I need to unload two huge sources of irritation today based on reports that I guarantee you will not be presented on Fox News, Fox Business, CNBC, Bloomberg, CNN etc.
I sourced these from an excellent source for housing market news, http://www.housingwire.com/. I mentioned the other day that FRE had implemented a program to enable those without a job to go for up to 12 months without making a mortgage payment. While the thought of this is nice, make no mistake, the expense of this will be funded by you, the Taxpayer. Now Fannie Mae has implemented the same program. And, all you need for the first six months is a phone call to your mortgage servicer. Here's the LINK
So now, if you lose your job, you can get jobless benefits for up to 2 1/2 years and if you have a Fannie or Freddie funded mortgage you can live in your home for free for 12 months. Maybe in Tim Tebow's spiritually ideal world of charity for anyone in need this is a great way to run society. But the expense of both the jobless claims and the housing welfare is something that our country and taxpayer base just can not afford. But just like the $278 million per hour that the Obama Government borrows every day, why not spend now to get votes and worry about paying for it later. This mortgage "forbearance" program is nothing more than another layer being added to the Government's welfare State. Given that this is a program being implemented without much in the way of a public announcement, you need to ask yourself if you would have voted for Obama knowing that this was coming...
The second item of agitation is the report that FICO, the most widely known assessor of credit scores, is out with a warning that it expects student loan and mortgage defaults to rise in 2012: LINK Given that we know that the evaluators of credit ratings are always way behind the curve when it comes to warning about debt payment problems and impending bankruptcy, I would suggest that student loan and mortgage defaults are already a lot higher in the "shadow" credit system. I define "shadow" credit system as the situation where banks and other lenders are giving borrowers several months beyond what the established accounting rules call for in declaring a borrow to be "in default." I know for a fact the banks are playing this game with mortgages and I have no reason to assume that student loan servicers are not doing the same thing:
Evidence is mounting that student loans could be the next trouble spot for lenders, said Dr. Andrew Jennings, chief analytics officer at FICO. A significant rise in defaults on student loans would impact lenders as well as taxpayers, who could be facing big losses due to these defaults.Quietly, the amount of student loans outstanding and guaranteed by the Taxpayers is now larger than the amount of credit card debt outstanding. The article linked puts the number at $750 billion, but I believe that the actual amount now per the latest consumer credit report is even larger - and its growing at an accelerating rate because many people are taking out student loans and going back to school when they drop out of the labor force because they can't find a job. Even worse, a large majority of students now graduate with a massive debt load and no way in hell of ever hoping to pay it off. A friend of mine who is a professor at Denver University Law School said that 90% of the class graduating last year did not have jobs.
So the public debt load continues to grow at an increasing rate on a daily basis and the ability to pay off this debt declines - at an increasing rate. Which brings up another point. The reported amount of Federal debt outstanding - and the amount used for purposes of calculating the debt limit test - is $15.2 trillion. However, this number is incorrect. There is $7 trillion in Fannie/Freddie debt guaranteed by the Government, plus roughly $2.5 trillion of "special" Treasury bonds in the Social Security trust plus, and most people are unaware of this, a few $100 billion in guaranteed GM and Chrysler loans (I don't know the exact number). So the next time you see a debt to GDP number of 100% for the U.S., know that the golden truth is that the real number is at least 160%.