The Housing Implosion: Here It Comes?

From Money News under the headline: “New Wave of US Mortgage Trouble Threatens Banks.

U.S. borrowers are increasingly missing payments on home equity lines of credit they took out during the housing bubble, a trend that could deal another blow to the country’s biggest banks. The loans are a problem now because an increasing number are hitting their 10-year anniversary, at which point borrowers usually must start paying down the principal on the loans as well as the interest they had been paying all along.

The number of borrowers missing payments around the 10-year point can double in their eleventh year, data from consumer credit agency Equifax shows. When the loans go bad, banks can lose an eye-popping 90 cents on the dollar, because a home equity line of credit is usually the second mortgage a borrower has. If the bank forecloses, most of the proceeds of the sale pay off the main mortgage, leaving little for the home equity lender.

Batten down the hatches, ladies and gentlemen… a vicious storm is approaching, and with the new “bail-in” provisions in place, if you simply have money in a bank account, you could get a nasty introduction to what it means to be an unsecured creditor.

At Bank of America, around $8 billion in outstanding home equity balances will reset before 2015 and another $57 billion will reset afterwards but it is unclear which years will have the highest number of resets. JPMorgan Chase said in an Oct. regulatory filing that $9 billion will reset before 2015 and after 2017 and another $22 billion will reset in the intervening years.

At Wells Fargo, $4.5 billion of home equity balances will reset in 2014 and another $25.9 billion will reset between 2015 and 2017. At Citigroup, $1.3 billion in home equity lines of credit will reset in 2014 and another $14.8 billion will reset between 2015 and 2017.

Bank of America said that 9 percent of its outstanding home equity lines of credit that have reset were not performing. That kind of a figure would likely be manageable for big banks. But if home equity delinquencies rise to subprime-mortgage-like levels, it could spell trouble.

In terms of loan losses, “What we’ve seen so far is the tip of the iceberg. It’s relatively low in relation to what’s coming,” Equifax’s Crews Cuts said.

If past government actions provide any clues (and I believe they do) the “little guy” (you and I) are about to get scammed and robbed again.