The mortgage industry could face a new crisis on the horizon, this time among home equity line of credit loans made nearly a decade ago.
Because the loans are reaching the 10-year mark, at which point borrowers will need to begin making principal payments, there could be a new bubble ahead, reports Reuters this week.
“More than $221 billion of these loans at the largest banks will hit this mark over the next four years, about 40 percent of the home equity lines of credit now outstanding,” Reuters writes.
“For a typical consumer, that shift can translate to their monthly payment more than tripling, a particular burden for the subprime borrowers that often took out these loans. And payments will rise further when the Federal Reserve starts to hike rates, because the loans usually carry floating interest rates.”
Despite warnings from some government agencies and analysts, the largest banks, which carry billions in home equity loans on their books, have yet to quantify the potential impact, Reuters writes. Further, the potential for rising rates in the coming years will add an additional layer of crisis for borrowers of adjustable rate loans.
Written by Elizabeth Ecker