Home is Where the Debt is

Homeowners are deftly dealing their mortgages, but big problems lay elsewhere.

Sometimes the experts are wrong. A decade ago, during the housing boom, many homeowners took out home equity lines of credit – or HELOCs – that had a 10-year grace period for low payments. After that, those payments could skyrocket by hundreds of dollars a month.

Since the amount of these HELOCs was a jaw-dropping $265 billion, Experts predicted disaster, starting this year. They assumed the Great Recession would have crushed homeowners’ ability to pay back those HELOCs at higher rates, leading to another round of loan defaults – which the fragile economic recovery simply couldn’t handle.

 
But as The Miami Herald reported recently…

Though Wall Street and credit industry analysts had warned of serious losses when hordes of housing-bubble borrowers hit the 10-year mark, beginning this year, the delinquency rates on these billions of dollars in equity lines are actually declining, not rising.

Why? There are many reasons, but the big one seems to be a rise in wages since the recession. So all is good, right?

A day after The Miami Herald’s report came a good-news-bad-news study from Black Knight Financial Services, which followed up on the happy HELOC news with another ray of sunshine.

“Over the first five months of 2014, we saw the number of underwater borrowers decrease by 20 percent,” declared Black Knight VP Ben Graboske. “During that same span this year, that population has dropped by nearly 26 percent to 6.1 percent of active mortgages. That’s more than one million fewer borrowers in negative equity positions than there were at the start of the year, leaving just over three million remaining.”

However, then he dropped the other shoe: Non-mortgage debt among homeowners is at a 10-year high.

It may seem odd to ask homeowners about the debts they’re carrying that aren’t their mortgage, but Graboske says it’s actually a key economic indicator – and the indications aren’t pretty.

“The more total debt borrowers are carrying and the higher monthly non-mortgage payments they have, the less money they have to put toward a new home purchase, or potentially even their current mortgage obligations,” he says. “What we’ve found is that mortgage holders today are carrying more non-mortgage debt than at any point in the past 10 years, with an average of $25,000 per borrower. That’s $1,400 more on average than one year ago, and nearly $2,600 more than in 2011.”

So what accounts for these debts? Car loans, for one. That’s 81 percent of the overall “non-mortgage debt” increase over the past four years. But student loans are a growing problem. Black Knight reports…

The student loan debt of U.S. mortgage holders is at all-time high: 15 percent of mortgage holders are carrying student loan debt, with average balances of nearly $35,000. The average student loan debt for all mortgages has more than doubled since 2006, and the share of mortgage holders carrying that debt has increased by 44 percent over that 9-year span.

So what can you do if you’re a homeowner who’s handling your mortgage but is getting crushed by credit card or other debt? For starters, you can call Consolidated Credit for a free debt analysis, which will help you figure out your next steps. Call for details.