Home Equity Loans during the Economic Recession
Home equity loans are now difficult to obtain because of the housing market meltdown. Lenders are now extremely careful about their lending activities, having been burned by huge amounts of losses in their real estate portfolio.
In California, at least two lenders have been targeted by lawsuits charging them for their refusal to provide home equity loans due to erroneous credit reports and faulty valuation methods or for their decision to cut off home equity lines of credit without proper notification.
Lenders however, such as Wells Fargo, reiterate that they follow responsible and fair lending practices and that they provide home equity loans depending on the value of the home and the available amount of equity.
Housing analysts contend that the easy availability of home equity loans during the housing boom contributed to the difficulties of homeowners in getting loan modifications to enable them to save their homes. Paying a secondary mortgage while keeping current on an increasing primary mortgage has become an impossible burden for many homeowners to bear.
Across the country in 2008, a total of $116 billion in home equity loans and home equity lines of credit were provided by lenders to homeowners despite efforts by lenders to control lending. Total home equity loans and HELOCs in 2007 reached $350 billion, according to an Inside Mortgage Finance report.
California homeowners accounted for about 25 percent of all current home equity loans and HELOCs.
According to officers of Inside Mortgage, lenders since early 2008 have been suspending HELOCs and have been rejecting home equity loan applications because of two reasons: the sharp decline in home values and the deteriorating financial situations of homeowners.
During these times of unemployment and reduced income, it seems unwise to put oneself in more debts, such as getting home equity loans.
But if a homeowner has good credit, has stable employment and has been able to pay his home loan without high level of difficulty, getting a home loan equity is still a wise decision if the purpose of the loan makes sense.
One valid reason is college tuition for one’s child, especially for someone who has just one more year to go before graduation. Getting a home equity loan rather than a college loan or other types of loan is often better because of the lower interest rate and the tax deduction advantage of home equity loans.
