By A toxic wave of delinquent balances, distressed loans, and overvalued assets is beginning to break across the American economy.
Shanghai Commercial Bank just took an 85 percent loss on a half-finished Manhattan condo project. The example demonstrates “extend and pretend” loan games at work: the troubled property had been refinanced multiple times since 2016, repeatedly pushing back the maturity date and inevitable financial reckoning, even as costs mounted.
This “extend and pretend” behavior is visible across various economic sectors. Debts have been refinanced and modified rather than repaid. Policymakers, lenders, and borrowers have responded to recent financial stress in the same way: not by addressing the pain, but by postponing it. Lenders, mortgage servicers, student borrowers, credit card swipers, and millions of others have relied on creative reshufflings, COVID-era accommodations, and a decade of unusually cheap credit to delay facing reality.
As economic growth slows, interest rates remain elevated, and temporary relief measures expire, the bill for years of “extend and pretend” is finally coming due.
“Extend and Pretend” Starts In Commercial Real Estate
When a commercial buyer cannot meet contract terms, the lending bank has the option of simply adding a couple years to the loan. The bank pretends the loan is performing, and avoids depleting its capital. The borrower buys some time and avoids default. The increasing mismatch between price and value is swept under the rug, and financial fragility quietly builds in the background.
The Federal Reserve’s own research suggests “credit risk in the CRE market has substantially increased in the post-pandemic period but banks — weakly capitalized ones in particular — have been sluggish in assessing the associated losses… Nonperforming loans and net charge-offs have remained low by historical standards.” Commercial lenders pushed forward maturity dates for half of all commercial real estate loans ending in 2025, with billions in potential property defaults “adjusted” to avoid fire-sale conditions. Over $1.5 trillion in commercial real estate loans will mature by the end of 2026. Many of those loans should’ve been marked as defaults in 2023 or 2024, but weren’t. The pain of pruning malinvestment was delayed, guaranteeing markets wouldn’t get healthier.
The credit cushion that allowed this widespread kick-the-can behavior is running out. Sunbelt cities are seeing apartment loans underperform by 30 percent. Many of the distressed properties are second-tier office buildings struggling to reach full occupancy in the era of remote work. Their unrealistic valuations have become a burden, forcing lenders to reprice and offload overleveraged buildings. Unrealized losses for private creditors continue to compound.
Similar “extend and pretend” dynamics are at work in student loans, residential mortgages, and personal consumption.
Student Loans: Extend and Pretend at Government Scale
Student loan terms are remarkably unforgiving, but most of the draconian provisions haven’t been active for the past five years. The New York Federal Reserve reports a total of $1.65 trillion in student loan debt, with an average monthly payment of $434 per borrower. The unpaid balances amount to $14,390 per federal taxpayer, floating out there in the liability ether.
Federal student loan payments were almost universally paused during the 2020 shutdowns. Interest resumed in October 2023, but many graduates moved to Biden’s SAVE plan, with its promise of erasing the remaining debt after 20 years. Young borrowers, understandably, slowed their rate of repayment to extend the timeline, rather than pay off the loan. Households subject to the repayment pause, Chicago Booth researchers later found, did indeed spend more and goose the economy — by taking on an additional $1,800 in debt. The SAVE plan was eventually struck down, but millions of loans were placed in interest-free forbearance and delinquencies were not reported to credit agencies.
Not until Q4 2025 did new student loan defaults begin appearing in credit reporting data — and the data are grim. Roughly a million borrowers defaulted at the end of 2025, and another 2.6 million defaulted in Q1 2026. Delinquencies are reported after 90 days of nonpayment, so 17 percent of student loan borrowers have been three months behind at least once in the months since reporting resumed. Total student loan delinquencies now exceed 25 percent.
But there’s a still-hidden second wave coming. One-fifth of all student loan recipients — 8.8 million Americans — have at least one loan still in general forbearance, accumulating interest. The almost four million borrowers who’ve already defaulted aren’t included. That unpaid balance is $504 billion or about $60,000 per borrower — deferred distress excluded from official statistics.
Subprime Mortgages: Modify Until the Music Stops
When people have trouble paying their mortgages, banks and other lenders use a combination of tools to make the mortgage “sustainable.” Missed payments may be tacked onto the end of the loan term or rolled into the total principal. Loan terms may be extended or the interest rate adjusted. Banks undertake these loss-mitigation efforts to keep troubled loans current and prevent costly foreclosures.
But residential loans were another hotspot of COVID-era government protections, and the Federal Housing Administration offered “home retention options” that favored borrowers and extended risk beyond what banks would ordinarily tolerate. The “relief” policies masked the growing troubles with taxpayer funds.
The Office of the Comptroller of the Currency reports 97 percent of mortgages remain in good standing, but loss-mitigation schemes simply can’t go on forever. Delinquencies reported so far do not capture true loan stress.
