The decline in home equity makes it more difficult for struggling homeowners to refinance and reduces the financial incentive of stressed borrowers to remain in their homes.
Sentiment: NEGATIVE
Too-easy credit and millions of bad loans made during the U.S. housing bubble paved the way for the financial calamity and Great Recession that followed. Today, by contrast, credit is too tight. Mortgage loans are particularly hard to get, creating a problem for the housing market and the broader economy.
The most critical factor subduing the demand for housing is that home ownership is no longer seen as the great, long-term buildup in equity value it once was.
Homeowners who refinanced their mortgages took out cash and reduced their monthly payments at the same time. Much of the cash obtained by refinancing was spent on consumer durables, home improvements and the like.
It is hard to be enthusiastic about the economy's prospects when house prices are falling: Households spend less, small business owners can't use homes as collateral for loans and local governments are forced to cut jobs and programs as property-tax revenue disappears.
There is no better way to quickly buoy hard-pressed homeowners than helping them take advantage of the currently record low fixed mortgage rates and significantly reduce their monthly mortgage payments.
Because the fees associated with a reverse mortgage are high, such loans make sense only for borrowers who expect to live in their home for a number of years.
While I encourage people to save 100% down for a home, a mortgage is the one debt that I don't frown upon.
In response to the drop in wealth suffered as a consequence of the 2008 financial crisis, homeowners and firms did attempt to increase savings in financial assets by reducing expenditure on durables.
An improving credit landscape means fewer loans are delinquent - and fewer people are needed to service these loans.
Homeowners refinance their loans when interest rates go down. Businesses refinance their loans.