bluntlysaid

Next Crash = Credit Cards and Home Equity Lines.

I’m not saying anything earth shattering. It makes sense that home equity line default rates have risen dramatically.

The average Joe bought his house for $100,000 and giddily saw the price of that home increase to $200,000 in just a few years.  One day, he gets his mail and sees a HELOC (home equity line of credit) pamphlet from his mortgage lender. “Has your home price gone up? Why not tap into that money and use it to make home improvements or pay for your kid’s college education?” Great idea, says Joe, plus I feel confident borrowing that money since it’s backed by the value of my house.
Well, turns out that house was over-valued so in hind-sight Joe spent more money than he had.  Now his mortgage payments re up, gas prices are killing him, his credit cards are over extended, and he has to pay back that equity line on his home.  Something has to give…guess what gives: First the home equity line then the credit cards.

Lenders are reporting an unprecedented rise in HELOC defaults. Not surprisingly, credit card companies are also reporting higher than expected default rates this summer.

People have been saying for years that Americans spend more money than they make—they have been riding a wave of credit that needs to fall someday because it has no collateral backing it up. I have to agree.