People have been screaming about a housing bubble crash on social media sites for over 12 years. The truth is, U.S. housing credit looks very different than in 2005, 2006, 2007 or 2008. Homeowners have actually never looked better and the data from the Federal Reserve‘s Quarterly Report on Household Debt and Credit shows why.
Homeowners are not the people we need to be concerned about this time. Renters, younger renter households and those with lower FICO scores are the ones showing credit stress today. Homeowners, on the other hand, are sitting pretty and are the envy of the world.
Bankruptcies and foreclosures
After 2010, the qualified mortgage laws came into play and all the exotic loan debt structures in the system, especially in the run-up in demand from 2002 to 2005, disappeared. This means housing should only show financial stress when people lose their jobs and cannot pay their mortgages — not because the loan structures are a ticking time bomb.
As shown below, we saw massive credit stress in the data from 2005 to 2008, all before the job loss recession happened. It was there for everyone to see and read. Now, that same chart shows that homeowners don’t have credit stress. So, for those still saying housing is in a bubble: Where’s the beef?
From the report: About 40,000 individuals had new foreclosure notations on their credit reports, mostly unchanged from the previous quarter. New foreclosures have stayed very low since the CARES Act moratorium was lifted.
FICO score and cash flow
When I speak at events around the country and put up this chart, I always say, what a beautiful-looking chart! That’s because after 2010, people got 30-year fixed mortgages and every year, as their wages rose, their cash flow versus the debt cost of their home got better. Then add three refinancing waves in 2012, 2016 and 2020-2021, and you can see why homeowners are in a good spot.
During inflationary periods, wages grow faster than usual, so housing debt costs much less. Also, people live in their homes longer and longer as they age and their yearly income lowers their housing costs. One note on this subject: we had an explosion of households with FICO scores of 740+ during COVID-19. A lot of rookie economists said this was FICO score inflation. But the data has been the same since 2010: we just originated more loans during this time — purchases and refinances — so the data didn’t get better, it stayed roughly the same.
From the report: The median credit score for newly originated mortgages was flat at 770, while the median credit score of newly originated auto loans was one point higher than last quarter at 720.
Delinquency status
When the next job loss recession hits, we should all expect credit stress in housing to start rising. Every month, people get fired and can’t find work right away. This is why jobless claims are never zero and we have a constant amount of 30-60 days late every month. However, since we are working from near record lows in credit delinquency data and the homeowners’ households are in such good financial shape, the credit stress data won’t be like what we saw in 2008.
Over 40% of homes in America don’t even have a mortgage, and we have a lot of nested equity, so if worst comes to worst, many homeowners who bought homes from 2010-2020 have a ton of equity and can sell. Remember, the foreclosure process typically will take 9-18 months from start to finish, meaning that homes come to market as market supply due to the legal process we have in-housing. This is very unlike 2008, where we had four years of credit stress building up in the system.
From the report: Early delinquency transition rates for mortgages increased by 0.2 percentage point yet remain low by historic standards.
Hopefully, between the charts and the explanations, you can see why it’s not housing 2008. However, we do see credit stress in the data for younger households and those with lower FICO scores. The people that Jerome Powell says he wants to help at each meeting are showing credit stress.
The Fed missed the housing bubble credit stress when it was apparent in the run-up to 2008, and now they’re turning a blind eye to those who aren’t homeowners by keeping policy too restrictive, due to some devotion to a 1970s inflation model that doesn’t exist today. Or, as I’ve said since 2022, they’re old and slow. It’s the nature of the beast.
Portions of this article were drafted using an in-house natural language generation platform. The article was reviewed, fact-checked and edited by our editorial staff.
Key takeaways
Fannie Mae and Freddie Mac are government-sponsored enterprises that aim to provide the mortgage market with stability and affordability.
They are major players in the secondary mortgage market, buying loans from lenders and either keeping them or repackaging them as mortgage-backed securities.
Fannie Mae and Freddie Mac were both created by Congress but have different intended purposes and loan-sourcing methods.
As you explore your mortgage options, you’re likely to come across two names: Fannie Mae and Freddie Mac. Although you won’t directly get a home loan through these government-sponsored enterprises (GSEs) — private entities operating under a Congressional charter — they nonetheless have an impact on your getting a mortgage and its terms. Let’s take a closer look at these key players in the mortgage industry, and what distinguishes them.
What are Fannie Mae and Freddie Mac?
Fannie Mae and Freddie Mac are government-sponsored enterprises. Congress created both with the goal of adding stability and affordability to the country’s mortgage market. They also provide banks and mortgage companies with ready access to funds on reasonable terms, adding liquidity to the mortgage market.
Both agencies are major players in the secondary mortgage market. That is, their focus is buying loans from mortgage lenders, giving those institutions more capital to continue offering financing to other borrowers. Fannie Mae and Freddie Mac then either keep them or, more often, repackage them as mortgage-backed securities that can be sold to investors.
