A Perfect California Storm: One Or The Other, Or Both, Will Push Some Over The Brink

2014 looks to be pretty grim for many many folks in California, Florida, Las Vegas, Phoenix, and Tucson: a) health insurance premiums double for many; b) mortgage resets start to come due.

The ObamaCare story is well known (except, of course, to nominees for the 2013 Geico Rock Award), but this is a new story: mortgage resets that will start to come due next year.

The Los Angeles Times is reporting:

Some mortgage and credit experts worry that billions of dollars of home equity credit lines that were extended a decade ago during the housing boom could be heading for big trouble soon, creating a new wave of defaults for banks and homeowners.

That's because these credit lines, which are second mortgages with floating rates and flexible withdrawal terms, carry mandatory "resets" requiring borrowers to begin paying both principal and interest on their balances after 10 years. During the initial 10-year draw period, only interest payments are required.

But the difference between the interest-only and reset payments on these credit lines can be substantial — $500 to $600 or more per month in some cases. If borrowers cannot afford or choose not to make the fully amortizing payments that reduce the principal debt, the bank that owns the note can demand full payment and foreclose on the house if there is sufficient equity.

According to federal financial regulators, about $30 billion in home equity lines dating to 2004 are due for resets next year, $53 billion the following year and a staggering $111 billion in 2018. Amy Crews Cutts, chief economist for Equifax, one of the three national credit bureaus, calls this a looming "wave of disaster" because large numbers of borrowers will be unable to handle the higher payments. This will force banks to either foreclose, refinance the borrower or modify their loans.

The states hit hardest by the housing crisis/crash/bust.

For ten years, some folks have been making interest-only payments; imagine the shock when a) payments require some principal payback; and, b) interest rates rise, albeit slightly.

Another perfect storm.

ObamaCare + Mortgage Resets (ObamaCareMoRe).

The good news: the economy is beginning to take off. Record number of folks are finding jobs. Not to worry.