Second mortgages are bigger trouble for borrowers … and banks

Interesting piece in the Wall Street Journal today, "Second-Mortgage Misery." The general point is that homeowners who took out second mortgages are more than twice as likely to be underwater as those who didn’t.

Yes, yes, there’s a bit of a "Duh" there, but there’s a bunch more to the story.

For example, the banks that were once so eager to give out these mortgages are now realizing that — oops! — the loans are coming back to bite ’em on the, um, balance sheet. That’s because, unlike those first mortgages that were sold off to [insert adjective here] investors, it’s the banks that are holding on to second mortgages.

Nearly three-quarters of roughly $950 billion in home-equity loans outstanding were held by commercial banks at the end of last year, according to Federal Reserve data. More than 40% of that debt is on the books of the nation’s four largest banks: Wells Fargo & Co., Bank of America Corp., J.P. Morgan Chase & Co., and Citigroup Inc. Requiring big writedowns on those loans could burn through banks’ capital.

Check out the full piece for the numbers, some stories, and the bigger picture.

About Andrew Kantor

Andrew is VAR's editor and information manager, and -- lessee now -- a former reporter for the Roanoke Times, former technology columnist for USA Today, and a former magazine editor for a bunch of places. He hails from New York with stops in Connecticut, New Jersey, Cincinnati, Columbus, and Roanoke.
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