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News about home loan delinquencies

[Nov 4, 2010.]


There has been some discouraging news about home loan delinquencies and the possibility of a quick housing market recovery. Here are a few of the recent highlights.

  • Mortgage lenders may not have followed the law when processing foreclosure paperwork. There is a current scandal that suggests forged affidavits were presented in courtrooms claiming the lender had the necessary paperwork to foreclose. There is a possibility that litigation around this issue could significantly hamper a housing recovery.
  • It appears that the efforts, by the government to stimulate a housing rebound have failed. Without further stimulus, which would be expensive for tax-payers and increase the nation's deficit, the housing recovery looks tenuous.
  • 4.2 million home owners are seriously delinquent on their house payments.
  • 10.9 million home owners are estimated to be upside down, meaning they owe more on their mortgage(or mortgages) than their home is worth.

Where home equity loans fit in

In addition to the tough news above, a huge matter of concern is the issue of home equity loans. Home equity loans are junior liens. A lender is second position is more likely to lose in a foreclosure than a lender in first position. There are an estimated $426 billion in these second liens on the balance sheets of the major banks (i.e. Bank of America, JP Morgan Chase, Citigroup and Wells Fargo).

Currently, the top four banks report that less than 4.5% of their second lien portfolios are delinquent. That's the good news. However, without collateral and a limited ability to recoup losses through foreclosure, and with the potential scandal of lenders' foreclosure fraud, analysts worry if the banks have sufficient reserves to handle this problem if things get worse.

It is likely that to solve the problem of delinquencies and de-valued homes, bankruptcy judges will need to be given greater powers. This could mean writing down the value of many home equity loans. If this should happen to the $426 billion the banks are holding in their portfolios, banks could no longer claim that these portfolios present little risk. The reality is that the banks' home equity loan portfolios present a great risk and the banks' reserves are insufficient.

Apply for a new home equity loan today.


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.

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