Wells Fargo(NYSE:WFC) recently decided to stop offering personal lines of credit. Why did the bank make this move, and is it unfair to customers? Plus, special-purpose acquisition companies (SPACs) are back in the news after Virgin Galactic‘s (NYSE:SPCE) successful flight with founder Richard Branson. Plus, Industry Focus: Financials host Jason Moser and Fool.com contributor Matt Frankel discuss what they’ll be watching as banks report their earnings later this week.
Jason Moser: It’s Monday, July 12. I’m your host, Jason Moser, and on this week’s financial show, Wells Fargo is making some changes to its credit offerings. We’ll take a look at SPACs and what separates the good from the not-so-good, and we’ve got an Earnings-palooza preview for you. Joining me as always this week, it’s Certified Financial Planner, and hey, he’s all around tan, he’s got a pool, he’s feeling good about this summer. It’s Mr. Matt Frankel. Matt, how’s everything going?
Matt Frankel: Just great. It is 90 degrees and sunny out here. I’m talking to you guys, but I’m probably going to hop in the pool afterwards.
Moser: Well, just, here’s an idea, maybe next week or the week after, maybe we do a pool show. You go to your backyard for your pool, I’ll jump over to our neighborhood club pool here, and we’ll have the splashing of the water in the background. It’ll create some nice ambient noise there. Maybe let’s talk about that after we get done taping.
Frankel: All right.
Moser: Matt, last week, there was an interesting headline out there regarding Wells Fargo that we talked a little bit about among some of us on the team here, and you and I were taking this around. Wells Fargo notified customers that it’s closing down all personal lines of credit. Now, to me, there are a number of different ways you can look at this. Having worked in the banking industry myself, I understand the perspective. I understand where they’re coming from, because it seems like they’re saying, “Well, we feel like we can put our customers into a better product, a more appropriate product, whether it’s some type of credit card offering or whatever.” But to me, the risk here is in the messaging. So far, to me, it feels like they’re failing. But now, let’s talk about this. Go over a little bit, what exactly is going on here with Wells Fargo?
Frankel: Well, they’re doing a terrible job of selling it to customers and the media, I’ll tell you that much. They got Elizabeth Warren all riled up again.
Moser: Yeah. Well, that’s not too tough to do, though.
Frankel: Not for Wells Fargo. The CEO walks in with their shoes untied. She’ll call him out on it. I love watching Elizabeth Warren, by the way. She keeps the banks on their toes.
Moser: She does.
Frankel: She’s definitely a necessary part of the system.
Moser: Yeah. Checks and balances.
Frankel: They’re getting rid of these personal lines of credit, which is a unique product. Most times, when you get an unsecured loan, it’s usually in one of two forms. You either get a credit card, which is essentially a personal line of credit, or you get a personal loan, which has a fixed balance, fixed monthly payment, things like that. This is kind of a strange product. You have to stop and think, why would a bank get rid of any product? Is it unpopular? Were they just not getting enough people signing up for it? Was it inefficient to have? Meaning, like they said, that we could better serve our customers with other products. Is it just draining resources? Is it losing money, meaning are they doing a bad job of underwriting it and seeing a high level of defaults? We don’t know the exact reasons.
They say it has nothing to do with the Fed’s growth cap, because that was my first reaction. Remember they’re not allowed to grow right now. My reaction was they were getting rid of that to be able to add more profitable loans to their books. But they said that’s not the reason. It looks like it’s a good business move. They’re essentially consolidating the types of loans they offer. Because there’s nothing you can do with a personal line of credit that you can’t do with a good credit card, or that you can’t do with a personal loan. Right now, remember, loans declined at banks year over year, over the past year. Savings rates are up; people are taking up fewer loans. They could just be seeing lower balances and are consolidating products. Also remember that, maybe not now because Jason’s house is a construction zone, but our home values are through the roof over the past year.
Moser: They are.
