We’re back…… Using home equity as ATM’s!!!!

[Coronita]

Weeeeeeeeeeeee……………..Moral Hazard????Lol….

http://finance.yahoo.com/news/americans-tapping-home-equity-again-160850204.html

Gotta love america… spend spend spend….

Nearly 11 million borrowers are underwater on their mortgages, owing more than their homes are worth, according to CoreLogic, and yet home equity lines of credit are suddenly on the rise again.
During the housing boom of the last decade Americans withdrew over $1 trillion in home equity. They did it through cash-out refinances, home equity loans, and home equity lines of credit. The latter allowed them to use their homes like an ATM. They spent the money on cars, televisions, vacations and fancy home upgrades. It was seemingly endless equity, until suddenly that equity was gone.
“Home prices are definitely a factor” in the recent rise home equity lines of credit, said Brad Blackwell, an executive with Wells Fargo (WFC) Home Mortgage. “As they increase, people have more available equity.”

Blackwell also pointed to increased consumer confidence, meaning borrowers now feel better about their ability to repay these loans. Both factors fueled a 19 percent jump in originations of home equity lines of credit at the end of last year, according to Equifax. In 2008, as housing was crashing, home equity line originations dropped 55 percent.
“Nationally we’ve seen a 31 percent increase in HELOC’s year-over-year,” said a spokesperson from JPMorgan Chase (JPM).
With home prices up 8 percent year-over-year in December, according to the latest reading from CoreLogic, homeowners are regaining home equity at a fast clip-1.4 million borrowers rose above water on their mortgages through the end of September. That number likely increased as price appreciation accelerated toward the end of the year.
Does this mean a return to the reckless equity withdrawals of the housing bubble? Likely not.
“I would guess that most of the current home equity line borrowing is quite prudent. We know that it is being very conservatively underwritten with plenty of equity,” said Guy Cecala, editor of Inside Mortgage Finance.
(Read More: Housing Already Shows Signs of a New Bubble.)
While it is too early to say exactly what borrowers are spending this new cash on, anecdotal evidence shows borrowers are largely sinking the money back into their homes.
“We are seeing more responsible uses today, like home improvements, education expenses or other major expenses that would be a more responsible use of a customer’s home equity,” Blackwell said.
The average home equity line in October of 2012 was just below $90,000 compared to October 2006, when lines averaged just over $100,000, according to Equifax.
Despite the recent surge, volume is still down dramatically from the height of the housing boom. Borrowers in 2012 took out a collective $7.2 billion in home equity lines through last October, compared to just over $28 billion in 2006.
(Read More: Why Home Builders Won’t Drop New Home Prices,)
The numbers are expected to go up in 2013, not just because home prices are rising, but because interest rates are rising. With higher rates, borrowers will not want to give up their rock-bottom fixed rates to do cash-out refinances; rather, they will turn to home equity lines instead. While these lines usually carry variable rates, banks are now offering new products with fixed rates. Wells Fargo recently promoted a line of credit where a portion of the loan is fixed for up to three years.
“We clearly want to lend, and we want to lend to the types of needs that our customers have,” Blackwell added.

[spdrun]

Plenty of people own their homes for cash or have low debt-to-value ratios — what’s wrong with having say 50-60% of equity or so available to pull out?

[Coronita]

[quote=spdrun]Plenty of people own their homes for cash or have low debt-to-value ratios — what’s wrong with having say 50-60% of equity or so available to pull out?[/quote]

Americans love to spend on credit. That’s the problem.

[spdrun]

Regardless, as long as the total equity withdrawal is limited to a fraction of current value that doesn’t approach (or exceed!) unity, then they shouldn’t have a problem selling or renting out in case of financial hardship.

[Coronita]

[quote=spdrun]Regardless, as long as the total equity withdrawal is limited to a fraction of current value that doesn’t approach (or exceed!) unity, then they shouldn’t have a problem selling or renting out in case of financial hardship.[/quote]

Theory is nice… in textbooks.

A lot americans take money out to buy crap that don’t produce income.

[spdrun]

So the bank will be able to foreclose at a profit to itself, same as was done in pre-Bubble days.

