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Mortgage Debt Continues to be a Drag on the Economy


The Federal Reserve Bank of New York released itsHousehold Debt and Credit Report for Q4 2014. One key chart is the percentage of accounts 90+ days past due. Note that first mortgage delinquencies have declined to 3.2% from their peak of 8.9% in 2010, while HELOCs and second loans have held steady between 3% and 3.5% for the past 2 years.

What happens if you add the mortgage and HELOC delinquency rates together, and go back 25 years? You get this:

Clay Westbrook, Delinquency chart, consumer debt, US economy

The current 6.5% default rate is the lowest since 2008. Before the market peaked in 2007, the combined rate averaged 2.5%. HELOCs are the problem.

There are 98 Million Mortgage and HELOC accounts, which means there are still millions of homeowners with loans in default. This does not include homes that are underwater but performing, or underwater and modified. Or one paycheck away from in default due to declines in household income.

Many homeowners tapped all of their home equity before prices fell, and if prices have recovered to pre-recession levels, that only means many homeowners have only “made it” back to zero equity. Selling costs money (commissions in particular), so if you sell your house for the loan balance, you’re still bringing a check to closing.

And buying a new home means needing 20% in cash for a downpayment, which would require fairly drastic cuts in household spending to accumulate. This is why housing continues to hold back economic growth.

If financial problems with your business are making it difficult for you to meet your personal financial goals, Contact Us.

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