With house money spent, Americans hedging bets

Like a gambler pushing back from the roulette table -- slowly, fitfully, reluctantly -- American consumers are struggling to resist the urge to borrow and avoid the consequences of borrowing too much.

Sometimes that means paying off loans. And sometimes it means walking away from them -- which has its own consequences.

Unfortunately, there's a lot to walk away from. Savings rates started dropping in the 1980s, but binge borrowing really took hold after the 2001 recession. All that spending pumped up economic expansion and, not coincidentally, inflated an unprecedented bubble in housing.

Then the bubble burst and the economy imploded.

While the recession has eased, if not officially ended, the effort to straighten out household balance sheets has been painful. Still, Wednesday, the American Bankers Association reported that the percentage of bank card accounts in delinquency fell to 3.88 percent.

That's not only lower than the 15-year average, it's the first time in eight years that bank card delinquencies have slipped below 4 percent.

Delinquency rates also dropped for auto loans, home equity loans and personal loans (although they rose for boat, mobile home and RV loans -- go figure). Meanwhile, the overall savings rate -- the percent of disposable income not spent -- ticked up to 4 percent, according to the Bureau of Economic Analysis.

That may not sound high, but it's stratospheric compared to a few years ago, when it was flirting with zero. By comparison, it's weak next to the mid-1980s, when the savings rate was often above 10 or 11 percent.

Consumer debt has fallen in 18 of the past 20 months, but total private debt still adds up to roughly 270 percent of the nation's gross domestic product. That compares to about 170 percent two decades ago. Mortgage debt too has slipped, but is still nearly 70 percent of GDP. Before 1990, it was never above 40 percent.

At a sober but steady pace, a return even to pre-bubble levels could take many years.

And it was in the casino of housing that millions of Americans lost their bankroll.

When the wheel stopped turning, many who had taken on adjustable mortgages with "teaser" rates were suddenly facing stiff monthly payments. Even without the higher rates, many who lost jobs could not make payments.

As housing values plunged, others simply owed more on their mortgages than their houses were worth. Suddenly the only things on the table were bankruptcies and foreclosures.

The housing market -- and the economy -- cannot be righted until households' incomes match up with their debts.

So, the excruciating loss of a home is a kind of resetting that could leave both economy and consumer healthier -- after a lot of pain.

And that walkaway is still under way: The number of mortgage loans in default more than 90 days increased to more than 7.3 million in May, Lender Processing Services reported last week.

Not counting foreclosures, Georgia ranked third in the delinquency rate (behind Nevada and Mississippi): 12.3 percent of the state's mortgages -- about one of every eight -- were not current.

Metro Atlanta is in only slightly better shape, according to a separate study released last week by CoreLogic: 10.5 percent of mortgage loans were delinquent by at least 90 days, up 42 percent from a year ago.

Foreclosures in metro Atlanta were 48 percent higher than a year earlier, said CoreLogic.

That helps depress housing prices, of course. And with mortgage rates still relatively low, there are some buyers who will see it as a good bet.

Holding and folding

National savings rate: 4 percent

Recent low: 0.8 percent (2008)

All time high: 14.6 percent (1975)

Consumer debt in May: down $9.1 billion

Metro Atlanta mortgages delinquent at least 90 days, not counting foreclosures: 10.5 percent

Georgia delinquencies: 12.3 percent