Wednesday, July 2, 2008

Paying your HELOC

Things are bad at the moment. While the Dow bounced back a bit from the June losses which is great for Wall Street. But things are still very difficult for those of us Main Street. Bloomberg News has a nice illustration in an article titled Overdue Home-Equity Credit Lines Rise Most Since 1987, ABA Says. The article is a great economic snapshot - lots of facts piled into it. Here is the section on home equity problems -

Consumers fell behind on loans secured by their homes at the fastest pace in two decades in the first quarter, signaling deeper distress in the U.S. economy, the American Bankers Association reported.

Home-equity lines of credit at least 30 days past due rose 14 basis points to 1.1 percent of accounts for the quarter, the Washington-based group said today in a statement. Delinquent credit-card accounts increased 13 basis points to 4.51 percent, the highest level since 2006.

"People are looking for any source of funds to pay their daily expenses,'' Carol Kaplan, spokeswoman for the bankers' group, said yesterday in an interview. ``It's a sign of the overall condition of the economy that people are having trouble making their payments.''

ABA chief economist James Chessen said in the statement that because of job losses, slow income growth and falling real estate and equity markets, there is ``little relief'' in the coming months.

"The average consumer is tapped out and burned out,'' billionaire investor Wilbur Ross said yesterday in a Bloomberg Television interview. ``They kind of used their house as an ATM machine with a couple bedrooms attached to it.''

The mindset of equity lines during the bubble were something to cashout was huge. If you were not using your equity to fund vacations, cars and conspicuous consumption, you were encouraged to invest in stocks and other real estate. Why pay off your house - your house was money that could work for you? That seemed to be the rule of the day.

Today the rules have changed. We can not afford to buy a new house. We can not afford the ones we have. We can not afford a new car. We can barely afford the ones we have. And we definitely can not afford to pay off the lavish lifestyles we had during the Great Housing Bubble.

What seemed to be lost in the lending and credit frenzy was that if you borrowed money you owed the money. That reality is hitting us on the head right now.

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