As subprime takes center stage, there appears to be more trouble in the woods. As house prices spiraled to dizzy heights, home owners used the equity in their homes, or their homes as ATMs to buy other goods and services. This was achieved with a home-equity loan. Now as house prices fall and any equity evaporates, the defaults are coming in thick and fast :
Subprime mortgages have taken a lot of blame for banks’ big losses. But there’s another problem lurking behind the mess: home-equity lending.
Buoyed by rising prices, borrowers increasingly tapped into the equity on their properties to finance a new car, renovations, or even a down payment, making equity a key source of consumers’ strength. But with the housing market in disarray and prices plunging, the business of home-equity lending is souring. At least $14.7 billion in loans and lines of credit were already delinquent through the end of September—the highest level in a decade
» The Home Equity Crisis Ahead – BusinessWeek, 16th January 2008.