Explosive Equity News

Incredibly informative HELOC's and second mortgages from CNBC called Equity Loans as Next Round in Credit Crisis. Here are some of the most interesting parts -

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.

...It is a remarkable turnabout for the many Americans who have come to regard a home as an A.T.M. with three bedrooms and 1.5 baths.

...Lenders also encouraged many aspiring homeowners to take out not one but two mortgages simultaneously — ordinary ones plus “piggyback” loans — to avoid putting any cash down.

The result is a nation that only half-owns its homes. While homeownership climbed to record heights in recent years, home equity — the value of the properties minus the mortgages against them — has fallen below 50 percent for the first time, according to the Federal Reserve.

...When borrowers default on their mortgages, lenders foreclose and sell the homes to recoup their money. But when homes sell for less than the value of their mortgages and home equity loans — a situation known as a short sale — lenders with first liens must be compensated fully before holders of second or third liens get a dime.

With this type of debt out and the huge drops in house values, lenders are losing money left and right. Many of these losses are due to greed and bad business practices. With lenders loaning upto 120% of the houses value and approximately another 10% tacked on in foreclosure costs - house values would have had to increase by a record 30% year-over-year to sustain these numbers without the lenders taking a loss. Increases of 30% every year on end is totally unsustainable. Anyone who could not see that should never be allowed in the banking/finance/mortgage industries - they are frauds, liars, or incredibly gullible.

The numbers in this article are eye-poppers S1.1 trillion dollars in equity being spent - we know that bumped up the economy. People were living off of debt and inflated prices. I think it is time to review this GDP without and with Mortgage Equity Withdrawal from Calculated Risk to see how much this debt really affected the economy -


According to the numbers reported there would have been no growth in 2001 and 2002 and minuscule growth in 2003, 2004 and 2005 if people did not tap into their equity. This huge amount of spending with the realization that at a time with the highest levels of home ownership was taking place. It is ironic that at a time with the highest percentage of home ownership we are also in the highest levels of debt and own the smallest percentage of our houses.

All the numbers in the article, along with calculated risk's excellent graph, illustrates that the Great Housing Bubble was unsustainable. We are already seeing record foreclosure rates and record house value declines. As the consequences permeate throughout the country things will decline even more. As a said earlier this week, just wait until eating take-out is considered the luxury and too expensive.