Newsletter - June 2014
Between 2014 and 2019, there are between $170 billion and $200 billion worth of home equity lines of credit (HELOCs) poised to reset. This fact hangs over the limping economy like a Florida thunderstorm. Some experts are naturally concerned that higher mortgage rates will send another downpour of foreclosures, sending the market spiraling again. Others tend to believe the storm will simply blow away – the proverbial bark being worse then the bite.
I want to summarize the two main forecasts for you, so you can be prepared for whatever mother nature (or in this case, the mortgage industry) has in store for us:
1. Stock Your Cellar. The Rain's a Comin'
Understandably, there are those who immediately have flashbacks to 2009 when the possibility of mass foreclosures rears its ugly head. The thinking goes like this:
- Many homeowners are still struggling to keep their heads above water.
- One of the main reasons homeowners CAN stay afloat is the low rate on their HELOC.
- When HELOCs reset, the rates go up.
- When the rates go up, homeowners can't make the payments and banks are forced to foreclose.
- When there are mass foreclosures, billions of dollars in value go up in smoke.
- The already fragile economy is wracked with the effects of another burst housing bubble.
A contributing factor to this view is the fact that the national government doesn’t seem to have a whole lot of recourse to help homeowners should they not be able to make their payments (an angle well covered by Brian Collins in this piece for National Mortgage News).
There is a lot that makes sense about this view, no doubt. But doom-and-gloom isn’t everyone's outlook...
2. Don’t Cancel Your Beach Trip Just Yet
The other way to view the coming resets is to look at how they differ from what occurred in the late 2000's, and how those minor details could make all the difference. This forecast is very well laid out by Rick Sharma of Auction.com, and I’ll summarize his points here:
- Most of the really bad loans are already gone (I guess these past few years were good for something).
- Banks don't want to foreclose, and in most cases homeowners should be able to work out a way to keep their homes.
- Even if we do see more HELOC defaults (and we probably will), the economy is strong enough to handle it at this point thanks to rising home prices.
Whichever side you end up on, one thing seems to be clear: there WILL be more defaults. And that means there will be paperwork. You’ll need to do pre-foreclosure searches, make sure all your housing files are complete and up-to-date, produce evidence of who owns the note, etc. Blue Streak Docs is nationwide and here to help! If you haven’t worked with us yet, try us out and get your 5th order FREE!
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