Newsletter - November 2014
Way back in the distant past (i.e. June – I can’t believe it’s November already!), I wrote this post I wrote this post contrasting the two main outlooks for upcoming HELOC resets. All that info is still good and applicable, if you haven’t read it, but now there is a new wrinkle: HELOCs are on the rise again, and the tide of industry opinion seems to have shifted It's the End of the World as We Know It to Here Comes the Sun...
But is this wave of optimism to be trusted? Or are we at risk of getting burned by our rose-tinted glasses? Let’s take a look at the facts as they currently stand, this bullish article from Trey Garrison of HousingWire, and this bearish response from mortgage servicing vet Lynn Effinger.
The Bulls Kick Us Off with Reasons to Rest Easy...
Mr. Garrison paints the recent spike in HELOC originations as a positive change, and he begins his piece by quoting Daren Blomquist of RealtyTrac: "This recent rise in HELOC originations indicates that an increasing number of homeowners are gaining confidence in the strength of the housing recovery and, more importantly, have regained much of their home equity lost during the housing crisis".
Additionally, the article points out that the percentage of homeowners with negative equity has decreased 11% nationwide over the past two years, and that the number of HELOC originations is nothing like what it was in 2006 (when it was 313% higher than it is now). Take it all in, the argument goes, and the landscape is really nothing to worry about. Indeed, it could be an encouraging sign.
Main Point: People use HELOCs to lower (or keep low) their mortgage rates when they are confident in the direction the economy is heading. Seeing more of them is good.
But the Bears Have Something to Say About That...
In a response to Mr. Garrison’s article, Mr. Effinger – who employs quotation marks when discussing the housing "recovery" – lays out why he's not so sure more HELOC originations is a good thing:
HELOCs played a significant role in blowing up the housing bubble to an unsustainable size. In addition to refinancing their first mortgages, taking out second and third mortgages, HELOCs made it easy for far too many homeowners to use their equity as a kind of ATM to purchase vehicles, boats, vacations, investment properties, even to start their own business, and so forth, as home prices rose beyond real property "values".
Mr. Effinger readily admits that the problem may not be as bad as it was in 2006, but insists that that fact is not a reason to discount the potential seriousness of the trend.
Main point: People use HELOCs as a cover-up for bad financial decisions, or as funding for bad financial decisions. Seeing more of them is bad.
Whether it's doom and gloom or sunshiny days, you need to ensure your paperwork and compliance are up to snuff. Blue Streak Document Retrieval is here for you, if you need a helping hand. You can try us out and get your 5th order FREE!
Which side are you on? What do the HELOC originations say to you? Get prescient in the comments!
This month, we have decided to include some information on the HeroBox project that our office was a part of. Blue Streak Docs adopted a unit of 35 soldiers with the goal of being able to send them 5 medium boxes.
By the time we were done, we had collected enough for each solider to have their own goody bag that included shampoo, soap and other toiletries, Halloween goodies, snacks, and laundry soap and we filled 15 large boxes.