- Mortgage debt reached $9.08 trillion last quarter.
- HELOCs are resetting higher rates and overleveraging homeowners.
They used to call it house poor, but the symptoms are the same: You go through a monthly scramble to pay the mortgage, maintenance and repairs are put off as long as possible, and there’s never enough money left over at the end of the month for the finer things in life.
Total household debt has now surpassed the peak it reached when the housing boom went bust.
Leading the way is mortgage debt, which reached $9.08 trillion last quarter, slightly less than the $9.99 trillion recorded in Q3 of 2008, according to the Federal Reserve.
Living in the very vortex of the housing debt surge are thousands of homeowners whose mortgage payments cost more than they can afford. Declines in income can force homeowners into homeownership poverty and rising home prices.
New federal regulations like the QM Rule were supposed to keep ability to pay in line with mortgage debt, but borrowers who hold stable jobs with W-2s, regular pay stubs and whose loans meet conforming loan limits haven’t had a problem finding financing with debt-to-income levels over 43 percent because loans approved by the automated systems of Fannie Mae, Freddie Mac and the Federal Housing Administration are exempt from the 43 percent DTI limit.
Accessing equity with home equity loans to pay for student loans and other expenses is another cause of homeownership poverty.
HELOCs are resetting higher rates and overleveraging homeowners.
An analysis by Black Knight Financial shows that 1.5 million home equity lines of credit will see interest-only draw periods end this year with outstanding unpaid principal balances that average $62,500 per HELOC. The data reveals that average borrowers whose lines of credit reset will face an additional cost of $250 per month, more than double the current average payment.
WalletHub has a new study that found where living large and overleveraged is the norm; these markets are characterized by rising home prices and incomes that can’t keep up. Some, like San Luis Obispo, CA and Kailua, HI, are not a surprise but others are, including Beaver Falls, PA; Willis, TX and Wiliamsburg, VA, where Thomas Jefferson and Patrick Henry would recognize the architecture but surely not the house prices.