The $1.1 Trillion HELOC Problem

[Joanne98]

The New York Times is writing Home Equity Loans as Next Round in Credit 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.

When borrowers default on their mortgages, lenders foreclose and sell the homes to recoup their money. But when homes sell for less than the value of their mortgages and home equity loans — a situation known as a short sale — lenders with first liens must be compensated fully before holders of second or third liens get a dime.

In places like California, Nevada, Arizona and Florida, where home prices have fallen significantly, second-lien holders can be left with little or nothing once first mortgages are paid.

Consider Randy and Dawn McLain of Phoenix. The couple decided to sell their home after falling behind on their first mortgage from Chase and a home equity line of credit from CitiFinancial last year, after Randy McLain retired because of a back injury. The couple owed $370,000 in total.

After three months, the couple found a buyer willing to pay about $300,000 for their home

CitiFinancial, which was owed $95,500, rejected the offer because it would have paid off the first mortgage in full but would have left it with a mere $1,000, after fees and closing costs, on the credit line.

“If it goes into foreclosure, which it is very likely to do anyway, you wouldn’t get anything,” said J. D. Dougherty, a real estate agent who represented the buyer on the transaction.

http://globaleconomicanalysis.blogspot.com/2008/03/11-trillion-heloc-problem.html

[sharesunited]

1. Subordinate lien holders don't do any better in foreclosure.

So all lienholders should be apportioned a share of the loss in proportion to the indebtedness owed to them.

[Turbineguy]

2. My bank

Washington Federal S&L just offered me an attractive HELOC. They did not participate in the risky and high profit side of the mortgage market which is why they have very few problems.

I have a theory about banks. There are banks I borrow from- and there are banks I deposit to+.

[sam sarrha]

3. more info on putting money into, i may be getting a large injury settlement, i am really concerned

about how to protect it.. would piss me off to lose it, and be left seriously disabled and unemployable.

not asking for financial counseling.. just collecting information for an "Overview" of the situation today. could be years before i hear/see anything. all we get from the White House Corporate Media Theater are lies and distortions.

[Turbineguy]

4. I would look for

a bank with a high capital ratio. This is the cushion of money the bank has in the event of a lot of withdrawals. The federal regulations require a minimum of 3% which is probably not enough since the average bank in the US has 7%.

Another thing to keep in mind is that strong banks can become weak following management changes. A rise in the bank's stock price in a relatively short period of time might indicate increasing risk positions which weaken the bank. As long as everything holds up, no problem. If things turn downwards the problem arises. Pick a bank to deposit in and look at their lending requirements. If they are stringent, it's probably a good candidate for deposits.

You want to be well ahead of needing to use the FDIC as a safety net.

[sam sarrha]

5. what rate did the Silverado investors get reimbursed at..?? this is much worse, thanks for your repl