By acting as a market-maker — that is, constant buyer — they ensure liquidity in the lending world. As of 2023, Fannie Mae and Freddie Mac support around 70 percent of the mortgage market, according to the National Association of Realtors. That means the majority of conventional loans, those offered by private lenders, end up being backed or purchased by one of the two entities.
Though they set criteria for loans, neither Fannie Mae nor Freddie Mac originate or directly provide mortgages to homebuyers. Instead, you’ll get your loan from a mortgage lender, such as a bank, credit union or online lender, which can then choose to sell the loan to one of these GSEs, assuming the loan’s eligible.
Differences between Fannie Mae and Freddie Mac
While they may seem incredibly similar, Fannie Mae and Freddie Mac have some key differences. Here’s a closer look at what differentiates Freddie Mac from Fannie Mae.
Intended purpose
Fannie Mae was established with the intended purpose of creating a more reliable source of accessible funding for banks and mortgage companies. This, in turn, opened the door to more widely accessible and affordable mortgages for Americans seeking to become homeowners. Congress created Freddie Mac, on the other hand, with the goal of expanding the secondary mortgage market, buying loans that meet its standards from lenders. This function allows lenders to make more loans available to prospective buyers.
Loan sourcing
Although both do buy mortgages, each GSE purchases loans from different sources. In general, Fannie Mae tends to buy loans from larger commercial banks and mortgage lenders, whereas Freddie Mac often buys loans from smaller banks.
Lending requirements
Fannie Mae and Freddie Mac also have slightly different requirements for the mortgages they purchase. In both cases, Fannie and Freddie loans must be conforming loans, or adhere to these standards, for them to be eligible for purchase. The requirements cover the amount of the home purchase price that can be financed, the borrower’s credit score and debt-to-income (DTI) ratio, loan-to-value (LTV) ratio and other factors.
Loan programs
Fannie and Freddie each sponsor different loan programs — mortgage products that expand homeownership opportunities to buyers who may not be able to afford a conventional down payment. These include HFA loans offered through state housing finance agencies, as well as the HomeReady and HomePossible mortgage programs, offered through approved private lenders. Both empower buyers by requiring only a 3 percent down payment.
Similarities between Fannie Mae and Freddie Mac
Now that we’ve covered their differences, let’s touch on how Fannie Mae and Freddie Mac are similar.
Their creation and structure
Both Fannie Mae and Freddie Mac were created by Congress to address issues in the housing market. They exist as publicly-traded corporations that are under the conservatorship of the government.
Buy and sell mortgages
Fannie Mae and Freddie Mac buy loans from lenders and repackage them into mortgage-backed securities. This benefits the mortgage market in a couple of ways. First, it lowers the risk of default for lenders since they don’t have to keep these loans on their books. Plus, selling mortgage-backed securities to investors creates stability in the secondary mortgage market, further lowering risk and leading to lower interest for borrowers.
Increase loan availability
Because Fannie and Freddie buy loans from lenders, this increases the amount of money lenders can loan out. Once they close a loan and sell it to Fannie or Freddie, lenders can re-lend that cash.
Standardize loans
Fannie Mae and Freddie Mac only buy loans that conform to the FHFA’s standards. That means they must be under a certain loan limit and borrowers must meet specific financial requirements. Lenders have adopted these standards for most conventional conforming loans so they can sell their mortgages to Fannie and Freddie.
Fannie Mae and Freddie Mac history
In 1938, the government created Fannie Mae, or the Federal National Mortgage Association, amid the struggles of the Great Depression. The goal of Fannie Mae was to create a more reliable source of funding for banks, opening doors for more Americans to become homeowners, figuratively and literally.
Freddie Mac, short for the Federal Home Loan Mortgage Corporation, came on the scene through an act of Congress in 1970, with a similar purpose of ensuring that there are reliable, affordable mortgage funds available nationwide.
Since 2008, both Fannie Mae and Freddie Mac have operated under the conservatorship of the Federal Housing Finance Agency (FHFA). Though both are currently under a conservatorship of the same agency, the two entities are separate from one another, each with its own shareholders and leadership.
Fannie and Freddie in the 21st century
Both Fannie and Freddie played a role in the Great Recession. In the years leading up to the housing market collapse, they backed or owned numerous subprime mortgages. When the housing bubble burst, economic pressures and large losses led to the need for the government to step in and help them with bailouts. The two agencies took on more debt but, as a result of their losses, they risked becoming insolvent, and were put under FHFA conservatorship. They’ve since paid back most of the bailout money.
During the COVID-19 pandemic, Fannie Mae and Freddie Mac offered mortgage relief and protections to homeowners, including forbearance, loan modification programs and a moratorium on foreclosures and evictions.
Who regulates Fannie Mae and Freddie Mac?
