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> that printed money has to go somewhere

Money isn’t conserved in our system. When the Fed sells a bond, and it’s presently selling tens of billions, scheduled to increase to hundreds of billions, it destroys that money.

No, money is created and destroyed all the time.

Won't less money will be 'printed' (i.e. created by banks via lending) as mortgages fall?

Yes and all those existing mortgages have to be paid off which reduces the money supply. You actually have a system that ratchets itself back the moment people stop borrowing. The problem is that debt deflation causes the velocity of money to drop making it harder to pay off debt.

The central bank is perpetually scared of debt deflation so it targets a 2% inflation rate. If you could implement a -2% negative interest rate you wouldn't need inflation targeting at all. Debt deflation wouldn't result in a stagnant economy with unemployment making it easier for governments run a balanced budget or short term austerity without ill sideffects.