Losses on Home Equity Loans Continue

[Feb 26, 2009.]

 

JP Morgan stated in a CNN article that home equity loan related losses could rise to $1.4 billion per quarter later this year. That represents twice what their losses were just last quarter.

"We obviously believe that home equity losses will continue to grow for some period of time," said Charlie Scharf, head of JPMorgan Chase's consumer banking business. They anticipate

Until the housing market stabilizes and home equity loan related delinquencies reverse course, banks and large lenders are hesitant to provide these types of consumer lending products to the public. Their concern, naturally, is that home values will continue to decline, homeowners will continue to have difficulty making their primary mortgage payments, and they will see increasing payment delinquencies and large losses resulting from more foreclosures.

If you currently have an equity line of credit that is coming up for renewal or you were planning on accessing your home's equity through a home equity loan or line of credit, you need to get a handle on what you may be able to borrow.

Speak with an appraiser or real estate agent to establish a baseline of what your home may appraise for. Banks that are still offering home equity loans and lines of credit are capping them at a 70 to 80 percent of combined loan to value. Essentially, the existing primary mortgage with the addition of a new equity line of credit or equity loan cannot exceed 70 to 80 percent of what the bank values the home at.

This will help set expectations prior to applying with regards to what you'll be able to borrow. For many, these stricter loan to value guidelines coupled with falling house prices has made it virtually impossible to borrow against their home.

 

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.