Wednesday, December 10, 2014

Why HELOC Reset interest rate charges are deceptive when a consumer also has credit card debt.

After the HELOC draw period is over, a HELOC goes into reset mode. HELOC reset means whatever amount the homeowner had drawn against the value of their home has to be paid back over a 10, 15, or 20 year time frame.

While a HELOC reset doesn't seem so bad since HELOC's presently have a low interest rate, what can make a HELOC reset devastating to pay back is if the homeowner also has high interest rate credit card debt.

The reason credit card debt is a killer once a HELOC reset occurs is that the HELOC reset requires the principal be paid back at an accelerated rate. HELOC resets are a BAD THING if one has a high interest rate credit card they are struggling to pay off. A HELOC reset monthly payment can be 2.0 to 2.5 times higher than a traditional 30 year mortgage. Paying the principal off too fast when high interest rate credit card debt is languishing and not being paid off offsets the potential savings of a low interest rate HELOC in reset mode. Would you rather apply 400 to 800 dollars extra each month to paying down your principal, or towards paying off a credit card with an interest rate of 15% or higher?

Another way to look at a HELOC reset mode monthly payment if one also has high interest rate credit card debt, multiply the HELOC interest rate by either 2.0, 2.5 or 3.0 to get a truer sense of what the HELOC interest rate charge actually is. OUCH!

A REHELOC is the answer. A new 10 year period of interest only HELOC payments would afford the homeowner a better opportunity to pay off their higher credit card interest rate cards. Unfortunately, REHELOC's don't officially exist, but they should.

Saturday, May 31, 2014

Peer to Peer Lending Groups Seem Unaware about First Lien HELOC and First Lien Replacement HELOC Investment Opportunities.

Just when it looked like social media peer to peer lending would fill in the gigantic void left by the government, the banks, and Dodd/Frank when it came to homeowners with first lien HELOCs that are about to reset, Peer to Peer lending appears to have lost its way.

The goal of peer to peer lending apparently is to write lending "algorithms" that will automate loaning to simply cut out the bank, but not necessarily make that much of a difference otherwise. I can't find anyone in peer to peer lending that has discerned the distinct investment advantage between lending to homeowners who paid off their homes and then got or want a first lien HELOC, versus homeowners who cashed out with a second lien HELOC without ever having paid off their home.

For an investor, it is a no brainer to invest in a first lien HELOC opportunity versus a second lien HELOC that most likely was a cash out that put the owner further behind ever paying off the home. 

There are millions of first lien HELOC's that will soon reset (reset means that after ten years of interest only payments, the HELOC's require a 15 year payback period in which the interest and principle are paid together). First Lien HELOC's about to reset that require a replacement first lien HELOC are SUPERIOR investment opportunities to second lien HELOC's and sadly it appears as if the peer to peer investment movement is oblivious to this fact.

Of course, what makes the first lien HELOC even more attractive is when the loan to value is at 50% or lower. It will be interesting to see if peer to peer lending can break away from their banking puppet strings and look beyond media misrepresentation of the first lien HELOC market.

Upon further review, I realize the error of my ways. There are NO private investors that would consider matching the prime rate even if the investment was 100% guaranteed. Peer to Peer is just grandoise talk for eliminating the bank so the private investor can make even more money!

Friday, May 30, 2014

Dodd / Frank clumped first lien HELOC customers with Strategic Defaulters.

Most homes dropped 50% in value or less during the 2008 depression. However, some first lien HELOC accounts took out 80% value of their paid off home before the depression occurred and then strategically defaulted on their now underwater homes.

The simple solution would be to limit first lien HELOC's to 50% value of a home and to then limit how much could be taken out each month or each year.

Rather than fine tune first lien HELOC's so they could be a safe, reliable product for homeowners who responsibly paid off their homes and now in their retirement years would like that home to work for them in a very modest way, Dodd / Frank and the government is saying no to all REHELOC's, even first lien REHELOC's if the homeowner can't repay the HELOC when it resets.

What this basically means is that homeowners who own homes CANNOT slowly use it a responsible small bank that slowly puts money back into their local economies while giving the retiree a more comfortable retirement.

The government has created an unlevel playing field in which the fed can pump their own money into the economy as loans while denying the most responsible americans access to their own home equity.