Fannie Mae and Freddie Mac are regulated by two government agencies: the FHFA and the U.S. Department of Housing and Urban Development (HUD). Along with HUD and FHFA oversight, the President of the United States appoints five of the 18 board members at each entity. Further details of the regulation for Fannie Mae and Freddie Mac are laid out in two government acts: The Federal Nation Mortgage Association Charter Act and the Federal Home Loan Mortgage Corporation Corporation Act.
What this means for you
Since you can’t take out a mortgage directly from Fannie Mae or Freddie Mac, why should you care about these big names in the mortgage market? In addition to keeping the mortgage market humming and making homeownership more accessible overall, here’s how they can affect you:
They create more affordable financing options, including lower-down payment loan programs.
They foster competition among lenders, leading to lower rates.
They help set borrowing standards, influencing the qualifications you need to meet to obtain a mortgage.
To find out if you have a Fannie Mae- or Freddie Mac-backed loan:
Chapter 13 Bankruptcy, often known as a wage earner’s plan, provides a structured approach for individuals with a consistent income to manage and repay their debts. This guide aims to offer a thorough overview of Chapter 13 Bankruptcy, covering eligibility criteria, the process involved, and the various responsibilities it encompasses.
We’ll explore the essential elements of Chapter 13 Bankruptcy. These include its procedural framework, the duties imposed upon filers, and its effects on credit standings and asset holdings. Additionally, the roles of the bankruptcy trustee and your attorney are discussed, providing a comprehensive understanding of their involvement and support in this financial reorganization journey.
Qualifying for Chapter 13 Bankruptcy: Criteria and Guidelines
When considering Chapter 13 bankruptcy, it’s essential to understand who qualifies for this financial path. Chapter 13, named after its placement as the 13th chapter in the U.S. Bankruptcy Code (11 U.S. Code Title 11), is specifically designed to help individuals reorganize their debts.
Key Criteria for Qualification
Let’s break down the eligibility criteria in a straightforward manner to make it easier to determine whether Chapter 13 is the right option for you.
Regular Income: The Foundation of Eligibility
A fundamental requirement for Chapter 13 is having a regular income. This doesn’t just mean a traditional 9-to-5 job. Income can come from various sources like self-employment, seasonal work, social security, or even disability benefits. The key is having a steady flow of income that can support a repayment plan.
Debt Limit: Knowing Your Boundaries
There are specific debt limits set for Chapter 13 bankruptcy. As of the latest guidelines, your secured debts (like mortgages and car loans) must be less than $1,257,850, and your unsecured debts (like credit card debt and medical expenses) should be under $419,275. Staying within these limits is crucial for eligibility.
Credit Counseling: A Pre-filing Requirement
Before filing your bankruptcy petition for Chapter 13, you must complete credit counseling from an approved agency. This step, taken within 180 days before filing, is not just a formality. It’s a valuable exercise to understand your financial situation and explore alternatives to bankruptcy.
No Recent Bankruptcy Filings
If a bankruptcy judge dismissed your previous case within the past 180 days for failing to appear in court or comply with orders, you’re temporarily ineligible for Chapter 13. This also applies if you voluntarily dismissed your case after creditors sought court relief to recover property with liens. In these situations, Chapter 13 filing is not an option until the 180-day period has elapsed.
Are You Eligible?
Eligibility for Chapter 13 bankruptcy might seem complex at first glance, but breaking it down into these key areas – steady income, debt limits, mandatory credit counseling, and recent bankruptcy history – can clarify whether this path is an option for you.
If you meet these criteria, Chapter 13 could be a viable strategy for managing and reorganizing your debt. Remember, consulting with a bankruptcy attorney can provide personalized advice and help you make this financial decision with greater confidence and clarity.
How does Chapter 13 bankruptcy work?
Chapter 13 bankruptcy is often a practical solution for individuals grappling with financial challenges. It involves a well-defined process designed to help reorganize and manage debt effectively.
Understanding each step of this process is crucial, as it provides a clearer picture of what to expect and how to best prepare for the journey ahead. Let’s take a closer look at these steps to gain a comprehensive understanding of the Chapter 13 bankruptcy procedure.
Filing the Bankruptcy Petition
The journey begins with filing a bankruptcy petition in a federal bankruptcy court. This step officially starts your case and includes submitting various documents detailing your financial situation—like income, debts, assets, and a detailed list of expenses.
Completing Mandatory Credit Counseling
Before filing, you must complete credit counseling from an approved agency. This isn’t just a box to check; it’s a crucial step to ensure you’re fully aware of the implications of bankruptcy and alternative debt management strategies.
Developing a Repayment Plan
Within 14 days of filing, you’ll propose a repayment plan, detailing how you plan to pay off your debts over the next three to five years. Your income, living expenses, and debt types heavily influence this plan.
The Role of the Bankruptcy Trustee
Upon filing, the court appoints a bankruptcy trustee. This trustee evaluates your plan, oversees the repayment process, and distributes payments to your creditors. They act as a mediator between you and your creditors.
