A 10-year mortgage time-bomb is set to go off beginning in 2014 (next year, folks).
(Reuters) – 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. <source>
About ten years ago, 4 – 5 years before the global financial crash in 2008, mortgage bankers were pushing homeowners into home equity lines of credit (HELOCs) at very attractive, floating, rates. Millions of homeowners took advantage of this cheap credit and leveraged the equity in their homes, in effect, spending their savings.
Banks marketed home equity lines of credit aggressively before the housing bubble burst, and consumers were all too happy to use these loans like a cheaper version of credit card debt, paying for vacations and cars.
These lines were structured with low payments for ten years, to be followed by higher payments…
…after 10 years, a consumer with a $30,000 home equity line of credit and an initial interest rate of 3.25 percent would see their required payment jumping to $293.16 from $81.25, analysts from Fitch Ratings calculate.
At a conference last month in Washington, DC, Amy Crews Cutts, the chief economist at consumer credit agency Equifax, told mortgage bankers that an increase in tens of thousands of homeowners’ monthly payments on these home equity lines is a pending “wave of disaster.”
A wave of disaster.
Not mentioned in articles about this impending crisis is the devastating effect this will have on American families in the wake of health insurance costs RISING by thousands of dollars per year to pay for Obamacare (remember the 56-year old woman whose $54 per month health insurance policy was cancelled by Obamacare and replaced with a policy that cost $591 per month?).
In California, Kaiser Permanente terminated policies for 160,000 people. In Florida, at least 300,000 people are losing coverage. That includes 56-year-old Dianne Barrette. Last month, she received a letter from Blue Cross Blue Shield informing her as of January 2014, she would lose her current plan. Barrette pays $54 a month. The new plan she’s being offered would run $591 a month — 10 times more than what she currently pays. <source>
So the average American family’s financial position is going to take a double-hit, from Obamacare and mortgage resets, both happening in 2014. Consumer confidence, and spending, will plummet, plunging the economy into an even worse recession.
On top of these two trends, the big banks are facing a wave of defaults on these HELOCs, and what do banks do when their loan portfolios are blowing up?
They stop lending to businesses, because their safety capital is under assault from non-performing loans. This will also kill any chances of economic recovery.
What is Barack Obama’s plan for this?
To make it worse.
He won’t back down on Obamacare, and his fiscal policy is distinguished principally by vindictively raising taxes on the middle class, which will crush consumer confidence and spending even more.
He wants our nation to fall further down the stairs into an Eastern style despotic state, with him and his cronies holding the levers of power.
What’s another mortgage crisis to him?