Important Home Equity Line of Credit Information


Filed under: Market Comentary


helocBack in 2005, there was a plethora of Home Equity Line Of Credits (HELOC) made. And, with many of these still around and close to resetting, some borrowers may no longer be able to afford these credit lines when they are required to begin paying both principal and interest on their balances.

When these HELOCs reset, they will either come due as a balloon payment or they will become amortized, and this may present a problem for many homeowners.

According to an article by Kenneth R. Harney, some mortgage and credit experts worry that billions of dollars of home equity credit lines that were extended a decade ago during the housing boom could be heading for some trouble, which may cause a new wave of defaults for banks as well as for homeowners.

Theses lines of credit, which are second mortgages with floating rates and flexible withdrawal terms, have a mandatory reset attached to them. This requires borrowers to begin paying both principal and interest on their balances after ten years have passed.

Harney mentions that these reset payments on the lines of credit can be quite substantial, possibly an extra $500-$600 or even more per month for homeowners. And, if the homeowner would not be able to afford this increase, or choose to simply not make the fully amortizing payments, the bank could, in fact, demand full payment and foreclose on the home if there is sufficient equity.

According to the article, there is about $30 billion in home equity lines that date back to 2004, and these are due for these “resets” this year. In addition, there are $53 billion in home equity lines of credit due the following year, and $111 billion in 2018.

Harney states that Amy Crews Cutts, chief economist for Equifax, calls this a looming “wave of disaster” due to the high number of borrowers that will be unable to handle the higher payments. If this is the case, this will force the banks to either foreclose, refinance the borrower, or even modify their loans.

Some homeowners may be able to refinance their homes now that the housing market has begun to see signs of recovery and home prices have appreciated.

If you are a homeowner with a HELOC and are concerned with either an adjusting payment of interested in investigating the potential for a refinance, feel free to give me a call for a no-obligation evaluation of your mortgage options.

Source: http://www.latimes.com/business/realestate/la-fi-harney-20131110,0,6997479.story#axzz2sYYxpjnU


Franklin Loan Center | NMLS 237653
Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act, 4131316
http://www.nmlsconsumeraccess.org/entitydetails.aspx/COMPANY/237653
For questions or concerns please email info@franklinlc.com