Frankel: People have home equity to borrow against, which is a much more efficient way of borrowing money than getting a personal line of credit. Right now if I wanted to get a personal line of credit, I would pay 7% or 8% interest most likely. If I were to borrow money against the equity in my house, I would pay 3%. Why would people use these personal lines of credit if they can borrow other ways? I’m sensing it’s a demand and an allocation-of-resources issue here. But they messed up when they said this could lower consumers’ credit scores. Yes, that’s true.
Frankel: But they really didn’t sell it very well.
Moser: No, they didn’t. I think that to me was what could potentially grind someone’s gears, so to speak. Through no fault of your own, they’re saying, “Hey, your credit score might be dinged because of this action, and, well, there’s just not much we’re going to be able to do about it.” To me, that’s just obviously not very customer-centric. It’s not customer-centric at all, the way they messaged that, and maybe they’re going to backtrack and try to figure out a way to rectify that situation, because, to me, honestly, this is something where the consumer should not be held accountable here. This is no fault of their own, particularly if they’re ultimately going into some other type of lending product.
Because, like you said, I did a little bit of digging here just to get a better idea as to how important this was to the business. If you look through their 10-K, the personal lending division, this little chunk of the business, the personal-lending portion of the business represented $594 million in revenue in 2020 for the bank. That was, like you said, loan is declining; that was down from $652 million in 2019. Now this is in the context of a bank that brought in just a little over $58 billion in revenue in 2020. It is insignificant, really.
To your point, maybe it’s just, hey, getting rid of excess risk or products that they don’t need to manage, because they can put people into better products, I get that, absolutely. But when you message it the way they’ve messaged it, it really just leaves a bad taste in your mouth.
Frankel: Well, it’s not the consumers’ fault, and it’s not necessarily Wells Fargo’s fault. I think Elizabeth Warren is actually mad at the wrong people. It’s the credit bureaus’ fault, or the credit scoring. It’s FICA’s fault, specifically. That shouldn’t affect it. There should be some provision, let’s say, if your bank closes, if they shut down a product, like you see right now. If something happens through no fault of the consumer, there should be some provision in the credit scoring formula that ensures that that customer is not affected. Because it’s not their fault. It’s not necessarily the bank’s fault. You can’t fault the bank for making a good business decision.
Moser: Yeah. I agree.
Frankel: It’s not necessarily their fault, but because of the way the credit scoring formula is set up, this can affect consumers in two ways. One, the second biggest category of your credit score is the amounts you owe. That generally means the amount you owe relative to the amount of available credit. Now, you said some of these consumers were getting rid of $10,000, $20,000, $30,000 of your available credits. All of a sudden, the utilization rate shoots up without adding effects of their own, and their score gets dinged. On the other hand, if they’ve had these accounts for a while, there’s another credit score category that makes up the 15% year score called length of credit history. If you get rid of that, especially if it’s one of the consumer’s older accounts, it can really hurt. You’ve probably heard before you’re not supposed to close your oldest credit cards.
Moser: I have, yeah.
Frankel: Same idea there, because it reduces the age of your average account, which can also adversely affect your score. So it can, but it’s not necessarily for anything Wells Fargo is doing. It’s really because of how the credit scoring systems are set up. I feel like Wells Fargo should try to work with the FICO people to make sure it doesn’t. I just feel like you’re not going about it the wrong way, but I don’t necessarily think it’s their fault.
Moser: Yeah. Well, I think that what you’ve just said here, frankly, Matt, maybe you need to be working with their investor relations department or something, because all they had to do was basically message it the way you just said it and say, listen, this is something that, based on this set of rules, could impact your credit score. However, we’re going to work with the appropriate agencies to make sure that it doesn’t. It’s basically saying here’s a set of rules that everybody has been playing by here; we need to go back and change the rules. There needs to be some amendment there that helps protect the consumer in a situation like this. Maybe that’s ultimately what will happen here. Again, it just goes back to their messaging from the very get-go here has just been not so great.
Frankel: Yeah. I call out Elizabeth Warren because she’s head of the Senate Banking Committee, so that’s why she gets —
Moser: Right. Great idea, yeah.
