Does rapid growth in home equity credit signal a coming repeat of the 2008 meltdown?
Increased demand for credit — and record available home equity — is pushing homeowners to seek home equity financing. Although today's borrowers are better risks than many prior to the Great Financial Crisis, some observers have a nagging sense of financial déjà vu. Freddie Mac has one answer, but private-sector advocates say it's a political ploy.
A combination of economic factors is inflating home equity line of credit balances just as a controversial Freddie Mac pilot program for purchase of closed-end home equity loans readies to launch.
Both coincide with the rise of tappable home equity to a new record level — $17.6 trillion — with nine out of ten Americans having some equity they can borrow against.
The level of home equity borrowing hasn’t reached anywhere near the level that was seen around the time of the Great Financial Crisis. However, that specter was invoked back in May when trade associations and others objected to the then-proposed, and since approved, pilot plan for Freddie Mac to purchase closed-end home equity loans made on properties where the secondary market agency already holds the primary mortgage.
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