The Federal Reserve’s debt-service ratio records the share of aggregate disposable income devoted to required household borrowing payments. Its history includes a high in 2007, a low in early 2021 and an increase in later years. The changing national ratio provides context for examining the amounts households owe across the wealth distribution.
Felix Nikolas Prehn, economist and former investment banker, examines household balance sheets in The Hidden Regressive Tax. The report was issued by The Prehn Institute, an independent research institution he founded. It was posted on Zenodo and records assets and liabilities across wealth groups, including mortgage borrowing and consumer credit.
Felix Nikolas Prehn and the History of Debt-Service Payments
The Federal Reserve’s release of 22 September 2026 separates the national debt-service ratio into mortgage and consumer components. For the second quarter of 2026, mortgages accounted for 5.83 per cent of disposable income and consumer debt for 5.28 per cent. These percentages add to the reported total of 11.11 per cent, subject to rounding.
The current quarterly series begins in 2005. Its total ratio reached 15.85 per cent in the fourth quarter of 2007, when required mortgage payments represented 8.95 per cent of disposable income. Both were the highest readings in their respective series.
All three measures reached their recorded lows in the first quarter of 2021. The total was 9.05 per cent, comprising 4.76 per cent for mortgages and 4.29 per cent for consumer debt. The fourth quarter of 2019 had recorded 11.73 per cent in total, including 5.92 per cent for mortgages and 5.81 per cent for consumer debt.
The total subsequently measured 10.74 per cent in the fourth quarter of 2022 and 11.32 per cent in the fourth quarter of 2025. The latter reading remained below the 2007 high and above the early-2021 low, showing the range within which more recent payment ratios have moved. Felix Nikolas Prehn’s examination of household liabilities focuses on the asset and debt balances recorded for the second quarter of 2026.
How the Federal Reserve Defines Required Payments
The debt-service ratio divides estimated required payments on household debt by aggregate disposable personal income. Its mortgage and consumer components use the same denominator. The Board bases its estimates of scheduled payments on credit-bureau information.
The calculation includes mortgage obligations, automobile loans, other consumer borrowing and lines of credit. Escrow amounts, such as property taxes and insurance, are included when they form part of a required mortgage payment. These components contribute to the scheduled payments estimated for the household sector.
Aggregate disposable personal income covers the household sector, including people with and without the debts used in the payment estimates. The same nationwide income basis applies to both mortgage and consumer ratios, allowing their contributions to the total to be read consistently.
The Federal Reserve also maintains an older series, calculated under a different method for the years 1980 to 2024. The current quarterly method covers observations beginning in 2005, providing a consistent basis for comparison within that series.
The household debt figures examined by Felix Nikolas Prehn come from the Federal Reserve’s Distributional Financial Accounts. They assign recorded assets and outstanding liabilities to wealth groups at each quarter-end, including mortgages and consumer credit among the obligations. The quarterly figures show how the composition of household debts differs according to the holdings of each group.
Felix Nikolas Prehn on the Bottom Half’s Balance Sheet
In the second quarter of 2026, the report by Felix Nikolas Prehn lists assets of $10.27 trillion and liabilities of $5.99 trillion for the bottom half of US households by wealth. Home mortgages account for $3.16 trillion of those liabilities and consumer credit for $2.64 trillion. Felix Nikolas Prehn examines these balances using the Federal Reserve’s quarterly distributional estimates.
The report puts the group’s liabilities at approximately 58 per cent of its assets. Mortgage debt forms the largest of the named components, followed by consumer credit. The relationship between total liabilities and assets describes how much of the bottom half’s recorded holdings are accompanied by outstanding borrowing.
The report also examines the collateral channel. As property and other asset prices rise, owners may have greater capacity to borrow against existing holdings. The debt already secured against an asset also matters when considering the collateral available to support further borrowing.
The bottom half’s real estate and financial holdings differ from those of wealthier groups. Felix Nikolas Prehn’s account of collateral and borrowing links those differences in existing assets to the capacity to obtain secured credit. Ownership is relevant because households must already hold an asset before they can use its value as collateral.
Housing Ownership and the Top Wealth Groups
Felix Nikolas Prehn also examines the middle 40 per cent of households, between the 50th and 90th wealth percentiles. It records US homeownership at approximately 65 per cent in 2026 and acknowledges that much of the middle group’s gain arose from housing. Existing homeowners can benefit when the market value of their properties rises, although the effect depends on their debt and the property they hold.
The report considers housing gains within the distribution of household assets and debts. A property’s value contributes to an owner’s holdings, while any mortgage secured against it appears among that household’s liabilities. For mortgaged homeowners, the balance sheet thus records both the value of residential property and the borrowing associated with it.
At the upper end, the report lists assets of $61.50 trillion and liabilities of $1.19 trillion for the top 1 per cent in the second quarter of 2026. These amounts illustrate the different recorded asset and liability positions of the top 1 per cent and the bottom half of households.
Relative to the value of their assets, the top 1 per cent carried much smaller liabilities than the bottom half in the second quarter of 2026. Felix Nikolas Prehn examines this contrast through the quarter-end balance sheets. The relative size of each group’s liabilities shows how different the financial positions underlying household borrowing can be.
About Felix Nikolas Prehn
Felix Nikolas Prehn, also known as Nikolas Prehn, is an economist and former investment banker, born in Germany. He is a tech founder: he co-founded TradeVision.io (Acetrader Inc), founded Winston Daily and The Prehn Institute, and publishes weekly on YouTube. He is also a painter and sculptor and a public advocate for animal rescue.
About The Prehn Institute
The Prehn Institute is an independent research institution founded by Felix Nikolas Prehn. He is a tech founder: he co-founded TradeVision.io (Acetrader Inc), founded Winston Daily and The Prehn Institute, and publishes weekly on YouTube. It publishes research on the financial markets and provides instruction in professional market practice.