The number of borrowers missing payments around the 10-year point can double in their eleventh year, data from consumer credit agency Equifax shows
So now, after years of denial by banks and enabling by regulators, the second lien chickens are finally coming home to roost. Homeowner advocate Lisa Epstein gives an idea of how bad this looks from the borrower side:
People who’ve owned their homes for decades, never paid a bill late in their life, and https://yourloansllc.com/payday-loans-sc/ got one of these HELOCs in the early to mid 2000s are starting to get seismic shocks in their monthly statements. Monthly bills going from $200 to $1,200 is met with incredulity and confidence that a mortgage servicer mistake has been made until it is clear that they’ve received a rude reminder of something most families have forgotten or never fully realized. Some have been paying interest only for 10 years and a $25,000 balloon is coming due. For most, the only option is to sell if not underwater or to default and try to negotiate a reduction and deal with the IRS 1099 issue if the Mortgage Forgiveness Act expires without extension in a few weeks, risking foreclosure. And, then there’s the question about what to do with the first mortgage if there is one.
But the Reuters piece, while doing a good job of trying to get a handle on the magnitude of this problem, peculiarly plays down they way regulators have given the banks a wink and an nod all these years:
U.S. borrowers are increasingly missing payments on home equity lines of credit they took out during the housing bubble, a trend that could deal another blow to the country’s biggest banks….
More than $221 billion of these loans at the largest banks will hit this mark over the next four years, about 40 percent of the home equity lines of credit now outstanding…
When the loans go bad, banks can lose an eye-popping 90 cents on the dollar, because a home equity line of credit is usually the second mortgage a borrower has…
More than $221 billion of these loans at the largest banks will hit this mark over the next four years, about 40 percent of the home equity lines of credit now outstanding…
When the loans go bad, banks can lose an eye-popping 90 cents on the dollar, because a home equity line of credit is usually the second mortgage a borrower has…
Borrowers are delinquent on about 5.6 percent of loans made in 2003 that have hit their 10-year mark, Equifax data show, a figure that the agency estimates could rise to around 6 percent this year.
This scenario will be increasingly common in the coming years: in 2014, borrowers on $29 billion of these loans at the biggest banks will see their monthly payment jump, followed by $53 billion in 2015, $66 billion in 2016, and $73 billion in 2017.
The Reuters story also says that the Office of the Comptroller of the Currency was “warning” about HELOCs in early 2012. Ahem, they were recognized as a big undeplayed risk in the infamous bank stress tests of 2009. And if the OCC was so concerned, why did it then (as now) natter about the need for more data? Why didn’t it just demand it?
Regulators were clearly hoping that the housing market would recover enough to reduce the size of this looming time bomb. But the much-touted housing recovery has been almost entirely due to price appreciation in foreclosed properties. Josh Rosner ascertained that the year-to year median sales price increase in owner-occupied homes was a mere 1%.