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Indiana Bank Struggling After Playing Home Equity Game

[Nov 11, 2008.]


Irwin Financial, owner of Irwin Union Bank and Trust and Irwin Union Bank, is looking for additional capital.

For the last few years, Irwin had focused its efforts on offering home equity loans in western states like California and Nevada. Unfortunately, many of the states they had been lending in are now seeing the largest drops in property values and highest default rates.

In most cases, Irwin was lending on the remaining home equity a consumer had after already obtaining a primary mortgage. This put Irwin in a second lien position - giving them very little leverage if the home was lost to foreclosure.

According to the IndyStar:

"Now the bank is refocusing on Indiana. It is trying to sell off almost $1 billion worth of home equity loans still on its books. Plans for a sale fell apart in October, but efforts continue to sell off those assets."

If Irwin is unable to raise additional capital and sees additional losses mount, they could become the first Indiana bank to fail due to the most recent economic crisis.

For those consumers who have grown to rely on borrowing against home equity to make large purchases, consolidate debt, fund renovation projects, etc - this is not good news.

As more banks struggle to control losses attributable to their existing portfolio of home equity loans, the availability of those loans will decrease. Consumers will need to begin looking for alternative lending sources or reduce their spending and consumption.

Most experts feel that as soon as the economy rights itself and property values stabilize, banks will resume lending against home equity. They will most likely be more conservative in how much the lend and to whom, but we will not be saying goodbye to home equity loans.


About Author:

Chris Rocks is the Regional Director of the National Credit Federation (NCF), a consumer advocacy group that assists small business owners and consumers overcome debt and credit challenges.

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