Henry Yandrasits thought he did everything right to make the biggest purchase of his life.
A Hastings couple can’t get a mortgage. Is the Supreme Court to blame?
The Twin Cities couple says a fight over a Biden administration student loan repayment plan is preventing them from buying their first home.
The Minnesota Star Tribune
December 19, 2024 at 8:59PM
A master’s degree from Gallaudet University led to a successful career as a sign language interpreter. He has excellent credit, he said, and no credit card debt. And though he took out hefty federal loans to finance his education, he said he never missed a payment on the roughly $86,000 in student debt he’s incurred.
So Yandrasits and his partner, Sadi Dudley, were pleased when they got preapproved in April for a $300,000 mortgage to finance their first home. But when the couple told their loan officer in early December that they wanted to make an offer on a three-bedroom house in Hastings listed under budget at $294,000, their path to homeownership came to an abrupt halt.
Their monthly student loan payments appeared to have surged. That curdled their chances of getting preapproved for a mortgage from Bell Bank Mortgage, their loan officer told them in an email shared with the Minnesota Star Tribune.
But their debt hadn’t actually deepened. The real obstacle hampering their homeownership dreams? A battle over a Biden administration student loan repayment plan, waged at the highest levels of government and out of their control.
Legal challenges
The federal plan was supposed to unburden millions of people mired in student debt.
The SAVE (Saving on a Valuable Education) plan launched in August 2023. A Biden-Harris administration initiative, the student loan repayment program would lower monthly payments for many borrowers and reduce the amount of time it takes to receive loan forgiveness.
Yandrasits and Dudley, who also attended Gallaudet and has about $100,000 in student debt, swiftly enrolled in the SAVE plan, set to replace their previous Obama-era repayment program.
Then came the legal challenges.
Lawyers for Biden asked the Supreme Court to preserve the program, but an appeals court temporarily put it on hold in July. The Eighth Circuit Court of Appeals elevated the pause to a formal injunction that the Supreme Court in August declined to lift.
The freeze has unleashed a slew of consequences for borrowers like Yandrasits and Dudley. Since the summer, their loans have remained in interest-free forbearance, meaning they don’t have to make monthly payments and interest isn’t accruing.
It seemed, at first, incidental to their home-buying aspirations. But without proof of steady student loan repayments, Bell Bank’s underwriters needed a placeholder figure before greenlighting their mortgage, their loan officer said.
The required substitute: half of 1% of the couple’s total student loan balance, calculated monthly. The fraction, which amounts to about $433 for Yandrasits and $500 for Dudley, increased their debt-to-income ratio, a person’s monthly debt payments divided by their gross monthly income.
Lenders use that metric to determine if someone can afford monthly mortgage payments. And with their share of debt appearing suddenly high, the couple no longer qualified for a home loan.
“It’s really bizarre that we’re just completely railroaded on making any steps forward in our financial life because of politics,” said Yandrasits, 34.
The couple’s situation isn’t uncommon, said Travis Hornsby, a student loan repayment consultant based in North Carolina who regularly dispenses advice to borrowers on social media.
He said a similar predicament played out during the pandemic, when the Trump administration temporarily paused student loan repayments and set interest rates to zero. That created hurdles for debt-ridden prospective homeowners hoping to get mortgages.
Hornsby said the Hastings couple has two options: wait for a resolution on the SAVE plan’s court injunction, or find another bank willing to preapprove them for their desired home loan.
‘One set of rules’
Stig Sandell, a senior mortgage banker at Bell Bank Mortgage, Yandrasits and Dudley’s lender, said in an interview that company employees work hard to minimize the negative effects of student debt on clients’ “buying power.” But some aspects of the process remain out of their control.
That includes guidelines on debt-to-income ratios. Sandell said mortgage giants Fannie Mae and Freddie Mac use a computer-driven risk assessment to determine if banks should lend to people based on their ratio, among other factors.
Lenders generally consider a debt-to-income ratio of 36% or less to be excellent, according to the Mortgage Reports. A figure of 50% — meaning someone owes half as much as they earn — is often the maximum cutoff for mortgage approval.
Rules for dispensing home loans tightened after the subprime mortgage crisis. Predatory lending, and the housing market’s subsequent collapse, prompted Congress to pass laws discouraging banks from lending to people with debt-to-income ratios above a certain threshold.
Sandell said these regulations have helped reduce the number of borrowers who are late on mortgage payments. But, he added, “In applying one set of rules to everybody, I’m sure there’s always going to be outliers that have some unintended consequences.”
Yandrasits said he’s feeling those consequences. The block on the SAVE plan, and the required placeholder figure that makes it look like his debt payments have mushroomed, put him and Dudley in a holding pattern.
They could enroll in a student loan repayment program that isn’t on pause. But Yandrasits said that option would calculate their monthly payments to a figure that would throw off their debt-to-income ratio — and again disqualify them from getting a $300,000 home loan.
For now, they’re saving up, living in Yandrasits’ childhood home in Hastings while his parents live abroad. But it’s the house just a mile away that magnetizes the younger couple, the one with enough space for the pair of sign language interpreters to each have their own office.
“I feel like we’ve always been good candidates to buy a house,” Yandrasits said. “It’s frustrating that we got an education, we’re using that education, and because of politics, we can’t further our financial security. We just have to sit back and wait.”
Sheriff Joe Leko said the man “was incoherent, and his condition deteriorated. ... We rushed him to the hospital as soon as we could.”
