Why did banks pump so much money into the housing market? The chart gives the answer. For the last ten years, write-off rates on mortgages have been virtually zero.
Regular readers might be asking - didn't we see this chart a few days ago. Yes, I did post something on banking sector write-offs. Then, I posted details on write-offs in terms of totals sterling amounts. However, this data expresses write-offs in terms of average stock of lending.
Care is needed when reading this chart. The two data series are not directly comparable. Mortgage write off rates are so low that it needs a separate axis. In 2007, write-offs were less than 0.02 percent of the total stock of mortgage loans.
In contrast, credit card write-offs are huge. In 2007, write-offs amounted to about 7 percent of the total stock of credit card debt.
For years, mortgage lending has appeared to be virtually risk free. However, that is about to change. Banks are beginning to understand that risk was hidden by appreciating house prices. Now that prices are falling, risk has returned with a vengeance.