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American Consumers Owe, Borrow Less

Figures released this week by the Federal Reserve showed that Americans owed $10.8 trillion on home mortgages at the end of the third quarter, down 2.2 percent from a year earlier and the lowest level since mid-2007.

Similarly, the Fed said that outstanding credit card bills in October totaled $888 billion, down 8.5 percent from a year earlier. That number was the lowest since March 2007.

Those trends do not, however, necessarily indicate that Americans have paid down their debts and are starting to lead the more frugal lives that some financial planners have been recommending for years. There has undoubtedly been some of that, but the declines also indicate that banks have been forced to write off a lot of bad debts and have grown more stingy in granting credit.

As can be seen from the accompanying charts, banks' credit card write-offs have soared, to an annual rate of 10.2 percent in the third quarter of this year.

And the Mortgage Bankers Association reported that at the end of the third quarter, 4.5 percent of all mortgages were in foreclosure -- one in 22 mortgages. It said another 6.1 percent -- one in 16 -- were at least two months overdue. Those figures are for all mortgages, not just subprime ones.

Banks, as a group, reported $3.4 trillion in unused credit card lines at the end of September, according to a compilation by Foresight Analytics of bank reports to the Federal Deposit Insurance Corporation. That was down 28 percent from the peak of $4.7 billion reached in mid-2008.

The banks reported that outstanding home equity loans were down only 1 percent from the peak, to $667 billion. But unused home equity lines of credit came to $539 billion, the lowest since 2005 and down 25 percent from the peak reached at the end of 2007.

Off the Charts
Americans Owe Less. That's Not All Good.
Published: December 12, 2009
Some Americans have paid down their credit cards and mortgages, but much of the shrinkage in outstanding debt is a result of bank write-offs.


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