Americans' Mortgage Debt is Greater than Equity - Total Bankruptcy
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Americans' Mortgage Debt is Greater than Equity


The Federal Reserve's flow of funds report released on March 6 revealed bleak statistics relating to the state of American homeownership and debt: homeowners in the United States have more home debt than home equity for the first time since 1945, when statistics of this type were first recorded.

What does that mean?

Basically, homeowners owe lenders more than half the value of their houses. Equity is calculated by subtracting mortgage-related debt from a home's total value. Reports show that Americans have only 47.9% equity, meaning that banks and mortgage lenders actually own the majority of American homes.

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Unfortunately, these figures don't seem to be a fluke. Home equity has fallen now for three straight quarters, and has been under 50% during that period as well. And economists have reportedly projected that equity will continue to decrease as home prices tumble downward.

Decreasing home equity and lowering home prices aren't happening in a vacuum, either. Data gathered by the National Bankruptcy Resource Center show that 76,000 personal bankruptcy cases were filed in February alone.

To put that number in perspective, consider that in January, 66,000 people filed bankruptcy and in February of 2007, only 55,000 personal bankruptcy cases began.

And, with economic predictions as dreary as they are, the number of bankruptcy filings is probably not an anomaly, either.

Sources indicate that Moody's Economy estimates that, by month's end, 10.3% of U.S. homeowners will have no equity or negative equity.

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Perhaps even more frightening, Moody's has also apparently predicted that 15.9% of homes (13.8 million) will be "upside down" if prices continue to fall drastically, meaning that people will actually owe more than their houses' current market value.

Furthermore, in a Mortgage Bankers Association survey of 46 million home loans across the country, a record .83% was evidently found to be in foreclosure during the October-December quarter of 2007. Delinquency rates, too, are reportedly at a 23-year high.

And, while those with subprime, adjustable-rate mortgages and shaky credit ratings apparently represent a majority of foreclosures and delinquencies, sources show that Federal Reserve Governors Board Chairman Ben Bernanke has noted that neither foreclosures nor delinquencies has peaked yet.

Experts have pointed to excessive building of new homes in recent years as the source of current housing market problems - now, there's more real estate on the market than can be sold, and home values are declining to match the lowered demand.

So what's to be done?

The Chicago Sun-Times notes that Senator Chris Dodd has introduced a bill that would implement Depression-era housing help to ease the current housing market woes. The bill, if implemented, would allow the government to buy houses and sell them to buyers on affordable terms.

Lenders would lose money in the short term, but some believe such drastic measures are the only way to prevent widespread economic turmoil in the long run.

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