For starters, FHA-sponsored modification programs are expiring. President Trump ended COVID-era mortgage assistance in April 2025, overturning President Biden’s attempt to extend it indefinitely. Some observers point to the rapid increase in delinquency as an artifact of the reporting rule change, but nobody denies: the new data are more accurate and the news isn’t good.
“The long tail of loss mitigation is now coming into view as FHA’s post-pandemic relief tools give way to repeat defaults, exhausted options, and a swelling foreclosure pipeline,” summarized Katie Jensen for National Mortgage Professional.
Foreclosure activity remains 30 percent lower than it was in pre-pandemic years. Pandemic programs to “help borrowers” recreated some of the worst features of the 2008 subprime mortgage meltdown. Borrowers didn’t have to prove hardship. Verification tools were suspended. “Partial claims” policies encouraged the FHA to use taxpayer funds to bring delinquent mortgages up to date every three to four months. The FHA made more than half a million “incentive payments” to delay foreclosure, so even defaulted mortgages provide revenue to servicers.
Up to 60 percent of those mortgages are in serious delinquency — some seven percent never even made the first payment. When FHA modifications expire, mortgage finance specialist John Comiskey warns, “the music stops,” and the foreclosure machine will lurch to life. Mark Zandi, chief economist for Moody’s Analytics, recently said the FHA delinquency rate is “a proverbial canary in the coal mine.”
Through FHA, VA, USDA, Fannie Mae, Freddie Mac, and the rest — taxpayers now back about half of all residential mortgages.
Consumer Credit and Phantom Debt
The motivations behind extend-and-pretend are pretty clear. All share the same core logic: defer visible distress today, allow it to accumulate invisibly, and postpone the inevitable long-term consequences. For our last category of debts, that extend-and-pretend trap is, in fact, the whole business model.
Credit card balances now total $1.25 trillion, a 63 percent increase from 2021 lows. Millions of borrowers are making monthly minimum payments while accumulating inescapable debts. Delinquencies are at a 15-year high, on par with the Great Financial Crisis, with one in eight accounts at least 90 days behind. Half of borrowers carry a balance from month to month. That’s forty percent of the US adult population tapping tomorrow’s funds for today’s expenses.
Auto loans are also under pressure, with outstanding auto loan debt totaling $1.67 trillion. High interest and ever-more-expensive vehicles are concealed by “manageable” monthly payments, with loan terms extending out to 84 months. Car dealers explicitly execute the extend-and-pretend mechanism by rolling the negative equity into a new loan, transferring unpayable debt onto the new vehicle’s financing. Delinquency and repossession stats actually hide most of this, and even so, are at record highs.
Extend-and-pretend consumer behavior is made literal with the Buy Now, Pay Later installment plan craze. With double-digit annual growth, these services are custom-designed to lure almost 90 million unwary buyers into long-term debt. Major BNPL firms only recently opened their books to credit bureaus: now we know at least $3.02 billion is outstanding, and that’s just the beginning. Users often juggle multiple BNPL accounts creating phantom debt that’s invisible to other commercial lenders, but silently stacks the risk of cascading default.
Institutional Origins and a Warning
Economic storm clouds are gathering. Inflation is once again outstripping wage growth. Americans are running out of savings cushions and the savings rate has “tanked.” Meanwhile, assets and equities, led by tech stocks, have jumped 30 percent in the past 12 months, propping up GDP numbers.
But high corporate profits largely reflect consumer spending, while an unknown amount of current consumer spending isn’t backed by income or savings. We are living on invisible leverage as the real value of our paycheck crumbles. Extend-and-pretend doesn’t have to be an explicit policy choice to be so pervasive — it’s an emergent behavior born of the disconnect between sticky prices and buyers’ genuine purchasing power. Lenders defer, rather than absorb, those losses. Consumers go on consuming in excess of what they actually earn, both for necessities and hedonic luxuries, dancing ever closer to the financial edge.
Between 2008–2022, the Federal Reserve presided over 14 years of near-zero or below neutral interest rates. During the same period, it increased its balance sheet tenfold, from $900 billion to $9 trillion. Quantitative easing injected easy money into the banking system, inflating asset prices by purchasing mortgage-backed securities. The Fed’s primary mechanism — nudging up asset prices to use the wealth effect as a policy tool — is structurally regressive. Buying power at the lower end of the income distribution was hit hardest. The working class was priced out of assets, but received unprecedented access to student loans and consumer credit — lifelong amounts, for many. The Fed doesn’t act alone: much of the blame for this asset expansion belongs to Congress and the executive branch, whose obsession with spending beyond their means led an entire nation to do the same.
Extend-and-pretend is a denial of economic realities. Each time-buying intervention obscures price signals, misallocates capital, and encourages even greater risk-taking. The result is an economy that appears stable on the surface while underlying imbalances continue to grow. Eventually, reality reasserts itself, and the longer that reckoning is delayed, the more painful it becomes.