Now you have some hard thinking to do. Because you bought very close to the peak of the housing market, you believe your home is still underwater. Do you take a chance that your local housing market will strengthen and allow you to eventually rebuild some equity? You hadn’t given that any thought when you bought the house.

However, you have noticed that there are now lots of homes on the market in California and sales have slowed. Prices seem to be weakening also. What if that continues? You have read about how the market has been supported by all those cash buyers, but they have pulled back recently. What if that continues? Who will buy your house? You have noticed that couples in their 20s complain that they cannot afford to purchase a home.

Suddenly it hits you. You realize that your lofty price expectations in 2005 were a mere fantasy. Unfortunately, you are stuck with the awful burden of decisions you made that year.

You’ve read that Wall Street believes the worst is over and the housing market is “recovering.” Your gut tells you otherwise, so you ask yourself this question: Again, if this optimism is misplaced, what will happen to my financial situation? Do I really want to continue paying off these two burdensome mortgages for the next 15 years?

May I suggest that millions of homeowners will be asking these questions over the next couple of years? Do you think that mortgage servicers or Wall Street analysts have any idea what percentage of HELOC borrowers from the bubble years will decide to default? I doubt it.

However, we do have a good sense of what might be coming. A HELOC that converts into a fully amortizing loan becomes very similar to a home equity installment loan (HEIL). These are fully amortizing second liens collateralized by the property and have a fixed monthly payment. HEILs were very popular until the HELOC madness began in 2004.

How have they fared during the post-collapse period? Not well at all. According to Equifax, there was roughly $275 billion in outstanding HEILs in March 2008. That figure plunged by half to $134 billion as of April 2014.

Why? Have 50% of all the outstanding HEILs in 2008 been written off by the lenders? No. Some were consolidated and rolled into first mortgages when the homeowners refinanced. Based on Freddie Mac figures, this amounts to roughly $60 billion. This leaves about $80 billion on which borrowers defaulted and which has been written off by lenders.

Why have these loans done so poorly? Because interest rates on bubble-era HEILs were much higher than the HELOC rates—typically 7% to 9%. Also, as amortizing loans, HEILs had much higher monthly payments than the interest-only HELOCs did. So borrowers defaulted by the millions. And because these were second liens, the lenders could do little else except write them off.

Does that mean the worst is over for outstanding HEILs? No. The Federal Reserve Bank of New York reported that as late as mid-2012 more than 9% of all outstanding HEILs were seriously delinquent. That is much higher than the delinquency rate for HELOCs.

I suggest that because a HEIL is so similar to a HELOC, which converts into a fully amortizing loan, it is very likely that default rates for resetting HELOCs could be as bad as the track record for bubble-era HEILs or even worse.