Popular HELOCs are coming back

Home Equity Line of Credit (HELOC) is known as the homeowner’s ATM.  Since 2006, they were in decline.  Homeowner’s used HELOCs as their credit cards to buy luxury goods, vacations, and cruises.  After a brief hiatus, once again they are back in business.

In 2012, HELOCs are expected to climb to $79.6 billion and to $104 billion in 2013.  Lenders were hesitant to lend money on HELOCs in the recent past and with the housing market recovering, lending will pick up again.  Rising home prices may be the key to renewed lending.  Median home prices expected to rise eight percent this year according to the Mortgage Bankers Association.

The main street lenders such as Bank of America, Citi Group and Wells Fargo are still fighting with bad loans they made during the housing boom.  Regulators are putting pressure on these institutions to write-down previous non-performing equity lines which are estimated around $4.5 billion.  At the height of the loan boom, homeowners borrowed $113 billion a year on home equity loans.  At the time lenders were allowing homeowners to establish HELOCs at 125percent of the value of home.  New borrowing could lead to more spending and economic growth.  But homeowners should spend the borrowings carefully.