It's easily googleable. Oh, what a mouthful. It's a very common loan and with the current housing and banking situation could be a problem for some people.

It is the type of loan where one takes out a home equity line of credit against the equity in their home, instead of a conventional loan. They were VERY popular and the banks pushed them for every reason under the sun. In the last decade a lot of people who were up to their teeth in credit card debts took them out to consolidate their debt into one loan, at a lower interest rate than their credit cards were demanding. There are tax benefits to HELOCs because home equity loans can be tax deductable under some circumstances, and the interest rate floats and is variable, depending on prime rate. (and you know how low prime has been for quite awhile).

They are also an attractive option for home renovations (as seen on HGTV's programming) where people want to install goodies they can't afford so slam a loan against their equity to do it). It works out just fine if homes are appreciating and the equity keeps rising. But the burst bubble has adjusted home values downward to a more rational level and some houses not only don't have any equity anymore, but a negative equity.

This makes the lending institution a little nervous, because now they have given out loans with no collateral at all, and if the home is defaulted upon, there are so many pipers to pay, they may or may not get their money back.

If one is holding a HELOC they may have their line of credit lowered, their interest rates upped so it gets so expensive to pay, they are in a pickle. It pretty much boils down to..........if you are a fiscally responsible person, who uses the HELOC like any other line of credit and can pay it off if you want to you are not going to feel the crunch. It would be bad news if you are hanging on by the skin of your teeth, maxed out on your HELOC and have the typical amount of credit card debt. Ouch.

It's a home equity line of credit. You can google it readily and get all kinds of wonderful explanations.

I should have thought to google first !!!! Thanks. I can see how the thought of consolidating bills, buying new furniture, etc. would be very, very attractive.

It's really just another name for a second mortgage, isn't it! The main difference is that you get to draw on it as you need it instead of all at once.

In my googling, I found that some banks had frozen or otherwise stopped, their HELOC withdrawals. I wonder if the Reverse Mortgages that a lot of the older homeowners got into, would also be affected. I have a SIL that, against all advice, took out a RM. It was for a LOT of money considering the house and where it was. It would never sell for the amount of the mortgage.

If they do start calling these in....there will be a lot of older folks in real financial trouble.

I don't understand how they can 'call them in' other than by the terms agreed upon when it comes to pay-offs. Although the interest rates could shoot up considerably if prime changes and the credit line may be capped as house values fall. I don't know what would happen if the bank was going under, other than to try to sell the loan to another institution like they do with house mortgages. This makes me nervous, because foreign countries buy loans.

Not having anything to do with loans, but with national assets...........a lot of our country's manufacturing assets are now foreign owned, like Budweiser and Hershey......two entities who were almost as symbolic as baseball and apple pie.

I read a great article recently about how the banks, in their quest to earn more money from the fees associated with loans, decided to "re-brand" second mortgages. Second mortgages sounded risky, something people only did when they were desperate. "Home Equity Loan" sounds responsible: you're a home-owner. You're investing in your property. The entire exercise resulted in an entirely new attitude to home loans and debt amongst Americans. Debt was seen almost as the responsible thing to do, instead of something you tried to avoid. Mortgages were no longer things you aimed to pay off, but things you kept going. Which in turn led to a higher appetite for risk amongst banks and borrowers alike.

And here we are today . . . . .

Sara
The increasingly cynical.

The thing is, however, you can have a HELOC and not even have a first mortgage. In which case you can have a heck of a huge line of credit. Helocks can be great money management tools, in the right hands and used judiciously. If I were setting bank standards, I would not even consider giving them to anyone who hasn't a long history of paying down a first mortgage, or owns a property outright. Basing them on bubble appreciation and issuing large amounts is really a game of chance.

The thing is, however, you can have a HELOC and not even have a first mortgage.

Where did you read that? I'm not saying you're wrong, but everything I read about them said they were, in essence, a second mortgage secured by one's house.

I don't understand how they can 'call them in' other than by the terms agreed upon when it comes to pay-offs.

If the HELOC is secured by the value of one's house, & that value falls below the combined total of both the first mortgage & the HELOC, the bank could call in either (or both) of the notes. This happened down here during the oil bust of the 1980's when home values fell 20-30% in places like Dallas & Houston.

In today's real estate market, I think it's extremely risky to be taking out second mortgages of any kind. In fact, in today's credit market, I think you'd find banks very reluctant to give out these loans.

"The thing is, however, you can have a HELOC and not even have a first mortgage."

Where did you read that? I'm not saying you're wrong, but everything I read about them said they were, in essence, a second mortgage secured by one's house.

Andie, I know you can, because I have one I use to keep my cash liquid and flowing in my business, instead of pulling it out and putting it in interest bearing accounts......and we owned our home free and clear when we took it out. It doesn't bother me at all what is going on with HELOCs because I can pay off my balance any time I want to. That's what I meant when I said they can be a good money management tool in the hands of fiscally responsible people.

