Because many of these borrowers may be experiencing financial difficulties, the guidance from agencies such as the Federal Reserve System Board of Governors, the FDIC and other bodies recommends establishing modification programs which are “consistent with the nature of the borrower’s hardship, have sustainable payment requirements, and promote orderly, systematic repayments of amount owed,” says a joint statement from the agencies.

Fearful of massive delinquencies, the regulators insisted that the servicers “provide payment terms that are sustainable and avoid unnecessary payment shock.” However, they also wanted to avoid a repeat of the mess caused by interest-only HELOCs and first mortgages. So they strongly urged servicers to “avoid modifications that do not amortize principal in an orderly and timely fashion.”

That sounds sensible. Unfortunately, the goal of avoiding unnecessary defaults conflicts with the insistence that the terms amortize the loan over a reasonable period. The Equifax chart makes it clear how much additional burden a reset to a fully amortizing loan will place on these homeowners. Between now and 2017, the average payment increase will grow each year, even if rates do not rise.

It is useful to put yourself in the shoes of a typical borrower whose HELOC is about to reset. Assume you purchased a home in California for $500,000 in early 2005—not at all unusual. Millions of bubble-era HELOCs were taken out in that state alone. Because home prices were soaring, the banks encouraged you to take out a HELOC for $100,000. You would only have to pay interest on it for 10 years. You figured that by then the house would be worth much more than you paid. It was too good a deal to pass up.

You put very little down when you bought the home, which was customary during these years. Your HELOC interest rate was set at 2% over the prime rate. Although rates were rising in 2005 and 2006, you were saved by the Fed’s efforts to push rates down after the credit collapse. Because the prime rate has been declining, your monthly HELOC payments actually went down. With today’s prime rate of 3.5%, you are paying only 5.5%—or roughly $458 each month. Fortunately, you’ve been able to handle that without too much difficulty.

But now, your HELOC servicer notifies you that the reset is coming in six months. Uh-oh! You had totally forgotten about that. With a reset to a 5.5% loan that fully amortizes over 15 years, your payment will soar to $817. That hurts!

You respond to the servicer’s help line and explain that this $359 per month increase would be very burdensome to you. Politely, you are informed that the best they can do is lower your rate to 3% for the next five years, which would reduce the payment jump to only $232.