For cabinetry makers, closets shops, custom furniture and wood crafters and architectural millwork businesses using home equity for funding, yesterday's $26 billion mortgage relief deal will help on two fronts:
1.) Mortgage relief will create improvement in the housing market as owners refinance at lower rates, adding to an already improving demand for home interior remodeling.
2.) It will restore home equity for woodworking businesses, many of them sole proprietorships and limited liability corporations, who like all small businesses use home equity to provide liquidity and to back lines of credit from banks: the money used to buy lumber, woodworking machinery and tools when orders go into production.
The five banks (Bank of America, Wells Fargo, JP Morgan Chase, Citigroup and Ally Bank) servicing loans that are covered in the settlement are committed to provide relief to borrowers who owe more on their mortgages than their homes are worth.
Essentially, the deal recognizes that banks also share responsibility with homeowners for underwriting mortgage loans in the first place. It's estimated more half the amount will head to the hardest hit states - California and Florida.
What's Good for Wood?
The deal is likely to be more catalyst than cure for the housing market. Of more than 48 million mortgages held in the U.S. According to the Dept. of Housing & Urban Development (reported in today's news):
• 10.7 million home loans are believed to be underwater
• About 1.3 million are covered by the settlement
• Homeowners owe $8.8 trillion on all mortagages
• Home equity totals $3.8 trillion (a number that rises and falls with property values); and
• Homeowners currently owe $699 billion more on their mortgages than their homes are worth.
So the $26 billion settlement is small compared to the big numbers. (It could rise to $30 billion if another nine banks join it.)
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