As for calling them in. I believe what you said about the situation, but I am wondering exactly what the circumstances were. That would be like taking a mortgage out to buy a house and financing it over thirty years, and then having a bank two years into the deal say.........I changed my mind, and I want you to make a lump sum now. I can see them freezing or capping or even decreasing the cap. What I am wondering is there is very, very tiny print in the contracts I have seen where it says the duration of the HELOC is two years and you are obliged to pay off. Well, in actuality the banks just sort of ignore it and everything is status quo and they let you continue to carry it as if it didn't have that disclaimer. Why? It's a win/win as long as you are making adequate payments and your equity is static or rising. But, it's their way of covering their butts in situations like we are having with falling equities. They simply pull in the ones they have every right to pull in. And I don't particularly remember a loan officer pointing the two year clause out to me, lol, but I read the small print. If one does not pay it off within the time specified in the clause, even if they are making timely payments they may find their credit scores suffering. Why most don't do it, is they continue to rack up debts against their HELOC instead of using it and paying off before using it again.

I may be wrong about them not being able to pull in the markers, but that is my suspicion.

Since a large percentage of people have a first mortgage, calling another mortgage the Second seems likely. Actually, it's sort of a lien against the property. If you don't have a first, then the line of credit would be the first in line to collect when and if you sold. If you had a First, then the LOC would be the Second.

This clears up something I had wondered about. We recently received a notice from our bank that our line-of-credit had been canceled. "What LOC sez I?" Now it dawns on me that we got one just about 15 years ago to remodel the house. We paid it back when the job was finished with big monthly payments as quickly as we could. I had forgotten that it was for a certain length of time. It came in very handy. Paying it back quickly saved us a bundle on interest payments.

I think an amortization schedule should be required reading for any prospective buyer. A look at teensy amount that goes to build equity in the early years is scary. Those interest payments are BIG!

Exactly, Agnespuffin. I passionately believe that before a young person can graduate from secondary school, that they should have not one, but on-going courses on money management , taught by professionals with a conservative approach on fiscal theory.

As Sara says, it's the perceptions of what credit should be used for changing, and it's been pushed and euphemised by the very institutions who are now crying. Money isn't a game, but it's very like poker. Real pros know when to hold, fold and run like lleh.

OK. I've a question also. Our mortgage was paid off years ago when we were in TX. But i've,been wondering. I keep hearing foreign banks are buying up mortgages from some US banks. Would those mortgages not automatically come up for renegotiation? With new interest rates? Or am i wrong?
TIA
vickie

No. Mortgages are routinely bought and sold. They're a commodity, and the people who owe sometimes don't even know it's happened.

Yes, they're broken up & sold as "securitized debt instruments" to whomever will buy them.

And Suzy, I agree with you that every high school student should have to take a course in personal finance. Maybe that way, people wouldn't get themselves into so much trouble. However, as I'm thinking cynically, maybe not.

Well, my folks were excellent money managers, and poverty over part of my life honed my money skills as well, lol. I know what you are saying about there being a difference between knowing how to use money and actually doing it.

As I mentioned, whether I would want one of my kids taking a course like that as a teenager, would depend on the philosophy of those teaching it and what theories they bought into. I was in university about the third time around when the 'new' economics was taught as gospel. To me, it sometimes bordered on illegal and certainly against some of the ingrained feelings I had on how to use it. I think corporate fiascos in the last few decades have born that out.

We have always had friends who were financial managers, for some reason. Maybe because I am a number nerd? Anyhows, I have been told so often about how healthy it is to accrue debt and foolish to pay this or that off, yadayadayada, or how I should invest in higher risked investments with larger returns. I look back at that now, and am glad I didn't listen.

I understand about not paying some debt off quickly for tax reasons (i.e. paying off a mortgage too soon) and/or for loans that have extremely low interest rates so that if you figured the present value of money it would be sort of stupid to do so. However none of those reasons apply to credit card debt or to usurious places like payday loan businesses (which IMO are legalized loan sharking).

As for higher risk investments, there's risk & then there's risk & any good financial adviser would have a long,serious talk with you about your risk tolerance before recommending investment instruments like the ones involved in our current financial fiasco.

The fatal flaw in the privatization argument is that most people are functionally illiterate when it comes to investments and modern day finance. They are very easily lead down the road to their own destruction.

And aren't we all glad that social security was not privatized? Just think where we'd be if people's funds for that were now in the market!!

I hate to think what kind of state my nerves would be in if my SS money was dependent on the stock market. I am the kind of person that wants to know EXACTLY what's going on. Right now, we have an annuity with AIG (Gasp, shudder)and as it adds a nice bit to our SS checks, I worry, worry, worry!! We could manage without it, but I sure don't want to.

I like what someone on another forum suggested. (with his tongue placed firmly between his teeth, I am sure!)
Rather than 700 Billion to the Big Banks, Mortgage Companies and other money mashing moguls, just give One Million bucks, free and clear to every man, woman and child in the USA. It would be a lot cheaper and would probably get a much better job done.

