When the GSE’s (Government Sponsored Enterprise ie Fannie Mae or Freddie Mac) take in a first trust deed loan, they are oblivious to a HELOC. The HELOC (home equity line of credit) has to stand on its own two feet. Its a second trust deed. In a default, the HELOC would have to cure any deficiency’s on the first in order to foreclose on the property.
If its an 80% with a 20% HELOC and the property drops in value by 20%, the bank holding the HELOC is not going to cure the first trust deed its going to walk with a loss.
The HELOC is not going to go away from what I understand. It might drop off of the Trust Deed when the first forecloses but the amount owed is still owed by the originator of the loan, at that point it is an unsecured loan. I could be wrong on this–some of the stuff I read, I haven’t had the time to research
