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Monarch Financial Holdings, Inc. Message Board

  • barkingdog78 barkingdog78 Sep 9, 2012 3:15 PM Flag

    "Payment Shock" is Coming: Can't pay interest-only forever

    From the OCC Semi-Annual Report:

    "Home Equity Risk May Escalate in the Next Few Years
    Over the next several years a significant volume of home equity products will reach the end of
    their draw periods. When these products were originated, most of the contracts required that at
    the end of the draw period the outstanding balance would require a full amortization over a predetermined period of time. Generally, the term of the home equity contract including both the
    draw period and full amortization is 30 years although numerous other types of structures are
    prevalent including those with a draw period and a balloon payment. The end-of-draw volumes
    significantly increase beginning in 2014 (see figure 19). Approximately 58 percent of all
    HELOC balances are due to start amortizing between 2014 and 2017. Home equity borrowers
    face three potential issues: (1) risk from rising interest rates because most HELOCs are
    adjustable rate and interest rates have been very low (see figure 20); (2) payment shock because
    loans will move from an interest only period to fully amortizing; and (3) refinancing issues
    because collateral values have declined significantly since these loans were originated."

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