In this context, recent changes to mortgage regulations are particularly welcome—including those that require people to show that they can service their debt at higher interest rates. These regulations are helping reduce the economy’s vulnerability, since new borrowers will be more resilient than existing borrowers.
There are signs that these and other rules are working, as we are already seeing a significant reduction in the issuance of very high loan-to-income mortgages. High debt levels and monetary policy However, these regulations apply only to new mortgages. The stock of household debt, including the $ trillion in existing mortgages, will persist. And this debt has increasing implications for monetary policy.