Lenders have reduced home equity lines of credit in areas of declining home prices, such as Orange County. Lenders are trying to reduce their exposure to potential loan losses. The percentage of those lines of credit that are more than 30 days past due rose to 1.10 percent during the first quarter, the highest since 1997, the American Bankers Association reports Experts fear the line of credit reductions could hurt the economy and housing market, saying people will spend less if they have less access to credit, which could hurt an economy dependent on consumer spending.
And some experts say people who need the lines of credit to remain financially stable will now default on their primary home loans, adding to already record foreclosures in Orange County. Orange County home prices have plummeted from 2006 highs.
DataQuick reported the median selling price for local residences was $485,000 in May, the first time a month's pricing has been less than half-million dollars since March 2004. Widespread home equity line of credit reductions have caught the attention of federal regulators.
On June 26, The Federal Deposit Insurance Corporation issued a statement warning lenders that under the Truth in Lending Act, credit reductions must be tied to significant property value declines or a borrower's likely inability to pay because of a material change in his financial situation.
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