The 341 Meeting of Creditors
After filing, you’ll attend a ‘341 meeting’ with your trustee and creditors. This meeting allows creditors to ask questions about your financial situation and the proposed repayment plan.
Confirmation Hearing and Plan Approval
A bankruptcy judge will hold a confirmation hearing to approve your repayment plan. Creditors can object to the plan here, but if the judge finds the plan fair and compliant with bankruptcy laws, they will approve it.
Making Payments and Following the Plan
Once approved, you start making payments according to the plan. Consistent payments are crucial. Missing payments can lead to case dismissal or conversion to a Chapter 7 bankruptcy.
Discharge of Remaining Debts
After successfully completing the repayment plan, remaining qualifying debts are discharged. This means you’re no longer legally obligated to pay these debts, marking the completion of your Chapter 13 bankruptcy journey.
Your Responsibilities in a Chapter 13 Bankruptcy
Beginning April 1, 2019, when filing for Chapter 13, expect a certain number of requirements to maintain your eligibility. For example, you must:
File all required tax returns before your creditor’s meeting
Send all creditors a notice of your bankruptcy
Maintain child support and alimony payments during your plan
Make all payments to the trustee during your adjustment period
Make all payments for agreed upon secured loans, such as your house and cars
Meet new tax obligations and not incur significant new consumer debt
Provide the trustee with annual tax returns and information of changes in income
Get court approval for any new loan, or for buying, selling, or refinancing a home
No more than $419,275 in unsecured debts
No more than $1,257,850 in secured debts (including mortgages and car loans)
The Role of a Bankruptcy Trustee in Chapter 13 Proceedings
The trustee is a representative of the bankruptcy estate who works for the bankruptcy court and the federal government to review bankruptcy petitions and schedules.
This person generally handles most of the issues related to the processing and approval of bankruptcy cases. The trustee also acts as the disbursing agent for your payments and provides oversight on issues that might arise.
How Your Attorney Can Assist in Chapter 13 Bankruptcy
In Chapter 13 bankruptcy, your bankruptcy lawyer generally analyzes all the particulars of your situation and prepares your estate, allowing you to keep as much of your property as possible. They will assemble all your information and data and handle your court paperwork and deadlines.
Your attorney will prepare your petitions, schedules, and statements for the bankruptcy filing. They will also draft your plan of reorganization and help you understand your duties. Attorneys will also meet with your creditors, attend hearings, and address issues with the trustee.
Additionally, attorneys will make necessary petitions and modifications if you need to change your Chapter 13 plan. They are now more liable for inaccuracies and other problems that could arise with your Chapter 13 case.
This means that many of the burdens of bankruptcy are taken off you and become the attorney’s responsibility.
Attorney’s fees vary from state to state, but expect to pay anywhere between $1,200 and $2,500. Given the level of responsibility they carry on your behalf, it’s well worth the investment.
The Impact of Chapter 13 Bankruptcy on Your Credit Score
Chapter 13 bankruptcy will be publicly listed on your credit report for a total of seven years, during which time your credit will be negatively affected.
However, your credit score will slowly increase as you establish a positive payment pattern during your adjustment period, and it will continue to increase as long you keep up with your payments.
You can also expect an increased difficulty in obtaining credit. If you do qualify for a credit card or loan, you’ll pay some of the highest interest rates on the market.
You’ll also only qualify for smaller credit amounts, so it will become essential to save up cash reserves to have on hand for any financial emergencies that pop up.
Protecting Your Assets: Exemptions in Chapter 13 Bankruptcy
Under Chapter 7, every state has a list of exemptions for things that don’t need to be sold to pay back creditors.
Usually, there is a monetary limit for each category of property you own, whether it’s your home, car, or household possessions. Under Chapter 7, your creditors have the right to liquidate assets not protected by this exemptions list.
However, in Chapter 13, instead of having those items liquidated, you must pay their full value to creditors as part of your adjustment plan. To fully understand how exemptions work in your situation and state, it’s helpful to talk to a lawyer.
Chapter 13 Bankruptcy for Self-Employed Individuals and Business Owners
If you are self-employed or operate your own business, you must file a monthly financial report or business operating statement with the trustee before the 15th day of each month.
You’ll also need to verify your income before filing for Chapter 13 bankruptcy. If you own your own business, it’s even more important for you to maintain thorough documentation of your financials both before and during Chapter 13 bankruptcy.
What to Do If You Can’t Meet Chapter 13 Bankruptcy Payments
If a situation arises under Chapter 13 in which you’re unable to make all your required monthly payments, you must show that it results from a serious income change or a necessary expense. Your lawyer must then file a moratorium with the bankruptcy court and creditors, which is subject to approval by the trustee.