Frankel: I would rather see her put more pressure on FICO, the Fair Isaac Corporation, to make the credit scoring model more fair. Because when you think about it, there are a lot of businesses springing up based on the premise that the credit scoring system is not there. That’s the whole point of upstart business, and they’re doing really well with it, and it’s because the credit scoring methodology is somewhat flawed. I think they are pressuring the wrong people. It’s wrong to pressure Wells Fargo to keep failing products on their books.
It’s also wrong to fault the consumers when a bank shuts down or when a bank discontinues a product. If one of my credit card issuers decides to cancel one of my credit cards for no reason, which they have the right to do, during the financial crisis they were canceling consumers’ credit cards left and right through no fault of their own to reduce risk. There should be some provision in the rules that that doesn’t affect your credit score, that it’s considered for scoring purposes, like you’ve maintained that credit line in good standing because you did. I would like to see that. I wish you would let me talk to her about who she needs to put pressure on. I don’t know if she’s a fan of our show or not.
Moser: Well, we can only hope. Matt, we talked a decent bit about SPACs on this show. We even ran a four-part series on SPACs earlier this year. I had a lot of fun putting those shows together. You and I were talking about an article we just read here on CNBC in regard to SPACs. There was some interesting data from Wolfe Research in this article. It was talking about the performance of SPACs. I think it’s basically about one year here. But this data from Wolfe Research says that on average, SPACs with experienced sponsors record greater returns, since by sponsors, that’s the blank-check company that’s bringing the actual business into its universe, to bring it public.
We want to talk about this for a minute, just from the bigger-picture perspective of SPACs and what do you think about this data, what do you think it says. Then also talk a little bit more, as there’s a specific SPAC out there that’s been in the news here over the past couple of days, Virgin Galactic, for obvious reasons, successfully flying there into space. But let’s go ahead and start with just the bigger-picture implications here. Because it doesn’t sound all that surprising, but by the same token, it does feel like this is still a very short timeline on which to be judged.
Frankel: It is, and I think the point that they are trying to make is that the market was flooded with SPACs. I have some stats right here. In 2018, there were 46 SPACs that went public, in 2019 there were 59. In 2020 there were 248.
Moser: Holy cow.
Frankel: In 2021 already, there were 367.
Frankel: The market was flooded with these. It used to be that when you were a SPAC sponsor, it’s because you knew something about the business or the industry you were trying to go after. Now it’s like everybody with any credibility was starting a SPAC. Shaquille O’Neal had his own SPAC.
Moser: I was going to say, it doesn’t even feel like you really need that credibility. You just have to have some name.
Frankel: Maybe he was trying to take the Los Angeles Lakers public. I really don’t know how his experience would come into play.
Moser: Or Papa John’s, maybe. I could see at least some pizza place because he sits on the board of Papa John’s, I think, still.
Frankel: He owns a lot of Five Guys.
Moser: That’s pretty good.
Frankel: But I love Shaq, so nothing against Shaq.
Moser: Yeah. Me, too.
Frankel: But the point being, and that’s really one of the things I look for, everyone always says, how do you pick out all of these SPACs, from the 400 of them? How do you decide the three to put in your portfolio? That’s one of the things I look at. Remember Latch? We had it on the show. They will take it public by TSI Innovation Acquisitions, sponsored by Tishman Speyer, one of the biggest commercial real estate firms in the country. That’s clearly a sponsor that knows a lot about that industry. That’s a good partner.
SPACs, the partnership aspect, is really undervalued. The celebrity aspect of it is getting way too much attention, and the partnership aspect is getting too little. Think of the Motley Fool investing strategy, how we want businesses that are partners. We want businesses where the CEO is a partner to their shareholders. When I got hired here, they told me that we would rather have a great partner than a great writer. It’s such a valuable part of business in general, and it’s become undervalued in the whole SPAC craze just because of all the big-name people throwing their names and not even like the, like the Bill Ackmans, Chamath.
