Second mortgages used to be for people in trouble, but were renamed as "home equity loans". They were -- and are -- advertised with slogans like these:
“There’s got to be at least $25,000 hidden in your house. We can help you find it."
“Is your mortgage squeezing your wallet? Squeeze back.”
“The smartest place to borrow? Your place.”
“You’ve put a lot of work into your home. Isn’t it time for your home to return the favor?”
One in 2006 from PNC Bank pictured a wheelbarrow and the line, the “easiest way to haul money out of your house.”
"Today is the Day. Meet your goals now with Home Equity Financing".
It worked. Home equity loans rose from about $1 billion in the 1980's to $1 trillion now. The desperation of the second mortgage was replaced by the trendiness of the home equity line of credit.
Overall, who did this transformation help?
Many homeowners yielded to temptation and did not pay off their mortgages. Home equity was a major form of savings in America; it wasn't replaced by other savings. So, by and large homeowners didn't benefit.
Did banks benefit? For a while, they did. But it's clear that, on an overall basis, financial institutions did not deal with the housing bubble in an intelligent manner.
Did taxpayers benefit? It's hard to see how after needing to rescue IndyMac, FreddieMac, FannieMae, Bear Stearns and others.
The power of bank marketing: no winners, only losers.