The Next Bubble to Burst - My predictions (bankruptcy, student loan, real estate)

[JaxMover]

I predict that the STUDENT LOAN MARKET WILL BE THE NEXT BUBBLE TO BURST. Especially if bankruptcy laws change. The days of lending 6 figure loans to aspiring art (or whatever statistically low paying) majors will be over, soon.

[AnesthesiaMD]

Originally Posted by JaxMover

I predict that the STUDENT LOAN MARKET WILL BE THE NEXT BUBBLE TO BURST. Especially if bankruptcy laws change. The days of lending 6 figure loans to aspiring art (or whatever statistically low paying) majors will be over, soon.

It's always been my understanding that federally backed student loans MUST be paid back and are not subject to bankruptcy protection. That wages will be garnished if the debtor does not pay.
Is this not the case?

[truckingbronco]

Originally Posted by AnesthesiaMD

It's always been my understanding that federally backed student loans MUST be paid back and are not subject to bankruptcy protection. That wages will be garnished if the debtor does not pay.
Is this not the case?

You're right, there is no hiding from student loan debt.

[Nor'Eastah]

I expect that many are about to learn, regarding student loans, what lots of people facing foreclosure have learned: Show Me The Note! Like mortgages, student loans and most credit card debt have been securitized. It has been sliced and diced into tranches of risk, and sold to investors. The lender who is collecting your payments is very likely NOT the party who holds the note! They are just "servicing the debt". It's impossible to find out who holds the note because so many different investors and agencies own portions of it. As more and more people learn this, they will understand how the system has been set up to scam them. Already there are thousands of cases in foreclosure procedings where the court refused to allow foreclosure because the plaintiff (lender) could not produce the note. They never had it. No note, no foreclosure. Just a matter of time before student loan debtors learn this also, followed by the mega-credit card crowd. The new bankruptcy laws are a scam! As the economy gets worse and more people file for Chapter 7, erasing student loan debt will become more common, IMO.

[Rose Red]

Originally Posted by Nor'Eastah

I expect that many are about to learn, regarding student loans, what lots of people facing foreclosure have learned: Show Me The Note! Like mortgages, student loans and most credit card debt have been securitized. It has been sliced and diced into tranches of risk, and sold to investors. The lender who is collecting your payments is very likely NOT the party who holds the note! They are just "servicing the debt". It's impossible to find out who holds the note because so many different investors and agencies own portions of it. As more and more people learn this, they will understand how the system has been set up to scam them. Already there are thousands of cases in foreclosure procedings where the court refused to allow foreclosure because the plaintiff (lender) could not produce the note. They never had it. No note, no foreclosure. Just a matter of time before student loan debtors learn this also, followed by the mega-credit card crowd. The new bankruptcy laws are a scam! As the economy gets worse and more people file for Chapter 7, erasing student loan debt will become more common, IMO.

The plaintiff could not produce the note?

I worked for a warehouse lender in the early 1990's in CA in what was called the shipping dept, it was basically a clerical job all that was required were typing skills. I remember having to endorse the back of mortgage notes to "so and so bank, without recourse....". We would have to type that on multiple mortgage note and then ship it to that lender, I believe for servicing. I remember that if we lost a mortgage note all hell would break loose because our crazy supervisor would say the borrower wouldn't have to sign another note.

Later as I worked for different mtg lenders in different aspects of the lending field, the loan doc package would have a disclosure. I don't remember the exact wording, that would basically say that the borrower agrees to re-sign if the lender requests it. It wasn't a notarized part of the loan documents so I doubt if it was enforceable.

Long story short, It wouldn't suprise me if the lender doesn't have the note. ...Or if they have the note and not the riders (pre-payment penalty rider or ARM rider)...

It's going to be crazy to see how this is all played out.

[Lincolnian]

I listened to an interesting discussion on the auto industry yesterday. The speaker made many correlations of the sub-prime mess and deflating housing equity to a similar situation in the auto industry. As a glut of new vehicles sit on dealer lots and heavy discounts continue the value of used vehicles has dropped below what many people owe on them. This is especially true for the high priced SUVs that have been marketed to people with lower incomes through 72 and 84 month loans. Many of these people are walking away from their vehicles because they can't sell or trade them for anywhere near what they owe on the loan. Not to mention that they can't afford the gas for these 13 mpg guzzlers either.

Like the crazy offerings in RE, I could never see how the lenders could offer these stupid loans. It doesn't take a rocket scientist to realize that you don't loan large amounts of money to people who don't have the income to pay it back before the vehicle is run into the ground.

[Wild Style]

student loans are not a bubble. There was no speculation, faux wealth etc. behind it. Also as others have said, you can not run away from a student loan. They will garnish your wages. It isn't like a credit card which is unsecured debt. Which means (depending on the state) if you don't pay the bill in 4,5,6 yrs and no one tries to take you to court, you are no longer responsible for the debt.

I think auto loans will definitely go up in smokes, they did a lot of exotic loans with those too. I think the real bubble will be alternative fuels, or if they some how find a way to sale bonds in public/private ventures in mass transit and infrastructure deals.

[Philip T]

Originally Posted by Wild Style

student loans are not a bubble. There was no speculation, faux wealth etc. behind it.

They support an industry that has many aspects of a bubble -- a bubble being higher and higher prices without any real improvement or increase in product -- in this case, the upper level education industry.

College prices have been rising steady for the last decade or longer, with no real increase in quality of product or increase of product for the increased price. This has driven larger and larger piles of debt onto students and the student loan program.

If the funds grow tight as the banks and finance world implode, it will bust the upper education pricing bubble.

[Wild Style]

Philip

I agree that college prices are high. I agree that it could become tough for people to go to school, though I sort of doubt it with the govt. giving out loans and all to people. I am just not sure I would call it a bubble though.

*edit*

I just thought about something. I work at a University, and worked for three different schools with in the university. Out of the three, two of them had enrollment that was significantly down. But I am not sure that it was because of lack of available money for students to attend. In one case I know the school is just struggling because of its own mistakes in marketing. In the other, its because of the subject matter the school is centered around. Few people are going into that field anymore.

[Philip T]

Originally Posted by Wild Style

Philip

I agree that college prices are high. I agree that it could become tough for people to go to school, though I sort of doubt it with the govt. giving out loans and all to people. I am just not sure I would call it a bubble though.

That is the nature of all bubbles. If folks could just endlessly borrow they would continue. If banks were endlessly granting, extending, and re-financing ARMs, and Interest Only loans the Real Estate party would just keep going.

Every unbalanced system reaches its terminal limits. GW's tax cuts and massive spending have about wiped out the Treasury and the nation's capacity to go further into debt. The folks that have outstanding student loans cannot pay them when they have lost their jobs and cannot even keep their house.

Between no new fresh money, and bad old money is where the bubbles bust.

That equals party over. Not saying that it will happen, it just fits the profile of bubbles and is line with the OP's starting concept.

*edit*

I just thought about something. I work at a University, and worked for three different schools with in the university. Out of the three, two of them had enrollment that was significantly down. But I am not sure that it was because of lack of available money for students to attend. In one case I know the school is just struggling because of its own mistakes in marketing. In the other, its because of the subject matter the school is centered around. Few people are going into that field anymore.

[/quote]

I agree the content of what passes for education is now dim and getting more irrelevant quickly. The sorry mis-information and myths that the typical MBA walks out the door with is a major cause of current state of the US economy.

I suppose that Jefferson Davis' eulogy for the Confederacy will fit the tombstone of the US economy -- Died of a Theory.