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What happens when forebearance measures run out?


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I gather lots of consumers and businesses are benefiting from payment holidays on their rent and mortgages and various other loans. And for the most part moratoriums are imposed by law making it difficult for landlords to evict tenants or for banks to foreclose on loans and mortgages. Meanwhile these same consumers and businesses are getting enhanced unemployment benefits and stimulus checks and various other loans which I doubt they are necessarily putting towards making good back payments.

 

So what happens? Will there be government funded debt forgiveness? Will we eventually see a wave of defaults and evictions? As we know the vast majority of Americans live paycheck to paycheck so even a lenient payment plan would be unlikely to give creditors/landlords much of a chance of getting whole.

 

And if banks have all these mortgages and loans that are behind are they really going to be in a hurry to make new loans? And as the consumer economy relies on credit surely that will start to bite at some point.

 

I'd be more worried if Republicans still have the senate. But surely there will be a limit to how long Democrats can continue handouts and enhanced benefits?

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I think we'll have to wait and see how it plays out. My limited experience with those I know who took advantage of the moratorium on payments used the additional flexibility to pay down credit card balances and other high-interest forms of financing.

 

While this sucks for the landlords, it does ultimately make the consumers more robust (and lowers monthly servicing payments for those items) and increased their ability to make good on payments, and a payment plan for missed payments, going forward. This is all assuming that they didn't just then blow this benefit by purchasing iPad pros for everyone in the family for Christmas using the credit card again. 

 

It seems like this is much what 2008/2009 was - deleveraging of the consumers and businesses at the expense of leveraging at the gov't level which means significantly lower costs of carry. All in all, it should be a net benefit to society that the debt is now financed at 1% instead of 4-15%, but debt is debt and will have to be addressed at some point.

 

In the near term though, I'm not terribly concerned. While there will definitely be a number of examples where consumers are unable to make good on the payments, I imagine at the high level it will all be alright.

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Is there a going to be mass defaults in residential real estate? I don't think so personally. All my Real Estate investor friends have so much capital to deploy, not to mention all the institutional capital out there. There are just no deals to be had. 

 

Once all these government programs are over, I do think defaults will be evaluated but more spread out as it works through financial system and courts. It will be nothing like the GFC.

 

 

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I figure most people won't want to lose their houses and will cut spending elsewhere to make the payments.

 

What I really don't get is this belief there is going to be a post-COVID economic boom as a lot of income and profits is going to get diverted into paying off debt which is going to mean less money to spend on consumption and investment especially if higher government spending leads to higher interest rates which will crowd out private sector spending.

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