Average Home Equity



The newspaper read, "Home owners in America stand united in their determination to maintain average home equity!" People walking by just laughed. There was little to be done about equity values after the economy nearly collapsed. People had lost their jobs and defaulted on loans, and deflation was running rampant, sucking equity out of homes from one coast to the next. No one could believe that on average, people now owed more on their homes than they were worth. Those owners were upside down in their mortgages.



Seeing a disaster on the horizon, Congress authorized a program to purchase mortgages through Fannie Mae and Freddie Mac, the two largest mortgage companies in America. They were buying average mortgages at an astonishing rate and using up tax dollar cash to finance the house purchases. On a different front, homeowners demanded more help to keep them from defaulting, but the banks wouldn't pass along the government's bailout money in the form of new loans. The owner's equity was deteriorating and the banks just kept hoarding the cash, refusing to spread the love and give loans, even to those who were qualified well above average!

While the Case-Shiller home price index continued to report lower highs and lower lows in home equity, regional differences in how the economy was affecting jobs also influenced mortgage default rates. The average loan rate for new mortgages was still too low. Bank loan officers had been stingy, even in approving the average home equity line of credit (HELOC). Newscasters doubted the Case-Shiller reports could be true and radio talk shows expressed disbelieve. Yet, weekly surveys of equity showed that average values continued to decline. Some called it the Second Great Depression. Others called it government bungling. No one called it a blessing, except the homeless who became squatters in the no-man's land of empty cities.

Hardest hit among owners were people with adjustable-rate mortgages (ARMs). Homebuyers thought they were a great idea back when interest rates were low and heading lower. No one expected rates to rise dramatically, almost doubling monthly payments in many cases. Owners tried to get the banks to refinance with better terms, but they refused. The banks just kept wanting more, but the people had no more to give. Thirty percent of all homes had already gone back to the bank, and new buyers were nowhere to be found!