Start the conversation
Get ready. There's more trouble ahead for home buyers, home builders, and especially homeowners who took out home-equity lines of credit before the housing crisis. Those heydays have turned into haymakers.
What's already started to happen might not only knock out the formerly aspiring but now petering-out housing market recovery, but also might knock the already weak economy to the ground.
Back in the good old days, when banks and mortgage shops were selling mortgage money and home-equity credit lines like carnival barkers wowing crowds into the big top, millions of homeowners stepped right in.
That circus tent was nothing but a trap, however. And now I'm going to tell you what that trap means for those borrowers… and the rest of the economy…
Intoxicated by rising home prices, in the years before 2007 or so, homeowners took out hundreds of billions of dollars in loans against the equity in their homes. What made the deals most enticing were the terms. Most of the so-called HELOCs were 10-year interest-only loans (that sounds nice …) that would "convert" into 15-year amortizing mortgages (uh-oh!).
(Remember when we all seemed to be using our homes as ATMs? What were we thinking?)
Well, those trigger dates have been firing indiscriminately, shooting a lot of homeowners where it hurts the most.
According to today's Wall Street Journal, some 817,000 homeowners, with $23 billion in loans, will see their interest-only holiday come to a reality-busting end this year. And this is just the beginning. Over the next three years, an average of $50 billion a year in HELOCs will be converting.
What does that look like to homeowners? The Journal cited two examples. A real borrower had his monthly payments on the $70,000 he borrowed rise from $270 a month to $560 a month. Those payments are "adjustable" and could rise dramatically if interest rates rise.
But this next example makes the first one look like pocket change.
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.