Home equity lines due for reset may be looming financial disaster--Los Angeles Times

Home equity lines due for reset may be looming financial disaster--Los Angeles Times:

"Some mortgage and credit experts worry that billions of dollars of home equity credit lines that were extended a decade ago during the housing boom could be heading for big trouble soon, creating a new wave of defaults for banks and homeowners.  That's because these credit lines, which are second mortgages with floating rates and flexible withdrawal terms, carry mandatory "resets" requiring borrowers to begin paying both principal and interest on their balances after 10 years. During the initial 10-year draw period, only interest payments are required.  But the difference between the interest-only and reset payments on these credit lines can be substantial — $500 to $600 or more per month in some cases. If borrowers cannot afford or choose not to make the fully amortizing payments that reduce the principal debt, the bank that owns the note can demand full payment and foreclose on the house if there is sufficient equity.  According to federal financial regulators, about $30 billion in home equity lines dating to 2004 are due for resets next year, $53 billion the following year and a staggering $111 billion in 2018."

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Conventional wisdom says the foreclosure crisis is nearly over, but that doesn't take into account the second mortgages that are bumping up against their ten-year reset period.