Why does there always have to be a catch?

Tags: home equity line, interest, line of credit, loan, office of the controller of the currency, payment, principal, rental property, renter, usa|July 30, 2012

Wondering what the catch is?  Read below the opening 3 paragraphs for this article that found their inspiraion from a report released by the Office of the Controller of the Currency,

Recent data suggests as much. New homes are being built again. Sales of existing ones are rising — up nearly 10 percent in May from the same month of 2011. Also in May, pending home sales, a figure based on signed purchase contracts, matched their highest levels in two years. Gains were seen across the nation.

After so many years of declines, these signs of life in housing are surely welcome. But the fact is, even a strong recovery is unlikely to rescue many homeowners who are groaning under the weight of multiple mortgages.

That’s because of the nature of home equity lines of credit, which require low payments in the early years followed by hefty payments later on. For many borrowers, those later years are fast approaching.

If your investor spidey senses picked up on the possibility of another credit crunch, that is okay.  If on the other hand, you picked up a whiff of an impending crash, it is time to read a little deeper into the story.  No need to jump to conclusions.

As we carefully read the article, we see that it reads a little bit like a history book.  When the perverbial S*&# hit the fan the first time, the government stepped in to save the day. What this little (sarcastically speaking) rescue package has done is changed peoples spending habits, and now 32% of households in the United States are owned free and clear – NO MORTGAGE. So let us assume for the sake of arguement that there are some issues with the American people paying back over $100 billion in home equity lines, here is a course of action that the government can concievably take,

“The negative equity position of many borrowers would be dramatically improved if the second lien was eliminated or reduced more in line with the seniority of the lien,” Ms. Goodman told Congress. “Indeed, loan modification programs would be markedly more successful if principal reductions were used on the first mortgage and the second liens were eliminated completely.”

If they didnt do it the first time, they will do it the second time.

This isn’t the best news to hear, but what it potentially means for you as an investor is that there will continue to be a steady supply of renters for your property.

See why jumping to conclusions is not wise?

Read the full article