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Tue Nov 26, 2013, 10:41 AM

REady for another mortgage bomb to go off?

U.S. borrowers are increasingly missing payments on home equity lines of credit they took out during the housing bubble, a trend that could deal another blow to the country's biggest banks.

The loans are a problem now because an increasing number are hitting their 10-year anniversary,
at which point borrowers usually must start paying down the principal on the loans as well as the interest they had been paying all along.

More than $221 billion of these loans at the largest banks will hit this mark over the next four years, about 40 percent of the home equity lines of credit now outstanding.

For a typical consumer, that shift can translate to their monthly payment more than tripling, a particular burden for the subprime borrowers that often took out these loans.
And payments will rise further when the Federal Reserve starts to hike rates, because the loans usually carry floating interest rates.

http://www.reuters.com/article/2013/11/26/usa-mortgages-homeequity-idUSL2N0J724D20131126

On top of that, these are "second mortgages" which means any mortgage defaults, any attempt to foreclose on a house, results in the FIRST mortgage getting paid off before the 2nd. And a lot of these homes are underwater.

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Response to dixiegrrrrl (Original post)

Tue Nov 26, 2013, 10:44 AM

1. Home values going down again

 

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Response to FreakinDJ (Reply #1)

Tue Nov 26, 2013, 10:57 AM

2. Funny how home valuations go down...and property taxes go UP.

It's the oddest thing.

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Response to MADem (Reply #2)

Tue Nov 26, 2013, 11:03 AM

4. Property taxes depend on local government spending; home valuations on the housing market

 

They are unrelated except for property taxes being allocated on the basis of relative values of property in the community.

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Response to FarCenter (Reply #4)

Tue Nov 26, 2013, 11:12 AM

5. Well, they are related in terms of the fact that they are assessed based on

the value of the home. You don't pay the same taxes on a 100K house as you do a 200K one--in fact, the cost is exactly double. And the tax rate is usually a percentage of a thousand bucks, but they sure manage to bump those taxes up even as the value of the property goes down.

I rarely see local governments working terribly hard to find economies. Instead of reducing overtime, fixing things instead of buying new, turning out a few lights, doing those stupid "little" things that can add up, they always threaten to cut school funding if they don't get their increases and freak people out who give a damn about decent education.

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Response to MADem (Reply #5)

Tue Nov 26, 2013, 11:28 AM

9. If the sum of assessed values goes down, they bump up the mill rate to get the desired tax revenue

 

For example, if Hurricane Sandy wipes out 10% of the assessed value of property in town, everyone's mill rate goes up 10% to make up the difference.

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Response to MADem (Reply #5)

Tue Nov 26, 2013, 11:32 AM

10. Tax appraisals are different from regualr appraisals

A large portion of the tax bill is on the land the house sits on, which rarely goes down in value..

Even when our house was seriously upside down a while back, our taxes never went down a penny..

Regular appraisals are often based on what houses are selling for in an area and are a guideline for banks when it comes to lending..

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Response to SoCalDem (Reply #10)

Tue Nov 26, 2013, 11:33 AM

11. Some states appraise every year.

The taxes never follow the appraisals. Once they go up, they stay up!

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Response to FreakinDJ (Reply #1)

Tue Nov 26, 2013, 11:18 AM

7. Mine has been going up for a couple years

 

You in a bad neighborhood?

Shit, even in Vegas one of the cities hit the hardest prices are going back up-


http://www.trulia.com/real_estate/Las_Vegas-Nevada/market-trends/

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Response to snooper2 (Reply #7)

Tue Nov 26, 2013, 01:57 PM

13. Great neighborhood - But Existing Home sales dropping

 

For 5 straight months now

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Response to FreakinDJ (Reply #1)

Tue Nov 26, 2013, 11:19 AM

8. Home values are going up where I live.

Pretty drastically as a matter of fact. My neighbor is a real estate agent and she says she can find low-income housing and upper-income housing but nothing in the middle. A couple of weeks ago one of the houses in my neighborhood (working-class neighborhood) went up for sale and the next day it was sold.

Of course, we're experiencing another bubble and home values will plummet again but this time the predatory lenders won't be a factor as the credit requirements have tightened up.

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Response to Le Taz Hot (Reply #8)

Tue Nov 26, 2013, 01:52 PM

12. 5 straight months existing Home sales are down

 

The valus went up pretty drasticly here too. But if no one can get a loan to buy them - what then

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Response to FreakinDJ (Reply #12)

Tue Nov 26, 2013, 03:49 PM

14. The homes around here are being bought for rentals

so it's the spec buyers buying the mid-ranged-priced homes.

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Response to dixiegrrrrl (Original post)

Tue Nov 26, 2013, 11:01 AM

3. Meanwhile HELOC 30 to 149 day delinquencies have been trending down strongly

 

At least at JPMC the short term delinquencies have been trending down, while 150+ day delinquencies have remained flat.

A few years ago, the banks took action to winnow out their HELOCs and to withdraw unused lines of credits. I doubt they are in that much trouble.

See page 18 of http://files.shareholder.com/downloads/ONE/2810165706x0x696269/53cac7f7-de8d-4e28-aeeb-412271c2d40b/3Q13_Earnings_Presentation.pdf

Note also that HELOCs are only one type of second mortgage.

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Response to dixiegrrrrl (Original post)

Tue Nov 26, 2013, 11:15 AM

6. The banks will just roll them over mostly

The really bad ones are already gone for the most part.

These loans can be rewritten to vastly lower the repayment rates, and you can expect that to happen.

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