The Wall Street Journal yesterday (see rip above) ran a piece on the ‘resurrrection’ of the home equity loan that’s likely to get a lot of play as a sign of a recovering real estate finance market. From the article:
“After more than three years, some lenders are cautiously re-entering the second mortgage market…This generosity, of course, is restricted only to the best borrowers: homeowners with at least a 720 FICO score, at least 20% equity in the home, and income verification, like pay stubs, for the past two years…”
All of which would make for an interesting article except for the fact that the high quality second mortgages described above never went away, and have been widely available throughout the credit crisis, so to call this a comeback is sort of odd.
To be fair, the article does point out that the demand for second mortgages has increased, but I’d call that a function of consumer confidence coming back to a point where people feel OK borrowing against their home, rather than a returned-from-oblivion credit market.
Speaking of oblivion – there were many types of second mortgages consigned to the dustbin of mortgage banking history (let’s hope permanently): Second mortgages to 100% (even 125% at one point), second mortgages to borrowers without income, second mortgages to pets, children, and who knows what else. These are never coming back, or at least a guy can hope.
For what it’s worth, there is one small segment of the second mortgage market that has been making a comeback for over a year: *Second mortgages used to purchase a primary residence – these are available for truly creditworthy borrowers, and can be had up to 90% of the homes value. It’s a very useful tool for avoiding PMI or avoiding Jumbo Mortgage rates.
*If you or someone you know plans to buy a home this year and would like some information on the pro’s and cons of using a second mortgage to avoid a Jumbo interest rate or Private Mortgage Insurance, drop me a line with a few details and I’ll walk you through the considerations. Alex [at] alexstenback [dotcom] or use the contact form here.