Chamath worked at Facebook. Did he ever start a space travel company? No. That one’s done well, but that’s the exception, not the rule, according to this research. There are a lot of successful SPACs that were partnered with people who knew that industry really well. I mentioned Latch as a great example. 23andMe. We can argue that Richard Branson has a lot of experience with consumer branding and things like that. I don’t think he’s done any genetics research himself, but that’s not really the point. It’s a consumer products company at this point.
Frankel: There are some of the more successful SPAC IPOs. I’m trying to think of a good example from a year ago that was before the big SPAC craze.
Moser: Yeah. Well, let’s talk a minute, then, about the SPAC that I think is on everybody’s radar right now. It was really interesting to see the change in reception here from the morning to now. Because we know, of course, over the weekend, that Richard Branson was able to successfully make his way to the edge of space there with that Virgin Galactic flight. As a space guy, I really enjoy thinking about all that stuff. I thought that was just awesome, I love to see that stuff. I just think it’s cool. I love to think about it. I think as an investor, you have to take a much bigger-picture view there, and think about how this may impact our world over the course of the next decade and beyond. When you look at Virgin Galactic at its very core, this is a space tourism company, first and foremost. This is a business that is essentially pre-revenue. The market is valuing this company at somewhere in the neighborhood of $10 billion.
Frankel: It is $10.1.
Moser: Phenomenal. They have around 600 reservations for tickets on future flights. Those prices range anywhere between $200,000 and $250,000 each. You do the math there and you get something in the neighborhood of $135 million based on that right there.
Now, clearly, over the course of the coming five, 10 years beyond, this is not something that is going to be for the masses, because the masses can’t afford it. This is going to be something for people that can afford it and that have the intestinal fortitude to actually go through with it. I think there are a lot of people that probably say they would like to do it, but when it gets right down to it, maybe they’re going to take a pass because they want to feel a little bit more safe before they actually go through with it.
But my point ultimately is, after we saw this headline break later on in the day, where Virgin Galactic is doing another offering, they’re going to sell $500 million of shares. And hey, I don’t begrudge them that. I think it’s a great move. You got to take advantage when your stock price is feeling the love like theirs is. But to me, this is a SPAC that, while it feels like there’s a lot of potential there, it’s also really hard to see in the near term how big can this company really get from a revenue perspective, just based on what they’re doing right now in selling those tickets to go out for a 15-, 20-minute ride up to space? But it’s also going to be about what they learn and develop along the way with making all of these investments and building out their capabilities.
Frankel: You really hit the nail on the head, that it’s pre-revenue. Yes. Great achievement. Richard Branson got to go into space, his very successful flight, no hitches. When the spacecraft touched down, they said it looked flawless. Excellent achievement. He didn’t pay for his ticket. This is still a pre-revenue company. There are ways out from realizing any of that revenue, which you said, I think $135 million or so of booked revenue? That means they’re trading for almost 100 times the revenue that they will eventually get. Not even like price to sales. That’s revenue that they’ll eventually be going to get. At some point, it will become more affordable. They’re going to have to convince people to actually take these flights. Yeah. Affordability or not, I’m not doing it.
Moser: Well. I mean, that’s a good point. I think you asked people whether they would do it, and I think most people are going to have an immediate answer, like, “Hell, yeah, I’d love to do it.” or, “No way, there is not enough money in the world, and I’m not going to do it.” It’s funny because, honestly, Matt, I would do it. To me, that would be the coolest fun park ride in the world. I feel like I would be OK taking that risk. Now, with that said, I don’t have $200,000 to plunge down on this thing. I’m going to have to take a pass for now, too. You’ve got two hurdles to clear. You need people to say yes and actually follow through with it, and you need people who can actually afford it.
Frankel: Well, I’ll do it after a few years of successful flights. I’m not going to be on flight No. 3.
Moser: You don’t want to be the guinea pig. I appreciate that. I don’t think many of us do.
