Those who study home loans say that homeowners who took out a home equity line of credit during the housing boom could trigger a new wave of foreclosures. This is because the payments on those loans are about to increase significantly, and in some cases, homeowners are still underwater on their original mortgages. According to research conducted by RealtyTrac, the average HELOC payment will increase from $133 to $279.
Most home equity lines of credit are revolving accounts that have a 30-year term, and homeowners can generally access equity in their homes up to roughly $100,000. During the first 10 years, lenders only require interest payments on the loan. While those who follow the housing industry say that while the monthly payment may seem low, many who took out a HELOC during the housing boom are underwater on their loans.
Of the 3.3 million homeowners who still owe on a HELOC taken out from 2005-2008, 56 percent are considered to be severely underwater. This means that they owe 125 percent or more of their home's value. This may cause some homeowners to walk away from the loan and go into foreclosure. While this may not cause a second housing crash, it could lead to increasing inventories in many parts of the country.
Anyone who is going through foreclosure or is underwater on their home may wish to speak to a bankruptcy attorney. It may be possible to stop mortgage foreclosure or have a home loan discharged in bankruptcy court. An attorney may be able to explain how a home loan can be discharged in both Chapter 7 and Chapter 13 cases or how an automatic stay may be able to delay foreclosure until the case has been resolved.