Releasing one’s home equity with poor credit is a tricky proposition in today’s market. Generally this is a bit of an oxymoron, but not always. Most people with poor credit are unlikely to have a great deal of equity in a home, seeing as any lender is going to come after the equity to cover unpaid debts. But this is not always the case, and I suppose it is possible to be in a situation whereby you have good equity in a home, yet also have a poor credit rating.

In this case, it is possible to release the equity, but do not expect to be able to release all of it, or to get a reasonable interest rate on any loan taken against it. If you choose to go this route, it is good advice to take a fixed interest rate rather than an adjustable rate mortgage against the property. Whatever the outcome of the current recession, there is no question that interest rates are set to rise in the very near future.

The other question, with falling real estate values is how to determine the level of equity. All the time property prices are dropping and lack of sales volumes makes it difficult to value a house, how can you determine the level of equity. Home prices in the United States have now fallen to 2003 levels, so any one who bought real estate after that time now has a piece of property worth less than the purchase price. Obviously, these are averages and some parts of the country – like Miami or Las Vegas as examples – have seen steeper falls in property values than other parts. Obviously a little mathematics means that – as another example – a person put $100,000 down on a $500,000 home, they would have $100,000 equity. If that home falls in value by 20% , they have lost all the equity. Of course, any fall in home values comes off the top and the reason we have such issues at the money is the falls have been enough to put a dent in the bank’s equity. (See government bailouts.)

Poor credit is going to be the bane of most of the country soon. One in eight mortgages in the United States is already more than 90 days in default. Which means that one in eight Americans now have poor credit scores due to their mortgage delinquencies, and this does not include the millions who default on car loans, credit cards, boat loans and any other type of loan. The amount of people needing refinancing with bad credit is growing out of all proportion to those few at the top, and the possibility of mortgage refinancing with bad credit is disappearing fast as the amount of equity shrinks. The whole country is going to have a bad rating if we are not careful.

The massive illusion being created by the Federal Reserve that everything is all OK now is beginning to crumble already and the banks are still having issues of their own that is dragging available credit down with it. We cannot possibly have the situation we have at the moment somehow magically turn around just because the stock market gets pushed up a few percentage points because the banks can now write their own accounting rules to show a profit – which, incidentally they seem to pay out in massive bonuses to their executives still. Sooner or later we must face the issues head on – but that would mean a political party that was prepared to say the “nasty” words like “taxation,” and cutting costs.” It would also mean a political party that was prepared to look further ahead than the next election. Fat chance of that happening.

The British economy is perhaps in an even worse condition, with UK homeowner loans going the way of the dodo in very short order, yet the positive news rolling out from the government is highly disturbing for not only it’s lack of accuracy, but the hidden assumption that lying will do the trick. The Financial Services Compensation Scheme (FSCS) has just paid out £21 billion in the first 6 months of 2009 – and this money apparently appeared out of nowhere. The Royal Bank of Scotland is set to announce more massive losses and somehow a recovery is “imminent.”

I am sick and tired of being lied to by my government and if I honestly thought I could do anything about it, I would. Those people looking for home equity releases with poor credit are – not to put too fine a point on it – shit out of luck until such times as the current banking losses are somehow stemmed. Personally – I think that is several years away and the possibility of any sort of recovery does not look good. The bank executives and politicians are raping the system in such a way as I am beginning to doubt it will ever recover. I do not know at what point there will be a backlash though. 20% unemployment? 25%? Hard to say.