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Is HELOC revival reason to worry about more foreclosures?

The HELOC is back. Someone unfamiliar with that term might be prompted to think that it's a tease for some horror film or the latest in Marvel Comic adventure movies. Well, even someone who is familiar with it might think there's cause for alarm because of fears it might mean resurgence in instances of a consumer being threatened with having a home taken away.

HELOC stands for home equity line of credit. The reason for the concern is news from RealtyTrac Inc. that in the fiscal year ending June 2014, nearly 800,000 homeowners took out HELOC loans -- an increase of nearly 21 percent. That's the highest level of HELOC activity since the fiscal year that ended in 2009. 

The Nashville Post reports that RealtyTrac numbers peg the rise in home equity lines of credit in the Nashville area for that period at nearly 8,400. That's an increase of 16 percent from the previous year. But the report also notes that the trend in all of Middle Tennessee for the first half of 2014 is running at 21.5 percent.

An analysis by Experian analytics attempts to offer why this is something to worry about. It notes that lending in the residential real estate sector was a driving force behind the Great Recession that ran from 2007 to 2009. It says many of those loans were in the form of HELOCs that were structured to mature starting between this year and 2017.

What that means is that most borrowers on those lines of credit have only had to pay interest on the money. But analysts say that as the loans mature, payments will increase to cover interest and principal and there's concern that it could mean a new wave of delinquencies, foreclosures and downward pressure on the economy.

Source: Experian, "The impact of the revived HELOC trend," Jerry Podczaski, July 11, 2014, accessed on Oct. 9, 2014

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