Tags: Govt | mortgage | debt | US

Despite $16 Trillion Debt, US Still Meets Mortgage Guidelines

By    |   Wednesday, 15 Aug 2012 08:55 AM

The U.S. government has built up more than $15.9 trillion is debt, according to the Treasury Department. Annual interest payments on that amount total more than $454 billion a year and require almost 20 percent of government revenues.

Yet, the government would still qualify for a mortgage under government-agency rules.

Mortgage underwriting guidelines determine whether or not a prospective home buyer has too much debt to afford the home they want. These guidelines are dictated by the Federal Housing Authority (FHA). If total debt payments require less than 43 percent of a buyer’s income, they should qualify for financing.

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By never making any payments on the principal owed, the government is able to keep borrowing costs down. Using short-term debt also helps keep the current payments down.

If the U.S. government treated its debt like the average family, the payments would be much higher. With a 3.5 percent, 30-year loan, the monthly payment on $15.9 trillion would be about $71.3 billion a month, and the annual payments would total more than $855 billion, or about 35 percent of the government’s annual revenue.

Even if the debt were fully amortized like a home mortgage, the government would still qualify for a loan of nearly $16 trillion. According to the FHA guidelines, the United States could take on $19.7 trillion in debt at current interest rates.

This means either the U.S. government is a good credit risk or the FHA guidelines are not very stringent. FHA guidelines allowed the housing bubble to become a crisis, so it seems best to assume that the guidelines are flawed and the United States is in as much trouble as a subprime mortgage borrower.

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