Wikinvest Wire

Some still call it an "equity cushion"

Thursday, August 07, 2008

Wow, this brings back memories. Aside from here at my own blog, where it is most commonly referred to derisively (see Wither the Equity Cusion (revisited, again)), I don't think I've seen the term "equity cushion" for at least a year or so, but it popped up again this morning in this (free) WSJ story.

Even the Rich Get Home-Equity Yanked

Wall Street firm Morgan Stanley added some of its well-heeled clients to the long list of customers whose lenders have frozen or reduced their home-equity loans.
Home-equity loans use a borrower's home as collateral, of course, but typically only the portion of the home's value that exceeds the balance of the borrower's other mortgages.

"If the equity cushion goes down in value, then the lender holding the line of credit has concerns," says Don Lampe, a partner at law firm Womble Carlyle in Charlotte, N.C.

According to data from the Federal Deposit Insurance Corp., the nation's lenders held $625 billion in home-equity loans at the end of March, but those balance levels don't include credit that consumers have not tapped.
It's funny to think that, a few years ago when many people were fixated on figuring out just what to do with their home equity that, in many cases, was burning a hole in their pocket, some of us were looking to the future, thinking of the day when banks would start yanking them due to falling home prices.

That day has arrived.

Note that in the above report, the related verb "tapped", also a frequent object of derision here over the years (see Why is this couple so happy?), was apparently thrown in, apparently, for good measure.

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Anonymous said...

Based on yesterday's consumer debt news, it looks like some may have resorted to the usage of credit cards. I can't see how economists can be $7 billion off or 100% off.

Loan Modification Service said...

It is amazing how quickly wealth can just evaporate. One minute you have 100k in equity and the next you are down to next to nothing or if you are in Florida right now less than nothing. Every other house for sale in Florida right now is a short sale and there is no end in sight. People are in a panic, just like wall street and they are driving home values way down...

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