The Hidden Credit Bubble in Student Loans and Housing Markets
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Uh-oh, folks, got ourselves a massive, massive, huge credit bubble hiding in plain sight. Nobody’s talking about this, though. No, no, no, no, no, I’m not talking about the private credit stuff. Now, again, you recently had Jamie Dimon talk about, hey, there might be some credit issues, bond issues. He wasn’t specific, was he?
Anyway, private credit problems are, watch, listen, listen, small. That’s right, itsy bitsy, tiny compared to the credit problems we have with federal student loans and mortgages. Alyssa Finley, Wall Street Journal highlighted this recently in a column.
And yeah, we’ve been watching this too. What happened? Under the Biden administration, under the Biden administration, leaves don’t lose. I do declare, do decree. Again, it make any difference. Donkey, elephant presidents of the United States love their little power overreach.
Biden’s was with student loans also saying, hey, you know what, that border, yeah, we’re not gonna, just come on in, sure, Delta House, come on in, it’s the United States. Anyway, the extend and pretend that they allowed basically hid a lot, hid a lot. I warned about all the COVID forbearances and how that worked. The reality of the situation is,
We’re screwed. Okay, we are. And again, this this debt that’s on our government’s balance sheet. If it was if it were bonds, like in actually trading, like it was an act like a specific part of a let’s say a company’s bonds, it was part of a portfolio to imagine if we had different types of bonds issued based upon different departments, for example.
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Like a portfolio, if you will. Let’s say if you were building a bond portfolio, look at it that way. And this was one of the things you invested in. Let me put it to you this way. 30 %
30 % of the federal government’s $1.7 trillion, $1.7 trillion, just think about that. That is the student loan portfolio. 30 % is being repaid.
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30 % is being repaid. Most borrowers are delinquent on their payments.
that that they some of that delinquency that’s been put on hold because right now they’re trying to figure out the Trump administration trying to figure out how to repair servicing problems that were started under the Biden administration. They’re quasi forgiveness save plan and the courts block that now.
happened? What did kids do when all of sudden, they didn’t have that bill? They weren’t paying that bill? I gotta I gotta afford the the bigger apartment in New York. I can afford the bigger apartment I can up I can upgrade my lifestyle a little bit. I can maybe go on vacation now. Hey, how about that? Again? Hey,
Joe Biden promised them that their loans were gonna be forgiven. Why not?
weren’t. During the payment pause, borrowers repeatedly heard public signals suggesting student loan balances might be permanently reduced or eliminated. This is coming from the left of center Urban Institute. Against that backdrop, some households may have felt reasonably equipped to take on auto loans, enter the housing market or expand their use of other credit products.
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Meaning, hey, put it on the credit card.
Yeah That actually that pause actually Improved credit scores for people which allowed them to go out and take on more debt it raised their credit scores by a hundred and three points
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All right. Other other government policies in 2022, Fannie Mae instituted a positive rent initiative for landlords to report on time rent payments, but not late or missed payments to credit bureaus. Again, hey, hey, I’m a baseball player. Yeah, you know what?
all my for four days I get eliminated from my batting average. Yeah, again, more borrowers being over extended more borrowers appearing to be less risky.
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more bars fall on any other debt. This is the most since the payment pause ended in October 2024.
Student loan delinquencies increasingly intertwined with distress across other credit markets. The delinquencies are going to rise again. Forbearance is going to end in July for another 8 million borrowers.
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Now, how about the Federal Housing Administration mortgages? These government-backed loans to overextended and risky home buyers whose incomes have been squeezed by inflation. The share of FHA borrowers in 2024 with debt-to-income ratios exceeding 43 % rose to 64 % up from 55%.
percent in 2019 and 36 % in 20 2007. Okay, higher than it was in 2007 is what happened in 2008.
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About one in seven FHA loans originated between 2022 and 2025 defaulted within a year. When that happened, what did Biden do? Paid mortgage servicers to waive or reduce monthly payments of delinquent borrowers by 25 % for up to three years. Missed or waived payments were added to the mortgage, which would have to be repaid when the loan
chores we’ve reported on this on the program this
freaking insane. This is is insane. Basically, if a homeowner missed a $3,000 mortgage payment for six months, a servicer would add the 18,000 in missed payments plus 27,000 in payment reductions to his loan.
Now, if home prices continue to increase or mortgage rates drop significantly, the buy in FHA figured borrows could make up the forborn payments when they sold or refinanced. It’s a stupid assumption. It got proved wrong. Mortgage rates are still high. Home prices and many markets. Yeah, they’re they’re falling now. They have to be because they’re too high. So
the buying FHA repeatedly waived payments for delinquent borrows only for them to default. Again, increasing numbers have fallen underwater because they haven’t built equity. Some 55 % of borrowers who receive mortgage relief in 2024 fell behind again on payments within one year. They’re now approaching a 60 % re default rate.
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It gets worse people one sixth of borrowers who took out FHA mortgages in 2024 currently own more than their home is worth.
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There’s your problem. And again, it’s all linked again to the government. much as politicians will tell you that they can defeat economic gravity, they can’t.
They can’t. It’s it’s undefeated. People. They can’t. I don’t care what Ayok or Elizabeth Warren or Bernie Sanders or Joe Biden or anything. They you can’t defeat it. It’s undefeated.
And yeah, like that line from the movie Wall Street, know, as the office manager comes out to bud, he gets decayed on a trade. Somebody’s got to pay ain’t going to be me. Well, guess what? It is going to be weak.
We’re gonna get hit with this. Like it or not. Watchdog on wallstreet.com.