In most Chapter 13 cases, you should be able to get approved for some type of catch-up plan, including lengthening your repayment term if you’re just suffering from a short-term financial setback.
For a long-term issue, you can apply for a modification. In the event of a severe hardship that makes it impossible for you to make your Chapter 13 payments, you can request a hardship discharge.
Another option is to convert your bankruptcy to a Chapter 7 and have your remaining eligible debts discharged. This is only possible if your new financial situation meets the income qualifications for Chapter 7 bankruptcy.
A final option is to dismiss your current Chapter 13 and file for a new one. Just make sure you request an automatic stay from the court to ensure creditors don’t resume their collection attempts as you pivot to a new bankruptcy plan.
Should I file for Chapter 13 bankruptcy?
There’s no right or wrong answer to this question. One of your first steps should be to undertake free credit counseling to see if you can figure out a manageable debt payment plan that works for your current situation. If not, you should then seek professional legal help.
It’s great to read up on the pros and cons of bankruptcy, but at the end of the day, so much depends on your personal situation. From your money to your state, there are countless small details that could influence what it means to take the best course of action.
Bottom Line
Chapter 13 Bankruptcy presents a structured pathway for individuals with regular income to reorganize and manage their debts effectively. Throughout this article, we’ve explored the intricacies of Chapter 13, from eligibility requirements to the responsibilities and roles of various parties involved. It’s clear that while this form of bankruptcy can offer a lifeline to those overwhelmed by debt, it also requires careful consideration and adherence to specific legal obligations.
Key takeaways include understanding the importance of meeting eligibility criteria, the vital role of a bankruptcy trustee, and the indispensable support an experienced attorney can provide. Additionally, recognizing how Chapter 13 Bankruptcy impacts one’s credit and the strategic planning required for managing exemptions are essential aspects of this process.
If you’re considering filing for Chapter 13 Bankruptcy, it’s crucial to consult with a qualified bankruptcy attorney who can provide personalized advice based on your unique financial situation. They can guide you through the process, help you understand your options, and work with you to develop a plan that aligns with your financial goals.
Remember, while Chapter 13 Bankruptcy can be a complex process, it also represents a proactive step towards regaining financial stability and moving towards a more secure financial future.
Collectively, Americans carry trillions in household debt. And the biggest single element of that burden by far is mortgage debt: It comprises close to $12 trillion of the $17.29 trillion overall.
Latest statistics on average mortgage debt
Mortgage
The average mortgage debt balance per household is $241,815 as of Q2 2023, a 4% increase from 2022.
The total mortgage debt balance in the U.S. is $12.14 trillion as of Q3 2023, an increase of $126 billion over the previous quarter.
The average mortgage balance exceeds $1 million in 26 U.S. cities, primarily on the East and West Coasts.
Mortgage originations collectively total $386 billion, as of Q3 2023, well below the trillion-dollar levels in 2020-21.
Total home equity line of credit debt equals $349 billion as of Q3 2023, more than a $25 billion year-over-year increase.
The average credit score for purchase mortgage holders is 733 as of November 2023.
The total debt service to income ratio (DTI) of U.S. households is projected to rise to 11.7% by 2025, up from 9.9% in 2022. The mortgage DTI alone will increase to 4.5%.
Total U.S. household debt is $17.29 trillion as of Q3 2023, an increase of $3.1 trillion since the end of 2019.
Annual average mortgage debt
Mortgage debt is the heavyweight when it comes to household debt, dwarfing credit card balances, student loans and auto loans. After the tough blow dealt by the 2007-08 subprime mortgage crisis, the annual average mortgage debt declined sharply. However, since 2013, the pendulum began to swing back, with mortgage debt on a steady rise. Since the pandemic, increases in home prices and in interest rates kicked the climb into overdrive.
So, what does this mean for the annual average American mortgage debt in 2024? With housing inventory still tight, interest rates still elevated, and people seeking larger homes to accommodate their evolving lifestyles, mortgage balances will likely continue to grow, though perhaps at a slower pace.
Most common types of debt
Mortgages continue to be a significant portion of household debt in the United States, with a current total of $12.14 trillion owed on 84 million mortgages. This equates to an average American mortgage debt of $144,593 per person listed with a mortgage on their credit report. Despite interest rates hovering above 7 percent, mortgage demand remains strong, driven by two key factors: an increase in the number of people seeking mortgages, and larger mortgages at that.
The record-low mortgage interest rates of recent years allowed buyers to purchase higher-priced homes or refinance their existing mortgages while maintaining low monthly payments. This has led to a rise in outstanding mortgage debt, which currently accounts for 70.2 percent of consumer debt in the U.S., according to New York Federal Reserve figures.
Here’s a look at the other common types of debt among American households, based on credit reporting company Experian’s midyear consumer debt review:
Auto loans. In the year between Q2 2022 and Q2 2023, auto loan debt witnessed a 5.8 percent increase, rising from $1.42 trillion to $1.5 trillion. This rising trend in auto loan debt can be attributed to persistent inventory shortages, escalating prices for new and used vehicles, and supplementary expenses such as auto insurance.
