When housing prices were up in the mid 2000s, homeowners often hedged their home values against the market to take out home equity loans or lines of credit (HELOCs) in order to pay for various expenses. Some homeowners wisely invested the money back into their homes, making value-added improvements and needed repairs. Others unwisely spent the money on cars, credit cards and other items that would soon depreciate in value.
Now, with the housing market digging out of a major slump nationwide, homeowners are defaulting on home equity loans in record numbers. According to a recent article in the NY Times, lenders wrote off $11.1 billion dollars in uncollectible home equity loans and $19.9 billion in HELOCs in 2009, more than even primary mortgage loans that same year.
Struggling borrowers are contending with not only not being able to afford to repay the loans, but also having far lower home values than when they initially purchased. Lenders are trying to recover money where they can, but many banks are simply writing off losses because so many people can't afford to pay. Buyers, on the other hand, defend their inability to pay, citing that many banks engaged in practices that were unfair to homebuyers, including predatory lending and indiscriminate loan approval for unqualified buyers.
The delinquency rate in the first quarter of 2010 was 4.12 percent, slightly down from the fourth quarter of 2009 (which marked the highest in 26 years). If you are a part of the thousands of Americans struggling to pay back a home equity loan or line of credit, you can work with a Modesto bankruptcy lawyer to settle your accounts.
