No Payment, No Problem: Bizarre New World of Consumer Debt | Wolf Street

In a blog post, the New York Fed said that 88% of the student-loan borrowers, including private-loan borrowers and  Federal Family Education Loan borrowers, had a “scheduled payment of $0,” meaning that at least 88% of the student loans were in some form of forbearance. Until September 30. And then what?

And because delinquencies in student loans, auto loans, credit card debt, and mortgages are being “cured” by putting the loans in deferral programs and modifying the delinquent loans, they become “current” loans even though no catch-up payments have been made.

According to the New York Fed, $730 billion in mortgages are in forbearance, and the payments that are being deferred amount to about $6 billion a month – “a significant transfer to homeowners that may be used to increase consumption elsewhere or to pay down other types of debt.”

This is the utterly bizarre new world of no-payment-no-problem-credit, where debt payments are being put on ice, and were delinquencies are routinely cured by modifying loans, and then by sheltering the loans in forbearance programs. The missed interest payments are added to the principal balance of the loan, and the burden of those debts grows, even as the banks book the interest income of those payments that haven’t been made.

No Payment, No Problem: Bizarre New World of Consumer Debt | Wolf Street