Monday, May 20, 2013

We’re not “deleveraging”, we’re defaulting en masse.

We’re not “deleveraging”, we’re defaulting en masse. | RareGHTENING

Mortgage Debt Discharged_0
Lately there has been an amusing and very spurious, not to mention wrong, argument
among both the “serious media” and the various tabloids, that US households have
delevered to the tune of $1 trillion, primarily as a result of mortgage debt reductions
(not to be confused with total consumer debt which month after month
hits new record highs,
primarily due to soaring student and GM auto loans).
The implication here is that unlike in year past, US households are finally doing the 
responsible thing and are actively deleveraging of their own free will. 
This couldn’t be further from the truth, and to put baseless rumors of this nature to
rest once and for all, below we have compiled a simple chart using the NY Fed’s
own data, showing the total change in mortgage debt, and what portion of it is
due to discharges (aka defaults) of 1st and 2nd lien debt.
In a nutshell: based on NYFed calculations, 
there has been $800 billion in mortgage debt 
deleveraging since the end of 2007.
This has been due to $1.2 trillion in discharges

(the amount is greater than the total first lien mortgages, due to the increasing
use of HELOCs and 2nd lien mortgages before the housing bubble popped).

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