HELOCS THRIVING AGAIN

Who isn't familiar with the saying: The more things change, the more they remain the same.

Well, if you aren't you probably haven't been doing your homework or you're not much a student of human behavior. And if you're making any pretense about being a good investor that's most likely to your detriment.

Homeowners are at it again, queuing up to the home equity ATM.  

According to a story today on CNBC, "Home equity is back and home owners are loving it," as home equity loans are once again thriving.

As home prices rise, homeowners are wasting no time making use of their new found, or regained, home equity. In fact, while all mortgage originations rose in the third quarter of this year, the biggest gain was in home equity lines of credit, so-called HELOCs. 

Originations of these loans, which are often in addition to primary mortgages, jumped more than 17 percent for the quarter, according to Inside Mortgage Finance, a mortgage industry publication. That came to $20 billion in new HELOCs, the highest amount for this year so far.

There's a couple of things wrong with this story, but more later about that.

At the current rate, lenders could originate more than $67 billion in HELOCs for all of 2014, which would be the most since 2009. Volume is still low by historical standards, but the gain points to not only more home equity available, but more confidence among consumers that they can tap their homes again for much-needed cash. There has, however, been a shift in the borrower mindset.

"It certainly seems like people are doing it a lot more responsibly now," said Rick Huard, senior vice president of consumer lending product management at TD Bank. "People seem to be much more educated customers." 

They have to be, because on the flip side, lenders aren't just handing out the loans to anyone with a pulse. During the last housing boom, borrowers extracted trillions of dollars worth of home equity, spending it on luxury goods and vacations, as lenders turned a blind eye to basic safeguards, like the ability to repay the loan or the borrower's other debt load.
Today, lenders are following more stringent guidelines enforced by federal regulators, and most HELOC borrowers are using the money to improve their homes, adding value to their largest asset, not subtracting it.

A survey of more than 1,000 HELOC borrowers by TD bank found many using HELOCs to consolidate other debt, thereby lowering interest rates (29 percent). Credit cards can carry interest rates more than four times that of a HELOC.
 
Others used the loans for automobiles (27 percent), emergencies (19 percent) or education expenses (20 percent). Some are refinancing HELOCs they already have.

Some of this may sound more responsible, but lenders are lowering their standards on home loans in general. It's a trend as housing is one of the big pushers in helping revive the economy and promote some growth.

The article goes on to say lenders are not just lending to anyone with a pulse. Yes, that might be true. They aren't now. But there's a feel good factor in here that more often than not leads to trouble.

And enticing revenue from these fees is another dubious element. It can become contagious to lender left on the sidelines.

Coupled with this story is an earlier one, "Big investors pull back  from housing," a fact that's been ongoing for a while and smaller firms and individuals are starting to fill the void.

With the boom in rents, investors looking for steady income are swallowing up some of these homes, but rents, like stocks and trees, can't grow the the sky.

http://www.cnbc.com/id/102213045