NEW YORK – Jan. 24, 2008 – In response to falling home prices, home equity lenders increasingly are writing off delinquent loans instead of foreclosing. In such instances, a lien remains on the property so the lender will recoup some money at the time of resale.

However, borrowers will find it difficult to restructure their home debt if different lenders hold the first and second mortgages; and it is hard for them to proceed with short sales or offer the deed in lieu of foreclosure because the second-mortgage lender is hesitant to forfeit its claims on the property.

The mortgage crisis also is prompting some lenders, including Washington Mutual, to shrink borrowers’ home equity lines of credit. SMR Research reports a drop in home-equity lending to approximately $456 billion last year from a high of $504 billion in 2006.

Meanwhile, Equifax and Moody’s Economy.com [http://www.economy.com/default.asp ] report a jump in the delinquency rate on fixed-rate home equity loans to 4.65 percent from 3.11 percent over the same period and a boost in the delinquency rate on home equity lines of credit to 2.01 percent from 1.07 percent.

Source: Wall Street Journal (01/16/08) P. D1; Simon, Ruth

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