Home Equity Loan - A fixed rate second mortgage

gmakerley · Posted: Fri Apr 11, 2008 11:19 am Post subject:

someone with a credit score of 570 has slim chance, frankly, of obtaining financing in these times; particularly if you are talking about a home equity loan. the home equity lending market is shrinking fast, and loan possibilities are drying up minute-by-minute.

that's not to say it's impossible. you ought to check locally with a few local lenders (bank, credit union, etc.) to see what their guidelines are. i would advise you to do this prior to making any changes to the title of your home.

Caron · Posted: Sat Apr 12, 2008 4:10 am Post subject: RE:

Yes george, a score of 570 isn't that good enough to qualify for home equity financing. And, even though one may qualify, it won't be a good enough deal isn't it? better to wait for some time, raise the score and then try for loans. But what's the reason behind the declining popularity of equity loans? may be it's due to subprime crisis and the rising foreclosures, isn't it george?

gmakerley · Posted: Sat Apr 12, 2008 4:50 am Post subject:

what we've seen almost countrywide is a decline in property values. we've also seen foreclosures like a plague of locusts. some of this can certainly be laid on the "crisis" caused by subprime lending, but our lending attitudes in the past several years became far more liberal than previously had been the case.

the new-found liberalism in our lending standards created the 100% financing situation that is so abundant in the marketplace (still). suddenly, we were allowing virtually anyone to borrow up to 100% of value on home equity loans - many of them being lines of credit that allowed repayment of interest-only. this became such easy money that people flocked to their banks, credit unions, mortgage companies, etc. to avail themselves of this easy credit.

our situation has changed radically, and equity no longer exists in many locations. as those equity line rates increased a couple of years ago, lots of borrowers discovered they were only able to make their interest payments (and even then, with difficulty). by failing to reduce their principal balance, they were eating into their equity day-by-day.

with the declining values of homes, the mindset that allowed borrowers with poor credit, questionable income and negligible reserves to obtain 80-15 and 80-20 loans; we find ourselves in a predicament that seems to worsen daily.

the 80-20 loans have pretty much disappeared. 80-15 loans still exist, in small pockets. there are, of course, lenders out there who still lend up to 100% of value on a home equity loan (small, institutional lenders predominately, i believe). but, of course, the market to whom they will lend has shrunk. no longer will you be able to march your 600 credit score into the local branch and walk out with carte blanche up to 100% of your property value. for that matter, if your value today is $250000, for example; tomorrow's value might be $240000. where does that put the lender? where does that put the borrower? the answers to those two questions are readily apparent - "in trouble."

we've seen a return to the conservatism that predominated the marketplace in years past. for 2008, this is a very good sign. we need to retrench and fix our problems before we begin to go back to the liberal attitudes of the past.

it is a sign of the times to drive down the street and see foreclosure signs peppering the yards of some of our neighbors; but it is not a welcome sign. we need to eliminate our excessive ways in order to go back to some sort of normalcy.

the "equity crunch" is real, and it only makes sense to eliminate the riskiest product lines that we lenders have offered.

i trust that some sensibility will be restored to our mortgage marketplace in the very near future. in some cases, there has been an overreaction to what is perceived to be a crisis. sooner than later, i hope, we will be able to return to normalcy (whatever that may be) and continue to do the very good things we've been known for all these years.

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