The government has also been artificially allowing recent college graduates to take vacations rather than pay their student loans, which has resulted in about 15% of student loans being in default.
On top of the FHA and student loan problems, 7% of auto loans are in default along with the 5% of VA home loans.
The households in default may overlap, like a recent college graduate who bought a house and car with no understanding about how loans work (and is in default with housing, auto, and student debt). That's bad. But just as bad would be if it's all different borrowers who are in default in at least one of the categories, as that would be a larger percentage of the total population.
Basically, everyone currently in the situations had options: choose a less expensive college, sell your house while the market is still up, and buy a cheaper used car. The problem is that home and auto values have declined, so a lot of people are underwater on those loans, and anyone who isn't pulling in six figures is probably underwater on fancy-college student loans.
A lot of people were underwater in 2008 with all the sub-prime loans. Many of them got bailed out by me (and other responsible Americans). I kind of hope that we don't repeat that once again.
I hope that homes are foreclosed and cars are repossessed. The housing and used auto market can then correct themselves. Recent grads might have to move back home to pay off college and use Mom's car. Sure, if you also took out a home equity loan on the inflated value of your home, you'll also be underwater for a time, but it's better than continuing to pump air into a bubble that has to explode.
However, if we decide that we are going to pay for the mistakes of irresponsible borrowing again, then the rest of us will once again be paying for others to live beyond their means for the next 15 years before it happens to the next generation.
