Housing

Payment on $15.8 Trillion Mortgage Debt Could Be Delayed

Residents of the United States have a total of $15.8 trillion in mortgage debt outstanding, according to the Federal Reserve. Some of that is for single-family homes and some on multifamily dwellings. A bill proposed as part of the economic rescue package would delay payments on most of that debt.

If the rescue package goes through, among the first issues to consider is how banks can afford to delay payments. In essence, the federal government would need to help banks to shoulder that burden, which would be in the hundreds of billions of dollars a year. The latest rescue proposal is pegged at $2.5 trillion, which would appear to allow banks to handle the delayed obligation.

Mortgage payments eat into an average of 16% of family income nationwide, so the effects of the delay would be considerably positive. For people who have lost jobs and gone on unemployment, the delay may be the only way they can keep their homes.

One reason for the new proposal is the extent to which foreclosures damaged housing during the Great Recession. Almost 862,000 Americans lost their homes in 2008. There were 3.1 million foreclosure filings that year, and one in every 54 homeowners received a foreclosure notice.

The foreclosure tide of the Great Recession knocked down home values as much as 40% in some markets. That, in turn, destroyed the equity built up in the value of many homes. Americans who might have used their homes as a means to borrow money as the recession ate into incomes were no longer able to do so.

The foreclosure rates were measured differently for the Great Depression. Over 1,000 homes were foreclosed on every day in 1933. Government intervention, some of it at the state level, was critical in lowering the figure and it kept many people from becoming homeless.

It is abundantly clear that another housing crisis would make the current recession deeper. A delay in mortgage payments is the only way to arrest that.