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: Credit Slips

Home Equity Shoe Dropping

By John Pottow


Something that I had been wondering about re: the mortgage meltdown has been home equity loans.  We've all been focusing on home mortgages (starting with sub-prime, but slipping up to Alt-A and conventionals), but what I was curious about was home equity lines: are those going into default too?  The answer, it seems, is yes.  In just today's Wall Street Journal, Robin Sidel reports that charge-offs on home equity lines are doubling.  J.P. Morgan Chase predicts first-quarter write-offs of $450 million (up from $248 million prior period) on its $95 billion portfolio.  Delinquency rates are also up too, to over 4%.

The rub with these loans will be on under-water mortgage homes.  The home equity lines, I suspect, are second liens to the PMSI mortgagee, so for the many homes where the superior-lien mortgage gobbles up most of the value of the home, will this result in foreclosures, or just losses?  Either way, more bad news I guess.

Full post as published by Credit Slips on March 13, 2008 (boomark / email).

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