Home Equity Loans Go Unpaid by the Billions

Billions of dollars in equity loans and lines of credit were written off in 2009 as noncollectable according to government data, but at least a trillion dollars is still at risk and at least 60 percent of that trillion, if not more, is sitting on the books of the top four banks: Bank of America, Wells Fargo, Chase and Citigroup.

Many of the loans were not made originally by these banks, but instead by entities they took over, such as Countrywide, Bear Stearns, Wachovia and Washington Mutual. Greg Hebner, President of MOS Group, which advises many of the large banks, said that not all of the money on the balance sheet is at risk because the government agreed to share some of the losses. Yet he does think current balance sheets do not reveal the true risk banks hold in equity lines and loans.

Government data indicates that just $11.1 billion in home equity loans and $19.9 billion in home equity lines were written off in 2009, but that is just a drop in the bucket when you consider that homeowners nationwide borrowed a trillion against the equity in their homes and used them as a piggy banks to buy cars, boats, recreational vehicles and so on.