Credit card debt. Between Q2 2022 and Q2 2023, credit card debt surged by 16.3 percent, amounting to a total of $1.02 trillion. This increase is largely attributed to factors such as inflation and increasing credit card interest APRs. In a similar vein, unsecured personal loans also saw a 21.3 percent growth spurt, moving from $156.1 billion in 2022 to $189.4 billion in 2023.
Home equity lines of credit (HELOCs). As of Q2 2023, HELOCs have seen an 8.5 percent increase compared to the same quarter in 2022, reaching a total of $322 billion. This growth can be attributed to several factors. Firstly, the ongoing rise in home prices has increased homeowners’ equity, making it easier for them to tap into their home’s value through HELOCs. Additionally, the current high interest rate environment has made borrowing against home equity more attractive than refinancing a mortgage or taking out other types of loans.
Student loan debt balances. Student loan debt has long been a significant player in U.S. household debt. However, an 8 percent decrease occurred between Q2 2022 and Q2 2023, with loan balances falling from $1.51 trillion to $1.39 trillion. Influential factors behind this decline include the moratorium on interest on student loans, borrowers making payments during the three-year payment pause that concluded this year, and loan forgiveness initiatives introduced by the Department of Education.
Average mortgage debt by generation
Americans generally begin taking on debt as young adults, taper off their pace of borrowing in middle age and work to pay off loans near or during retirement.
Generation
Average mortgage debt
Generation Z
$229,897
Millennials
$295,689
Generation X
$277,153
Baby boomers
$190,441
Silent Generation
$141,148
Source: Experian
For each generation, this trend has taken place in tandem with mortgage rate fluctuations and home price appreciation, which has accelerated dramatically in recent years. In February 2012, the median existing-home price was $155,600, according to the National Association of Realtors. By the same time in 2017, the median was $228,200. As of November 2023, the median home price was $387,600.
States with the highest and lowest mortgage debt
These states had the highest average outstanding mortgage balance per borrower as of the end of 2022, according to Experian:
District of Columbia – $492,745
California – $422,909
Hawaii – $387,277
Washington – $331,658
Colorado – $319,981
In these states, borrowers are much closer to paying off their home loans:
West Virginia – $124,445
Mississippi – $139,046
Ohio – $139,618
Indiana – $141,238
Kentucky – $144,222
How mortgage debt compares to other household debt
In comparison to other types of household debt, mortgage debt often tends to take the lion’s share — largely due to the substantial cost of real estate (a home is likely to be the single biggest asset an individual ever purchases). While mortgage debt tends to be sizable, it is spread over a lengthy period, usually over a term of 15 to 30 years. This mitigates its impact on a household’s monthly budget, especially when compared to high-interest, short-term debt like credit card balances.
That longevity works to borrowers’ advantage in another way: Lenders often view mortgage-holders favorably for their demonstrated ability to manage large, long-term financial commitments. In fact, in contrast to other obligations, a mortgage is often viewed in a positive light by creditors, because — unlike with personal loans or credit card bills — your payment acts as an investment in an appreciating asset. Each monthly installment you pay reduces the principal owed on your house, increasing your stake in the property over time. This home equity can later be leveraged for financial liquidity or for securing lower-interest loans — or just held onto, enhancing your net worth and those of your descendants.
In short, a mortgage is considered “good debt,” due to its role in building equity, growing wealth and demonstrating creditworthiness.
In an effort to keep more veterans and servicemembers in their homes, the VA has paused foreclosures for the next six months.
The move was made following an investigation and a series of new stories alleging that tens of thousands of VA loan holders were at risk of foreclosure.
It all stems from the end of COVID-19 related forbearance, which expired in October and left homeowners with large bills for missed payments.
While there is a plan in place to help these borrowers transition back to making normal payments, it will apparently take 4-5 months to implement.
As a result, the VA has called on loans servicers to enact a foreclosure moratorium until the changes can be made.
No Foreclosures for VA Loan Borrowers Through May 31st, 2024
While the VA works to implement new loss mitigation procedures, they are asking loan servicers to pause foreclosures for military servicemembers and veterans.
There are an estimated 147,000 veteran homeowners behind on their mortgage payments at this time.
This means no foreclosures should be processed between now and May 31st, 2024.
The move comes after an NPR investigation found that the Department of Veterans Affairs ended its Partial Claim Payment program and loan servicers began asking for lump sum payments.
But this isn’t how it was supposed to work. Borrowers were told that missed mortgage payments would simply be tacked on to the back of their mortgages.
The Veterans Assistance Partial Claim Payment (VAPCP) program would allow them to simply resume payments and worry about the missed ones later.
And when it came time to sell their home or refinance the mortgage, these arrearages would be cured via the payoff.
