Defaulting HELOCs: A growing concern

Defaulting HELOCs: A growing concern

June 10, 2016 – In 2004, millions of homeowners tapped into the equity of their homes through low-interest – or no interest – home equity lines of credit (HELOC). Their 10-year grace periods are now done and they’ve had to start paying. And that’s why HELOC delinquencies are now suddenly soaring.

In March, second-lien HELOC delinquencies – the number of homeowners who are behind on this second mortgage – climbed 87 percent compared to a year ago, Black Knight Financial Services’ reports.

Delinquencies may continue to climb, and those homeowners who cannot make the increased HELOC payments or refinance could find themselves facing foreclosure.

HELOCs taken out in 2005, 2006 and 2007 comprise 52 percent of all active lines of credit. In 2005, there were about 850,000 home equity lines; in 2006 and 2007, it was 1.25 million. The grand financial total from just those three years: $192 billion.

The recent increase in HELOC delinquencies is the first annual increase since June 2012, Black Knight notes. An 87 percent spike in delinquencies among 2005 HELOCs over the past 12 months has been attributed to most of the recent spike.

Source: Black Knight Financial Services and “A Decade After the Bubble, Home-Equity Line Delinquencies Jump,” MarketWatch (June 6, 2016)

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