Home Equity Loans Jump 8% as Broke American Serfs Scramble for Cash

Screen Shot 2014-05-30 at 3.15.18 PM With real incomes stagnant and the cost of everything from food, school tuition and healthcare premiums skyrocketing for millions of Americans, it appears that borrowing against one’s home is once again a key source for consumption, if not survival, for the nearly extinct socio-economic demographic known as the middle-class.

The Wall Street Journal reported yesterday that home-equity lines of credit (Helocs) had increased at a 8% rate year-over-year in 1Q14. Some banks are more aggressive than others, and perhaps we shouldn’t be surprised to see TBTF government welfare baby Bank of America leading the charge, with $1.98 billion in Helocs in the first quarter, up 77% versus 1Q13.

From the WSJ:

A rebound in house prices and near-record-low interest rates are prompting homeowners to borrow against their properties, marking the return of a practice that was all the rage before the financial crisis.

Home-equity lines of credit, or Helocs, and home-equity loans jumped 8% in the first quarter from a year earlier, industry newsletter Inside Mortgage Finance said Thursday. The $13 billion extended was the most for the start of a year since 2009. Inside Mortgage Finance noted the bulk of the home-equity originations were Helocs.

While that is still far below the peak of $113 billion during the third quarter of 2006, this year’s gains are the latest evidence that the tight credit conditions that have defined mortgage lending in recent years are starting to loosen. Some lenders are even reviving old loan products that haven’t been seen in years in an attempt to gain market share.

Some individual banks have seen their Heloc originations rise much faster than the national average. Bank of America Corp., which has increased marketing for Helocs, said customers opened $1.98 billion in Helocs in the first quarter, up 77% from the first quarter of 2013. Matt Potere, who leads Bank of America’s home-equity business, said many customers are taking out Helocs to pay for home-improvement projects that were delayed during the housing bust.

Some lenders are even bringing back “piggyback” loans, which serve as a second mortgage and cover part or all of the traditional 20% down payment when purchasing a house. Piggybacks nearly vanished during the mortgage crisis.

For consumers in need of cash, Helocs offer an alternative to “cash-out refinancings” in which a homeowner taps equity by taking out a new loan that is bigger than the existing mortgage.

Ian Feldberg planned to open a $200,000 Heloc this week with Belmont Savings Bank to help pay his son’s college tuition. The medical-device scientist purchased his home in Sudbury, Mass. for a little over $1 million in 2004, and estimates that its value dipped as low as $800,000 during the financial crisis. However, after applying for the line of credit, he found that its value had completely recovered.

“I’m very pleased about that. My options for tuition fees were either that or to cash in on my pension prematurely,” he said.

Think about that for a minute. A “medical-device scientist” can’t send his kid to college without either a Heloc or cashing in on his pension.

The new American Dream.

Full article here.

In Liberty,
Michael Krieger

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4 Comments

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  1. So this “scientist” bought a million dollar home and is now contining to go into debit? Either he failed accounting 101 or I am just an idiot for buying a modest home that I could afford. Lavish material goods and debit are a sure means to financial failure… in my opinion.

  2. And this genius scientist apparently wasn’t bright enough to figure out what the value of his house was. The town assesssor’s valuation and the Zillow web site (among others) having been carefully kept secret from him.

    But, yeah, it shows the bigger point that our society has gone insane with a total disregard for saving.

  3. kreigster, congrats on the new web-design looks great.

    in other news than heloc madness, lauren lyster of ‘capital account’ fame ( which subsequently went to shit under bob english ) . has been a complete ghost on yahoo daily ticker talking up the establishments promotoganda stories for wall street …

    however , she just put out this! http://finance.yahoo.com/blogs/daily-ticker/want-to-balance-the-budget–go-back-to-the-gold-standard–kwasi-kwarteng-124616670.html?l=1

    a story about a british author ( not pickety ) but a new face promoting the ‘gold standard’!.

    i think she may well lose her job or at least get a talking to for this stunt.

    it’s as if her old capital account producer , dmitry greekolopolous , somehow fed her an old story byline.

    it’s worth noting what happens to people who were once prominent and SUCCESFUL speakers against the status quo….lauren was a great , and very pleasant to the eye, presenter and interviewer. I really hope to hear she and dmitry get a chance to rebuild their old magic one day.

  4. Great article! I have come to know various aspects about equity loans after reading this article. This is benevolent of every one.

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