Tuesday, September 18, 2012

Chipping Away At Mortgage Debt

Total National Mortgage Debt Drops


According to a news release from the Federal Reserve, the national outstanding mortgage debt has dropped nearly $1 trillion dollars since 2008 — the total debt on one-to-four family residences now stands at $10.178 trillion, down from $11.075 trillion in 2008.


Peter Miller, editor of the HSH blog, considers dropping home prices, record low mortgage rates, refinancing and loan modifications to significant contributing factors.

  • Lower home prices mean smaller mortgages. As home prices fall, new loans are simply smaller for the same property than they would have been when the housing market was booming — the Fed estimates that from 2005 to the first quarter of this year, the housing market has lost more than $5.5 trillion, or about 25% of its total value.
  • Lower mortgage rates mean less debt.Low mortgage rates mean less debt for a loan and smaller monthly payments.
  • Refinanced mortgages mean less debt. Refinancing has lowered homeowners’ current debt and monthly payments — Wells Fargo recently announced that between March and June of this year, it had helped more than 8,500 customers refinance their loans, saving the borrowers an average of $4,560 annually in interest payments.
  • Modified loans mean less debt. Loan modifications have also lowered the debt for borrowers struggling with their loan — according to the Fed, more than one million borrowers have been helped by the Making Home Affordable Program, reducing their monthly mortgage payments by an average of $536.


Miller summed up the positive ramifications of national debt reduction quite simply:

  1. Homeowners spending less on their home loan will spend more in the marketplace
  2. As debt decreases, so does risk — meaning lenders may ease their credit constraints