Homeowners could be looking at more pain in the next few years as their home equity lines of credit (HELOCs) reset. The Office of the Comptroller of the Currency (OCC) estimates that $23 billion in HELOCs held by the largest banks are due to reset in 2014, followed by about $41 billion in 2015, $49 billion in 2016, and $54 billion in 2017.
Banks will generally take a writedown or chargeoff when a HELOC defaults without sufficient equity in the property, but that does not let the borrower off the hook for repayment. Monthly mortgage payments could skyrocket as second liens become fully amortizing, throwing many consumers into financial turmoil. The Treasury Department's ability to throw them a lifeline, meanwhile, would be limited, since its authority to create and fund new homeowner assistance programs under the Troubled Asset Relief Program expired years ago.
HELOCs that are in the senior mortgage position do potentially qualify for a workout under the Treasury's Home Affordable Modification Program; but, according to the OCC, more than three-quarters of HELOCs held by the nine largest U.S. banks are second mortgages and just 23 percent are first liens.