Selling A House Is Getting More Difficult As Equity Vanishes And Banks Restrict Lending
Quick cash often becomes a necessity but selling the house is getting to be more difficult as equity is vanishing and banks are restricting lending. It is causing worry to all.
During the boom years millions borrowed against their properties to repair and make additions or alterations to the house some essential and others fancy. Many borrowed to clear credit card dues, purchase flat television sets, new cars or to see the children through their education. Banks bent forward with advertisements goading the people to live richly in short encouraging them to take loans at the slightest pretext.
But those days are over the house cannot be milked easily. Property prices have fallen and equity has vanished with the worth of the house becoming less than the loan amount. One fourth of the borrowers are not eligible for home equity loans because of having gone underwater. Those who do have some equity are finding that the banks have become strict and are reluctant to advance mortgage loans. Credit card limits too are being drastically reduced.
This sudden and sharp pulling back is harming the economy, the budgets of families and the account books of the banks. There are clear signs that the consumer spending habits as of yore is not going to return in the near future it might take decades.
In 2006 when the housing zoom was at its peak the banks granted $430 billion as equity loans on residential houses and lines of credit according to Inside Mortgage Finance. For four years from 2002 onwards this type of lending equaled to 2.8% of the economic activity of the nation according to a research conducted by Atif Mian and Amir Sufi of University of Chicago. Both are finance professors.From January to September 2009 a mere $40 billion was advance as new equity loans on residential houses. It had practically no impact on the general economy.
Keith Gumbinger of HSH Associates Financial Publishers said that in the previous years the house was equal to an ATM card. Millions took loans against their house to climb up the socio-economic ladder. But today the opposite is happening as the homeowners are desperately clinging to hold on to the very roof above their heads. Homelessness is just a hairs breadth away.
The situation is bad for the banks also. Since 1986 home equity loans gained popularity. Certain tax alterations initiated by the Congress made it easier and less costly for borrowers to take loans on house equity rather than use dollars from savings accounts, personal loans or mutual funds.
by: Julie ThompsonAbout the Author:Julie Thompson, GM Sales & Marketing, foreclosure1.comJulie Thompson, has been working on foreclosure1.com studying the foreclosures market, helping buyers on the finer points of foreclosure homes for sale. Try to visit foreclosure1.com and begin your foreclosures by state search.