US default rates could hit 8.1% without policy action – Richmond Fed

distress-debt

Without effective policy action, US consumer loan defaults could peak at 8.1% under a severe unemployment and house price reaction to the Covid-19, research published by the Federal Reserve Bank of Richmond finds.

Implementing loan forbearance measures could see this drop to “essentially zero” in 2021, Grey Gordon, John Bailey Jones and Jessie Romero say.

The researchers use 2019 data on debt service-to-income ratios and the loan-to-value ratios for default rates. They estimate the possible

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