Consumer Deleveraging?

The Fed has put out its 2012Q2 Quarterly Report on Household Debt and Credit. The folks at the New York Fed's Liberty Street blog have kindly teased out the data into a more readily comprehensible format.  A summary table is shown below:

The column, "First-Lien Originations Plus Normal Payoffs" is pretty clear: it represents new mortgage originations net of mortgage payoffs associated with home sales. Look at the 2006 volume of originations at $911 billion, more than double the level in 2001.  We know that 2006 originations included some of the worst performing loans driven by the last gasp originations of notorious players like Countrywide and IndyMac before the music stopped. 2006 charge-offs from consumer credit reports are a modest $41.3 billion. Consumers are furiously pulling equity out of their homes, as shown in the second column under Mortgages, $179.1 billion in equity extraction.  It's good to remember from whence we came.

In 2009, after the onset of the crisis, home sales fall out of bed and new originations are frozen, so First-Lien Originations decline 57 percent from 2008, to $194 billion. Early refis are also in this total, as I understand it.

My point relates to charge-offs. Since 2008, $1.2 trillion in first and second lien obligations have been written off due to default and foreclosure. This is the massive, predominant effect.  How much more charging off needs to be done?  One presumes that industry reserve additions over the past few years have built an adequate cushion to absorb further losses.

The Fed authors make the point that $214 billion in mortgage indebtedness was paid down in 2010 and $242 billion in 2011.  On first blush, this seems promising, but I don't think that it's worth concluding yet that the broad consumer sector is healthy enough to start spending again. The sentiment and confidence numbers suggest the opposite.