Washington, D.C. -- An increase in quick-qualifier equity loans, low- and no-down payment purchase loans and generally easier mortgage money is draining America's home equity and younger, less experienced home owners are most vulnerable.

Experts blame a lack of education and they say marketing designed to lure those who can afford to borrow is also snaring less disciplined borrowers who should avoid over-extending themselves.

Home owners lost an average $1,500 in home equity in the past decade, according to "While Home Ownership Rises, Home Equity Stagnates", U.S. Census Bureau data deciphered by Freddie Mac housing economist Frank E. Nothaft for the Consumer Federation of America.

Home owners aged 35 to 54 suffered declines ranging from 7.1 percent to 13.8 percent, but older home owners, those aged 55 and older enjoyed equity jumps from 3.4 percent to 6.5 percent from 1989 to 1999, according to the study.

Experts are concerned younger home owners are squandering their equity at the expense of their retirement needs.

Earlier this year, a Federal Reserve Board survey, "Recent Changes In U.S. Family Finances" found that home value accounts for 50 percent of the average household's net worth and many home owners rely upon equity income to help see them through retirement.

"I think equity is subject to abuse and there is no question our industry has done a marvelous job pandering to our baser instincts, making it easier for some people to do something stupid," said Newport Beach, CA-based mortgage broker Randy Johnson, also author of "How to Save Thousands of Dollars on Your Home Mortgage," (John Wiley & Sons $16.95.

Along with older home owners, African Americans and lower income families experienced net equity gains. Average home equity grew 12 percent for African-American families and 6 percent for lower-income families over the study period.

Along with younger home owners, Hispanics and whites and high-income families suffered equity hits, CFA reported.

"The danger in home owners having lower equity in their homes will come to light more during the next economic slow down," says Eric Tyson, a financial counselor and author of "Personal Finance for Dummies" (IDG Books, $19.99).

"With relatively high levels of debt, some homeowners will get financially squeezed by layoffs or pay cuts. You'll then see an increase in mortgage delinquencies and defaults," said Tyson, who also co-authored "Mortgages for Dummies" (IDG Books, $16.99).

CFA says it's best to use equity for capital improvements -- home improvements, education and new business financing -- loans that generate a return on your money.

"It's almost paternalistic for someone to suggest that it is improper to use your equity. What's bad is to improperly us it. If you are investing it wisely, no one is going to fault you for being a good parent helping out your kids," said San Francisco real estate broker Ray Brown, who co-authored "Mortgages for Dummies."

Brown says the problem is too many borrowers don't know when they are in over their heads.

"I don't remember ever having a class in school about how to use credit property. No school ever told me: 'This is credit and this is how to use it and this is how to be a damn fool', " he said.

For example, with interest rates lower than other forms of consumer credit, equity backed debt-consolidation loans can reduce your monthly expenses and the interest is tax deductible.

Too often, however, debt consolidation loans allow undisciplined borrowers to pile on more debt.

So how do you know when to turn off the equity spigot?

Brown says if you answer "yes" to any of these questions, you could need help and should see a credit or finance counselor, much as obsessive compulsive behavior warrants behavioral counseling.

Published: November 22, 2000

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.