Almost 3,000 Tri-Cities homes on HELOC reset report; avg. monthly payment to increase almost $100


By DON FENLEY

During the next three years almost 3,000 Tri-Cities Home Equity Lines of Credit are potentially resetting with higher, fully amortizing monthly payments. And, according to RealtyTrac’s first-ever HELOC Resetting Report, 25% of those loans are on properties that are seriously underwater.

Nationwide, the report found 56% of the 3.3 million Home Equity Lines of Credit are potentially resetting are on properties that are seriously underwater. For the report, RealtyTrac analyzed open HELOCs originated between 2005 and 2008 with the assumption that these loans will reset with fully amortizing monthly payments after a 10-year period of interest-only payments. RealtyTrac used average HELOC utilization rates from the New York Federal Reserve and the prime interest rate of 3.25% to calculate the outstanding balance of the loans and to calculate the interest-only and fully amortizing monthly payments. See full methodology below.

A total of 2,909 Tri-Cities HELOCs with an estimated balance dollar volume of $93.3 million are on the potential reset list. Most of them are in the Johnson City MSA. Of the 2,238 active HELOCs schedule to reset in that three-county area 598 (27%) are seriously underwater. The average increase in monthly payment after the reset will be $98 a month.

The numbers decline when looking at the Kingsport-Bristol MSA. The report lists 671 HELOCs on the reset list and 140 (21%) are seriously underwater. The average monthly payment increase after reset is $86.

A total of 3,262,036 HELOCs with an estimated total balance of $158 billion that originated during the housing price bubble between 2005 and 2008 are still open and scheduled to reset between 2015 and 2018. Of these, 1,834,588 (56 percent) are on residential properties that are seriously underwater, meaning the combined loan to value ratio of all outstanding loans secured by the property is 125 percent or higher.

“Homes purchased or refinanced near the peak of the housing bubble between 2005 and 2008 are much more likely to still be underwater despite the strong recovery in home prices over the last three years,” said Daren Blomquist, vice president at RealtyTrac. “Furthermore, many homeowners with HELOCs who have positive equity likely already refinanced to mitigate the payment shock from a resetting HELOC — an option not readily available for homeowners still underwater.

“While these underwater homeowners experiencing payment shock from resetting HELOCs are at higher risk for default, the good news is that we’ve already seen a large wave of more than 700,000 resetting HELOCs in 2014 without a corresponding wave of defaults,” Blomquist noted. “The bad news is that a much lower 40 percent of those 2014 HELOC resets were on seriously underwater homes. We are entering a period of higher risk over the next four years when it comes to resetting bubble-era HELOCs — especially given slowing home price appreciation that offers underwater homeowners less hope of recovering their equity in the short-term.”

RealtyTrac looked at all still-active Home Equity Lines of Credit originated over the 10 years between 2004 and 2013 for this report. The data included the original loan balance, and RealtyTrac used average HELOC utilization rates from the Federal Reserve Bank of New York (http://www.newyorkfed.org/microeconomics/hhdc.html) to estimate the average balance of the active HELOCs. RealtyTrac assumed 30-year HELOCs with a 10-year interest-only term followed by a 20-year fully amortizing term. The prime interest rate of 3.25 percent was used as the interest rate to calculate monthly payments for all still-active HELOCs, no matter the origination date. RealtyTrac counted a home as seriously underwater if the total combined balance of all outstanding loans secured by the property was 125 percent or more of the property’s estimated market value as of December 2014.

The full report and charts can be found at : http://www.realtytrac.com/news/mortgage-and-finance/heloc-resets-report/

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