FMD Launches New Private Student Loan Consolidation
Product with SunTrust Bank
Ann Hef
On August 2, 2012,
FMD (
FMD
)
announced the launch of a of new private student loan consolidation
product with SunTrust Bank that will allow students to refinance
their existing private student loans into one new loan at a fixed
or variable interest rate with a single payment, and the potential
to reduce their current monthly payment and interest rate. The
program runs for two years and has a similar structure to those
that exist for other SunTrust loan programs based upon the Monogram
platform.
FMD will perform loan processing services, program support and
portfolio management services, program administration services, and
production support services for which it will earn a fee. In
addition, FMD will provide credit enhancement through funding a
participation account to serve as a first-loss protection for
defaulted loans.
The agreement prohibits FMD from launching any consolidation
programs offering both fixed and variable terms within the same
application session. FMD is able to launch additional consolidation
programs; however for the first 14 months, any such program cannot
be priced lower than the SunTrust product nor can it be marketed in
any of SunTrust's footprint states.
Additionally, SunTrust agrees not to promote this program to
borrowers that have loans owned by one of the National Collegiate
Student Loan Trusts, nor will FMD purchase lists or customer data
of borrowers that have a loan owned by SunTrust.
Initial program size has not yet been disclosed by FMD, but we
believe that growth potential looks promising. That said, we are
not changing our EPS estimates at this time, but will wait to learn
more about this new program when FMD announces fourth quarter and
full-year results after market close on August 14, 2012.
In other news, the Consumer Financial Protection Bureau (CFPB)
recently announced findings on the private student loan (PSL)
industry. Significant recommendations that affect PSL lenders
include:
- Improved disclosure regarding the availability of federal
student loans
- Enhanced cooperation between lenders and higher education
institutions to prevent overborrowing by students
- Creating a database for private student loans similar to the
National Student Loan Data System (NSLDS) for federal student
loans to aid borrowers in understanding their total debt
obligations
- Permitting dischargeability of private student loan
debt in bankruptcy to borrowers who are experiencing financial
distress
Regarding dischargeability, we're not sure if this would have a
significant impact on the PSL industry as more than 80% of private
student loans currently underwritten are cosigned by high-quality
guarantors having strong credit profiles (FICO scores of 750 or
better).
Founded in 1991, The First Marblehead Corporation (FMD),
headquartered in Boston, Massachusetts, focused on creating
private, nongovernment-sponsored, education loan programs. The
company had its initial public offering on the NYSE in October
2003. First Marblehead currently has more than 200 employees.
Through a fully integrated suite of services, the company offers
outsourcing capabilities to national and regional financial
institutions (banks-to-mutual institutions) and educational
institutions (colleges and universities), with respect to the
design and implementation of private education loan programs for
undergraduates and graduates.
To view a free copy of our most recent research report on FMD,
visit
Ann Heffron's page
at
Zacks Small-Cap Research
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