Bank of America is expected to see some serious losses with regards to home equity loans. Why? Because second home mortgages are connected to home value, and that means that as home values fall, losses due to home equity loans rise. Bloomberg reports on the current state of Bank of America:

The bank expects losses to top 2.5 percent of its $118 billion in loans linked to home values, Liam McGee, president of the Charlotte, North Carolina-based company’s consumer and small business division, said at a conference in New York sponsored by UBS AG. The bank previously projected a loss rate of between 2 percent and 2.5 percent.

Bank of America, the nation’s largest credit-card issuer, is also seeing a “recent sharp increase” in spending on necessities by its credit-card customers. That has curbed retail, travel and entertainment purchases, McGee said. Economists and bankers have said the economy may be teetering near a recession as consumers struggle with job losses and gasoline prices topping $4 a gallon.

You can also see that problems may be arising in the area credit cards as well. As more people have to turn to credit cards to cover the necessities, there could be real problems ahead.

This presents a combination problem: Home equity is tapped out, and credit cards are moving toward being maxed out. This is a trend that is sweeping the nation. The question is this: How long until Americans as a whole move from managing their debt to actually drowning in it? And consider: with home equity loans getting harder to come by, it will make it difficult for Americans to use debt consolidation to get a handle on their credit card debt.

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second home mortgages, debt consolidation, credit cards

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