News | Markets | Technology | Personal Finance | Small Business | CNN.com Subscribe To Fortune Magazine Magazine Customer Service Subscribe FORTUNE RSS Newsletters Video Home Fortune 500 Technology Investing Management Rankings February 4 2008: 5:30 AM EST Email | Print Type Size - + Home equity loan defaults soar As credit woes seep into prime home equity lending, a spigot of ready cash for some homeowners is turned off. By Roddy Boyd, writer Video More video Bernanke goes too far The central bank's second interest rate cut in a week raises the risk of inflation and bails out the banks. Play video More from Fortune Buffett offers to help ailing bond insurers A wrinkle in the Botox story Who owns your address book? FORTUNE 500 Current Issue Subscribe to Fortune NEW YORK (Fortune) -- One of the last sources of ready cash for homeowners looking to get money from their house appears to be shutting down and the results aren't likely to be pretty for the economy. Last week, buried deep in the ugly details of Countrywide Financial Corp.'s (CFC, Fortune 500) earnings release, was the news that its $32.4 billion portfolio of prime HELOCs - home equity lines of credit - had begun to rapidly deteriorate. The reeling Calabasas, Ca.-lender was forced to take a $704 million charge related to homeowners' inability to pay back equity they extracted from their homes. The structure of these loans appears to spell trouble for Countrywide and other home lenders with big home equity loan books. According to an overlooked Moody's Investors Services note that came out last Wednesday, once a certain threshold of losses is achieved in a home equity loan securitization pool, the bond holder is paid off ahead of the lender. What's worse is that it's difficult to see how large a lender's exposure is to home equity loans. Known as rapid amortization, this risk is treated as a contingent liability for Countrywide and other home equity loan lenders and is carried off balance sheet, until deterioration occurs and the lender goes on the hook for the loans. Countrywide is the nation's biggest home equity lender, with around 9% of the market. In the short-term, this is just another blow for a investors in the financial sector. Longer-term however, it looks like a lot of ready cash is getting taken away from homeowners, at least in California. Coupled with rising unemployment, this could pose a major headache for already strapped homeowners. To head off more defaults, Countywide sent out letters to 122,000 homeowners last week informing them that their home equity credit lines were shut down since their estimated home values had dropped below their loan amounts. Right behind Countrywide was Chase Home Lending, which notified borrowers in Los Angeles, Imperial and Orange Counties that they could tap their credit lines for no more than 70% of the value of their house. Previously, the limit had been 90%. The Calculated Risk blog, which specializes in real estate and mortgage finance issues, has estimated that mortgage equity withdrawals for the fourth quarter totaled $145 billion. If tightening lending standards are put rapidly into place for home equity loans, it is not inconceivable that $50 billion or more of spending power is instantly removed from the economy. In other words, at least one-third of the recently passed $150 billion stimulus package is already canceled out. To top of page Digg Facebook Betting against the BoA - Countrywide deal Countrywide: From bad to worse B of A - Countrywide: The skeptics' view LEFTRIGHT Featured * Mega-projects: World Trade Center Mega-projects: World Trade Center After years of cleanup and delays, the future has begun to take shape at one of the most expensive ongoing projects in the world. more * Managing your business in a downturn Managing your business in a downturn Smart executives can use the economic slowdown to make their companies better, stronger, and faster. Here's how. more * Campaigning in hard times Campaigning in hard times How the presidential candidates play the sluggish economy will determine the winner. Campaigns during recessions past offer surprising lessons. more * America for sale America for sale It's not just Wall Street bailouts. Foreign ownership of U.S. assets is accelerating - and that's a worrisome trend. more * Recession road trip Recession road trip Is the economy really on the rocks? We packed our bags and canvassed the country - seven cities in seven days - to find out how America's business owners see it. more * 4 easy ways to beat stress at work 4 easy ways to beat stress at work Feel like you're working in a pressure cooker? Here's how to manage when you're feeling overwhelmed. Plus, 10 wackiest coffee-break stunts. more * Britain catches the foodie bug Britain catches the foodie bug Concerns about the environment, fair trade and health are changing the way that the U.K. eats. more Most Popular * Most Read * Most Commented * Editor's Picks * 1. Who owns your address book? More 2. Buffett offers to help ailing bond insurers More 3. A wrinkle in the Botox story More 4. The Chrysler steamroller More 5. GM smiles through the apocalypse More 1. Apple by the gigabyte: What does $100 buy? More 2. How to unlock a 1.1.3 iPhone More 3. New iPhone and iPod touch, same price structure More 4. Deferred earnings: Apple’s hidden... More 5. HP's printer challenge More 1. Yahoo forces Microsoft to play hardball more 2. 4 easy ways to beat stress at work more 3. America for sale more 4. Health foods' hidden powerbroker more 5. MotorWorld: The Chrysler steamroller more Markets * Fortune 500 Movers * US Indices * Technology Movers * Company Price % Change Winn Dixie Stores Inc 14.96 -10.85% Masco Corporation 19.43 -10.71% Molson Coors Brewing Co 48.99 8.00% Agco Corp 63.74 7.56% Feb 12 2:26pm ET † Index Last % ChangeDow Jones 12,420.72 1.48% Nasdaq 2,335.70 0.67% S&P 500 1,354.64 1.16% 10yr 98 17/32 Yield: 3.67% Feb 12 2:25pm ET † Company Price % Change Qwest Communications Intl In 5.43 5.85% Electronic Arts Inc 48.62 4.90% Time Warner Inc 16.29 4.22% Micron Technology Inc 7.10 3.95% Feb 12 2:24pm ET † Sponsored by symbol lookup Top News: CNNMoney.com * Stocks surge on recession relief 58 mins ago * Major lenders put freeze on foreclosures 15 mins ago * Warren Buffett rides to the rescue 2 hrs ago * New life for Fidelity's battered Magellan fund 2 hrs ago * Bill Miller: Can't decide on Countrywide 20 mins ago * $30B Fed auction aims to ease credit crisis 2 hrs ago * Schering stock jumps on earnings win 2 hrs ago * Munis: The new power portfolio 5 hrs ago * Earnings: Nowhere to go but up 22 hrs ago * Lerach gets two years for kickback scheme 22 hrs ago Today's top stories Special Offer: Get a FREE TRIAL Issue! Cover Outside the U.S. and Canada, click here. * * * * * * Privacy Policy Home | Contact us | Advertise with Us | Corrections | RSS | Email Delivery | Career Opportunities | Site Map Subscribe to Fortune | Magazine Customer Service | Reprints | Download Fortune Lists | Conferences | Business Leader Council © 2008 Cable News Network. A Time Warner Company ALL RIGHTS RESERVED. Terms under which this service is provided to you. Privacy Policy * : Time reflects local markets trading time.† - Intraday data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges.• Disclaimer Copyright © 2008 BigCharts.com Inc. All rights reserved. Please see our Terms of Use. MarketWatch, the MarketWatch logo, and BigCharts are registered trademarks of MarketWatch, Inc. Intraday data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. All Times are ET. Intraday data provided by ComStock, an Interactive Data Company and subject to the Terms of Use. Historical, current end-of-day data, and splits data provided by FT Interactive Data. Fundamental data provided by Hemscott. SEC Filings data provided by Edgar Online Inc.. Earnings data provided by FactSet CallStreet, LLC.