Are Home Equity Loans Affecting U.S. Savings?

[Aug 14, 2009.]

 

It could be just a coincidence, but at the same time that the banks are freezing and closing home equity lines of credit, the U.S. savings rate hit a high of 6.9% in May- the highest it has been since 1993.  Could it be that without the cushion of a large HELOC, people have decided they need more money in the bank for security?

Prior to the collapse of the housing market, home equity lines of credit were abundant, inexpensive, and readily available.  HELOC advertisements often came every month along with the mortgage statements.  A quick phone call, a click of the internet button, or filling out a short application and mailing it back - home equity loans were once very easy to obtain.

Once it became evident to the banks that their second mortgage positions were in danger, they set about reducing their risk by reducing their exposure to home equity loans.  Aleksandra Todorova covered this issue for SmartMoney.com just last March.  To read the full article, follow this link.

The large jump to save more money in May was due in great part to government stimulus money that began to reach American pocketbooks.  Read this CNN Money article. The various provisions include: moderate income workers get about $15 per person per bi-monthly paycheck up to $400, a $250 one time payment to seniors, disabled persons,  and others who do not work, $8,000 checks to qualified first time homebuyers, and a year relief for higher income earners from the AMT (Alternative Minimum Tax.) So given all of that stimulous, the savings jump statistics are less than natural.  Total estimated cost of the provisions mentioned above are about $138 billion.  Still, Americans had a choice to spend the stimulus money rather than put it in the bank. 

Why are Americans choosing to save so much more?  There are many reasons.  Possibly, one of them is that there really seems to have been less of a need for actual cash saved when there was a nice fat home equity line in place to handle the unseen.  Now that the home cannot serve as the safety net, cash is back in vogue.

 

About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.