HELOC loans coming due
According to Transunion, as of last December there were 15.9 million U.S. consumers with $474 billion in such debt. The analysis ultimately determined that between 11 and 19 percent of HELOC balances might be at risk. This means that about $79 billion of the balances could be at elevated risk of default in the next few years
People who were only paying interest and no principle and those who had interest rates way below market could get a shock that would cause borrowers to default on these loans. There is also a concern that the rate shock could have a domino effect and cause borrowers to default on other loans as well.
Looking first at credit scores TransUnion found that 26 percent of the HELOC balances were held by non-prime borrowers – i.e. with TransUnion VantageScores® below 680 – while about 60 percent had scores over 720.
A mess can be avoided if the banks contact these people and try to get them to either refinance or maybe a loan mod if they are upside down.
This could also be an investor tool. Find out who has these loans. If these people get into trouble they will stop paying on both loans. If it’s the heloc is what is putting them upside down, will the banks sell helocs at a discount when the first is in foreclosure?
