Posted on: 02nd Dec, 2009 08:06 am
Home equity lines of credit are increasingly less available these days. Not only must a homeowner have a substantial amount of equity in a home to qualify, but credit quality must be higher these days, and the terms of such a loan are far less attractive than in the boomtimes.
Lenders who invested heavily in this market have suffered tremendous losses as property values in many areas have plummeted; their second lien position becoming worthless in the process. With those losses, we found that creditors began freezing credit lines last year.
In addition to reduced credit resulting from these freezes, which have become more and more evident, interest rates are no longer rock-bottom. We were accustomed to seeing equity lines at prime rate and even lower for quite some time, but nowadays rates are more likely to be prime plus a margin of 2 per cent or more.
And equity is continuing to shrink, which makes the lenders far more conservative as well. Loan to value ratios are more often limited to 80% or less these days, while "back in the day" of freewheeling, free-spending, limits went as high as 100% of value.
Further, when refinancing, borrowers with lines of credit outstanding formerly found it easy to have the lenders resubordinate to a new first mortgage. These days, lenders are far less open to such an idea, thereby making it even more difficult to undertake the refinance process.
It looks like it will be quite some time before there will be a loosening of the standards for home equity lines of credit, and I think we can certainly expect a continued tightening in the foreseeable future.
Lenders who invested heavily in this market have suffered tremendous losses as property values in many areas have plummeted; their second lien position becoming worthless in the process. With those losses, we found that creditors began freezing credit lines last year.
In addition to reduced credit resulting from these freezes, which have become more and more evident, interest rates are no longer rock-bottom. We were accustomed to seeing equity lines at prime rate and even lower for quite some time, but nowadays rates are more likely to be prime plus a margin of 2 per cent or more.
And equity is continuing to shrink, which makes the lenders far more conservative as well. Loan to value ratios are more often limited to 80% or less these days, while "back in the day" of freewheeling, free-spending, limits went as high as 100% of value.
Further, when refinancing, borrowers with lines of credit outstanding formerly found it easy to have the lenders resubordinate to a new first mortgage. These days, lenders are far less open to such an idea, thereby making it even more difficult to undertake the refinance process.
It looks like it will be quite some time before there will be a loosening of the standards for home equity lines of credit, and I think we can certainly expect a continued tightening in the foreseeable future.
George, did you have extra time on your hands. Nice of you to just pen us all a note instead of just replying to everyone else's questions.
john, i've had this information in my hands and the desire to expound upon it for a week-plus.
in so doing, i realize there's so much more i need to be doing in that vein that i'd not had time nor energy for (more time than energy). and of course, some would say that i'm trying to set a record for verbiage.
thanks for noticing. oh yeah...i was gone for a week, so had no opportunity to check you guys out.
in so doing, i realize there's so much more i need to be doing in that vein that i'd not had time nor energy for (more time than energy). and of course, some would say that i'm trying to set a record for verbiage.
thanks for noticing. oh yeah...i was gone for a week, so had no opportunity to check you guys out.
George, it is amazing how many lenders stopped originating home equity products. On the flip side, there is a lender in California today who will actually do a stated income HELOC. Up to only 60% LTV though.
and i just got off the phone with the ceo of a local credit union. he was telling me of a number of cu's that are in trouble because they were into the 100% financing situation on seconds - without the protection of mortgage insurance. the only favorable situation for those who are in this mess here in ct is that values in this state haven't plummeted as they have done in so many other locales. we've seen dips and some dives, but in many cases values have been moderately dropping. those with more conservative outlooks haven't taken such a big hit, even though they might have gone to high ltv ratios.
there's a powerful lot of fear in the wind throughout the country. but, you know what? second mortgages years ago used to be feared by borrowers, not just lenders. there was a time when you had to almost whisper the words "second mortgage" to a borrower, for fear that he'd head back out the door.
i think the heloc was the beginning of the end of dread (combined with increasing values - much of it artificial - in homes. we lenders took hold of the heloc in a major way, thinking that it was the best thing since sliced bread at that time.
there's a powerful lot of fear in the wind throughout the country. but, you know what? second mortgages years ago used to be feared by borrowers, not just lenders. there was a time when you had to almost whisper the words "second mortgage" to a borrower, for fear that he'd head back out the door.
i think the heloc was the beginning of the end of dread (combined with increasing values - much of it artificial - in homes. we lenders took hold of the heloc in a major way, thinking that it was the best thing since sliced bread at that time.