Instead, they focused exclusively on US foreign debt, ignoring household debt (mortgage and consumer debt), public debt, business debt, and financial debt.

In particular, they should have paid greater attention to the sustainability of US mortgage and consumer debt. In 2007, the mortgage and consumer debt to GDP ratio was more than 90 , compared to 24 for net foreign debt.

The main dispute related to the terms of repayment of a mortgage debt.

In 2007, the mortgage and consumer debt to GDP ratio was more than 90 , compared to 24 for net foreign debt.

In November 1699, William finally recommended that Parliament pay the mortgage debt to George, and in early 1700, the debt was honoured.

And a stronger economy would help domestic banks by reducing potential bad debt and mortgage defaults.

In particular, they should have paid greater attention to the sustainability of US mortgage and consumer debt.

Financial markets responded by demanding much higher rates on the bonds of countries with high government debt ratios and banking systems weakened by excessive mortgage debt.

If that happens, a homeowner with a mortgage would see the real value of his debt rise by 10 .

After the subprime crisis erupted, mortgage and consumer debt was paid down by households either with their savings or by default.

If that happens, a homeowner with a mortgage would see the real value of his debt rise by 10 . Since price declines would bring with them wage declines, the ratio of monthly mortgage payments to wage income would rise.

As a result, one third of all American homeowners with mortgages are already underwater their mortgage debt exceeds the value of the house.

So, if there is a debt problem, as in the US mortgage crisis, one must also look at private funds role in creating it.

Even so, the explosion in the quantity of collateralized debt obligations and similar securities went far beyond what was needed to sustain mortgage lending.

And the market is prone to temporary fits of shared enthusiasm for emerging market debt, for Internet stocks, for residential mortgage backed securities, for Greek government debt. Traders need not wait to see when or whether the profits materialize.

Occupy the Mortgage Lenders

Moreover, the terms of discharge tend to be much stricter in Europe. An extreme case is Spain, where mortgage debt is never extinguished, not even after a personal bankruptcy.

Policy enhancements have been made to mortgage portability, second homes and mortgage qualification for self employed borrowers.

Ultimately, these financial failures reflect the downward spiral of house prices and the increasing number of homes with negative equity, i.e., with substantial mortgage debt in excess of market values.

In addition to this increase in the real cost of debt service, deflation would mean higher loan to value ratios for homeowners, leading to increased mortgage defaults, especially in the US.

What started with subprime mortgages spread to all collateralized debt obligations, endangered municipal and mortgage insurance and reinsurance companies and threatened to unravel the multi trillion dollar credit default swap market.

The Right Weights for Mortgage Risks

Mortgage debts, too, must be written down.

In this vein, a recent proposal by Eric Posner and Luigi Zingales to facilitate mortgage debt renegotiation would give a deeply underwater homeowner the right to file a pre packaged Chapter 13 bankruptcy petition.

Reducing the face value of mortgages and providing the upside in case home prices were to rise in the long run to the creditor banks is another way to convert mortgage debt partly into shareholder equity.

Globalization implies that America s mortgage problem has worldwide repercussions.

But mortgage markets remain underdeveloped in most emerging economies.

In the US, the Term Asset Backed Securities Loan Facility (TALF) program and the Public Private Investment Program (PPIP) were in effect debt forgiveness schemes aimed at sub prime mortgage holders, but on too small a scale.

This synthetic collateralized debt obligation (CDO) did not finance the ownership of any additional homes or allocate capital more efficiently it merely swelled the volume of mortgage backed securities that lost value when the housing bubble burst.

As a result, mortgage brokers maximize their income by generating larger volumes of mortgages, as do the banks that package these loans into mortgage backed securities (MBS s).

Mortgage brokers were happy to get in on the act.

Some limited previous experience with mortgage modifications is not encouraging.

It may make sense for central banks (or Fannie Mae, America s major government sponsored mortgage company) to buy mortgage backed securities in order to help provide market liquidity.

Through mortgage loan insurance, homeowners have access to the lowest possible mortgage rates with a down payment as low as five percent, permitting more Canadian households access to homeownership.

But, in America s home mortgage market, this is much less common.

2000 2004 Alfa Bank, Director of the Department of Mortgage Operations

Delinquencies, defaults, and foreclosures are now spreading from sub prime to near prime and prime mortgages. Thus, total losses on mortgage related instruments include exotic credit derivatives such as collateralized debt obligations (CDOs) will add up to more than 400 billion.

For years, hundreds of billions of new mortgage backed securities (MBSs) and collateralized debt obligations (CDOs) generated from them were sold to the world to compensate for the lack of savings in the United States and to finance American housing investment.

In Mexico, for example, mortgage debt represents less than 10 of GDP, compared to about 50 of GDP in Europe and 82 of GDP in the US a ratio that has increased more than fourfold in the last two decades.

Graduates going into mortgage banking are faced with a different, but equally vital, challenge to design new, more flexible loans that will better help homeowners to weather the kind of economic turbulence that has buried millions of people today in debt.

The approved requests authorize payments for a variety of items, including for basic expenses and accommodation (13 requests), extraordinary expenses (two requests), legal representation (three requests), and the sale of a home to settle an outstanding mortgage debt (one request).

Such products should appeal to homebuyers when the mortgage is first issued.

But that is precisely why a government managed mortgage market is dangerous.

When home prices were soaring, the geniuses behind mortgage finance seemed infallible.

The prices of traded mortgage backed securities have followed house prices down.