{"id":174155,"date":"2024-06-17T09:10:35","date_gmt":"2024-06-17T15:10:35","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=174155"},"modified":"2024-08-18T05:39:47","modified_gmt":"2024-08-18T11:39:47","slug":"the-government-has-taken-a-permanent-intellectual-vacation","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/the-government-has-taken-a-permanent-intellectual-vacation","title":{"rendered":"Opinion: The Government Has Taken a Permanent Intellectual Vacation\u2014This New Plan is Evident of That"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC4668618709\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p>Last week, the federal government announced plans to block medical debt from credit reports, which are used to evaluate a borrower\u2019s financial fitness for large-ticket items, specifically mortgages and car loans. This would make it easier for folks to acquire more debt and not be \u201cjudged\u201d for it.&nbsp;<\/p>\n\n\n\n<p>All things being equal, it&#8217;s not a good idea.<\/p>\n\n\n\n<p>Let\u2019s ignore for now whether this is right or wrong and try to exclude all political thoughts. Let\u2019s just look at the facts.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">The Biden Administration Wants to Exclude Medical Debt from Credit Reports<\/h2>\n\n\n\n<p>It bears mention that exorbitant medical expenses happen all too often in this country. I, for one, needed heart surgery when I was born. Twice. And let me tell you, that was not fun for my folks. I would go so far as to say it sucks.&nbsp;<\/p>\n\n\n\n<p>So when you get a large expense like this, and because our healthcare system is\u2014to put it politely\u2014buggy, you may need a loan to pay for it, and that expense becomes debt. And debt in one thing means you can\u2019t pay as much for other things. Like a mortgage. Or a car loan.<\/p>\n\n\n\n<p>So creditors have included all debt as a strike against one\u2019s credit, limiting one\u2019s ability to dig themselves into a debt grave and obtain another large loan, like a mortgage.<\/p>\n\n\n\n<p>Speaking on the announcement, <a href=\"https:\/\/www.washingtonpost.com\/health\/2024\/06\/11\/biden-cfpb-medical-debt\/\" target=\"_blank\" rel=\"noreferrer noopener\">Vice President Harris said<\/a>, \u201cMedical debt makes it more difficult for millions of Americans to apply for a car loan, a home loan, or a small-business loan, all of which makes it more difficult to just get by, much less get ahead\u2026No one should be denied access to opportunity simply because they have experienced a medical emergency.\u201d<\/p>\n\n\n\n<p>Unfortunately, this statement is laden with poor assumptions, and intervening in financial risk management is dangerous. Why? I\u2019ll tell you.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">The Impacts Will Further Hurt Inflation<\/h2>\n\n\n\n<p>At the individual level, having one loan you are paying makes it harder not just to apply for another loan, but to pay that loan back. Obtaining more debt is what makes it harder to \u201cjust get by.\u201d It\u2019s not an \u201copportunity to get ahead,\u201d as she put it. It\u2019s a liability that will hold you back\u2014literally.<\/p>\n\n\n\n<p>At the market\/economic level, this policy is highly problematic in two major ways, both of which are inflationary.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Mortgage costs will go up<\/h3>\n\n\n\n<p>There will now be folks with a higher risk obtaining much more debt. Lenders will need to offset this risk with fees\/interest rates to recoup losses when those riskier borrowers default. And since lenders can\u2019t use medical costs to judge a borrower&#8217;s creditworthiness, all loan costs will have to go up to spread the risk peanut butter. Arg!&nbsp;<\/p>\n\n\n\n<p>Also, why should the borrowers pay off their medical loans at all if it won\u2019t affect their credit? If they don\u2019t, our medical expenses will also increase! Hospitals will have to charge more for procedures to make up for the money they lose for those who don\u2019t pay their debts.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Housing prices will go up<\/h3>\n\n\n\n<p>This is just simple economics. More folks will be able to obtain debt to buy a home. How many more individuals will realize this \u201copportunity\u201d to pile more debt on their plate? The government estimates this will lead to an additional <a href=\"https:\/\/www.consumerfinance.gov\/about-us\/newsroom\/cfpb-proposes-to-ban-medical-bills-from-credit-reports\/\" target=\"_blank\" rel=\"noreferrer noopener\">22,000 mortgages<\/a>, which, at a median home price of $420,000, is $9 billion in inflationary spending added to the economy.&nbsp;<\/p>\n\n\n\n<p>Add another couple of percentage points for closing costs and related economic activity. This increased demand for homes and economic consumption spending during a time of extremely low housing supply means one thing: Prices go up!<\/p>\n\n\n\n<p>Remember, this is the third inflationary housing policy in as many months proposed by the federal government, all during an extended three-year time period of high inflation, which is still nearly double the Federal Reserve\u2019s target rate. Back in March, <a href=\"https:\/\/andreasmueller.substack.com\/i\/142579180\/presidents-housing-proposal\" target=\"_blank\" rel=\"noreferrer noopener\">the administration announced<\/a>:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>$10,000 cash tax credit for many homebuyers<\/li>\n\n\n\n<li>$10,000 cash tax credit for some home sellers<\/li>\n<\/ul>\n\n\n\n<p>You&#8217;re kidding yourself if you don\u2019t think this will negatively affect inflation.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Shelter Inflation is Already Driving Inflation<\/h2>\n\n\n\n<p>According to the <a href=\"https:\/\/www.bls.gov\/news.release\/cpi.nr0.htm\" target=\"_blank\" rel=\"noreferrer noopener\">May inflation report<\/a>, shelter costs increased 0.4% for the fourth consecutive month and were the largest factor in the monthly inflation numbers. Shelter increased 5.4% over the last year, accounting for over two-thirds of the total 12-month inflation increase. This policy will make this even worse.<\/p>\n\n\n\n<p>Yuck.<\/p>\n\n\n\n<p>And if you overlay shelter on top of inflation in the graph, you can see just how much higher we are than pre-2019. Shelter is still rising every month faster than ever before. Overall, inflation is at 2011 levels, when housing prices bottomed following the great financial\/housing crisis.