Instead, loan servicers have apparently been requiring borrowers to make up the shortfall, which clearly many at-risk homeowners just don’t have.
One couple was told they’d need to come up with $22,000, or be forced to sell the home or face foreclosure.
This prompted a call from several senators asking the VA to enact a foreclosure moratorium until a new loss mitigation solution could be rolled out.
Veterans Assistance Servicing Purchase (VASP) Program Coming Soon
The VAPCP program expired in October 2022, putting many VA loan holders at risk of foreclosure.
This came just months after the COVID-19 Refund Modification wound down in July.
This meant borrowers unable to resolve their delinquency and resume regular payments were between a rock and a hard place.
Compounding the issue is a loan modification typically results in the mortgage being brought to current market interest rates.
However, most of these borrowers hold record low mortgage rates, with the average interest rate in a Ginnie Mae security reportedly a low 3.25%
This means it would make little sense to modify the loan to say a 7% mortgage rate, as this would put even more strain on at-risk borrowers.
That’s why the VA is working on a new loss mitigation tool called the Veterans Assistance Servicing Purchase (VASP) program.
The details are still evolving, but my understanding is it would allow borrowers to keep their low-rate mortgages and receive payment assistance.
Crucially, it wouldn’t require homeowners to make lump sum payments on the arrearages to qualify for assistance.
The FHA is working on a similar loan modification program known as the Payment Supplement Partial Claim.
It would cure arrearages and temporarily reduce the principal amount of the borrower’s monthly mortgage payments for three to five years.
Ultimately, it would be silly to take away these borrowers 2-3% mortgage rates. And requiring a large lump sum payment also makes no sense.
The hope is these changes can come fast enough to avoid unnecessary foreclosures as borrowers continue to get back on their feet post-pandemic.
Presidential hopeful Hillary Clinton today revealed a four-pronged plan of attack to address the mortgage crisis, calling for the restructuring of more mortgages, the creation of a working group to investigate and report solutions, reduced legal liability for mortgage servicers, and $30 billion in added stimulus.
“Over the past week, we’ve seen unprecedented action to maintain confidence in our credit markets and head off a crisis for Wall Street Banks. It’s now time for equally aggressive action to help families avoid foreclosure and keep communities across this country from spiraling into recession,” said Clinton in a statement.
“The solution I’ve proposed is a sensible way for everyone – lenders, investors, mortgage companies and borrowers – to share responsibility, keep families in their homes, and stabilize our communities and our economy.”
Senator Clinton said “broader and more aggressive action” was needed to restructure mortgages, supporting an approach led by Frank and Dodd that expands the government’s capacity to guarantee and purchase distressed mortgages.
She also called on President Bush to appoint an “Emergency Working Group on Foreclosures” which includes ex-Fed chief Alan Greenspan among others, to consult with experts and report back in three weeks with findings to best solve the crisis.
Clinton added that mortgage lenders and servicers have been hesitant to offer wide-ranging restructuring efforts amid legal repercussions, and expressed that legal clarity would promote an increase in loan modifications.
Lastly, she said a new housing stimulus package providing a minimum of $30 billion to states and localities would be needed to stem foreclosures and reduce lost tax revenues that threaten the livelihood of cities nationwide.
The funds would be used for acquiring foreclosed and distressed properties, refurbishing them and putting them back on the market for low-income families, while boosting efforts extended by housing counselors to contact and educate homeowners at risk of losing their homes.
The new plan supplements previous proposals spearheaded by Clinton that include a foreclosure moratorium of at least 90 days on subprime, owner-occupied homes and an interest-rate freeze on subprime adjustable-rate mortgages for at least five years or until they can refinance into fixed-rate mortgages.
Foreclosure activity increased 23 percent in the first quarter compared to the previous quarter and was up 112 percent from a year ago, RealtyTrac said today.
Foreclosure filings were reported on 649,917 properties, or one in every 194 U.S. households, during the quarter.
RealtyTrac chief James J. Saccacio said foreclosure activity increased in 46 out of the 50 states and in 90 of the 100 largest metro in the nation areas during the first quarter.
Although he did note that some areas saw a decease in foreclosure activity due to non-market factors, such as the city of Philadelphia, because of their temporary foreclosure moratorium on owner-occupied properties.
However, he was quick to point out that the action to freeze foreclosures would likely just delay the inevitable and lengthen the time until recovery.
Nevada, California, and Arizona posted the highest foreclosure rates, while California led the nation in the total number of filings with 169,831.
Foreclosure activity in the Golden State was up 32 percent from the fourth quarter and nearly 213 percent from a year ago.
California and Florida metro areas accounted for 13 of the top 20 metro foreclosure rates, with Stockton and Riverside-San Bernardino taking the top two spots.
Philadelphia’s foreclosure rate ranked 82nd, thanks in part to a 30 percent annual decline in foreclosure activity.
