luxottica Group of Italy, owner of the Ray-Ban and Oakley brands, in a $49 billion deal that would create a giant in the eyewear industry. The combined company, to be known as EssilorLuxottica, would be the largest player in the eyewear market, manufacturing lenses for prescription glasses and sunglasses, as well as frames. It would have a presence online as well as in stores, with brands including Foster Grant, Oliver Peoples, Persol, LensCrafters, Pearle Vision, and Sunglass Hut. The new company would have more than 140,000 employees and estimated revenue of $16 billion. It comes at a time of significant growth and change in the global eyewear market, which had a value of about $121 billion last year, according to data from Euromonitor. Aging populations, greater access to health care, awareness of sun-related damage, and a rising middle class in emerging markets have led to a surge in sales in eyewear, particularly for branded frames.

Citations

1. http://bit.ly/1pRnqsp – US Dept. of Housing & Urban Development
2. http://cnb.cx/1gct3xa – CNBC
3. http://bit.ly/2iXUvPM – Check Point Software Technologies Ltd.
4. http://nyti.ms/2jL0OdM – NY Times Dealbook

Planning Tips

Tips for Investing in Turnkey Properties

Being a landlord in today’s housing market can be lucrative. Turnkey properties are an interesting alternative for people without the time or ability / interest to physically renovate or maintain a real estate investment. These properties can be an attractive option for those looking to diversify their assets without encountering the day-to-day hassles of being a landlord. However, investors pay a premium to acquire homes in move-in condition, so their potential returns are not as high as those for folks who flip older unit themselves. They also have to pay someone to manage the property, which further cuts into the bottom line. Even so, some of the more successful turnkey buyers can generate profits in excess of 10%. Below are some tips for investing in turnkey properties. Be sure to consult with your financial advisor to determine if this type of investment is compatible with your financial goals and risk profile.

What is a turnkey property? – Turnkey properties are homes that have already been rehabbed, usually by a specialized turnkey real estate company, before they are put on the market. In fact, there is often a renter in the home already when the sale closes. Typically, those same firms also offer property management services to the investor. That means they are the ones who get a call when the air conditioner breaks down, not you. Turnkey properties are proving especially popular with investors based in more expensive markets far from where the units are located, such as New York City. Unable to find affordable properties in their market, these folks can generate cash flow by purchasing homes in another part of the country.

Know your property – While turnkey homes usually require quite a bit less time than other types of real estate, you should not underestimate the amount of research you have to do. The biggest question mark, of course, is whether the property itself is a good value. Some novice investors get so enchanted by the term “turnkey” that they assume all homes with that label are fail-proof. Unfortunately, that is not the case. Experts say it is always a good idea to visit the house or apartment building in person before sealing a transaction, even if that means hopping on a plane. A home is a major purchase and investment, so it is crucial to know exactly what you are getting. Seeing the property in person also gives you a better sense of the neighborhood, which will have a significant impact on the property’s long-term marketability. For added security, it is always a good idea to get a professional home inspection as well. The rehab company might wow you with a dazzling kitchen and fully renovated bathrooms, but you want to make sure the less-conspicuous features of the home—the furnace and roof, for example—are in just as good shape.

Meet with your property manager – By definition, turnkey investors are putting a lot of faith in their property management firm. The last thing you want is a company that is slow to handle problems and cannot get new tenants to replace the ones who leave. That makes it imperative to do your homework on the management firm before going down the real estate investment path. Here are some of the questions you will want to ask:

• How much experience does the firm have?
• On average, how long does it take to find a new tenant for its properties?
• Does it provide monthly statements that can help you keep track of expenses and income?
• What fees does it charge?

A face-to-face meeting can go a long way, but it also does not hurt to get referrals from other clients of the firm who can point out its strengths and weaknesses.

Understand your ownership arrangement – Most companies will sell the home to you outright, but others create a limited liability company or corporation and ask to become a general partner in that LLC with you. One of the reasons they may want to stay on the title is to make things easier. If there is a repair to be made, they do not have to get your approval to fix it, spend money, etc. But this approach can also create a lot of unintended headaches. The simpler route, many advisors feel, is to create a separate expense account that the property manager can access as needed for minor repairs and preventative measures. You remain the sole name on the property title.

Know the pitfalls – While it may sound like a great way to bring in some extra revenue, it is important to realize that real estate investing is not for everyone. There is always the threat of some unforeseen calamity, from a sudden property tax hike to chronic maintenance issues to accidents (fire, falling trees, etc.). Buyers should have the nerve, not to mention the extra cash, to deal with these surprises. Experienced investors also say it is important to view turnkey properties as a long-term undertaking. Unlike stocks and other relatively liquid investments, homes can take a while to sell. So if owning a rental is not something you can commit to for years, it is probably not worth getting involved in the first place.

Citations

1. http://bit.ly/1LQGosU – US News & World Report
2. http://bit.ly/2kdZEs3 – The Motley Fool
3. http://bit.ly/2ke6e1M – Investopedia
4. http://bit.ly/2kcJevY – RealWeathNetwork.com
5. http://bit.ly/2jjxtnp – BiggerPockets.com