Frankel: I mean, I’m not Richard. He’s an adventurer at heart. I mean, always has been. We’ve seen pictures of him, I think, bungee-jumping and stuff like that. That’s not me. I don’t know if that’s you or not, but that’s not me.
Moser: I mean, I’ve never been bungee-jumping, never been parachuting. But it’s not for a lack of thinking it would be fun to do. I guess it’s just that our paths never cross, so it just never happened. But I don’t know, to me, space is just something I’ve always thought about as a kid and just all of those different possibilities. I think that as time goes on, we’re going to see more and more people who are going to, I think, take interest in it, but there’s no question those costs have to come down, when you look at the way that Virgin Galactic is being valued today. But there’s just an awful lot of success and growth being priced into that business today. It’s a little bit hard, I think, even for the most optimistic investor out there to fully be able to stand.
Frankel: I think it’s going to take a decade before they even justify the current valuation with their revenue. I look at Virgin Galactic as a company that could be a home run when my kids are 50 years old. It could be the ultimate long-term play.
I mean, right now, they’ve got the first-mover advantage. They have the know-how; they have the publicity; they have great PR. I mean, that company has fantastic PR. They have a greater ability to raise capital better than any other space tourism company I know, with the exception of Blue Origin, because Jeff Bezos is funding it. Great access to the public markets. I could see that being a home run when I’m old.
I’m a long-termer. We’ve talked about this before, but there has to be some point where I see a path to profitability. Right now, they could be profitable in 10 years. They could be profitable in 20 years. It could take longer than that. It’s really just up in the air. Not taking away anything from him. I think that’s a fantastic achievement. It’s been, I think, if Branson founded it, what, 17 years ago, something like that? It’s been a long time in the making. Congratulations to the Virgin Galactic team. I’m not going to be getting on your spacecraft anytime soon. Jason might. What do they call it? The Fool’s Errand, when you get a vacation. I think they should pay for you to go up to space, but I’m not doing it.
Moser: I feel like, given my druthers, I would probably choose Blue Origin over Virgin Galactic, because I think Blue Origin takes you actually further into space.
Frankel: You really want to go for it.
Moser: Oh, yeah.
Frankel: If you’re going to do it, why don’t you wait till they go to Mars?
Moser: Go big or go home. That’s what I say.
Matt, it is Earnings-palooza week. Earnings season is kicking off here over the coming few days here. As always, earnings season kicks off with the biggest of the big banks reporting. We’ve got JPMorgan and Golden Slacks — I think some people like to call it Goldman Sachs — on Tuesday. We got Bank of America, Citi, Wells Fargo, and once again Morgan Stanley on Thursday. I mean, we’ve got a big week ahead of us here with a lot of earnings reports. This is an interesting time for big banks, because it does feel like regulators are starting to take some of the pressure off, which means that these banks are getting a chance to put the pedal down a little bit. We wanted to see, instead of two to watch, we wanted to just go on with a little bit of an earnings season preview. It gives our listeners a chance to hear what you’ll be looking for from these big banks as they report throughout the week.
Frankel: Obviously, the ones I watch the closest are the three that I own. I own Goldman Sachs, Bank of America, and Wells Fargo out of that group. Bank of America is by far the biggest of the three in my portfolio. The dividends and buybacks mentioned were already in press releases a week or two ago, so that’s not a surprise. Remember, all 23 of the banks that were subject to the stress test passed them easily. The big rule change this year is now they don’t have to submit their capital plans for approval. Say, “Can we raise our dividend by 20%, and can we buy back $10 billion worth of stock?” Now they can just do it as long as they maintain a certain capital buffer. It gives banks a lot more leeway to return capital to shareholders as they see fit.
We already knew that’s happening. What I’m really curious about is, if you think of the first quarter of 2020 as when the nation fell into the COVID crisis, in 2020, January and February were pretty much normal months, and then March went crazy. The first quarter of last year really gave us a glimpse of what the pandemic was going to look like for banks.