Home Prices Continue Slide
Meanwhile, the February S&P/Case Shiller 20-city home price index fell 12.7 percent from a year ago, and was off 2.6 percent from January.
The 10-city composite index posted a record-low annual decline of 13.6 percent and a month-to-month drop of 2.8 percent.
“There is no sign of a bottom in the numbers,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Prices of single family homes continue to drop across the nation. All 20 metro areas were in the red for the February-over-January reading. In addition, 19 of the 20 MSAs are still reporting negative annual returns.”
“The monthly data show that every one of the MSAs has now declined every month since September 2007, marking six consecutive months. On top of that, the declines have remained steep with eight of the 20 MSAs and both composites reporting their single largest monthly decline in February.”
The New York State Assembly today passed a rather robust legislative package aimed at addressing the “national sub-prime lending crisis.”
The four-bill bundle contains legislation that, if enacted, would offer assistance to homeowners in default or facing foreclosure, establish requirements on all home loans, provide consumer info to all residential mortgage applicants, and most notably, create a one-year foreclosure moratorium for New York residents.
Assembly Speaker Sheldon Silver slammed the Feds for bailing out mortgage lender and investment bank Bear Stearns while leaving everyday homeowners at risk of losing their homes.
He insisted that the slew of bills was not a bailout, but rather an assistance program to help homeowners keep the American dream alive.
The first bit of the legislation would provide assistance payments up to an amount equal to three months of mortgage payments and provide legal services and counseling to help select homeowners in default or facing foreclosure.
The second part of the package would establish the duties of mortgage brokers and remedies for violations, ensure that lenders verify borrower income and the ability to repay loans, and prohibit practices such as balloon mortgage payments, negative amortization and prepayment penalties.
The third bill would permit the courts to delay foreclosure up to one year for subprime borrowers who meet specific conditions, allowing at-risk homeowners to work with their respective lenders to avoid losing their homes.
The final piece of the legislative package would create a “Mortgage Applicant’s Bill of Rights,” which requires mortgage lenders and brokers to provide consumers with a pamphlet that must be read and signed by the borrower prior to applying for a mortgage.
The FHA announced Tuesday it was halting its risk-based pricing structure beginning October 1 in accordance with the new housing bill and raising its upfront mortgage insurance premiums.
Beginning October 1, FHA will charge an upfront premium of 1.75 percent for purchase money mortgages and full-credit qualifying refinances, 1.50 percent for streamline refinances, and 3.00 percent for FHASecure mortgages.
Annual premiums, paid monthly, will range between .50 percent and .55 percent for most loans.
The new fixed structure is up from the 1.5 percent and .50 percent that was being charged in the “one size fits all” approach before the FHA adopted risk-based pricing on July 14.
The risk-based system set premiums anywhere between 1.25 percent and 2.25 percent, with annual premiums up to .55 percent.
It is assumed this system will be back in place come October 1, 2009, when the moratorium outlined in the housing bill expires.
Mortgages with FHA case number assignments falling between July 14 and September 30, 2008 will maintain the risk-based premium structure for the life of the loan.
The elimination of seller-funded down payment assistance tied to FHA loans is also slated for October 1.
FHA Commissioner Brian D. Montgomery recently noted that seller-funded loans led to $4.6 billion in “unanticipated long-term losses,” claiming they went into foreclosure three times more frequently than loans in which borrowers supplied the down payment.
The Mortgage Bankers Association convened in San Francisco this week for its 95th annual convention, an event marked by protests and angry sentiment from passer-bys.
During a Monday morning presentation involving Fannie and Freddie CEOs, the co-founder of activist group “Code Pink” jumped on stage and argued for a foreclosure moratorium, claiming case-by-case foreclosure prevention doesn’t work.
Interestingly, Freddie CEO David Moffett responded to the question, noting that measures used in the past weren’t viable, but said they still needed to figure out a way to assist homeowners on a case-by-case basis.
Outside the event, protesters could be seen holding signs saying, “Honk if you hate Mortgage Bankers!” and “Jail them, don’t bail them!”
Meanwhile, ordinary citizens walking by the event who spoke with San Francisco Chronicle reporters attributed the mortgage crisis to greed, arrogance, and incompetence, among other things.
Inside, things weren’t much rosier, as MBA chairman Kieran Quinn said we are currently experiencing the “most painful deleveraging in the history of finance.”
The Chronicle noted that attendance continues to plummet at the annual event, with only 2,500 guests at this year’s conference, down from 4,000 last year and 5,500 in 2006.
And just 774 exhibitors are presenting their wares this year, down nearly fifty percent from the 1,336 seen last year.
I suppose it makes perfect sense, with mortgage applications down considerably from last year’s dismal numbers and delinquencies and foreclosures continuing to inch up.
And with tickets for the event ranging between $950 and $2,250, you could understand why attendance is plummeting.