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  • Writer's pictureKeith Gantenbein

Collision Course Set to Hit Homeowners

There’s a collision course coming that will affect millions of homeowners creating hardships as massive as the housing market crash that began in 2006.

There is approximately $265 billion tied up in home equity lines of credits called HELOCs. These HELOCs are coming due this year. Many consumers will be in shock as they see a considerable increase in their monthly mortgage payments.

The HELOCs (pronounced HEE lock) are loans that lenders give to homeowners in which the borrower’s equity in their home is the collateral. The HELOCs were secured against the value of the property. HELOCs have adjustable interest rates whereas traditional equity loans (not lines of credit) have fixed rates. Most of these HELOCs were given in 2005 when the housing market was at its highest. Lenders, at that time, believed housing values would continue to increase and gave more than 10 million home equity lines of credit to homeowners between the years of 2005 and 2008.

Typically, the HELOCs were set for periods of ten years making them due in 2015. If refinancing were even an option, most homeowners don’t qualify because they don’t have the high credit scores needed.

In 2010, nearly five million first-lien home modifications were at their peak. The majority of those government-sponsored modifications are due to reset to a higher interest rate in 2015, the same time these HELOCs are set to rise. This year, the modifications are due to experience three annual interest resets bringing 2% loan modifications up to 5% by the end of the year.

Just as millions of homeowners are starting to get back on their feet, they’ll be hit with higher monthly payments that ultimately will create another wave of foreclosures. At this time, there are almost 8 million unemployed people, and another 15 million who are barely getting by with part-time jobs. The average monthly increase for the HELOCs is between $100 and $300, while the average modification increase will be around $100 per month. These increases will break those who are on strict budgets.

Recently, the Home Affordable Modification Program (HAMP) recently extended its modification program through the end of 2016. HAMP borrowers facing higher rate increases may qualify for other alternative modifications including a Tier 2 loan modification which has an interest rate of 4.25%.

By law, lenders must remind homeowners of the rate hikes 120 days in advance. Some lenders will be alerting homeowners beginning this month. The ten million HELOCs that will come due between 2015 and 2018 will certainly put a damper on the U.S. housing recovery for years.

The finance industry is trying to brace for the HELOC defaults that are sure to happen in the coming weeks and months. Homeowners should look at their HELOC and loan modification agreements to get a better idea what they’ll be experiencing shortly.

If you have a HELOC that is currently in default, or will enter repayment in the future for your foreclosure options. Many foreclosure defense options have tax implications: our Denver law firm focuses on foreclosure, tax, business and real estate to best meet all your needs. For more information, visit our website at , or call 303-618-2122. Visit our attorney bio page to learn more about our tax lawyers in Denver, foreclosure defense attorneys, business attorneys and more.

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