How "second mortgages" became HELOCs

Friday morning housing links from here and there:

The New York Times, in the latest installment of its "Debt Trap" series, chronicles the marketing effort by banks that turned dicey "second mortgages" into financially attractive "home equity lines of credit." The Times: "Not long ago, such loans, which used to be known as second mortgages, were considered the borrowing of last resort, to be avoided by all but people in dire financial straits. Today, these loans have become universally accepted, their image transformed by ubiquitous ad campaigns from banks." The value of home equity loans outstanding has increased a thousandfold since the 1980s, the Times reports, and, of course, delinquencies are rising.

The Wall Street Journal reports on a McCain housing headache: "Sen. John McCain's son served until last month on the board audit committee of a Nevada bank that is struggling to survive amid mounting losses and regulatory scrutiny." The bank is Silver State Bancorp.

Zillow's Diane Tuman takes a closer look at why that Detroit house sold for $1, and finds some pretty amazing photos of the house. This is worth checking out: The house was stripped bare by vandals, a common fate for vacant homes in parts of Detroit, according to Detroit News reporter Ron French: “As soon as they know it’s empty, it’s like a gazelle limping in the Serengeti — they will take it down," French tells Zillow. "You will see people pushing a wheelbarrow down the street, full of siding or copper. They take everything.” (Hat tip: Patrick.net)

--Peter Viles
Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com

Comments

[E]

Thank goodness L.A. Times...or should I say your blog isn't censoring comments like the NYTimes is.

Any mention of Alt-A won't pass the gatekeepers.

[E]

Mention the potential "toxicity" of the Home Equity Loans (Stated Income/Interest only/Neg-Am) and your post won't get through either.

They don't want the sheeple to know how bad it's gonna get.

Everybody still has "subprime" on their mind and equates it to people in Detroit or Sacramento.

It's going to be a rude awakening. It won't just be a splash of cold water...more like a splash of liquid nitrogen.

[CD]

Why am I receiving offers 24/7 to borrow from all banks,It's up to 150K per week. Already signed checks, pre approved
should I take the money and then ask for a bail out, should I take the money from GM or Ford, they want to give me a car and buy back my existing lease. Checks already signed... Shell is sending me gas money....What is going on ,
I thought they had no money to give....Is it because I am a happy renter ???

[Laura Vecsey]

This post by Diane Tuman of Zillow shows that good journalistic skills and instinct can lead online content providers to deliver some terrific posts. This is the kind of insight and news that can be dug up by reporters/writers who actually make phone calls and dig around for more than one good line.
Good job recognizing the "gazelle" quote by the Detroit reporter in the Zillow post. If that didn't sum up the state of Detroit's carnivorous real estate climate ...

[Nick]

Pardon me while I get philosophical for a moment, but I find it amusing that the whole HELOC thing might eventually come full circle for at least a small percentage of borrowers. With the government socializing all the lender and speculator losses, and the people poised to elect a socialist leaning leader with a Congressional majority, we could see a massive amount of government deficit spending in the next few years, which will of course cause massive inflation (almost certainly over 10% annually in actual value, maybe even over 8% in bogus, manipulated CPI measure).

The Fed will probably keep the Fed rate low for at least 10 years, since they appear to be following Japan's response to their housing correction, with likely the same result (if not worse, due to our debt vs their savings). This will keep adjustable rates low for anyone who is able to borrow (or has already borrowed).

With mortgage and HELOC rates thus well below 10%, and considering the preferential tax treatment that home loans enjoy, it could very well be possible to lose less value to inflation if you have more home equity debt. Essentially, the worse the government actions are for the US economy (spending, rates, and inflation), the better you could do with lots of home equity debt. I can't speak for everyone, but given our current government and likely near-future government, that's a bet I'd like to take.

I find it interesting and ironic that in a few years, the HELOC/debt talk might come full circle, and lots of debt might end up being good (or less bad, as the case may be) for consumers. How's that for irony?

[unomas]

Billion dollar companies hire the smartest people to to sell their products. Psychologist, phds, and statisticians target Average Joe's susceptibilities in order to make a sale. Joe's time is probably taken up by his work, chores, friends and family. He has no time (and perhaps the know-how) to evaluate, research or even find reliable advise concerning loans, personal finances or economics. He probably sees his friends and co-workers borrowing - and these are all good guys - so why not?

Many of the posters in this blog are financially astute; skilled in critical thinking and deft in doing research. Average Joe is not. It is hard for Joe not to succumb to the selling tactics of multi-million dollar campaigns.

OT: The same goes for the ballot boxes.

[It All Happens on the Margin]

Nick:

Don't worry - the left wing apparently no longer holds exclusivity to the "deficit spending title."

Our beloved, ahem, conservatives spent money like drunken sailors during their reign in both branches of the Federal government.

As a conservative voter, I am disgusted.

[Laker]

Check out this email i just received from a mortgage broker i had a quote with:

=====================
Laker,

I have great news! If in the past you were unable to get your mortgage refinanced due to a low value in this market.

Our Government contract allows us to refinance anyone who can verify income sufficient to pay. Value is no longer an issue!

If this fits you or anyone you know I am just a phone call away. Or email me at cfisher@asmartloan.com

Chad Fisher
President
NationsChoice Mortgage
(480) 222-8862
===================================

So, "Value is no longer an issue!" Got that?
The tax payer will pay the difference and refinance any one if they can show the income...
What about all the debt that will be forgiven? Are they going to return the toys, boats, RV, LCD TV back? Why will they be allowed to keep them and have same payment that a responsible home owner has if he never mortgaged or HELOCed his house to the tunes, to get all the toys?