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Where Home Equity Loans Stand At The End Of The Recession

[Oct 30, 2009.]


Fewer Home Equity Loans Are Being Originated

It's official.  The recession is over! The GDP gained 3.5% in the third quarter ending a year long losing streak for the US economy. Given the positive signs being shown around parts of the economy, where do banks stand with home equity loans and mortgage loans in general? Demand for home equity loans has fallen. The Monthly Lending And Intermediation Snapshot is a survey of banks by the US Treasury. The report can be found on the US Treasury website called FinancialStability.gov. According to the most recent survey by the US Treasury, "HELOCs saw a decrease in total originations, and institutions indicated that demand is below 2008 levels."

Mortgage Loan Balances Are Coming Down

Of the twenty-two banks that the US Treasury surveyed, all respondents reported that total outstanding mortgage balances fell two percent. Home Equity Loan balances as a portion of the mortgage loan balances fell one percent in one month's time. The trend of US consumers seems to be to reduce their mortgage debt. An interesting question to ask is, "Now that the recession is over, will US consumers go back to the pre-recession thirst for cheap loans or will the trend to reduce mortgage debt continue?"

Home Loans And Decling Home Values

There is a direct relationship between the current lack of demand for home equity loans, mortgage loans in general and the decline of home values. The respondents of the US Treasury survey noted that, "the pool of qualified HELOC borrowers has declined as home values have depreciated." If home values recover, will the demand for home equity loans and other mortgage loan instruments return? The results of this question may not be too far in the future because home values seem to be stabilizing.

Mortgage Loan Originations May Increase With Home Value Stabilization

If the drop off in demand for mortgage loans coincides with the decline in home values, it stands to reason that an increase in demand for mortgage loans might follow an increase in home values or even a stabilization of prices. For the last seven months the Case-Shiller Home Price Index has reported improvement in home prices. With the exception of Clevland, OH, all of the cities that participate in the index have shown that home prices are declining at a slower pace. "Broadly speaking, the rate of annual decline in home price values continues to improve" says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's.

Home Equity Loans Are Still Cheap Loans

Act now to take advantage of today's low interest rates on home equity loans. Values appear to be stabilizing and banks might be more willing to lend. The recession is over and the future looks bright for mortgage loans.


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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