Sharp Drop in Home Equity Loans
Borrowers with credit scores under 650 are finding it nearly impossible to get a second mortgage without a huge amount of equity. As a result, there has been a big drop in the number of home equity loans being issued by banks.
There may be hope however, as the Wall Street Journal writes:
A recent improvement in beleaguered home-equity loans has been a rare sign of encouragement for banks. But bullish investors need to remove their rose-colored glasses.
Banks have about $700 billion of home-equity loans — in which a bank lends money to a homeowner against the equity in his house. That includes both fixed-rate loans and floating-rate debt drawn from credit lines. Lenders usually can’t collect on a defaulted home-equity loan by seizing a house unless the borrower has no mortgage, since mortgage lenders have first claim.
This increase may help the many consumers looking to reduce debt by consolidating to an equity line.