In an uncertain job market, how a HELOC can provide a safety net
Despite recent job reports that have been better than industry experts anticipated, there is an underlying concern with the employment picture in the United States.
Fed members, while pleasantly surprised by the latest numbers, are taking a wait-and-see approach to determine whether the figures match the reality of the market.
Some skeptics believe that advances in artificial intelligence could lead to mass layoffs. Goldman Sachs economist Pierfrancesco Mei said AI-caused job losses could bump up the unemployment rate.
Homeowners who are nervous about the future of their current employment are likely to avoid jumping into the housing market. However, that doesn’t mean brokers can’t help them prepare for potential uncertainty, according to one broker.
Matt Stahl (pictured top), principal mortgage advisor with Edge Home Finance, said that one major benefit of home equity lines of credit (HELOCs) is that they provide a security blanket for major life events, like losing a job. This is true for both standard HELOCs and first-lien HELOCs like Stahl is originating.
“I spent 10 years of my career working in defaulted mortgage servicing,” Stahl told Mortgage Professional America. “For 10 years, my focus was on non-performing mortgage loans. I've personally touched the lives of thousands of people who have been affected by foreclosure or a missed payment.
“The one thing every single person who has ever lost their home has in common is the 30-year fixed mortgage note. It's the closed-end mortgage note that prevents you from accessing your home's stored wealth when you need it the most. When hardships occur, when it actually happens is when you need the money.”
Giving homeowners flexibility
Of course, Stahl knows that once someone has lost their job, it’s too late for them to get a mortgage loan. That’s why planning ahead is so important.
“We all know in our industry, if you don't have a job, you're not getting a loan,” Stahl said. “A first-position HELOC unlocks your access to your home's equity, unrestricted, for 30 whole years. So you have this giant safety net. You have this giant pot of money that you can dip into if you need it, when you do lose a job, when something bad happens in life, because we are human and it's going to happen.
“When you take away the threat of losing your home, you can just remove that thought from somebody who is providing for a family. When you can take that burden, they're going to feel more confident about their futures and their family’s future, because they don't have to stress over money.”
Even for those who aren’t worried about their job security, Stahl said having access to a HELOC makes things less stressful. It also helps those who get paid irregularly, or who work in the gig economy.
“It allows you to take the pressure off yourself and breathe a little bit,” he said. “For anyone who has a fluctuating income where it's commissioned, we get big chunks of money at random periods of time. This is perfect for them, because the system's built with that flexibility in mind. It's the flexibility that is really why I care about this thing so much.”
Fixing a broken system
While there are still plenty of homeowners who work a traditional job with standard hours and who receive a W-2 at the end of the year, the number of people who don’t fit into that category increases every year. Combine those people with the ones concerned about a potential job loss, and it shows a large group of homeowners who could benefit from access to a HELOC.
“We live a life based around monthly payment thinking on the first, and that is a stressful way of life for people,” Stahl said. “That is an inflexible life because you are required to make a payment on the first. What happens when we lose a job? What happens when life happens? The system that we are in today is not engineered for that. The system is engineered for everybody who has a nine-to-five.”
For homeowners whose lives don’t conform to that rigid system, or who lose their jobs, things can go sideways quickly.
“Everybody gets a paycheck, and everybody makes a payment,” Stahl said. “The system is not engineered for fluctuating income, households with side hustles, people taking on different endeavors, or multiple streams of income. People’s income is different now, and so the old system doesn't favor that, and if you don't make that payment on the first, then bad stuff happens.”
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This article is part of our Monthly Spotlight series, which in February focuses on HELOCs. Full coverage can be found here.
