High delinquency rate on home equity loans
Home equity loans have a higher delinquency rate than all other types of consumer loans, according to data from the American Bankers Association. According to an article in the New York Times:
Lenders wrote off as uncollectible $11.1 billion in home equity loans and $19.9 billion in home equity lines of credit in 2009, more than they wrote off on primary mortgages, government data shows. So far this year, the trend is the same, with combined write-offs of $7.88 billion in the first quarter.
Home Equity Loans and Falling Property Values
Some homeowners who’ve fallen behind on home equity loans are likely to threaten bankruptcy if lenders try to collect. Also, because property values have dropped so much, many borrowers don’t see the point of trying to pay off home equity loans. Some homeowners are even willing to walk away from their homes and let them be foreclosed upon rather than pay off home equity loans and mortgages.
Settling Unpaid Debt
In some cases homeowners have arranged debt settlements for home equity loans. Before going this route keep the following things in mind:
- You must be behind on home equity loan payments before the lender will talk debt settlement
- In some cases your loan must already be in collections to work out a settlement
- Even if you settle a home equity loan, you may owe taxes to the Internal Revenue Service for the forgiven portion of debt
- Debt settlement is going to ding your credit score
Sell Your Property
It may make more sense to do whatever you can to sell your property and get rid of your home mortgage and home equity loan. Of course the housing market isn’t doing so great in many places, but you may be able to get your mortgage lender to agree to a short sale. A short sale occurs when the mortgage lender agrees let you sell for less than what you owe on your home loan. The holder of your home equity loan would have to agree to a short sale as well.
It’s possible that there is a home buyer out there who would be thrilled to get your house at a bargain price. In the long run it would be better to sell your home this way than to end up in foreclosure or bankruptcy, or spend more time stressing over all your unpaid loans.
