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Once Viewed As Easy Cash Source, Second Mortgage Market Collapsed Over Decade

THURSDAY, JAN 23, 2020

The number of American homeowners who are paying for both a primary and secondary mortgage or home equity loan has fallen by roughly one-half since 2009, according to a Social Explorer analysis of Census Bureau data.

People living in 12.9 million housing units, or slightly more than 17 percent of the U.S. total, were paying both a primary and second mortgage in 2009, according to figures obtained from the American Community Survey using Social Explorer. By 2018, that figure had dropped to 6.5 million, a little more than 8.5 percent of all households.

Five-year 2018 ACS data showing households with two mortgages. Click here to explore further.

The analysis reflects the reshaping of a key segment of the U.S. economy in the wake of the 2008 near-catastrophic financial collapse. Lax lending policies and a massive housing bubble allowed millions to borrow against equity in their homes for items ranging from credit card debt to home improvements. The bubble eventually caused credit markets to freeze as it deflated, leading to $16 trillion in lost wealth. In the aftermath of the worst economic downturn since the Great Depression, banks were reluctant to lend and consumers hesitant to borrow.

Only 13 of 880 metropolitan and micropolitan statistical areas registered an increase in the number of housing units with two mortgages. The largest percentage increase occurred in Williston, N.D., an energy boomtown near the Montana border. Slightly less than 7 percent of households in the area reported a second mortgage in 2018, a 0.9 percent increase from 2009. Only three other U.S. micros reported an increase in two-mortgage households that was larger than 1 percent: Douglas, a southern Georgia city where 6.8 percent of households had a second mortgage, a 1.6 percent increase from 2009; Helena, Ark., where 2.7 percent of households were paying a second mortgage, a 1.2 percent increase; and West Plains, Mo., where 5.5 percent of households had a second mortgage, a 1.2 percent increase.

Households in 18 U.S. metros or micros reported more than 25 percent of housing units with both primary and secondary mortgages in 2009, including Vallejo, Calif. (27.7 percent), Washington, D.C. (26.8 percent), Denver (26.8 percent), and San Francisco (25.8 percent). By 2018, the metro with the largest share of households paying both primary and secondary mortgages was Iowa City, Iowa, where 16.4 percent of households reported carrying two mortgages. The city’s latest report marked a 3.4 percent decline from the 19.8 percent figure reported in 2009.

The sharpest percentage drops in housing units with second mortgages occurred in Vallejo, which saw its rate fall 17.7 percent to 10 percent of total households. It was followed by Greeley, Colo. (a decline of 16.3 percent, for a total of 9.9 percent), and Thousand Oaks, Calif.. (a decline of 16 percent to 11.1 percent). Two metros that were hit hardest by the collapse of the housing bubble also registered significant declines in the percentage of households with both primary and secondary mortgages: Sacramento reduced its figure by 16.1 percent, with the percentage of two-mortgage households falling to 10.4 percent, and Las Vegas saw its percentage drop 15.6 percent to include only 6.5 percent of all households.

Twenty-four U.S. metro and micro areas – 22 in Texas – reported that 1 percent or fewer households were carrying both primary and second mortgages. The Lone Star State didn’t approve home equity loans until 1997, and still restricts the amount that homeowners can borrow when they use their homes as collateral.

Author: Frank Bass

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