This quarter is going to give us a glimpse of what the recovery is going to look like. What I mean by that is, in April and March, the first few months of the quarter, there were still mask mandates everywhere, and there were capacity limitations. You couldn’t get a vaccine everywhere in April yet. April and May were pretty much still, I call them stay-at-home months. Offsets hadn’t really been pretty much anywhere at that point, and things like that. In June, it was when we really saw all of the regulations start to relax, when we really saw people start to move about the country again. That’s when you saw the TSA numbers coming out about how the most travelers since the pandemic started flying, and things to that effect. People are out spending money. That’s what Brian Moynihan, if you remember, said: Consumer spending was up 20% in Europe, the pre-pandemic levels. That happened in June.
We’re going to get a glimpse this year, not the whole quarter, but we’re going to get a glimpse of how the recovery is affecting banks. Are people borrowing money more? I’m expecting to see credit card balances starting to tick up a little bit.
Moser: I would think so, especially because at least it sounded like a lot of people were paying those credit card balances down over the last year. Because, I mean, we just weren’t spending our money really on much because we just didn’t have as many options, and so it did sound like at least those credit card balances were coming down.
Frankel: I’m not expecting loan balances to skyrocket. Like I said, most of this quarter was pretty locked down. Correct me if I’m wrong. I think at least one of the stimulus checks was in this past quarter. At least backing up to it. At least close to it.
Moser: That would make sense. I mean, there have been, I think, three rounds.
Frankel: There were three. I think the third one was somewhere in the second quarter, but I’m not positive on that. But employment’s really coming back up. We’re seeing wage growth really start to hit. I want to see how that’s translating into bank profits. I want to see what the delinquency numbers are looking like. I want to see, I guess, loan growth. I want to see what interest margins are looking like. I just want to see how the business is going, and management’s commentary on how things are shaping up now that the world’s really starting, not the world, the United States is really starting to return to normal.
I’m curious about Citi in particular, because they’re the most international. I just mentioned that the U.S. is returning to normal. Citi has a lot of international business, so they’re going to be the other one on the other side of that thing. Goldman, I’m really watching because they have — their investment-banking division benefited from the stay-at-home economy and the volatility in the market, which, the market really hasn’t been volatile lately. It’s been boring in a good way.
Frankel: Boring markets usually go up.
Moser: Yeah, it feels like every day, you’re going to see things. It looks like things just continue to plod onward and upward.
Frankel: 2019 was the most boring stock market I can remember and it went up. Things went up by, like, 0.2% a day, it seemed like for the entire year.
Moser: Well, we’re halfway through the year and the stock market is something like 15% or 16% up at this point. The market’s up great, 15%, 16%. It doesn’t feel like it; it’s just a nice, slow, methodical progressive year.
Frankel: But there was a ton of volatility in the first quarter. Remember when all the tech stocks were plunging?
Moser: Oh, yeah.
Frankel: Because pretty much everyone at The Motley Fool has all the tech stocks, they think I’m weird because I have value stocks. I remember I was on the show with Tim Beyers and the market was up by 30%, but that was all the reopening stocks and he said, “Oh, my portfolio is all in the red because of all the tech stocks.” There was a lot of volatility, and the point being that investment banks benefit from that — trading revenues up, things like that. The SPAC boom mostly happened in the first quarter. Remember, me and you did a show on one day where, like, 20 new SPACs went public.
Moser: That’s right. I remember that.
Frankel: Investment banks got underwriting fees for that. I would call the second quarter a much more normal environment for investment banks. I’m expecting Goldman Sachs’ revenue to drop significantly. But I want to see how it’s affected them now that volatility is down, the SPAC craze is down a little bit. It’s a more normal environment. The flip side of that is their asset-management business should be firing on all cylinders. If the market goes up, their client balances go up. They’re already over $2 trillion. That translates to more fee income and stuff like that. A lot of really interesting moving parts to watch this quarter.
