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Things are changing in the consumer world. For the last couple of years, auto lenders have become more aggressive in their lending practices, making loans to those with less than-below average qualifications. Now, many consumers are defaulting on their auto loans, even after just one payment. It is raising alarms across all lenders.

Over the last three years, homeowners have skipped many mortgage payments without any late payment being reported to their credit report. Many consumers have deferred their auto loan payments for an extended period of time. Millions of consumers have delayed their student loan payments, thinking now unrealistically, that their student loan debts would be forgiven. Other personal loans have been modified to help all consumers.

What has this done?

It has given higher credit scores to millions of consumers and now, they appear much more qualified than what they should be. As a result, new loans have been made and many more-than-expected loans have gone into default within a few months of inception of the loan. Additionally, many more homes are going into default and, along with higher interest rates, the housing market is heading for a hard landing.

Lenders and consumers will both pay a price for the federal policies over the last several years. If credit scores are artificially high for millions of consumers, it will take some time to reset them to their correct levels. In the meantime, many more loans have been made, and will be made for some time that will go to undeserving consumers. It will create additional chaos in the markets from higher levels of loan defaults, foreclosures, and repossessions, especially with the U.S. economy probably heading into a recession.

Markets need to operate more freely. If someone is going to lose their home to default, it is better to do it now than to expend additional resources on a losing cause. That person than can take some time to reset their finances and get into a better financial situation. But if the U.S. government and the Biden administration will not let markets function, the falls will eventually happen and they will be greater and the loses much more severe when they happen. 

As a result of these misguided actions, someone well-qualified is going to pay more while many others that are less deserving, will get a free ride and pay less. For this reason, it is right to push back on bureaucrats eager to enforce their will on lenders. Their political decisions have got to stop because it has created distortions in consumer's credit ratings. Consumers have got to be held accountable for their own actions. Otherwise, lenders will lose faith in the system and it will be much harder to qualify for certain loans.

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