The deterioration in mortgage debt performance over the past three years has led to a record reduction in mortgage lending or available credit.
In normal times, the industry can usually count on increasing the value of outstanding mortgage loans 5% yearly, but in 2008, the volume fell 1%, and it fell again by 2% in 2009.
Further contraction in 2010 is likely even with record low interest rates.
While reduced lending is responsible for much of the drop, loan write-offs also played a significant role, and these will continue to be a factor into 2011. The drop in loan volumes would have been larger, moreover, if not for the stabilizing influence of government-backed FHA lending.

The housing bubble's wreckage includes more than 2 million first mortgages in foreclosure as of the first quarter of 2010, on top of 4.5 million foreclosures or distress sales between 2007 and 2009. Although the number of new foreclosures has fallen somewhat since mid-2009, it still includes more than 1.1% of all outstanding first mortgages and possible shadow inventories not yet seen or disclosed. The wave of delinquencies and defaults on mortgage debt that began in 2007 brought down many banks and briefly threatened to take down the overall U.S. financial system.

By the end of last year, quarterly mortgage loan write-offs equaled 1.5% of commercial and savings bank equity capital. Over the course of two years, the losses forced most banks to seek new capital injections or else turn to the federal government for funding under the Troubled Asset Relief Program. Only after the TARP was introduced and the Federal Reserve began purchasing mortgage-backed securities was bank capital able to start growing again after 2008.