Housing Double Dip
A second dip in housing is something that cannot be ruled out right now and it relates to something getting NO coverage - second liens, home equity lines, whatever you want to call them. About 50% of borrowers have home equity lines of credit (HELOC) and they are set to go from interest only to term out (interest and principal) with an aggressive term. Here’s an example of what will happen. A homeowner is paying their first mortgage and therefore is not on the bank’s radar, the bank has no need to reserve against their credit because it’s performing. This same homeowner is also paying the interest on their line of credit (which is adjustable by the way). In time though their payments on the HELOC will go up drastically as principal payments are also required. Add in any increase in rates and now their interest payment has also gone up. All of a sudden a big chunk of these borrowers will begin defaulting and the banks will be forced to increase their reservers on these second lien credits. Below is a little snippet about the problem and and the failed attempts to date to address it.
The Obama administration is about to ramp up its efforts to tackle second mortgages as part of an aggressive program announced by the White House on Friday to address foreclosures. ... Government officials have estimated that about 50 percent of troubled borrowers have a second mortgage. But a year after federal officials launched an initial program to lower payments on these second loans, not a single homeowner has been helped.
Just a few banks hold most of the second liens, according to data from Inside Mortgage Finance. Of the more than $840 billion in home-equity lines and piggyback loans outstanding, Bank of America has about $147 billion of them, while Wells Fargo and J.P. Morgan Chase have $124 billion and $118 billion of the market, respectively. Citigroup has about $53 billion of these loans on its books.
They have all signed up for the administration program announced last year, but none has taken action yet.
NOBAMA / Carter 2012 - “Yes we can - we just figured out a way - it’s called the American deem”
My take on this is that because these loans will be spread out over several years it will not be as bad as the mortgage problem. My HELOC expires July 2011, then I will have to reapply. There may be many instances where the homeowner just refinances both their loans into one mortgage. I can see banks doing this for customers who are paid up. Just a thought.
Adversity does not just build character, it reveals it.
Everyone has already seen this horror movie before. Maybe the next time it plays, not everyone screams and runs to the exits. At least, heres hoping. :bugeyed: