Dwindling Property Value Results In The Fall Of U.S Mortgage Debt

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mortgageBy Kevin Craig

Yes, you heard it right, with the current economic meltdown and the slump in the housing market, there is a severe drop U.S. mortgage debts. As per the reports issued by Federal Reserve the amount of outstanding home mortgages has fallen from 9.94 trillion to $9.88 trillion. Well, from 2006 onwards this decline has reached it’s the lowest point. Mortgage volume took a peak at $10.6 trillion in early 2008, but now as the wealth fades and so does the mortgage debt, it seems almost impossible to ever reach this record in future.

The crisis

Studies conducted by Federal Reserve and Zillow Inc claims that the mortgage lending that picked up pace and prompted spending and bank profits during the 2001 to 2006 rush in home prices, is falling short on efforts to boost the U.S. economic recovery now. And as a result approximately a third of U.S. mortgage payers owe more than the value of their house. Doug Duncan, chief economist of mortgage-financier Fannie Mae commented that outstanding home-loan volume may drop “for at least another couple of years,” and “Consumers are still leveraged well above average,” which ‘has to be worked off before you’ll see a return of robust consumption.” It seems the situation might further deteriorate in future. As per the Mortgage Bankers Association in Washington borrowing for loans will go down to $80 billion soon, which will be the lowest since 1991. There are reasons to believe this prediction. The report of S&P/Case- Shiller home price index of 20 U.S. cities shows a 31 percent decline in the current Home prices.


According to Stan Humphries, the chief economist for Zillow the negative equity is the greatest problem behind this alarming crisis. He believes ‘It’s hard to come up with a way to erase the negative equity that’s fair to homeowners who were going to continue to pay and in a way that doesn’t bankrupt either the banks or the taxpayer.” However, the homeowners, who are not underwater yet, means who don’t owe a higher balance than the free-market value of the home can take advantage of the refinancing option at a lower interest rate. Freddie Mac, the McLean, Virginia-based mortgage-finance Company recently has revealed an astonishing fact that the current rate of 30-year fixed mortgages has become 3.99 percent now.  Mortgage Bankers Association made a prediction that the rate will reach 4.2 percent in the first three months of 2012. It is going to be the lowest quarterly number in Freddie Mac records since 1971.

Remedial measures

President Barack Obama adopted some remedial measures to resolve this problem. He requested Fannie Mae and Freddie Mac, which have been placed into U.S. government conservatorship from 2008, to make relatively lenient terms for underwater homeowners, who like to refinance their properties.


Last but not the least, with the New Year around the corner, we can presume from the repeated incidents of loan default and foreclosure that the volume of outstanding mortgage debt probably will drop more in 2012. This is further confirmed by the astonishing figures unveiled by Duncan from Fannie Mae and Processing Services in Jacksonville, Florida. They claim around  4.5 million homes with $800 billion in mortgages have fallen into seriously delinquent status for almost 90 days and presently about 2.2 million homes are headed toward foreclosure. You’ll just have to wait and see to know what lies ahead.

This article has been contributed by the Debt consolidation care community member Mr. K. Craig. He is a financial writer by profession and has specialization in dealing with financial problems as well as its solutions and also written some great articles on refinance, mortgage refinance, credit counseling, credit repair, debt management and so on.

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