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- Joined
- Nov 23, 2005
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- 655
The effects of sinking home values are having a negative impact on homeowners who wish to take equity in their homes. Many lenders across the U.S. are now requiring that homeowners maintain a larger percentage of home equity as a precautionary measure against financial problems. Some lenders have even gone so far as to tell their customers that they can no longer take any more money out on their line if credit. Countrywide Financial, for example, sent out 122,000 letters last week telling homeowners with equity lines of credit that they could no longer take any more money from their credit line. In many cases, according to Countrywide, many of these second trust deeds in combination with the first now make the loan upside down, with the borrowers now owing more than the home is worth.
Chase Home Loans, in the face of mounting deliquencies has completely revamped their loan underwriting requirements and beginning Monday will only allow California homeowners to borrow up to 85% of home equity, down from 90%. Additionally, in six California counties Chase will not allow a home equity loan exceed 70% of home value. They will also cap the entire state of Florida at 70% and Nevada at 65%. By the way, the new loan to value percentages will be even lower for borrowers with low FICO scores.
Not only are falling home prices effecting second trust deeds, they are having a negative impact on first trust deeds as well with Fanne Mae
warning lenders that it will require a lower loan to value ratio on loans it buys from them in areas that have experienced significant price declines.
The legendary economist, John Kenneth Galbraith had this say in the introduction of his 1997 edition of The Great Crash 1929, "If we now have a downturn-what is called a day of reckoning some things can, indeed, be foreseen. By some estimates a quarter of all Americans are directly or indirectly in the stock market. Were their a bad slump it would limit their expenditures, especially of durable goods, and put pressure on their very large credit card debt. The result would be a generally adverse effect on the economy. This would not be as painful as the aftereffects of 1929..."
As we all know, these words were written many years before the dot-com bubble burst. We also know that the housing bubble bailed us out from the that speculative bubble shortly thereafter. If John Kenneth Galbraith were alive today, what statement would he make about the alarming way in which consumers are now maxed out not only on credit card debt, but home equity debt as well, with lenders currently having to cut life support from both? What bubble will rescue us from the easy credit/housing bubble as housing did with the burst of the dot-com bubble?
Folks, the easy credit party is quickly coming to an end and we will finally face a "day of reckoning!"
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Chase Home Loans, in the face of mounting deliquencies has completely revamped their loan underwriting requirements and beginning Monday will only allow California homeowners to borrow up to 85% of home equity, down from 90%. Additionally, in six California counties Chase will not allow a home equity loan exceed 70% of home value. They will also cap the entire state of Florida at 70% and Nevada at 65%. By the way, the new loan to value percentages will be even lower for borrowers with low FICO scores.
Not only are falling home prices effecting second trust deeds, they are having a negative impact on first trust deeds as well with Fanne Mae
warning lenders that it will require a lower loan to value ratio on loans it buys from them in areas that have experienced significant price declines.
The legendary economist, John Kenneth Galbraith had this say in the introduction of his 1997 edition of The Great Crash 1929, "If we now have a downturn-what is called a day of reckoning some things can, indeed, be foreseen. By some estimates a quarter of all Americans are directly or indirectly in the stock market. Were their a bad slump it would limit their expenditures, especially of durable goods, and put pressure on their very large credit card debt. The result would be a generally adverse effect on the economy. This would not be as painful as the aftereffects of 1929..."
As we all know, these words were written many years before the dot-com bubble burst. We also know that the housing bubble bailed us out from the that speculative bubble shortly thereafter. If John Kenneth Galbraith were alive today, what statement would he make about the alarming way in which consumers are now maxed out not only on credit card debt, but home equity debt as well, with lenders currently having to cut life support from both? What bubble will rescue us from the easy credit/housing bubble as housing did with the burst of the dot-com bubble?
Folks, the easy credit party is quickly coming to an end and we will finally face a "day of reckoning!"
Sign Up
