(In 3rd paragraph, corrects median net worth to $77,300 in 2010, not $77.3 trillion, and corrects to $126,000 in 2007, not $126 trillion.)

WASHINGTON, June 11 (Reuters) - Americans suffered a record decline in wealth between 2007 and 2010 as home values tumbled, according to a Federal Reserve report on Monday that underscored the severity of the recent recession.

The median family's net worth dropped 38.8 percent during the three-year period, the Fed said in its latest report on changes in U.S. Family Finances, derived from a survey of consumer finances. Fed economists told reporters that this was the biggest drop in net worth since the survey started in 1989.

The median net worth, which is the value of assets minus debt, plunged to $77,300 in 2010 from $126,400 in 2007. Net worth in 2010 was at levels last seen in 1992.

"Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices," the Fed said.

The survey's findings shine a harsh light on the devastation inflicted on the economy by the 2007-09 recession and could help to explain the frustratingly slow pace of the recovery.

The housing market's collapse was at the core of the recession, during which the economy contracted nearly 5.1 percent between the third quarter of 2007 and the second quarter of 2009, with the unemployment rate rising 4.5 percentage points to 9.5 percent.

"Housing was of greater importance than financial assets for the wealth position of most families," the Fed said.

The survey found that the decline in median net worth was large for families in groups where housing was a larger share of assets, such as families headed by someone 35 to 44 years old and families in the West region.

"A substantial part of the declines observed in net worth over the 2007-10 period can be associated with decreases in the level of unrealized capital gains on families' assets," the Fed said.

The share of total assets of all families attributable to unrealized capital gains from real estate, businesses, stocks, or mutual funds fell 11.6 percentage points to 24.5 percent in 2010, it said.

While the overall level of debt owed by families was unchanged, debt as a percentage of assets rose to 16.4 percent in 2010 from 14.8 percent in 2007 because the value of the underlying assets, especially housing, decreased faster.

The share of families carrying a credit card balance fell 6.7 percentage points to 39.4 percent in 2010. The median balance fell 16.1 percent to $2,600 in 2010 from $3,100 in 2007.

The proportion of families with debt payments greater than 40 percent of their income was nearly unchanged between 2007 and 2010. (Reporting By Lucia Mutikani; Editing by Chizu Nomiyama)