Homeowners are tapping into their equity once again. Over the last decade there was over $1 trillion in home equity withdrawn. Many homeowners did this through home equity lines of credit, cash-out refinances, and home equity loans. Much of that money was spent on home upgrades, flat screen TV’s, cars, and vacations. And, while there are nearly 11 million homeowners still underwater, it is not stopping home equity lines of credit from being on the rise.
The rise of home values have helped attribute to home equity lines of credit. As home values increase, homeowners will have more equity to play with. Consumer confidence has also helped homeowners feel better about repaying loans. So, because of these two factors, we have seen a 19% jump in home equity lines of credit.
Now that home prices are up by 8% since December 2012, homeowners will see a quick gain on home equity. Over 1.4 million borrowers are now above water on their mortgages. So, does this mean we will start seeing reckless home equity use again? Probably not. It’s now a little harder to pull the equity out, but those who are able to seem to be reinvesting it back into their home.
To show some actual numbers in home equity use, there was $28 billion in home equity used in 2006 and only $7.2 billion used in 2012. Of course the numbers are expected to go up in 2013 as interest rates and home values rise. However, cash-out refinances are expected to stay low. Most homeowners will turn toward home equity lines with a fixed rate. Some banks are now offering lines of credit with a fixed rate for up to 3 years. Others are still offering a variable rate.
The Home Affordable Refinance Program is now available on investment properties. As many homeowners know, you can refinance your underwater mortgage or low equity mortgage through HARP, but until recently you couldn’t refinance your investment properties under the program. Now, through HARP 2.0 and the expanded guidelines for eligibility, you will have to opportunity to refinance your second home or investment property through HARP.
There are some stipulations on using HARP for refinancing a second home. Each home must be a single unit, so single family homes and condos can qualify. Many investment properties could qualify with one to four units and you don’t have to be living in one of them as your primary residence. However, you will still have to meet the HARP criteria.
One of HARP’s main requirements is that the mortgage must be backed by Freddie Mac or Fannie Mae. You will also need to meet other income requirements like being able to prove you have at least two months reserves to refinance the home you occupy or six months reserves for your investment properties. It really doesn’t matter how much value your home has lost as long as you can make your current payments.
Now that this program expansion is available, many property investors want to know if they can refinance more than one home. Yes, you can; however, the mortgage must have originated before June 1, 2009. This will limit you to one HARP refinance per property you own.
You will also not be obligated to refinance with your current mortgage lender. You can refinance with any lender that participates in HARP. And the best news is that you no longer have to wait seven years after declaring bankruptcy or foreclosing. That requirement has been waived for the moment.
While there is no guarantee that you will get a HARP refinance, you can at least try if you are having financial trouble because of the downturn of the economy.
Foreclosure filings are at the lowest in 5 years. Finally, the wave of foreclosures around the nation is much less according to recent reports by RealtyTrac. Their reports show that there is a decline of 7% in September from August and far below one year ago of 16%. The recent report shows that foreclosures are the lowest since the fall out in 2007.
These days, foreclosures are not making headlines like they once were. However, some economists believe there could be another wave of foreclosures to hit the housing market. Since the mortgage settlement was reached in April, many experts believed the market would once again be flooded with repossessions. But, that is not the case now.
Foreclosures are down more steeply in some states over others. Part of the reason for the decline is overall economy improvement. The government and banks have also helped with their efforts to prevent foreclosures. The Home Affordable Modification Program was a big factor in getting millions of homeowners down to an affordable mortgage payment.
Banks are still a big part of the recovery as they continue to help homeowners look for ways to keep from foreclosure. Many banks are letting homeowners refinance at lower rates or they are agreeing to short sales, which is a more preferred method over foreclosure. And, the improving economy is helping more people get and keep jobs so they can pay their mortgages.
A new survey shows homeowners are open to strategic default. According to the survey, a large number of property owners see strategic default as a good option if their home continues to depreciate. Close to half the homeowners who participated in the online poll say they would walk away from their mortgage obligations if home values continue to fall. The survey was conducted online by Housing Predictor with 1,000 participants.
The Housing Predictor survey showed almost half of those surveyed would stop paying their mortgage payments even if they could afford it. Many of them believe it is best to get out from under the sinking investment. The numbers of those who would strategically default on their mortgage have risen sharply over the past year.
Other studies by the Mortgage Banker Association show that the vast media coverage that has been dedicated to the financial crises has made more homeowners aware of their equity position. Therefore, those who owe a great deal more on their mortgage than their home is worth are just walking away.
So, what would happen if you strategically default on your mortgage? You lose your home of course. The mortgage lender will take possession of your home and you will be left with bad credit from foreclosure. You should talk to a financial specialist before you consider strategically defaulting on your loan.