Tuesday, September 28, 2010

The ugly reality of lowering debt by default

This follow an early post where BofA is waiting on additional instructions for the home owners that have been canceled by HAMP.
Total household debt fell by $77 billion during the three months ending in June, but nearly half of that decline stemmed from bank charge-offs of residential mortgages, credit cards and other consumer loans, according to Capital Economics Group. In a recent report, the London-based economic research consultancy found that this isn't necessarily a new development. Household debt has fallen every quarter since the beginning of 2008, leaving it $473 billion below the peak, which is the equivalent of reducing debt at every household by $4,200.
Also, look at the stat on credit cards.  Most of the debt are credit card companies writing off bad debt.
In 2009, outstanding credit card debt dropped by about $93.2 billion compared with the previous year, according to a report from CardHub.com, a credit card comparison website. This might sound like good news, but the reality is that the majority of the drop -- $81.6 billion -- is due to Americans defaulting on their debt.
As take the these people hits to their credit history, they probaby have a more difficult time purchasing a home.  Again this will suppress the number of buyers who can qualify for a loan.

Read it all

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