Core Insights - The transfer of mortgage risk from banks to taxpayers is a fundamental change resulting from the Financial Crisis [23] - Mortgage balances have increased significantly, with a year-over-year rise of $564 billion (+4.5%) and a surge of 38% since the beginning of 2020 [2][4] - The current housing debt-to-disposable income ratio remains stable at 58.8%, slightly higher than the previous year, indicating a manageable debt burden [13] Mortgage Balances - Mortgage balances rose by $98 billion (+0.7%) in Q4 from Q3, reaching $13.2 trillion [1] - Factors contributing to the growth of mortgage balances include financing new home purchases, buyers taking on larger mortgages when purchasing homes without existing mortgages, and cash-out refinancing [4] - The principal portion of mortgage payments, paydowns, payoffs, and foreclosures reduce mortgage balances [5] Home Equity Lines of Credit (HELOCs) - HELOC balances increased by 1.9% in Q4 from Q3 and by 8.6% year-over-year, totaling $430 billion, with a 36% surge since Q1 2021 [6] - HELOCs are second-lien loans that can lead to foreclosure if defaulted on, and they are full recourse loans in certain states [7] - The previous disfavor of HELOCs was due to ultra-low-rate mortgages, but this trend has reversed [8] Delinquencies and Foreclosures - Serious delinquency rates for mortgages and HELOCs are low, at 0.92% and 0.82% respectively, returning to normal levels post-pandemic [16] - Foreclosure numbers in Q4 were 58,140, significantly lower than the 65,000 to 90,000 range seen in 2018-2019 [18] - A massive wave of foreclosures is unlikely unless there are sharp declines in home prices and high unemployment rates [20] Government Involvement - 65% of all outstanding mortgages ($9.4 trillion) are guaranteed or insured by government entities, reducing banks' exposure to mortgage risk [23] - Banks and credit unions hold only about $2.7 trillion in mortgages, less than 20% of the total, indicating they are largely insulated from another mortgage crisis [24] - Mortgages that do not qualify for government backing, totaling about $1.7 trillion, are securitized into private-label mortgage-backed securities, placing risk on institutional investors [25]