When home values were rising at double digit rates, owners saw the opportunity to turn this equity into cold cash to fund vacations, new cars or convert high-interest credit card debt to a lower-interest home equity line.

Remembering back to the days when Bank of America advertised the Visa charge card with the misleading promotion, “Think of it as money,” it is little surprise that the debt set would view their home equity as any less of a resource.

Having confused one’s home equity with one’s ATM machine as a source of lifestyle funding, it is little surprise that many non-subprime borrowers find themselves between the rock of rising interest rates and the hard place of falling home values. Even if foreclosure is not the result, there is no doubt that the current credit crunch is hitting the home equity market hard.

Lost in the terminology of “home equity line” or “home credit line,” this tapping of paper wealth is in reality creating a second or third mortgage on your home. This transference of consumer debt (non-secured credit cards) to mortgage debt may reduce your interest charges, but in doing so adds greater financial stress on holding on to your home.

Recognizing that many payment-stressed homeowners have used their high interest credit cards to make home mortgage payments or to meet monthly expenses, there is a backing off of investor interest in funding home equity line products.

According to J.P. Morgan, “asset-backed securities bundle consumer debt — such as car, home and student loans — into new securities with different risks and returns and then sell them to investors. In the first quarter of this year, securitization of such loans totaled $43 billion, a 75 percent drop from the year-earlier quarter.”

In the not so recent past, investors have relied on the credit rating of investment-backed securities. With triple A paper being dropped to junk ratings, there is greater focus on content quality and little reliance on the rating agencies or authorities.

The market for auto and student loans has been better than home equity loans when it comes to funding bond offerings. It is interesting to note that offerings on credit card securities actually rose in the first quarter of 2007, according to J.P. Morgan research. This may be a small light at the end of a long tunnel — or it may represent the return generated from the 25 and 30 percent charges from debt-pressed card holders.

In any event, the result for the consumer and the economy is a personal and national recession.

Reduced credit means reduced spending and reduced spending means less sales. Less sales means less profits and less profits means less income. Less income means less jobs.

Originally a home was a place to live and enjoy your life. Then it became a prized investment participant. Then it became an ATM machine. The credit markets are here to teach us what we as a consuming society could not learn on our own. It’s time to go back.  

Charles Bogue, a Broker with Coldwell Banker Brokers of the Valley, 1775 Lincoln Ave., Napa CA 94558, can be reached at phone: 258-5221 or cbogue@cbnapavalley.com.