Nearly $140 billion in mortgage debt was paid off by American homeowners between 2008 and the end of 2009, according to a report released today by the Federal Reserve Bank of New York.
“Consumer debt is declining but only part of the reduction is attributable to defaults and charge-offs,” said Donghoon Lee, senior economist in the Research and Statistics Group at the New York Fed, in a news release.
“Americans are borrowing less and paying off more debt than in the recent past. This change, which we continue to study carefully, can be a result of both tightening credit standards and voluntary changes in saving behavior.”
The problem is that this pattern of saving has led to a $150 billion reduction in household cash flow.
Between 2000 and 2007, consumer borrowing contributed more than $300 billion annually to household cash flow, which clearly spurred the economy, for better or worse.
Overall, nearly $1 trillion in consumer debt was paid off since the third quarter of 2008.
457,000 Foreclosure Notices Received During Third Quarter
Between July 1 and September 30, roughly 457,000 individuals received foreclosure notices on their credit reports, down 5.5 percent from the second quarter and 6.4 percent from a year earlier.
But the proportion of current mortgages that transitioned into delinquency increased from 2.6 percent to 2.7 percent, after declining for about a year.
The decline in cash-out refinancing was the result of reduced home prices, tighter underwriting standards for loan-to-value ratios, a lack of home equity, and borrowers’ desire to actually pay down their debt.