WSJ: Borrowers again tapping home equity at a "hot clip"

[frugalecon]

Interesting article in today's Wall Street Journal about borrowers once again turning on the HELOC spigot: http://online.wsj.com/articles/borrowers-tap-their-homes-at-a-hot-clip-1401407763
(article is probably behind a paywall)

One guy they interviewed was planning to take out a $200k home equity line of credit to help pay for his son's college tuition. His only other option was to cash in retirement accounts.

[randymarsh]

Tip: If you copy and paste the URL into Google and go the page that way you won't hit a paywall.

[slugline]

Obligatory MMM reference:
http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/

I love thinking about the sound of the phrase "springy debt."  It's like something you'd use to finance the construction of an amusement park.

[odput]

Tip: If you copy and paste the URL into Google and go the page that way you won't hit a paywall.

Neat trick

I know here we view HELOCs as great springy debt tools, but the article itself even said that people mostly used them to buy cars, go on vacation or pay tuition for their kids (most admirable of the list, but still not a great financial move).  I would hope we learned better than that from the great recession and use these loans responsibly, but I highly doubt it.  Seems to me like we are just gearing up for another credit bubble to (eventually) burst

[frugalecon]

Tip: If you copy and paste the URL into Google and go the page that way you won't hit a paywall.

Neat trick

I know here we view HELOCs as great springy debt tools, but the article itself even said that people mostly used them to buy cars, go on vacation or pay tuition for their kids (most admirable of the list, but still not a great financial move).  I would hope we learned better than that from the great recession and use these loans responsibly, but I highly doubt it.  Seems to me like we are just gearing up for another credit bubble to (eventually) burst

Yes, for people with good financial hygiene, a HELOC can be a valuable tool. I have used them myself. I expect most people use them to finance consumption, though. But that is probably a plus for the economy and stock market. Low credit growth has certainly restrained economic growth.

[waltworks]

http://www.calculatedriskblog.com/2014/03/mortgage-equity-withdrawal-still.html

The WSJ is reporting an increase from very low levels. Overall MEW is probably still slightly negative right now, so there's no particular need to freak out.

-W

[Roland of Gilead]

One guy they interviewed was planning to take out a $200k home equity line of credit to help pay for his son's college tuition. His only other option was to cash in retirement accounts.

No, his other option was to tell the little snot he can do 2 years at a community college and 2 years at a decent, lower priced state college and end up costing under $30K total.

[randymarsh]

One guy they interviewed was planning to take out a $200k home equity line of credit to help pay for his son's college tuition. His only other option was to cash in retirement accounts.

No, his other option was to tell the little snot he can do 2 years at a community college and 2 years at a decent, lower priced state college and end up costing under $30K total.

Also crappy journalism. "Only option"? Uh no not really. One option is like you said, go to a cheaper school. Another option is the parent PLUS loan, at a higher interest rate though. And of course junior himself can finance around 30K over 4 years with Stafford loans.

[hybrid]

http://www.calculatedriskblog.com/2014/03/mortgage-equity-withdrawal-still.html

The WSJ is reporting an increase from very low levels. Overall MEW is probably still slightly negative right now, so there's no particular need to freak out.

-W

.... and those low levels have been fairly constant since 2010, and banks are being much more conservative about who qualifies.

The only issue I have with the article is the title. The "hot clip" isn't that much hotter than before and a fraction of what it was leading up to the financial crisis. I would have preferred the more accurate "substantial growth in HELOC lending" but that isn't a sexy headline and isn't going to make the WSJ any money.