Mortgage Lenders Getting Back to Second Mortgages

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The Real Estate Marketing Insider comments on recent reports by the Los Angeles Times that second-mortgage lending, which stagnated when the housing market slump began, is on the rise.

Tobias Nergarden of the Real Estate Marketing Insider issued his observations on new reports from the Los Angeles Times that second-mortgage lending is increasing as home values begin to rise, saying that it would help homeowners and buyers as the availability of home financing options expands.

Second mortgages are loans or credit lines, either fixed-payment or adjustable-rate, in which the lender is “second position” to receive their funds in the event of a foreclosure; only after proceeds from foreclosure are used to pay the balance of the first mortgage is the second mortgage-holder entitled to compensation. Consequently, second mortgages are considered higher-risk loans than first mortgages and usually carry higher fees and interest rates.

Second mortgages are used by consumers for all sorts of purposes, from college tuition to home improvement or small business investment; because of consumer reliance on them for large purchases, they have an important role in economic stimulation. However, in the last five years, banks have generally been less willing to disburse second mortgages. In fact, according to credit bureau Equifax, the total balance of existing second mortgages hasn’t risen since 2008; until last month, that is.

According to new reports by Equifax, the total outstanding balances for second home loans at banks rose by about 0.3 percent last month; a small gain, but one that economists say is a major indicator of economic recovery. The Federal Reserve also said that American homeowners’ equity balances was up $406 billion in the second quarter of 2012, its highest rate since before the 2008 crash.

Generally, economists are very excited about this news, calling it an indicator of greatly increased confidence in the economy on behalf of banks. One of the reasons that banks were so unwilling to grant second mortgages to best real estate websites was because of a lack of confidence that home prices would remain stable enough for them to recoup their investment in the event of foreclosure.

Now, at least anecdotally, Equifax reports that banks are “pretty willing to do [second] loans when their customers need them.” However, the optimism is still cautious; slow job growth and economic uncertainty are still threatening the stability of the market. This is most visible in interest rates, which vary considerably by location, loan size and the consumer’s credit score, where they might be expected to be more homogeneous if the market were full-strength.

Tobias Nergarden of the Real Estate Marketing Insider issued his support of news that banks across America are beginning to start lending second mortgages again, an indicator of increased confidence in the market and the economy. The news, reported by Equifax, showed only a small increase last month in total outstanding second-loan balances, but news about a high-risk investment such as second home loans is considered to be a strong bellwether of economic conditions.

About Real Estate Marketing Insider: REMI is an online publication, based out of La Jolla, CA, which provides tips, trend analysis and news to real estate professionals.

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