Debts Rise, and Go Unpaid, as Bust Erodes Home Equity

[CatholicGerman]

From the NYT:

During the great housing boom, homeowners nationwide borrowed a trillion dollars from banks, using the soaring value of their houses as security. Now the money has been spent and struggling borrowers are unable or unwilling to pay it back.

The delinquency rate on home equity loans is higher than all other types of consumer loans, including auto loans, boat loans, personal loans and even bank cards like Visa and MasterCard, according to the American Bankers Association.

Lenders say they are trying to recover some of that money but their success has been limited, in part because so many borrowers threaten bankruptcy and because the value of the homes, the collateral backing the loans, has often disappeared.

The result is one of the paradoxes of the recession: the more money you borrowed, the less likely you will have to pay up.

Another thing I’ll never understand: my parents refinanced their mortgage at the age of 55, for *another *30 years. They then added a home equity line of credit, and bought a second investment house with another 30 year mortgage. Is it just me, or does it seem crazy to lend out money that won’t be paid back until someone is 85?

 

[texasnan]

From the NYT:

Another thing I’ll never understand: my parents refinanced their mortgage at the age of 55, for *another *30 years. They then added a home equity line of credit, and bought a second investment house with another 30 year mortgage. Is it just me, or does it seem crazy to lend out money that won’t be paid back until someone is 85?

Sure does. We can only hope that this downturn has been a wake-up call for both lenders and borrowers. So many people have been buying up to and past their credit limits, with no thoughts of “What if?” My husband and I are doing our best to get out of debt. If the neighbors have a fancier car, or a nice vacation, or whatever – so be it.