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U.S. Families Slice Debt to Lowest In 6 Years

12 points by acangiano 16y ago

OstiaAntica 16y ago
This headline is too positive by implying that Americans are choosing to save. Rather, they are hitting the wall. The gains here are overwhelmingly from defaulting on mortgages. Also the credit card companies have withdrawn $1 trillion in credit lines, so people can't pay cards with other cards any longer.
- yummyfajitas 16y ago
  Americans are choosing to pay off their debt. They have paid off $90B so far. You are correct that $118B of the $208B drop is caused by lenders writing off bad debt. Of course, the elephant in the room is that total debt went up by $1.6 trillion - corporate debt increased 5.4%, govt debt increased 20%. By the way, did anyone notice how crazy the financials of some of the people being interviewed are? The saleswoman had debt payments of $6500/month. Assuming she previously spent 50% of her take home pay on debt service, she was taking home about $13k/month. Yet somehow, she accumulated $500k in debt, and blew through her entire retirement savings in about 1.5 years. I have no idea how it is even possible to be that irresponsible.
- xenophanes 16y ago
  Really? I still get plenty of junk mail trying to get me to pay me other debt with them, interest free for 6 months.
richcollins 16y ago
I'm so happy to hear that Mr. Shah and his wife were able to purchase a 350k house after pushing their debts off on taxpayers and dollar holders.
- _delirium 16y ago
  I don't see anything particularly wrong with people choosing to exit a mortgage in a way that's legal under their mortgage contract. If it's a no-recourse mortgage, then a debtor is perfectly within their rights to walk away from the property and consider the debt settled by the return of the property to the lender. That might cause the lender losses, but the lender is supposed to be pricing the possibility of such losses into the contract in the first place.
  - richcollins 16y ago
    The reason that the other lenders are willing to lend them money for another house is because they know that they can pass off the mortgage to the taxpayer / dollar holder if the house buyer doesn't pay.
  - yummyfajitas 16y ago
    It is wrong because it is a violation of the agreement the borrower and lender both signed. A mortgage is a promissory note, it conveys obligations on the borrower and the lender. There are penalties for violation, but that doesn't mean the borrower has the right to violate the contract. That just means they have the ability to do so. (Also in many states, they do not even have the ability to. The lender can sue them for the difference between the foreclosure sale price and the remaining mortgage obligations.) On the flip side, suppose house prices went up. Suppose also the bank could foreclose on the home, even if the borrower was fully paid up, perhaps paying a $10000 fine for wrongful foreclosure. Would there be something wrong with this?
    - _delirium 16y ago
      But if your mortgage contract says that you're free of any further legal obligation if you return the property (whether because you actually wrote that into the contract, or because your jurisdiction adds such terms to all contracts), then exiting the contract in that manner is just exercising the termination clause. You are of course correct that if there aren't any such terms, then you can't exit in that manner. If mortgages included a clause (either negotiated or because state law required it on all mortgages) saying that the lender may foreclose after paying $100k and giving notice, then sure, the lender would be within their rights to exercise that option as well. I suppose you can argue for a category of "contractual obligations" separate from legally enforceable obligations, but that doesn't make much sense to me. I take a fairly instrumental view of contracts that they're definitionally equivalent to "legally enforceable agreement".
potatolicious 16y ago
> "shouldered a smaller debt burden in 2010 than at any point in the previous six years, putting them in position to start spending more" This probably isn't the writer's intent, but it just sounds like "hey guys! We got our debt down a bit! LETS GO SHOPPING"

12 points by acangiano 16y ago

This headline is too positive by implying that Americans are choosing to save. Rather, they are hitting the wall. The gains here are overwhelmingly from defaulting on mortgages. Also the credit card companies have withdrawn $1 trillion in credit lines, so people can't pay cards with other cards any longer.

yummyfajitas 16y ago
Americans are choosing to pay off their debt. They have paid off $90B so far. You are correct that $118B of the $208B drop is caused by lenders writing off bad debt. Of course, the elephant in the room is that total debt went up by $1.6 trillion - corporate debt increased 5.4%, govt debt increased 20%. By the way, did anyone notice how crazy the financials of some of the people being interviewed are? The saleswoman had debt payments of $6500/month. Assuming she previously spent 50% of her take home pay on debt service, she was taking home about $13k/month. Yet somehow, she accumulated $500k in debt, and blew through her entire retirement savings in about 1.5 years. I have no idea how it is even possible to be that irresponsible.
xenophanes 16y ago
Really? I still get plenty of junk mail trying to get me to pay me other debt with them, interest free for 6 months.

richcollins 16y ago

I'm so happy to hear that Mr. Shah and his wife were able to purchase a 350k house after pushing their debts off on taxpayers and dollar holders.

_delirium 16y ago
I don't see anything particularly wrong with people choosing to exit a mortgage in a way that's legal under their mortgage contract. If it's a no-recourse mortgage, then a debtor is perfectly within their rights to walk away from the property and consider the debt settled by the return of the property to the lender. That might cause the lender losses, but the lender is supposed to be pricing the possibility of such losses into the contract in the first place.
- richcollins 16y ago
  The reason that the other lenders are willing to lend them money for another house is because they know that they can pass off the mortgage to the taxpayer / dollar holder if the house buyer doesn't pay.
- yummyfajitas 16y ago
  It is wrong because it is a violation of the agreement the borrower and lender both signed. A mortgage is a promissory note, it conveys obligations on the borrower and the lender. There are penalties for violation, but that doesn't mean the borrower has the right to violate the contract. That just means they have the ability to do so. (Also in many states, they do not even have the ability to. The lender can sue them for the difference between the foreclosure sale price and the remaining mortgage obligations.) On the flip side, suppose house prices went up. Suppose also the bank could foreclose on the home, even if the borrower was fully paid up, perhaps paying a $10000 fine for wrongful foreclosure. Would there be something wrong with this?
  - _delirium 16y ago
    But if your mortgage contract says that you're free of any further legal obligation if you return the property (whether because you actually wrote that into the contract, or because your jurisdiction adds such terms to all contracts), then exiting the contract in that manner is just exercising the termination clause. You are of course correct that if there aren't any such terms, then you can't exit in that manner. If mortgages included a clause (either negotiated or because state law required it on all mortgages) saying that the lender may foreclose after paying $100k and giving notice, then sure, the lender would be within their rights to exercise that option as well. I suppose you can argue for a category of "contractual obligations" separate from legally enforceable obligations, but that doesn't make much sense to me. I take a fairly instrumental view of contracts that they're definitionally equivalent to "legally enforceable agreement".

potatolicious 16y ago

> "shouldered a smaller debt burden in 2010 than at any point in the previous six years, putting them in position to start spending more" This probably isn't the writer's intent, but it just sounds like "hey guys! We got our debt down a bit! LETS GO SHOPPING"