How We Fell Into Equity Line Hell (And The Reckoning Yet to Come) PART 1

The year was 2005 and the owner of my mortgage company strolled into my office with that "LOOK" on his face.

Clearly, I was in trouble.

He was there to scold have a serious talk with me. It seems my sin was doing too many equity lines.

I was asked to allocate more of my time to doing first mortgages. Why? Because an equity line made me (and the company) very little money.

Solemnly, I nodded in agreement and promised to change my ways.

Ignoring everything he had said, I went madly on, writing new equity lines every week. 

During those times, you didn't need to advertise or promote equity lines. Everyone wanted one.

If you didn't attach one when you bought your house, you did within months. If you walked into your bank to make a deposit, you were tackled by some bank employee trying to sell you on the idea. Your stack of mail included at least 2 offers every day suggesting that you "tap" your equity.

Equity lines were the "BOOM" in the booming economy.

What the owner of my company didn't realize was this: those lines paid dividends to me that far exceeded the tiny commissions.

The ROI was simply huge.

Homeowners LOVED that there were no closing costs. They LOVED that the whole process was so damn EASY. But most of all, they LOVED it when those little blank checks arrived along with $200,000 worth of liquidity that seemingly appeared out of thin air.

You know that saying guilty by association? Well, you can also be loved by association.

The NEXT time they needed mortgage help? That warm and fuzzy memory (that two hundred grand in cold hard cash will give you) still lingered. 

"Hey, let's call Janet!"

Half of the people who wanted equity lines claimed they were for "emergencies only". Two weeks later their emergency was this: they needed a brand new car. Or a pool in the backyard.

They told everyone they "paid cash" (as if the cash from an equity line was not a debt, just a happy benefit of owning California real estate).

Oh, but we felt so frothy back then, didn't we? So bubbly.

And then the bubble burst. We were having so much fun we almost forgot that bubbles always burst.

Almost overnight, banks stopped offering equity lines. The equity lines on the books were closed like a door slamming in your face. They were ruthlessly slashed to lower amounts. This created untold grief for people who had counted on using the money to pay off debts, or send their kids to college.

But did you know this? There is equity line grief coming down the pipeline that no one is even talking about.

PART 2: Why equity lines could be the next big disaster looming for the economy.

 Written By Janet Guilbault, Mortgage Banker and Direct Lender Based Out of the San Francisco Bay Area