Home equity loans on the skids

NEW YORK, Aug. 12 (UPI) -- U.S. borrowers and lenders are saying many home equity loans will never be repaid, with borrowers banking on the possibility and lenders resigned to it.

The American Bankers Association reported the percentage of home equity loans in default was the highest among consumer loans, The New York Times reported Thursday.

For many lenders, chasing the lost funds is an exercise in futility, as legal action often ends up with payments of 10 percent of the loan.

Out of every dollar, "People got 90 cents for free," said Christopher Combs, a real estate lawyer from Phoenix, Ariz.

One debt collector, Utah Loan Servicing, will not pay more than $500 for the loans it buys from banks. "Anything over $15,000 to $20,000 is not collectible," said the firm's Chief Executive Officer Clark Terry.

Some borrowers are kicking themselves for the loose lending during the housing boom. "We would love to change history so more conservative underwriting practices were put in place," said ABA Chief Economist Keith Leggett.

Phoenix lawyer Marc McCain, said 85 percent of his 300 clients had indicated default was a likely outcome to their loans and that unforced payment was unlikely.

Borrowers have said the banks needed to share the unforeseen burden of home prices falling -- the collateral on which the equity loans were based -- especially, the newspaper said, since banks were bailed out by the government.