Federal Reserve Leader Bullard gives assessment of Mortgage Crisis

Here's a post for the real economic geeks out there!

A recent report by the head of the St. Louis Fed James Bullard can be found here.

Some highlights from the report:

1) With regard to real estate, U.S. homeowners have about $9.8 trillion in debt outstanding against $490 billion of equity.

Weitz - this is a huge number - I've said since I created this blog that DEBT is the number one problem in America from mortgages to credit cards to students loans. Until we start seeing the average family deleverage, we will simply not see a robust recovery as most families continue to use their resources simply to service the debt they have taken on. This benefits the creditors (ie. banks), but does very little for the common person.

2) To get back to the normal LTV, households would have to pay down mortgage debt by about $3.8 trillion, about one-quarter of one year’s GDP. This will take a long time. It is not a matter of business-cycle frequency adjustment.

Weitz - let me translate - to get back to a normal Loan to Value ration, we would have to face MASSIVE defaults or LOAN PAY DOWNS.

3) The U.S. economy had a bubble in housing which collapsed. Recovery from this event is ongoing and will ultimately take many years.

4) In particular, households are saddled with far too much mortgage debt compared with historical norms.
Monetary policy has been ultra-easy during this period, but cannot reasonably encourage additional borrowing by households with too much debt.

Weitz - kudos to Mr. Bullard for taking an honest assessment of the Mortgage situation. In a position such as his, it can be very easy to fall into the 'tell people what they want to hear' category.

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