Moser: Yeah. Speaking of healthy balances, it was a couple of weeks back when I saw a passage from a recent Wayfair investor presentation on one of these conferences and the CEO of the business had noted that they saw pre-pandemic savings levels something like $800 billion, post-pandemic now in the $3 trillion range with all of the stimulus and everything that was going on, and basically equated to about four years’ worth of savings done in one year. You couple that along with credit card balances that have come down, it feels like there should be some consumer enthusiasm out there to spend. But yeah, we shall see.
Frankel: You see that happening with savings rates and loans during pretty much any uncertain period. The same thing happened in ’08, ’09. You saw savings rates before COVID, where the highest they’ve been in recent history was during the financial crisis. These people are worried about spending money, they want to save a little bit more. This time around, you’re seeing people not only save some of the stimulus money they’re getting, things like that. They didn’t have anything to spend money on, which wasn’t the case in ’08, ’09, you could still go out and spend money if you wanted to. People were still going to Disney World in 2008. That wasn’t the case in 2020. You’re also seeing a lot of people, I mentioned the refinancing thing, tap into the equity in their house. Home equity has gone up by about $2 trillion this year alone.
Moser: That’s amazing.
Frankel: That’s money that people can tap into. A lot of people don’t have anything specific in mind they want to do with it. They just see they can borrow $100,000 against their house at a 3% interest. How much longer am I going to be able to do that for? Might as well do it now and set it aside for when I have a project I want to do or something like that.
Frankel: That’s where a lot of the savings is coming from also.
Moser: Well, I think it feels like it, too. Maybe we’re seeing the drumbeat of inflation become louder, which makes perfect sense. But with that drumbeat comes the specter that we see interest rates on the way up. Ultimately, that could happen sooner rather than later. The timing is always a little bit squishy there. Yeah, that’s certainly something that can play on banks that I’ll be interested to hear of what they had any thoughts on the inflationary environment, and where they see that going. That’ll be another thing to pay attention to.
Frankel: Yeah. I’m curious about inflation too, because I have an unpopular opinion about that. I think it’s here to stay.
Moser: Oh, yeah. Really? I don’t know how unpopular that is, though. I think I agree with you. I was thinking about that the other day. To me, this doesn’t feel transitory, because you were just talking about a lot of great examples of the wealth that has been created here over the last couple of years between gains in the market, between gains in housing. There has been a ton of wealth created, more so it hasn’t been necessarily normal. To me, an inflation, it almost has to happen in order to try to normalize this a little bit. I tend to agree with you. I think that we’re going to see this inflation stick around. I don’t know that it’s a transitory.
Frankel: I feel like everyone believes that but the Fed. The Federal Reserve, they keep saying this is not going to last, it’s transitory and everyone else is saying no, this feels real.
Moser: Well, maybe we’ll see in hindsight that the Fed and Wells Fargo went to the same school of messaging. Maybe they’re both just falling short of really messaging as well as they could. But mate, we’ll see. It will be a busy week, Matt, but listen, that’s going to do it for us this week. I really appreciate you as always taking the time to sit down and talk with us. The show’s just always fun, man. I always enjoy talking with you about this stuff and I think our listeners enjoy hearing what you have to say.
Frankel: Yeah. Always good catching up with you and doing the show.
Moser: Yes, sir. Remember folks, you can always reach out to us on Twitter at @MFindustryfocus, or you can drop us an email at firstname.lastname@example.org. As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don’t buy or sell stocks based solely on what you hear. Thanks as always to Tim Sparks for putting the show together for us, for Matt Frankel. I’m Jason Moser. Thanks for listening, and we’ll see you next week.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.
However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.
What is Sallie Mae?
Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.
In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.
However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.
In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).
At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.
What is the difference between private and federal student loans?
With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.
On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.
Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.
As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.
Are Sallie Mae loans better than federal student loans?
In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.
However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.
If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.
With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.
The bottom line
Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.
Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.
PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have.
1. Analyze Your Finances Quarterly or Biannually
You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.
With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.
The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.
4. Savings and Retirement Accounts
The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.
A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies.
Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan.
Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito.