During the housing bubble, many homeowners took out home equity lines of credit to tap into the equity in their homes. Now, an increasing number of those home equity loans have been outstanding for 10 years, which means that borrowers are required to start paying back principal while before they were just able to pay the interest on the loans. Many homeowners are having a hard time making the higher payments, which means that their homes are potentially at risk of being foreclosed on.
For those facing this problem with the home equity loan coming due, they are not alone. MSN has indicated that the trend of missed payments could actually lead to another foreclosure crisis and more trouble for the big banks in the United States. Miami foreclosure lawyers can help those who are getting caught up in the home equity loan mess to hopefully avoid losing their homes even if their home equity payments rise.
Home Equity Loan Payment Increases Could Spell Trouble
Currently, there are more than $221 billion in home equity loans outstanding at the nation’s largest banks that will hit their 10-year anniversary within the next four years. This is about 40 percent of all of the outstanding home equity lines of credit.
When this occurs and homeowners must begin paying principal, a homeowner may see a monthly bill for the home equity loan that is more than triple what he has been paying. Since most home equity loans have floating interest rates, if the Federal Reserve begins to raise interest rates, then this situation would get even worse and the payments would go even higher still. This is especially a problem for subprime borrowers who don’t have the extra cash, but any family with a home equity loan could have serious problems paying the bill when it increases threefold.
Data from the consumer credit agency Equifax shows that this is a big problem that banks need to be seriously concerned about, as the number of borrowers who miss payments around the 10th year will double in the 11th year.
While the bank can foreclose on the loan at this time, the bank may end up getting very little or even nothing at all because the proceeds from the foreclosure sale have to go to satisfy the first mortgage debt first. In other words, if a home equity loan lender forecloses on a house, that lender doesn’t get paid until the entire first mortgage is paid out of the proceeds of the foreclosure sale. This results in second mortgage lenders loosing as much as 90 cents out of every dollar outstanding.
The fact that a home equity lender is likely to get little or nothing in a foreclosure can help borrowers out because the lender may be more willing to help to find foreclosure alternatives so that the lender doesn’t face this significant financial loss. There are programs in place that may be able to provide homeowners help with home equity loans they cannot pay, and there are legal options available that could potentially help save a home rather than having the house be lost to foreclosure. Homeowners who have a home equity loan with payments going up to a level that is too high should be proactive in speaking to an attorney about exploring the different options that are available.
If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Mortgage Wars,” discussing foreclosure topics that matter to YOU.
More Blog Entries:
Miami Foreclosure Lawyers on Remaining in a Foreclosed Home, Oct. 16, 2013, Miami Foreclosure Defense Lawyer Blog