[Coronita]

[quote=spdrun]So the bank will be able to foreclose at a profit to itself, same as was done in pre-Bubble days.[/quote]

Good theory… But it’s theory… How many RE did you purchase recently that were FC/short sale, if you don’t mind me asking?

[spdrun]

Have offers in the process on two as I write this. If anything, foreclosures are selling for above appraisal in a lot of areas, and I don’t see a lot of downward pressure on prices, so 50% of appraisal should allow banks to sell off REO’s at a profit.

[Coronita]

[quote=spdrun]Have offers in the process on two as I write this. If anything, foreclosures are selling for above appraisal in a lot of areas, and I don’t see a lot of downward pressure on prices, so 50% of appraisal should allow banks to sell off REO’s at a profit.[/quote]

So basically none so far…

[spdrun]

What’s your farkin’ point?

Are you expecting prices to drop 40-50% below current values on REOs in the foreseeable future? If yes, then the HELOCs are a bad thing. If no, then the banks are making a rational decision.

The previous problem was different, caused by people being allowed to borrow nearly ALL (or more than all) of the home’s value.

[heywood]

Point is people are wasting their money and will expect the govt to bail them out when they want to retire down the road. People are stupid!

[spdrun]

Horseshit — your logic could be applied to any asset. Should people not be allowed to pawn their cars or their jewelry so they “have enough for retirement?” What is considered “enough?”

Why should someone with 100% equity in their home be required to sell it to start a business. If anything, lack of available credit (with L-to-V percentages within reason) will just help those who are already rich and hurt the little guy.

And as far as government retirement pensions, Social Security is a system where people GET BACK WHAT THEY PAID INTO IT. I have absolutely no problem with such a system, and in any case, living on SS isn’t exactly living high on the hog. Isn’t is something like $15k/yr?

[SK in CV]

I hope no one is using helocs or cash out refi’s so that they might have cash on hand to buy additional investment properties. That would be so irresponsible. Kinda like fueling the bubble.

[bearishgurl]

…”We are seeing more responsible uses today, like home improvements, education expenses or other major expenses that would be a more responsible use of a customer’s home equity,” Blackwell said.
The average home equity line in October of 2012 was just below $90,000 compared to October 2006, when lines averaged just over $100,000, according to Equifax….

(emphasis added)

This isn’t very much less home equity than the average amount which was removed in 2006! But I do agree with spdrun that values aren’t likely to decline in the future in CA coastal counties (ESP the well-established areas) … don’t know about other parts of the US.

For a “free and clear” owner (or one with over 50% equity) on a property worth at least $450K, I can see borrowing for home improvements in areas in which sold prices will bear these investments. But I just don’t see the prudence of borrowing for educational purposes for child(ren) as it is likely to leave the parent close to or at retirement with an extra ~90K (+?) to pay back on their homes without the improvements to make their properties more salable for a higher price.

Due to the fact that many CA college graduates are now going to have to relocate to find work in their field that pays a living wage, should today’s parent expect their ex-student-children (whom they borrowed for) to help them pay back their HELOC while supporting their own families in other counties/states??

I don’t see this happening. Meanwhile, after college graduation the parent is likely 55-65 years old and often left behind without enough monthly income to keep the payments up on their adjustable-rate HELOC in a possibly rising-interest rate environment.

I suspect many parents are falling for this trap to keep their kids from taking out (the recently highly-publicized) non-dischargeable (variable-interest) student loans at a 6.5%+ (current) interest rate.

But this practice could very well leave THE PARENT(s) without a home when they are on a fixed-income and least able to pay for one, cuz I don’t see their kids coming to the rescue for them :=0

[spdrun]

Assuming that they’re keeping skin in the game on each property and initially paying cash, how is serially buying investment properties using lines of credit any worse than having cash on hand and paying 20-25% down for them?

Answer: it’s not. And as long as rents exceed monthly expenses by a tidy margin, it’s a relatively safe thing to do provided that the credit lines can be converted to fixed-rate loans within a reasonable time.

Flipping would be fueling the bubble. Buying for rental income and remortgaging below purchase price is just good business sense.

[Author]

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