[Closing out a short trip through the 2007 archives with an item about mortgage lending seemed like a good idea since, at that time, most homeowners and lenders had come to understand that housing wasn't in a bull market any more but, rather, a bubble, and that prices were undergoing some serious reversals. The bad news was that all the debt stayed in place. This story from April 26th, 2007 details the multi-year rise in home equity loans and withdrawals - "tapping your equity" as they used to fondly say - as Americans began to realize that all the money they'd been spending in recent years wasn't really theirs to spend. Not surprisingly, today, home equity "extraction" (another popular term back then) has come to a virtual standstill, due in no small part to the dramatic decline in home prices leaving homeowners with far less equity to "tap". Two related items can be found here and here.]

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One of the many lingering after-effects of the Greenspan term at the Fed is that a huge amount of home equity had been extracted, but not yet paid back by homeowners who had no plans to sell their home.

If your mortgage is more than a few years old, it no longer makes sense to refinance the extracted equity back into a new first mortgage for three reasons. First, you’d have to start back at month one on the loan amortization schedule; second, you probably won’t get a lower interest rate; and third, you’ll have more loan fees to pay.

Now, many homeowners who plan to stay put for awhile, especially those who have just completed major improvements on their homes, are getting squeezed every month as they service the home equity debt that seemed like found money just a couple years ago.

This was confirmed earlier today when it was learned that Americans are much less willing to take money out of their homes and spend it now that home prices are falling across the country and interest rates show no signs of coming back down.

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