Consumers got some tough love from banks and lenders, who curbed financial loans to borrowers, further helping U.S. consumers cut their debt loads. But it's largely been an uphill climb, the Fed says, as consumer debt burdens rocketed in the previous 10 years -- especially in the mortgage market. "Aggregate trends documented in the Federal Reserve System's Flow ofFunds Accounts demonstrate a steep run-up in consumer debt from 1999 to 2008, followed by a pronounced decline through at least third-quarter 2012," the report says. "According to most views, the crisis began in the residential mortgage market as an increasingly large number of borrowers, especially in the nonprime segment, became delinquent on their mortgage payments. The increase in delinquencies and the enormous rise in residential mortgage foreclosures soon developed into a full-blown financial crisis and led to one of the sharpest market contractions in U.S. history. While many trends in the financial system played a role in these developments, household behavior was clearly a fundamental contributor." The FRBNY reports that Americans have cut 11.3% of their household debt since 2008, with mortgage-related debt accounting for 76% of all U.S. consumer debt, with credit cards, auto loans and student loans making up most of the rest. The study reports that personal bankruptcies and mortgage delinquencies are down significantly over the past four years. One way or another, U.S. consumers have taken the critical steps necessary to alleviate their debt loads. The FRBNY has a thought or two on that front, as well. "So did consumers reduce their use of debt? Yes," the report says. "Holding aside defaults, from 2007 through 2011, consumers reduced their debt at a pace not seen over the last 10 years. A remaining issue is whether this reduced reliance on debt is a result of borrowers being forced to pay down debt as credit standards tightened, or a more voluntary change in saving behavior." Either way, the trend points to more belt-tightening by Americans. That may not make mortgage enders or credit card companies happy. But in the new normal, saving a buck seems to be trumping spending a buck.
Find the complete report here.