Home Equity Loan Lowdown

Home Equity Loan Delinquencies Down: ABA

Home equity loan delinquencies fell to 1.89 percent from 1.94 percent in the second quarter, according to a recent report by the American Bankers Association. The ABA’s quarterly survey of more than 300 banks nationwide shows a slight increase overall in the percentage of consumer loans that are 30 days or more past due during the second quarter of 2006. Dsnews.com reports:

Property improvement loans and mobile home loans were among those loan types that had an increase in delinquencies. Property improvement delinquencies increased to 1.48 percent from 1.42 percent, while mobile home loan delinquencies rose to 3.61 percent from 3.37 percent.

Read more: ABA: Second Quarter Home Equity Loan Delinquencies Down

Home Equity Loan Delinquencies Marginally Down

Good news on the home equity loan front. You know, when you’ve been hearing so much bad news for so long, some good news comes as a breath of fresh air. By bad news I mean all those debt problems, mortgage problems, rise in student loan rates, high insurance rates, high gas prices… just about everything had this feel of rising prices, costs with no income to support these costs.

Well, so the fact that delinquencies are down, calls for some celebration. According to the American Bankers Association’s Consumer Credit Delinquency Bulletin, home equity loan delinquencies fell to 1.89 percent from 1.94 percent in the second quarter. The survey also shows a slight increase overall in the percentage of consumer loans that are 30 days or more past due during the second quarter of 2006. Dsnews.com reports:

Property improvement loans and mobile home loans were among those loan types that had an increase in delinquencies. Property improvement delinquencies increased to 1.48 percent from 1.42 percent, while mobile home loan delinquencies rose to 3.61 percent from 3.37 percent.

Read more: ABA: Second Quarter Home Equity Loan Delinquencies Down

Is your home your ATM?

You would think that a person, who is planning to enjoy his/her retirement, would ensure that all their debts are paid off especially mortgage loans so their house really belongs to them. Well, research shows that instead of building a nest egg for retirement, a growing number of homeowners are putting themselves in a debt trap – by cashing in on their homes’ equity. Contracostatimes.com reports:

"People are making the mistake of thinking they live inside a big piggy bank," said Libby Mihalka, president of Altamont Capital. "They don't realize it can all snowball out of control very quickly. Their house is not an ATM."

Read more: More use homes as main asset

The noose is tightening. Can you escape?

Times have never been so bad for homeowners both existing and aspiring. Some of them get trapped into taking adjustable rate mortgages and are then stuck with higher payments. So, they try to wriggle out of the situation by tapping into their home’s equity. And what do you know? Home equity loan rates have surged from 4.5 percent to 8.25 percent and home values have stopped rising and even fallen in some markets. This means taking out a loan against your home’s equity is no longer a viable option.

And then there are those who have already taken out loans against their home’s equity. They are now faced with the too real proposition of losing their homes. Most of these homeowners also have huge credit card debts, which makes their situation even more precarious. Cbsnews.com reports:

Already nationwide mortgage delinquencies (mortgages where one or more payments have been missed) are up slightly from a year ago. However, the worst may be yet to come.

Read more: The Mortgage Trap

Are rising home equity loan rates affecting the economy?

Interest rates are hitting the skies – especially in the case of home-equity loans. So, what impact do these rising interest rates have on the economy? According to some experts, interest rates act like a throttle on economic expansion because they make it more expensive to borrow money. Sfgate.com reports:

Some experts say the pace of increases has been so measured and the economy is so strong that the impact will be minimal. Others see high interest rates as the prologue to a slowdown or even a recession.

Read more: How rising rates could affect economy

No let-up in re-financing in 2006

Re-financing was the mantra last year, interest rates fell to record lows, and borrowers made lower monthly payments. Now interest rates are moving up but the fascination follows into 2006 as refinancing accounted for as much as 40 percent of mortgage applications last month, the Mortgage Bankers Association reported.

Freddie Mac is forecasting that when the numbers for 2005 are tallied, homeowners will have converted $204 billion of equity into cash, up from $142 billion in 2004. If you need a new roof or a more energy-efficient furnace, a cash-out is a cheaper way to access credit to do home improvements, said Frank Nothaft, chief economist for Freddie Mac.

Read more on the popularity of refinancing in 2006 here.

Major Banks eye $300b in Home Equity

Major banks are all set to make a bid to grab $300 billion locked up in home equity. Under the pressure from their competitors, banks are now trying to undo the damage by lowering term-loans. Bank of Queensland lowered its one, two, four and five-year term loans. It lowered its three-year term loan a few weeks ago. Many other banks followed its suit.

It is reported that European giant HBOS is going to enter into the mortgage market. HBOS owns BankWest and wants to grab the deposit market in Ireland. A leading bank ABN Amro already acknowledged that HBOS could be threat to its rivals in this sector. Although the reverse mortgage sector is now a key target for many of the banks, only St George and the CBA have made any attempt to cater for the growing demand. thecouriermail.news.com reports:

Non-banks like Bluestone and Mariner have also started issuing reverse mortgages. ABN Amro estimated home equity in the over-60s exceeded $300 billion and was expected to rise to $700 billion within 10 years.

Read More: Banks eye $300b in home equity