Home Equity Market Beginning to Dry Up (Fairfax: short sales, foreclosure)

[scimitar12]

I found this article from Fortune. It seems the home equity market is being shut down for many home owners, at least in California:

Home equity loan defaults soar - Feb. 4, 2008

"One of the last sources of ready cash for homeowners looking to get money from their house appears to be shutting down and the results aren't likely to be pretty for the economy.

Last week, buried deep in the ugly details of Countrywide Financial Corp.'s (CFC, Fortune 500) earnings release, was the news that its $32.4 billion portfolio of prime HELOCs - home equity lines of credit - had begun to rapidly deteriorate. The reeling Calabasas, Ca.-lender was forced to take a $704 million charge related to homeowners' inability to pay back equity they extracted from their homes."

[normie]

To be honest, it's probably just as well. Home equity loans end up causing more problems than people realize.

[Fairfax Mom]

I dont understand why people take out home equity loans. I would rather live with a cruddy kitchen then to borrow against my home.
I guess I would do only if I was really desperate.

[lindsayd]

Most people see it as "free money." It's sad because those people who used their homes as piggy banks are seeing the consequences. Foreclosure, short sales, etc.

[scimitar12]

Originally Posted by Fairfax Mom

I dont understand why people take out home equity loans. I would rather live with a cruddy kitchen then to borrow against my home.
I guess I would do only if I was really desperate.

I agree, though I think using a home equity loan to enhance the value of a home by remodeling a kitchen, putting on a new roof, etc., is what these kinds of loan tools are meant for. Over the years many homeowners abused equity loans by purchasing cars, going on vacations, buying stuff in general; things that were not wise loan decisions.

[claude henry smoot]

This is a good first step... but we need to see more lending reeled in. This country is completely dependent on unhealthy levels of debt - and it simply can't continue.

Credit cards are next - credit card companies are seeing rising delinquencies and have started lowering credit limits and even taking cards away!

So the home ATM has been turned off, credit card companies are buckling down, the nation's personal savings rate is -1% (note the national savings rate has only been negative 4 times... 2006, 2005, 1933, and 1932)... and where does that leave America?

"In the last four or five months we have seen an absolute onslaught of people trying to do hardship withdrawals and loans out of 401(k)s" Employees Raiding 401(k)s, CFOs Say - Employee Benefits - CFO.com

Smells of pure desperation to me... we all need to sit down and watch a few episodes of "Big Spender" on A&E. (The fact that we need a TV series to tell us not to spend twice our income on clothes is a bad sign!)

[Margery]

Originally Posted by Fairfax Mom

I dont understand why people take out home equity loans. I would rather live with a cruddy kitchen then to borrow against my home.
I guess I would do only if I was really desperate.

The home equity loan became more attractive when the interest paid on that loan became tax deductible (up to a principal of $100,000) and the interest on car loans, credit cards, etc. was no longer tax deductible. It was an easy source of funds, usually with no fees charged, and mortgage companies always encouraged you to do that whenever you refinanced your first mortgage for a lower rate. We, as a nation, forgot the old saying "There is no such thing as a free lunch".

[ashbrn4]

Originally Posted by Fairfax Mom

I dont understand why people take out home equity loans. I would rather live with a cruddy kitchen then to borrow against my home.
I guess I would do only if I was really desperate.

Um, buying a home with a first mortgage is no different than borrowing more to improve it. A mortgage is a mortgage is a mortgage. It allows you to leverage what you have into more. Those that get into trouble take out loans using all of their equity.

People and and do make bad decisions and get themselves into trouble, but utilizing your home equity can be a good thing too.