By Maxine Shapiro, KERA 90.1 business commentator
Dallas, TX – Home equity loans - try to turn on any cable station without getting bombarded by ads. If you're like me, on a daily basis there's at least one recorded message on my voice mail suggesting now is the time to refinance. But consumer advocates and bankruptcy lawyers are now asking us to think ahead. I'm Maxine Shapiro with KERA Marketplace Midday.
The good news - delinquencies on mortgage payments have declined for a second quarter in a row ending in 2002. The bad news - foreclosures are at a record high.
Since the end of 2002, the economy appears to have staggered. Some not-so-optimistic economists believe delinquencies could increase again. Personal bankruptcies are at record levels, and a turtle can beat out the current pace of the labor market. It's like a bad play with no intermission.
But long before the foreclosure or the bankruptcy, you probably had a home equity loan. According to the Federal Reserve, lines of credit and home equity loans nearly doubled from 2001. Refinancing is legitimately used to lower monthly payments. The benefit: pay off credit card debt and lower the interest rate by nearly half, put a little cash in your pocket and claim the interest as a tax-deduction. Something you can't do with credit cards.
So here's the warning: an alarming number of people are taking out home equity loans and running the credit cards back up the limit, which is fine, as long as you have a stable job and the value you of your home continues to grow. But in areas of the Midwest and Southeast, home prices are softening, and bankruptcy lawyers are reporting clients are now losing their homes to the banks. The New York Times reminds us, "In a bankruptcy, individuals can often write off their unpaid credit card balances. But home equity loans and other mortgage debt must be repaid, or the bank can seize the property." The bottom line: a home is no longer an asset if you owe more on it than what it's worth. For KERA Marketplace Midday, I'm Maxine Shapiro.
Marketplace Midday Reports air on KERA 90.1 Monday - Friday at 1:04 p.m. To contact Maxine Shapiro, please send emails to mshapiro@kera.org.
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