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"718\" height=\"490\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/06\/inflation.png\" alt=\"inflation chart from BLS\" class=\"wp-image-174156\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/06\/inflation.png 718w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/06\/inflation-300x205.png 300w\" sizes=\"auto, (max-width: 718px) 100vw, 718px\" \/><figcaption class=\"wp-element-caption\"><em>Source: <a href=\"https:\/\/www.bls.gov\/charts\/consumer-price-index\/consumer-price-index-by-category-line-chart.htm\" target=\"_blank\" rel=\"noreferrer noopener\">U.S. Bureau of Labor Statistics<\/a><\/em><\/figcaption><\/figure>\n<\/div>\n\n\n<p>Think shelter was bad in May? Medical care costs rose even more this past month (0.5%), meaning this policy of easing access to more debt on top of medical debt will be even more inflationary and risky for lenders.<\/p>\n\n\n\n<p>This is why passing policies that are inflationary to the housing market is so problematic. It\u2019s just so pervasive in our everyday lives.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">My Take<\/h2>\n\n\n\n<p>As was said many years ago by some old French dude, \u201cThe road to hell is paved with good intentions.\u201d True, IMO.<\/p>\n\n\n\n<p>This is what happens when well-intentioned policymakers (ostensibly) intervene in a marketplace. I can guarantee you that Fed Chair Jerome Powell took a deep sigh when he heard about this proposal from the administration. It\u2019s not helpful. Without a significant drop in inflation, <a href=\"https:\/\/www.biggerpockets.com\/blog\/federal-reserve-stalls-as-inflation-numbers-improve-may-2024\" target=\"_blank\" rel=\"noreferrer noopener\">he can\u2019t cut interest rates<\/a> because doing so is also inflationary.<\/p>\n\n\n\n<p>Ah, the humanity!<\/p>\n\n\n\n<p>It is important to note that this announcement is still in the rule-making stage, so it will take time to become policy (i.e., after the November election), and Congress or courts may block it. But the White House did put out a <a href=\"https:\/\/www.whitehouse.gov\/briefing-room\/statements-releases\/2024\/06\/11\/fact-sheet-vice-president-harris-announces-proposal-to-prohibit-medical-bills-from-being-included-on-credit-reports-and-calls-on-states-and-localities-to-take-further-actions-to-reduce-medical-debt\/\" target=\"_blank\" rel=\"noreferrer noopener\">press release<\/a> showing the Biden administration is serious about implementing it. And unlike the other two policies, they likely don\u2019t need Congress\u2019 approval to implement it.<\/p>\n\n\n\n<p>Also, the irony is not lost on me. And I can\u2019t help but laugh. The federal government is doing the opposite of what it intends. Leaders are proposing to use $7 billion in American Rescue Plan funds, which the government borrowed, to pay medical expenses, which people borrowed, so that people can borrow more, and lenders can make it more expensive for them to do so. A lot more.&nbsp;<\/p>\n\n\n\n<p>Mortgages are the largest debt line item for households. And this is all during a horribly inflationary economic environment.<\/p>\n\n\n\n<p>Inflation is here to stay. This month\u2019s report is being received positively in the press and equity markets because it wasn\u2019t worse\u2014not because it was good.<\/p>\n\n\n\n<p>And the cycle continues.<\/p>\n\n\n\n<p>I can only assume this announcement is just political. The <em>Washington Post<\/em> calls it \u201cpoised to be part of President Biden\u2019s closing argument that he is addressing pocketbook issues.\u201d So I get it. That actually makes rational sense, at least with the election five months away.&nbsp;<\/p>\n\n\n\n<p>But if it\u2019s not, and they seriously believe this is helping? Then it\u2019s official: The government has taken a permanent intellectual vacation.<\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_4da7e69827a69c3542f030327d56c7de\" class=\"visibility-group  hidden\">\n        \n\n<div id=\"hero-block_aa59827427ecc9f783cc53ab333395bf\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-theme-gold-light-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-theme-gold-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Get the Best Loan Today<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:16px\">Find trusted, <em><strong>investor-friendly<\/strong><\/em> lenders who specialize in your strategy. <\/p>\n\n\n\n<p><\/p>\n\n\n\n<div id=button-custom-event-block_aa12806a1338251e9c3e6cf3066f5252 class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/business\/finder\/lenders\" x-on:click=\"window.analytics.track(&#039;Blog Block | B2C Marketplace Lender Finder&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/the-government-has-taken-a-permanent-intellectual-vacation&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Find a Lender<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Marketplace-Blog-Blocks-Lender-v3.png\" alt=\"investor friendly lender, investor friendly real estate loans\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/signup\" x-on:click=\"window.analytics.track(&#039;Blog Block | Acquisition | Free Membership Signup&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/the-government-has-taken-a-permanent-intellectual-vacation&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>A new federal policy may just drive housing prices and inflation even higher.<\/p>\n","protected":false},"author":613746,"featured_media":174191,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4433,7119,7384],"tags":[],"class_list":["post-174155","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-opinion","category-biggerpockets-daily","category-politics-policy"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/174155","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613746"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=174155"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/174155\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/174191"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=174155"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=174155"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=174155"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}