Using a home-equity loan
to finance personal expenses often results in an after-tax borrowing cost that is better than a credit card or unsecured bank loan.
While most home-equity loans
involve middle- to upper-income borrowers, the low-end market and its tantalizingly high interest rates have attracted the attention of financial institutions from Citibank to Security Pacific to the former Bank of New England.
Homeowners have a range of options for accessing their equity, from cash-out refinancing to home-equity loans
to HELOCs, and the decision is not necessarily a simple one to make.
or lines of credit are logical products to promote to new mortgage holders.
CoreLogic said that roughly 3.8 million underwater borrowers hold first liens without home-equity loans
. Roughly 2.5 million underwater borrowers hold both first and second liens.
Timothy Campbell, Citigroup's senior vice president and director of government relations, gave this example: "When you understand how America's system of credit and obtaining credit is set up, your ability to pick up your phone and call a bank and get a mortgage or home-equity loan
unsecured almost instantly is incredible," he said.
As of May 2010, home-equity products are still rolling into the 30-plus-day delinquency category at historically high levels, with second-lien home-equity loans
outpacing both first-lien and second-lien HELOCs in terms of early-stage delinquency (see Figure 1).
of any type are a big problem because they aggravated the credit woes of the subprime sector and spread those woes into the alt-A and prime markets.
Because home-equity loans
are for smaller dollar amounts, the number of loans produced must increase.
Homeownership is at an all-time high in the United States, making home-equity loans
and home-equity lines of credit (HELOCs) an attractive resource for borrowers looking to leverage their equity and gain tax advantages.
* Case-by-case assistance to help customers by extending terms and deferring payments on their existing mortgage and home-equity loans
It will continue to make first-mortgage and home-equity loans
through its branches, loan officers, telephone loan centers and Web site.