What gets me is the reason that they keep giving..."this will make it easier for banks to lend money so that more people can buy houses, expand businesses, etc." Somehow, I thought that easy lending practices are part of the present problem. I guess I am wrong. It must be a good thing for people to borrow, borrow, borrow. Right?

I think it's all been hideous poorly explained by politicians, including by the President, who was dreadful, yet the BBC managed to do it in about three sentences the other day, and NPR used a lovely example. It's the risks to smaller and medium sized businesses because of the lack of liquidity i.e. no lending going on.
The 'commercial paper market' is so boring no-one's really heard of it: companies check their bank balances daily. NPR's example was a pest-control firm: some days, all their customers have paid their bills on time, and there's money in the bank. Some days, they're still waiting for the checks. But, they need to buy materials, or a new van, or make payroll - and the money isn't in the bank, but they know it will be coming in, and so does the bank. So the pest control business borrows on a short term loan - maybe even just overnight - to cover it's needs, then pays it back. ('commercial paper')

If the banks are too scared to make those kind of daily small loans to small businesses, the whole economy collapses, because those businesses can't run, can't buy supplies, can't make payroll. Then their staff are out of work.

It's WAAAAAAYYYYY bigger than just mis-managed banks. I'm as cross as the next person (we lost money in the market, and 401k) but I now understand how critical it is to get things stabilised and confidence to return.

Shelia, you're right. This isn't just about people who made bad home mortgages. I've got a friend whose family owns a men's clothing store here in town. They need to buy inventory for Christmas, which is, of course taking their inventories to much higher than normal levels. Normally they carry a line of credit from the bank that gives them the cash to make these purchases which they then pay back with the proceeds from holiday sales. Only this year, despite being in business for 45 years and having excellent credit, the banks don't want to keep their line of credit open.

When you heard Henry Paulson (and others) saying that not doing anything would quite likely bring about The Great Depression II, it wasn't hyperbole.

Exactly, and this situation has not just been going on X number of years, but for quite awhile. You can't slap it on any particular administration, but has been an accumulation of several, each seemingly afraid to take the steps needed to rectify and stabilise the previous. When we were riding the bubbles, it made for wonderful press, no? But they weren't solid foundations. This was bound to happen, and it finally did.

I have had a small business for nineteen years now, and it's a ruthless and risky way to make a living. No administration......right down to the grass roots ones have been kind to them, or insisted on a level playing field in this country. The thing is, they're the entities who had the employment in the great depression when the big boys crumbled and kept employment and wages more diversified. It's called not putting all your eggs into one basket.

Just last week, I received a credit application from one of my major suppliers. I filled one out twenty years ago, and survived the two year failure rate most small businesses die from. I've done business with them from the day I got my business license twenty years ago. What? I am LOL. I know why all their customers got that letter. They're obviously reconsidering their risks. I don't need their credit line, and I'm not even sending it back. I'm quite willing to deal on a cash basis. I have a sneaky suspicion they'll sell to me anyway.

What really irrates me is I remember back in the mid-eighties the push by the government for people to set up their own retirement accounts. Yes, that's a wise decision. But, how does the average person do that? Why by investments.......... So not only does the investment market affect us in so many ways, it is the financial security of the baby boomers. Hah.

And just one last comment on the financial consequences in light of the no-vote yesterday in the House of Representatives that is really going to bring the consequences of this situation to John & Jane Q Public. The banks are now reassessing their credit card risks & in some instances closing accounts based, not on payment history, but on the individual's credit ratings.

It's time for some leadership in Washington, but unfortunately I haven't seen any being exercised on either side of the aisle.

Our hospital discontinued its pension plan this year, set up an IRA program where they match contributions up to 3%. So far this year, I've lost $120 on my I always had my suspicions about the whole IRA thing: I'm hardly an economics student, but I do remember that whole supply-and-demand thing, and if EVERYBODY was forced into the stock market, wouldn't that raise stock prices accordingly...and artificially? And when the bubble bursts, the clueless are stuck with bubblegum on their faces...and in their hair... while the stock market cognoscenti are buying up peanut-butter companies so as to suck the last penny out of us all....

I guess I'm bordering on the political, but the whole HELOC/bad mortagage/ credit card market is based on the ridiculous inequality of wealth in this country...supply-and-demand again. When some people have WAY too much money on deposit, the market has to find a way to 'sell' that money to the rest of us at a profit.

!929 comes to mind....

My IRA use to do really good, now I fear what the new balance is, haven't check as I have way to much on my mind right now, will wait for the statement to come and make sure I have a glass of wine ready before I open it!

I bought a box o'wine before i checked mine, that's why I'm mouthing off here today...;~)

definitely recommend some sort of anesthetic!

Lynnie, pass some of that box-o-wine over here! The rate on inter-bank loans (the rate banks use to loan money to each other) has jumped in the past two days from 2.2% to 6.8%!! Don't anybody try to get a car loan in the next few days!