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The next big threat to homeowners looms

While the housing market is showing signs of picking up across the country, housing experts warn of a new concern for homeowners: resetting home equity lines of credit.  Home equity lines of credit were very popular when the real market was booming with homeowners gaining equity year after year as properties appreciated.  They would use that equity to secure a credit line which would allow a homeowner to accomplish numerous things such as consolidate bills, do home improvements, pay for kids college education, purchase an investment property, etc..
Home equity lines of credit often require low payments in the initial years as homeowners only pay loan interest at the onset. But later on, these loans reset with higher payments when homeowners have to start paying down the principal.  Typically the principal is paid back over 20 years since the first 10 years are interest only, which is the minimum amount due.
About 44 percent of homeowners with home equity lines of credit through Wells Fargo have paid only the minimum amount due on these loans, reports The New York Times.
Many borrowers may soon see their home equity lines of credit reset with higher payments and those higher payments may be too much for some borrowers to handle.
The Office of the Comptroller of the Currency recently warned of the danger these resetting payments could pose for many homeowners across the country. The OCC warned that nearly 60 percent of all home equity line balances would require payments of both principal and interest between 2014 and 2017.
The report highlights three main threats home equity borrowers face: Rising payments as they begin to pay back the principal and not just the interest on these loans; the risk of rising interest rates (many of these loans have adjustable rates); and refinancing challenges “because collateral values have declined significantly since these loans originated.”
Many of the homeowners have seen their property values decrease since they first took out the home equity loans.
“These are among the riskiest loans in any bank’s portfolio,” The New York Times reports. “As borrowers are pressed to pay principal and interest, write-offs are almost certain to rise.”

There is a silver lining however for homeowners who have a 1st mortgage that is owned by Fannie Mae or Freddie Mac. Even if they are underwater they could still refinance that 1st mortgage under the new HARP 2.0 program.  By lowering their rate on the 1st mortgage the homeowner could then take that monthly savings and apply it to the home equity line of credit.  This would hopefully allow them to pay down that equity line without their total monthly payment going up.
To learn more about our company and mortgage products, please feel free to call Dan Longman, President of Priority Lending Corp, at 954-438-3776 ext.11 or email me at prioritydan@bellsouth.net. Please visit www.prioritylendingcorp.com

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