With house prices falling fast across the US, upside-down mortgages may force more homeowners to default on their home equity loans, making first-mortgage subprime defaults look like a pre-game show.
Some banks have already begun freezing credit lines extended to homeowners who had equity in their homes during the bubble years, but who have lost most, if not all of their equity in this housing downturn.
It is estimated that the value of all home equity loans in the US exceeds $1 trillion. In 2007 alone, subprime lenders issued a whopping $125 billion in home equity loans.
The targets of subprime loans are usually people with poor credit histories or no steady income, or both. The pool of Americans in need of high-risk, high-interest loans increased in recent years, due to rising credit-card delinquencies and an unprecedented number of bankruptcies, which helped spur the subprime lendeds’ greed. Now both lenders and borrowers are faced with catastrophic losses, as the housing bubble burst.
Some banks have already begun freezing credit lines extended to homeowners who had equity in their homes during the bubble years, but who have lost most, if not all of their equity in this housing downturn.
It is estimated that the value of all home equity loans in the US exceeds $1 trillion. In 2007 alone, subprime lenders issued a whopping $125 billion in home equity loans.
The targets of subprime loans are usually people with poor credit histories or no steady income, or both. The pool of Americans in need of high-risk, high-interest loans increased in recent years, due to rising credit-card delinquencies and an unprecedented number of bankruptcies, which helped spur the subprime lendeds’ greed. Now both lenders and borrowers are faced with catastrophic losses, as the housing bubble burst.
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