Remember Home Equity Borrowing?by Tim Manni
Home equity lines of credit practically vanished beginning in 2008 when home prices plunged. Homeowners watched helplessly as access to their equity withered with every new report of falling home prices. Borrowers who sought to open home equity credit lines of credit were either denied or offered terms and rates not nearly as attractive as they were just a short while before.
It’s 2009 and home equity credit conditions continue to remain “tight as a drum,” writes E. Scott Reckard of the LA Times, despite other sectors of the housing market showcasing some initial signs of improvement. Mortgage rates are historically low, private interest is returning to the jumbo market, reports say that home prices are rising (or at least falling less fast) in some portions of the country, and the first-time homebuyer tax credit has been touted by realtors as housing’s savior. Despite the optimism, conditions are largely unchanged in the world of home equity, and homeowners shouldn’t expect that to change anytime soon.
“The days of lenders falling all over themselves to help you empty the equity out of your home aren’t coming back any time soon,” said HSH VP Keith Gumbinger.
Even for homeowners with plenty of home equity still available, “access to it is harder to come by,” Gumbinger said. “You need to be a much higher-quality borrower now. And if you can get it, the terms are going to be a lot less attractive.”
Back in the glory days, nearly half of all home lenders offered their best customers credit lines at or under the prime rate, and many tempted borrowers with ultra-low initial rates — say, 2% for the first six months. Today, the few equity credit lines advertised at or under the prime rate include a “floor,” typically 5%, beneath which the rate can’t drop, Gumbinger said.
Not surprisingly, fewer home equity credit lines and home equity loans are being granted. According to National Mortgage News, the dollar amount of these second liens, as they are called, tumbled 75% from the second quarter of 2008 compared with the same period this year.
Increased access to home equity hinges largely on home prices. When prices stabilize, better-quality borrowers should begin to see their credit lines thaw. Lenders have sustained incredible losses from home equity loans and will likely continue to feel the aftershocks from those defaults for quite some time. Even when home equity credit loans come back to life, you can bet that “floors” will be firmly in place, and the deals may never be as generous as they once were.
Has anyone out there been able to access their equity recently? Has anyone’s home equity been “frozen” or curtailed?
For more on this subject, please read:
“Looking for a HELOC? Find a Lender Without a Floor”