Thursday, January 8, 2009

Home Equity Delinquencies Hit Record Levels

HELOC holders are facing a double whammy - between having them shut-off or reduced while payments on existing lines are not being made at record levels there seems to be little incentive to hold onto these loans. These cash cows are all cashed out. Once used to fuel the over-consumption lifestyle, now those that over-indulged, and in some cases indulged into the HELOC at all, are paying the price.

Remembering back to the days when using your HELOC was considered using your own money, the thing that was forgotten that the money was to be paid back. Remember HELOCs are really second mortgages. The industry pushed the idea that HELOCs were good since people viewed another mortgage as a bad thing. And after while people believed the message. Instead of spending equity you were spending the money you have saved up through your equity.

HELOCs became commonly viewed as personal savings accounts - even they are not. We know that lenders helped to push this mindset- and people were ready to accept this. Now that the bubble has burst and the bills are coming due so are delinquencies. An article from Newsday titled Home-equity delinquencies at record levels summarizes the numbers. Lets take a look -

Late payments on home equity loans rose to a record in the third quarter, as consumers remain under stress as unemployment rises and the credit crisis persists, the American Bankers Association reported yesterday.

Home-equity delinquencies rose to 2.63 percent in the third quarter from 2.56 percent in the previous period, the Washington-based group reported in its consumer credit delinquency bulletin. The trade group surveys more than 300 banks to monitor reported payments of consumer loans falling more than 30 days past due.

"Home equity delinquencies are a natural fallout of the housing problems across the country, and we expect to see that continue to rise," said James Chessen, the group's chief economist.

Job losses are mostly to blame for eroding consumer credit as firings from homebuilders and automakers to retailers increase, Chessen said.

"The number one factor in rising consumer credit delinquencies is job losses," he noted.

With unemployment levels rising and equity levels falling there is little to bridge the gap. No money left to borrow, wince we are too borrowed out. And now we see those lucky enough to still have a job are likely to see a pay cut. Things are going from bad to worse before they will get better. If we can just make it until 2011...

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