Easy Money

Some interesing snippets from this article on debt of all sorts:

Credit-card debt engulfs America as spending outweighs income

Cardweb.com, a credit-card industry Web site, says average debt per card-holding household more than doubled from $4,300 in 1994 to $9,300 in 2004. Most families' debt is much lower, the Federal Reserve says. But that high average suggests the families that do get into trouble are carrying huge debt

But some homeowners can't escape credit-card debt be-cause they have turned it into mortgage debt. They took out home equity loans to pay off creditors. That's happened a lot. Nearly one-third of equity loans in 2004 went to pay off debt, according to the Federal Reserve.

Some buyers could not afford a big down payment in the roaring housing market of recent years. The mortgage industry created no-equity loans. The buyer keeps payments low by paying only interest until he sells the house at a profit. Some buyers took loans with “negative equity.” They borrowed more than the house was worth.

Lenders also provided adjustable-rate mortgages, which start with a low interest rate that changes according to market trends. Seventeen percent of adjustable mortgages sold in 2004 and 2005 offered a starter rate of 2 percent or less.

Higher interest rates will affect millions of adjustable-rate mortgages. Rates are expected to increase on a quarter of all outstanding U.S. mortgages either this year or next, according to Economy.com.

Cagan's report estimated that one in eight adjustable mortgages sold in the past two years could default. About 5 million households nationwide and $300 billion in loans could be affected.

Shilling studied 44 boom-and-bust housing cycles occurring in 18 countries since 1970. Inflation-adjusted prices rose an average 28 percent in the five years before a housing bubble burst. Home prices fell 22 percent in the five years afterward.

Boss said one difference from past generations is that people now accept large debt more casually, and some even expect to live in debt. For her book, Boss chronicled a well-to-do suburban family who bought a big house in a gated community, joined a country club and spent on lavish vacations. Their lifestyle was built on debt. They had $100,000 in credit card charges. They paid the debt down to $40,000, then ran their cards back up to $100,000 before heading into bankruptcy.