Home-Equity Loans May Be Next Round in Credit Crisis

[Silverbird]

By Vikas Bajaj The New York Times (http://www.nytimes.com/2007/12/20/technology/personaltech/20pogue.html?_r=1&ref=technology&oref=slogin) | 27 Mar 2008 | 10:48 AM ET

Little by little, millions of Americans surrendered equity in their homes in recent years. Lulled by good times, they borrowed — sometimes heavily — against the roofs over their heads.

Now the bill is coming due. As the housing market spirals downward, home equity loans, which turn home sweet home into cash sweet cash, are becoming the next flash point in the mortgage crisis.

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.

To get it, many lenders are taking the extraordinary step of preventing some people from selling their homes or refinancing their mortgages unless they pay off all or part of their home equity loans first. In the past, when home prices were not falling, lenders did not resort to these measures....
http://www.cnbc.com/id/23826630

[garnertr]

So, can someone in plain English explain, what exactly happened in the Housing market, I watch it like a freaking car chase on TV but yet really don't understand the nuts and bolts. Keep in mind, I also don't own a home, I'll be looking in the next 4-5 years...

[grasshopper]

Home Equity hit home for me several months ago. Even though I did not have any funds drawn against my Home Equity Account I received a letter from Country Wide cancelling my Home Equity Line of Credit.. Even though I never did use it I was somewhat surprised as I have an Excllent credit rating, no other debts and quite a bit of equity in his place (or so I thought).

Now my Home is heading in the same direction as my TSP.....

[rokid]

garnertr,

Home prices went up considerably faster than people's wages. My home almost tripled in value in five years. My wages sure didn't triple in the same period. Crazy.

Apparently, the sub-prime mortgages (teaser rates, no down payment, no verifiable income, etc.) allowed people to get into homes they couldn't really afford. Since more people could get into homes, they bid the prices up. In addition, investors, AKA "flippers", were bidding up home prices. Classic supply and demand with a dollop of irrationality.

Finally, everyone thought home prices could never decrease. Therefore, if they couldn't afford the payment after the mortgage reset, they'd just sell for a $100K profit.

Now the prices are falling back down to more realistic levels in relationship to incomes. Bad for me, bad for people upside down on their mortgage, bad for people in foreclosure, but very good for people, like my son, thinking about buying their first home.:laugh:

[Viva_La_Migra]

Keep in mind, I also don't own a home, I'll be looking in the next 4-5 years...
Now might be a good time to get into a home, if you have the down payment. Next year might even be better, as more loans are set to adjust and more homes will go into foreclosure. I wouldn't wait four or five years, as the market will probably turn around by then.

[Hallatauer]

Funny, on CNBC a talking head was saying that auto loans will be the next to fall... like everyones making gloom and doom predictions... after that will be the credit cards?