There have been warnings from some in the industry of another wave of foreclosures, this time as it relates to home equity loans. I’m not sure I’m convinced of that notion. You read here last week regarding a report showing foreclosures up by 5.00 percent for January and just over 37,000 residential foreclosure wave might be a dudproperties were repossessed for the month, hitting levels not seen in almost a year and a half.

The conclusions some reached considered the Home Affordable Modification Program, or HAMP, introduced a few years ago to help stem the tide of foreclosures. This temporary rate reduction allowed many to continue paying the mortgage payments, keeping the house, while fixing whatever ailments caused the default in the first place.

HAMP loans have a reduced rate but at some point in the future the rate will return to its original mark. If the borrowers haven’t corrected the financial difficulties then that may be a problem and the borrowers will be back to the very same situation. Yet the unemployment rate has fallen from its double digit highs since then and more people are back to work. It’s much more likely HAMP reversions will come and go unnoticed due to the general change in the economy.

Home equity loans were also mentioned in the same article primarily due to most such loans have an interest only feature that will soon retire, replacing the payments with a fully amortized one. However, it’s not very likely a second lien lender will force a foreclosure as the first mortgage and other superior liens will be paid first, leaving the second lien lender with nothing and perhaps even sustain a loss. Again, I don’t see this as much of an issue as perhaps others do. Home equity loans are typically in much smaller amounts and most banks limited such loans from anywhere from $20,000 to $50,000, higher or lower depending upon available equity and credit scores. Even if the loans did transition from an interest only product to a fully amortized one, the lower amounts and low rates should have little impact on a borrower’s totally monthly obligations.