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Regulators caution on potential home equity loan defaults

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U.S. regulators on Tuesday warned banks to work with clients to avoid defaults on hundreds of billions of dollars of home equity lines of credit taken out during the financial crisis that will be due soon, according to an article in Reuters

"When borrowers experience financial difficulties, financial institutions and borrowers generally find it beneficial to work together to avoid unnecessary defaults," five regulators said in a joint statement.

When HELOCs go bad, banks can lose an eye-popping 90 cents on the dollar, because the line of credit is usually a second mortgage. If the bank forecloses, most of the proceeds of the sale pay off the main mortgage, leaving little for the home equity lender.

Source: Reuters
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