Uncertainty in the mortgage industry alters the outlook for debt consolidation loans. Homeowners who want to use their equity to consolidate higher rate debt may just have to wait until the mortgage crisis winds down.

In the 1974 film Earthquake, fearless stunt actors fall from buildings, dodge airborne rubble, and flee from rushing floodwaters. Today's debt-burdened homeowners can probably watch those earth-shaking scenes with some degree of empathy, while wondering if falling concrete hurts as much as falling equity and bankruptcy.

Debt consolidation and home equity

When home mortgages were easier to obtain, debt-burdened homeowners had the option of leveraging their home equity to consolidate debt. When the equity value was sufficient, these homeowners could trade in several high-rate credit accounts for one affordable home equity loan or cash-out refinance mortgage.

Unfortunately, recent tightening in the mortgage industry is making it tougher for those who need to consolidate. Mortgage lenders' appetite for home equity loans and cash-out refinance mortgages has decreased substantially, to the point that credit-challenged borrowers are now struggling to get a loan approval. Some may be left with only one option: to consolidate with a high-rate, unsecured personal loan.

Factors influencing available debt consolidation loans

• Weak home value growth. Without real estate value growth, homeowners don't build equity. Without equity, homeowners have no borrowing power.
• Tightening of underwriting standards. Mortgage lenders are no longer as motivated to lend against 100 percent or more of home equity. Realistically, most homeowners can expect to borrow only 80 percent of their equity.
• Drop in secondary market demand for mortgages. Rising default rates have largely scared secondary market investors away from mortgage-backed investments. This is leaving the industry scrambling to adjust to a lower level of liquidity.
• Decline of interest rates. In October, the Federal Reserve cut the prime lending rate for the second time in two months. Falling interest rates generally stimulate borrowing by making it less expensive.
• Poor financial performance of lenders. As the industry transitions out of crisis, lenders will need to find a way back to strong levels of financial performance. This means that they'll have to get back to doing what they do best: making mortgage loans-but this time, smart ones. While the current air of conservatism in underwriting will linger, it will likely reverse over time, as lenders become more comfortable operating under new industry dynamics.

Given that these factors are creating some crosswinds in the mortgage industry, over-burdened homeowners may have to choose between the lesser of two evils:

• Managing the debt as is until lenders are more willing to offer debt consolidation mortgages
• Restructuring the debt now with an expensive personal loan

The good news is that economic trends move in cycles-so the mortgage industry will stabilize eventually. It's just hard to say how long the aftershocks of the current crisis will last.