Rolf Englund IntCom internetional
How U.S. banks sold home equity loans
That catchy slogan, dreamed up by the Fallon Worldwide advertising agency, was pitched in 1999 to executives at Citicorp who were looking for a way to lure Americans to financial products like home equity loans.
But some in the room did not like it. They worried that the phrase would encourage people to live exorbitantly, says Stephen Cone, a top Citi marketer at the time.
Still, "Live Richly" won out. The advertising campaign, which cost about $1 billion from 2001 to 2006, urged Americans to lighten up about money, and helped persuade hundreds of thousands of Citi customers to take out home equity loans - that is, to borrow against their homes.
Not long ago, such loans, which used to be known as second mortgages, were considered the borrowing of last resort, to be avoided by all but people in dire financial straits. Today, these loans have become widely accepted in the United States, their image transformed by ubiquitous ad campaigns from banks.
Since the early 1980s, the value of home equity loans outstanding has ballooned to more than $1 trillion from about $1 billion, and nearly a quarter of Americans with first mortgages have them. That explosive growth has been a boon for banks. Banks' returns on fixed-rate home equity loans and lines of credit, which are the most popular, are 25 percent to 50 percent higher than returns on consumer loans over all, with much of that premium coming from relatively high fees.
Household sector indebtedness surged to 133% of disposable personal income by year-end 2007 – up over 40 percentage points from debt loads of 90% prevailing just a decade earlier. It was the height of folly.