'Less Ka-Ching' In Home Equity 'Piggy Bank'

The Pioneer Press has a report on the bursting home equity bubble. "The signs are as subtle as quartz countertops versus expensive granite, but the red-hot home-equity cash machine that for years has boosted household spending is beginning to slow. Mortgage professionals and even a few remodelers around the Twin Cities are beginning to feel the gears shift as rising interest rates and cooling home prices make it less attractive for homeowners to borrow against the house to pay off bills, build the big addition or book a room in Vegas." "It's too early to see much real-world impact from the downshift, said Scott Anderson, senior economist at Wells Fargo in Minneapolis. People are still spending the record amounts of cash they pulled out of their houses last year. But all signs suggest the slowdown is in the works. '2006 will just be the turning point,' said Anderson. 'It's going to be Part One of a five-act play.'" "Less ka-ching spells trouble for the legions of mortgage brokers operating in the Twin Cities, where experts say borrowing against the house has been particularly popular. Home-equity debt per household in the Twin Cities metro area is 50 percent higher than the average. 'Business right now is way down,' said Terry Sullivan." "'Layoffs, office closings, and consolidation of mortgage operations are all happening, and likely to continue in 2006,' Keenan Raverty, incoming president of the Mortgage Association of Minnesota wrote. 'Ultimately, the marketplace will sort itself out, but a lot of fine people may lose their jobs in the process.' Raverty and others pointed to Bank of America's Bloomington loan center as an example. The bank is in the process of closing the center, which handled mortgage and home-equity applications by phone and employed about 200 people." "The local market was so flooded with small mortgage brokers during the boom that people might not notice their passing, said Alex Stenback, sales manager in Plymouth. Some 860 mortgage brokers in the state didn't renew their licenses when last summer's deadline arrived. Despite the dropouts, Minnesota still has 3,137 licensed mortgage brokerages, a thousand more than in 2003." "The luster may be wearing off the equity-fueled remodeling industry too, according to national numbers. Customers aren't canceling jobs, Shawn Nelson said, but they are scaling back in areas where they have choices, such as flooring. Exotic granite countertops are going by the wayside now, he said. 'People are being a little more cautious,' said Nelson, adding that contractors are starting to adjust. 'You're going to fight a little bit harder, you've got to put more money on the marketing side of things. The jobs are getting smaller.'" "Matt Schneberger in Woodbury, said he sees fewer people 'fantasizing about mega-remodels,' a phenomenon he ties directly to access to home-equity cash. Some customers have scaled back big remodeling plans, he said, because of uncertainty about whether home values will continue to rise." "One disturbing note: subprime borrowers, those most at risk of getting in over their heads, have not slowed down their refinancing habits. In fact, they've been accelerating them. Subprime cash-out refi's totaled $61.98 billion in the fourth quarter last year. That's up 4 percent from the quarter before and up 22 percent from a year earlier. Stiff competition among subprime lenders has kept interest rates on refinances relatively low through the year, which could be driving the increases, Andrew Analore said the new bankruptcy laws that took effect this past fall, making it harder to file personal bankruptcy, are also driving more people to try to manage their debt by refinancing, others said." "'The question that keeps coming up at the conferences is 'How many more times can people keep going back to the piggy bank?' said Analore." "Wells Fargo's Anderson said he estimates home-equity extractions, including capital gains homeowners banked when they sold homes, have been adding about 0.5 percent to the country's GDP for several years now, or about $500 billion last year. That's roughly equivalent to what people in the U.S. spend each year on motor vehicles and parts."