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Saturday, March 20, 2010
3/20/2010 12:03:00 AM | 
Posted by
Integra Real Estate & Mortgage
“This time around, lenders and homeowners will be more cautious about converting their equity to cash, muting any boost to the economy”, said Greg McBride, senior financial analyst with Bankrate.com.
"Home-equity borrowing won't be the economic crutch it was a few years ago," said McBride. "This is not an economy in which consumers are going to be able to go nuts."
“The difference this time around will be how the money is spent,” said Frank Nothaft, chief economist of Freddie Mac, the government-run mortgage. “Borrowers are less likely now to use their home's equity for luxury purchases.”
"Consumers are better managing their own personal balance sheet as a result of the difficult recession we went through," Nothaft said in an interview. "Many households had taken on too much debt and were overextended, and now people are focused on paying that off."
Consumers spent about $677.3 billion, or about $113 billion a year, from home-equity loans on purchases such as cars or televisions during the 2000 to 2005 real-estate boom, according to former Federal Reserve Chairman Alan Greenspan and Fed economist James Kennedy. An additional $376.2 billion, or about $63 billion a year, went toward home renovations.
Chris Lafakis, an analyst at Economy.com, said "There is a lot of distress out there, but initial claims for unemployment insurance are coming down, most of the home-price declines are behind us, and banks are pretty much done tightening their lending standards."
So home-equity loans may be recovering, and the banks may be ‘pretty much done tightening their lending standards,’ but the process is still far from easy. A homeowner in the Seattle area who had 90% equity in his home spent nine months and had to go to four different lenders before he was able to get a home-equity loan. Nine months ago was before the ‘recovery,’ so one would hope such horror stories are behind us, but it is still a difficult process that requires a lot of patience on the part of the home-owner.
These are all very interesting stats, but we want to know what you think. Do you feel the equity in your home will go up this year? Would you take a home-equity loan on your home at this time?
(Excepts from an article by Bloomberg News that ran in The Seattle Times on 3/19/2010)
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