Part of the recent Countrywide Financial Corp.’s earnings release was the news that its $32.4 billion portfolio of prime home equity lines of credit (HELOC) had begun to rapidly deteriorate. The lender was forced to take a $704 million charge related to homeowners’ inability to pay back equity they extracted from their homes.

Once a certain threshold of losses is achieved in a home equity loan securitization pool, the bond holder is paid off ahead of the lender. What’s worse is that it’s difficult to see how large a lender’s exposure is to home equity loans.

In the short-term, this is just another blow for a investors in the financial sector. Longer-term however, it looks like a lot of ready cash is getting taken away from homeowners, at least in California.

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