Solano Real Estate Scene: What is the debt ceiling?

Solano Real Estate Scene: Jim Porter

Article By: Jim Porter – May 26, 2023

The government debt ceiling is like a home equity line of credit limit, or HELOC. Lots of folks, nowadays, are taking out a HELOC to borrow money secured against their home equity to remodel kitchens, put in a swimming pool, consolidate debt and make investments in other real estate. Nobody is refinancing their 3% rate $400,000 mortgage to get $100,000 in cash out.

A HELOC is like a credit card. The HELOC creditor gives the borrower a credit limit of $200,000, for example, and once the borrower gets to a balance of $200,000 the only way for the borrower to get more money is if the creditor approves a new higher credit limit.

The government is asking the taxpayers and their creditors to increase their credit limit. The U.S. national debt today is $31 trillion, which is 120% of our GDP (the value of our economy).

If a borrower calls me today and asks me for a HELOC credit limit for 120% of her home’s value, I will have to let her know that we will limit the HELOC to a maximum of 90% of the home value. Conservative Democrats and all Republicans that represent the taxpayers are concerned about spending more than we make and running up our debt just like a family might do if they are not careful.

From 1984 to 1989, I personally did this and borrowed from our house equity a few times to support my wife and four kids based on the idea I will make a lot more money next year and will be able to pay off the debt. I had a bad year in 1988 and had to sell our house in Pacifica, pay off all our debt and relocate to Vacaville and start over from scratch.

We were lucky the home value had nearly doubled from 1984 to late 1988, but a painful lesson was learned because we had to rent for two years until we were able to purchase our Vacaville home in late 1990.

The Congressional Budget Office projects that by 2033 we will be paying $3.9 billion per day for the interest on the national debt. Today, we are paying $1.3 billion per day and rising, thanks to the nine Fed rate hikes in the past 14 months.

We are not paying down the balance on our national line of credit and we are way over the credit limit by 30% based on my 90% loan-to-value risk policy. Our kids and grandkids will be stuck with massive debt for the next 60 years if we don’t start spending less than we make. Common sense makes sense.

Jim Porter, NMLS No. 276412, is the branch manager of Solano Mortgage, NMLS No. 1515497, a division of American Pacific Mortgage Corporation, NMLS No. 1850, licensed in California by the Department of Financial Protection and Innovation under the CRMLA / Equal Housing Opportunity. Jim can be reached at 707-449-4777.