On Top of the Aloha Beat BLOG


Will Hawaii Lose ITs HELOCability

Last Monday I saw a report on a website with an article about Lenders pulling the plug on their HELOCs ( Home Equity Loans). One of my friends panicked and pulled a quick 100k out of his credit line in case he needed the cash. Today, there is an article in the Broker Agent news detailing more of these scenarios. I don't believe the state of Hawaii is at risk currently, but one never knows. Anyway, the essence of the volatility is that say you have established a HELOC for $100,000 which was created for whatever reason, and you owe a small sum, say $5,000 on it. If the lenders determine that your equity has diminished enough, they may call you and immediately cancel the other 95K  of credit. There's nothing that i know of that you can do about it.

There was also further news today about Countrywide and the amount of pay option loans in their portfolio. The article about Countrywide on CNN Money states that of the $29 Billion ( I love how these large lenders throw around the B word), $26 Billion of the loans have grown beyond their original loan amount. That means that borrowers are making a payment that is less than the fully amortized payment ( that's the main attraction of the pay option ARM) and each month, with negative amortization, the borrowers loan amount is growing.

Where will this merry-go-round stop? It's anyone's guess. If you live in an area with significantly declining values, and you have a HELOC for a rainy day, you might want to go and get the cash while you can. Of course you will pay the HELOC rates for the loan. Make the decision that best supports your fiscal wellness.

Ron Margolis, RA, CDPE, ABR Hawaii Life Real Estate Services 808.346.7095 email: ron@hawaiilife.com

Comment balloon 6 commentsRonnie Margolis • March 03 2008 11:33PM


HELOC's are drying up all over the US. However, we are now locally seeing buyers racing to buy while there is ample inventory and interest rates still relatively low.
Posted by Vickie Nagy, Vickie Jean the Palm Springs Condo Queen (Coldwell Banker Residential Real Estate) almost 13 years ago
Vickie, we have no shortage of inventory, that's for sure. And, we are seeing more buyers too.
Posted by Ronnie Margolis, Kauai Realtor - CDPE, ABR, RA - On Top of the Aloh (KW Kauai) almost 13 years ago
Negative amortization in some of the markets that have declining values is not a pretty picture.
Posted by Randy L. Prothero, Hawaii REALTOR, (808) 384-5645 (eXp Realty) almost 13 years ago
While Countrywide told a client of mine that Hawaii had nothing to worry about, several people we know have received these letters on Kauai. SO, if you know anyone that needs cash out of their HELOC, let em know to take it while they can. That is, if they can afford the interest payments.
Posted by Ronnie Margolis, Kauai Realtor - CDPE, ABR, RA - On Top of the Aloh (KW Kauai) almost 13 years ago
I think second mortgages in general are difficult.  Banks are arbitrarily freezing them right now. 
Posted by S J almost 13 years ago

That makes things even more challenging for people who need them. Hopefully the backlash will end sooner than later.



Posted by Ronnie Margolis, Kauai Realtor - CDPE, ABR, RA - On Top of the Aloh (KW Kauai) almost 13 years ago