Equity Home Loans

Are Equity Loans the next round in the Mortgage Crisis?

New York Times By VIKAS BAJAJ Little by little, millions of Americans surrendered equity in their homes in recent years. Lulled by good times, they borrowed — sometimes heavily — against the roofs over their heads. Now the bill is coming due. As the housing market spirals downward, home equity loans, which turn home sweet home into cash sweet cash, are becoming the next flash point in the mortgage crisis. Americans owe a staggering $1.1 trillion on home equity loans — and banks are increasingly worried they may not get some of that money back. To get it, many lenders are taking the extraordinary step of preventing some people from selling their homes or refinancing their mortgages unless they pay off all or part of their home equity loans first.

Public Comments

1. I think that you are 100% correct. Banks went crazy lending equity to anyone and everyone. It's ticking and it's coming for sure.
2. They already are. I see maybe 12 questions a day posted here with regards to HELOC. Bank closed someones, another stating their home is now not worth what they own on it & their mortgage, others that were relying on HELOC to make their escalated mortgage payment now can not, etc. There's going to be a lot more fall out & casualties before this is all over.
3. HELOCS are already dead. They have been for a couple months now. I live in Florida, which is one of the states where the property values were way over inflated from 2003-2006, so the banks are only now starting to see the error of their ways in lending more than the properties actual value through the advent of so many foreclosures. It's going to get a lot worse when people wake up and realize their credit is only pride. If you bought a home for 500k, put nothing down on it, and the builder now sells a brand new one for 400k, it only makes sense that you walk away. How much is your pride/credit worth, 50k, 100k, 200k?
4. Equity loans are a large part of the current crisis. Many of the 100% funding programs that have been used in the last 4 years were home equity loans. These are part of the current federal investigation that is ongoing. Keep in mind that the "Banks" that are referred to in much of the news are not your local bank but banks that deal in buying large blocks of mortgage backed securities. They are the ones that are being hurt by the crisis and posting huge losses. Unfortunately for local and community banks, they are being painted by the same brush. Many community banks, such as the one I am with, never made a single sub-prime loan. Yet our stock has taken a hit even though we have remained as profitable in 2007 as we were in 2005 & 2006. I hope this helps.
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