What The Climbing Debt Defaults Really Mean For The Economy

What The Climbing Debt Defaults Really Mean For The Economy

By many measures, the economy looks strong.

The stock market — despite a fairly steepWh correction a week ago — is still well ahead of where it was a year ago and is trending up. Unemployment is at historic lows, wages are rising given the tight labor market and consumer spending has been keeping pace.

Dig in a bit deeper, however, and the numbers become a bit less confidence-inspiring, since the bulk of that consumer spending is being done on credit, as household debt is skyrocketing.

That by itself isn’t worrisome news: Credit can be useful leverage if used correctly. But the data indicates that for an increasing number of users, debt is not being managed correctly. Late payments and out-and-out defaults and charge-offs are on the rise across a few lending segments.

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Fannie Mae lowers bar on borrower debt loads

Fannie Mae lowers bar on borrower debt loads

Fannie Mae, the largest financier of home mortgages, garnered much attention this spring when it announced it would loosen its credit standards beginning on July 29. The biggest change involves a move to accept loans from borrowers with a debt load of up to 50 percent of their gross income, compared with the prior 45 percent standard. This is known as the debt-to-income (DTI) ratio. 

 

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39 million households are paying more for housing than they can afford

39 million households are paying more for housing than they can afford

Rising housing costs are putting a major squeeze on Americans.

Nearly 39 million households can't afford their housing, according to the annual State of the Nation's Housing Report from Harvard's Joint Center for Housing Studies.

Experts generally advise budgeting about 30% of monthly income for rent or mortgage costs.

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