Many lenders in the Vero Beach housing market fear another ticking time bomb may be looming on the horizon as a result of homeowners with home equity lines of credit that will soon be changing how much they pay each month.
Some lenders see the problem as potentially triggering some of the same issues for borrowers that led to the housing bust in the 2000s, even though the years of scrutiny and regulatory efforts that followed that bust have made the financial system a lot safer.
In many cases, homeowners got mortgages with low introductory teaser repayment rates, allowing them to qualify for larger loans because of their lower upfront payments. However, many of these mortgages had provisions that called for sizable increases in monthly payments within a few years.
When the Vero Beach Housing Market Collapsed
As long as the Vero Beach housing market remained hot and prices kept rising, homeowners had the option of selling their home and reaping a sizable capital gain in the process. But when Vero Beach home prices fell and the Vero Beach housing market was flooded with homes, those who had taken those mortgages found themselves underwater, with no way to sell, and frequently no way to handle their loan payments.
Regulators have, since that time, targeted negative-amortization and interest-only mortgages. Lenders now must require borrowers to demonstrate their ability to repay those loans even after reset-provisions take effect and boost monthly payments.
With many home-equity lines of credit approaching that 10-year milestone, banks now worry about the impact of those much-higher monthly payments on borrowers.
Many lenders have moved most of their customers toward home-equity lines of credit that require early repayments of principal. The hope is that customers will get used to relatively flat payments based on the amounts they have outstanding, rather than facing the sticker shock that an abrupt change in repayment terms during the course of the home-equity line of credit can cause.
Even if home-equity lines require principal repayment, only those who've already maxed out their lines will have to figure out how to get money from elsewhere to make the resulting higher monthly payments.
Despite all the new regulations aimed at the mortgage market, in the end, it will take responsible money management from borrowers to ensure that home-equity lines of credit don't create the same trap for the unwary that ordinary mortgages did in the run-up to the Vero Beach housing market collapse.
Check out our other articles and news affecting the Vero Beach housing market and the mortgages that support the market by clicking on the Vero Beach Mortgage Info link to your right under Vero Beach Real Estate Categories.