Even as traditional mortgage products hit record affordability levels, most banks are still pulling back on the availability of home equity lines and reducing the amounts of existing credit lines.  During the boom, home equity lines were used to fund consumer spending, luxuries and property improvements.  With the real estate bubble implosion and the Great Recession, all the speculator-created values were driven out and the resulting over-valuations which supported the equity lines were wiped out.

From 2Q 2008 to 2Q 2009, lenders have decreased the dollar amount of home equity loans by a reported 75%. This is attributable to the falling equities available to borrowers, and perhaps, a little to the wisdom of a chastened homeowner population.

Home equity lines will remain scarce through 2010.

first tuesday take: The dangers of pulling equity out of a home to fund other consumer purchases are examined in the November 2009 first tuesday article, “The effect of home equity borrowing on the real estate market bust.”

Given the widespread phenomena of negative equity and its subsequent effects on the real estate prices, the merit of home equity lines of credit is highly dubious. Using the home as an ATM to pull out cash reflects the same kind of fundamentally flawed thinking that Wall Street displayed in creating mortgage-backed securities to fund their wave of flamboyance. Using a home as a cash machine discounts the time-honored view of the home as a family nest.

The only exception to the general wisdom against home equity lines of credit would be limited use of lines of credit taken out by the elderly in the form of reverse mortgages. These mortgages are based on the legitimate rationale that the elderly have saved and are now entitled to withdraw their savings for use in emergencies.

Re:  “Home equity loan market remains very tight” from the Los Angeles Times

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