Ten years ago, the collapse of Lehman Brothers signaled that the U.S. was hurtling toward a financial crisis. In the years that followed, consumers faced difficulty managing debt as the economy contracted, unemployment accelerated and incomes stagnated. The Federal Reserve enacted extraordinary monetary policy to stem the decline, lowering interest rates to near zero to ease the burden of debt and buying securities to support the credit markets.
These actions, along with initiatives from the Department of the Treasury, helped borrowers and lenders weather the Great Recession. Treasury, with other regulators, created programs to assist borrowers with their mortgage debt, including homeowners who found themselves “underwater” — owing more on their mortgage than their homes were worth — as home prices fell. Congress crafted more stringent capital rules to shore up banks.
So where are we 10 years later?
- Consumer debt has increased to levels higher than those prior to the crisis. This is offset by an increase in personal income, though such gains have been sluggish by historic standards.
- U.S. consumers have a lower debt ratio. Americans have improved their financial condition as debt levels fell to 80 percent of GDP from a peak of 99 percent at the start of the crisis in 2008.
- Delinquency rates are down. From a high of 10 percent of mortgages in 2010, now just 4.36 percent of mortgages are delinquent. Credit card delinquencies are down to 2.47 percent from 6.77 percent in 2009. The one area of concern is subprime auto loan delinquencies, which are now higher than before the crisis.
- The debt service ratio is down. The portion of income borrowers use to service debt, is now 10.21 percent, down from a high of 13.22 percent in 2007. However, this is up from a low of 9.89 percent in 2012 as consumers have added some debt since then.