When you think about the Great Recession of 2008, the type of loans that come to mind are home purchase mortgages, however there were some loans that were made prior to the Great Recession that are starting to become a big problem for borrowers. The loans that are beginning to put strain on borrowers are home-equity lines of credit or HELOCs as they are more commonly known. We will see in this article if there is in fact a Home Equity Loans Bubble Bursting or if this is something the markets can prevent from sending shockwaves throughout. Before we can go into the Home Equity Loans Bubble Bursting, it’s first good to know some background information regarding this situation and how we ended up getting to this point.
As mentioned earlier, the Home Equity Loans Bubble Bursting is a definite possibility, but let’s take a look at how we got here in the first place. In its simplest form, HELOCs are a type of loan that allows borrowers to borrow or withdraw money against the equity built up in their home in order to pay for renovations, college, vacations, to pay off credit card debt, or any other option the borrower can think of. A majority of these loans only require you to pay interest only over the first 10-15 years of the loan after which you will be required to pay the principal as well for the remainder of the time on the loan. When this principal amount finally kicks in, it is a big surprise to borrowers and if they were barely making the payment when it was interest only, the strain really kicks in when that principal is required to be paid as well.
When looking at Home Equity Loans Bubble Bursting it’s good to know some stats from 10 years ago that are now coming around to show themselves. According to reports, there were over 800,000 HELOCs taken in 2006 alone of which are all ready to begin collecting principal in their payments shortly if they haven’t already. Also within that same report, it is reported that 4.4% of the loans taken out, or more than 35,000 loans are delinquent which equates to over $2 Billion in loan values that are behind at this point in time. As the numbers of HELOCs delinquencies rise, it is now known that big banks aren’t out of the water yet and that there is still cause for concern that another smaller recession could be on the way as Home Equity Loans Bubble Bursting.
As banks and lending institutions prepare to battle against Home Equity Loans Bubble Bursting they are being proactive now with new loans that they are issuing. With regards to Wells Fargo and Bank of America, they have done away with interest-only HELOCs and require principal payments from the beginning of the loan. The other factor that is helping prevent huge shockwaves is that recently home values have been increasing and borrowers are obtaining enough equity in their homes and are able to refinance out of the HELOC and into another HELOC, thus restarting the clock for another 10 years. This isn’t the best course of action, but it does help prevent default and late-payments on these loans.
As you can see there is a cause for concern that the Home Equity Loans Bubble Bursting is taking shape and can definitely negatively affect the markets as we know it. It will be up to the borrowers and the flexibility of the banks and lenders to ensure we don’t have a repeat of the Great Recession from these HELOCs. If you currently have a HELOC and are needing to refinance out of it, then you need to call me ASAP and we can get the loan processed right away. Please call me ASAP to get started, 888-900-1020, firstname.lastname@example.org, and www.loanconsultants.org for more information.