The national news has carried warnings that several household-name banks have been freezing, reducing or otherwise restricting Home Equity Lines of Credit (HELOCs).
There have been stories about the more hard-charging, riskier lenders (Countrywide, WaMu) cutting back, as well as new limits being imposed by Bank of America and Chase.
This was one of those phenomena that we, frankly, assumed was a bigger problem outside MB than here in town. And then a loyal reader asked for help using MBC data to back up a rough, conservative estimate of his home’s value. Why? To tell the bank how wrong they are about the home’s value, so they’ll unfreeze the HELOC.
That freeze, the bank’s letter said, was allegedly due to a decline in value. However, in that case, the real underlying issue seems to be the bank’s growing problems, and resulting extreme conservatism, not the home’s value or our reader’s LTV ratios.
From that anecdote we spin out to a new MBC poll of a different sort. Tell us: How’s your HELOC? Vote in the poll and tell a part of your story in the comments.
We’re really looking for homeowners with HELOCs to respond, but we’re offering choices for others, too.
No doubt along the way we’ll hear about which banks are cutting back on credit and which might still be offering it to those whose HELOCs are frozen or too restricted with their current banks. We welcome your input, even borderline advertising, as to which local, reputable lenders might be worth considering for those who need a HELOC or want to move theirs.
Poll closes Wednesday night at 8pm.
Monday, May 12, 2008
How’s Your HELOC?
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28 comments:
I am surprised anyone in the 90266 would have their HELOC frozen. This recent action by banks was typically focused by zip code (ie. Zips in sub-prime exposed areas). If banks froze 90266, then they must be in deep doo-doo.
Mine was frozen. I had to laugh, considering I have a zero balance and my LTV is 55% on a home built in 2005. Indymac is the lender. I didn't bother calling them to ask questions, because I don't use it, but now I might have to see what they say.
Wells Fargo called me 2000 times to open one up. Applied just to get them off my back....they turned me down. Coudn't stop laughing, as my LTV is 30% and much of my liquidity is with WF.
I paid off mine with Wells last year. Even in 2005 when I got it they seemed very conservative in their appraisal of our home's value. (LTV was not an issue.)
It was annoying but of no consequence because I needed only so much for renovations and then we paid it back.
I have always thought Wells would not be too deep into this problem because of my experience thinking they were so cautious at time of a hot market when it came to values.
BoA has not canceled ours, but we have 80% equity in the house backing it up and the line is only a small fraction of the house price (let alone value). We mostly opened it for tax deduction purposes, and like 3:00pm there is no balance on it so they can have it if they want it.
The banks are eating their own seed corn right now, about as clueless at business decisions as any industry I've ever witnessed. Next time we need a loan, if we ever do, I think we'll look at a credit union, even if the rates are worse, at least you know the "profit" will get turned around into the local community instead of disappearing into the cavernous, windswept alley called Wall Street.
For anyone is interested, most of the large lenders are offering the borrowers with frozen HELOC's a "real" appraisal to prove equity still exists, if they are interested. Of course the borrower must pay for the appraisal and the appraiser is chosen by the lender.
From what I have heard, Kinecta credit union is still offering HELOCs at a rapid pace in comparison to all the other lenders. Still nothing like prior to June 2007.
Ours was closed out due to inactivity.
HELOC's being pulled has nothing to do with zip code, and everything to do with leverage. Those with small amounts of equity, buyers within the last 2 years that put little down, could have little borrowing capacity left.
It really has more to do with the Bank's balance sheet. They are getting nailed, so they have to limit their exposure. They can't really go out and appraise ever house linked to a HELOC. Read LA Times Biz section today. Might enlighten 5/12 3pm.
I have a HELOC thru WAMU that was opened a couple years ago. They originally did a computerized approval (probably took a whopping 5 minutes to receive approval), and were quite aggressive in the appraisal value and subsequent high loan limit they approved.
About a month ago, the credit line was reduced by roughly 70%. I called them and was told that their computer-generated updated appraisal indicated that the value had dropped - basically 30% from the indicated value 2 years ago. Nothing more, and no individual reviewed any of the data or ever visited my property.
Granted, the original appraisal was on the high side but the re-appraisal is definitely too low (probably at or below land value). I asked WAMU if someone would like to actually "see" my property and all the improvements made to it. I was told that I could pay for their appraiser to come out and perform a new appraisal. Pretty sure they'd ensure the new appraisal figure to be too overly conservative to result in an increase from the new level.
Interesting how recourse loans are being reduced without much consideration to the underlying collateral or additional assets owned by the borrower.
WaMu just cut mine from $200K to $60K
with the reason being the drop in value of houses in our zip code. I put a 30% down payment on my house and have never carried a balance on my HELOC. This is clearly a case of a bank that is way overexposed trying to reduce their "exposure". Another example of good borrowers being unfairly treated based on the actions of criminally negligent lenders and borrowers. WaMu handled the entire situation about as bad as can be imagined. I would not bank with them again under any circumstances.
B of A has not pulled or limited my HELOC (the balance is less than 1% of the credit line and there is plenty of equity), but I would be really pissed if they did. The main reason people have these things is to smooth out the roller coaster income flow that comes with running a business.
It is interesting to see how fast the market has changed. About a year ago, my banker offered me a HELOC on my vacation home. I said no. What a joke - no wonder the banks are having trouble.
ben,
Your situation mirrors mine almost exactly. I had a $210k Wamu line reduced to $63k (identical drop). No notice given, and no good explanation.
I also told the Wamu manager that I would not do future biz with their company - though I doubt they even care at this point.
Anonymous 5/12 5:52 you have no idea what you are talking about. You are jumping in just to jump in. It has nothing to do with borrowing capacity and everything to do with the bank's exposure. Since WaMu had the most exposure to the sub-prime mortgage issues it makes sense they are the most aggressive about lowering HELOC's.
Good article on WaMu
http://biz.yahoo.com/bizwk/080430/apr2008bw20080429807279.html?.v=1
I am a local South Bay Appraiser (I only work the South Bay) with over 30 years in the business. The feedback I am getting from the lenders I work for is they are running AVM (automated value models) based on zip codes or sometimes Zillow. This gives a very broad value range and does not take into account individual market areas. As a result the "valuations" given to the borrowers are often not indicative of the true value of the property being valued. If your HELOC has been reduced/frozen or you feel you are a victim of a less than acceptable appraisal (Out of area appraiser, inexperieced appraiser, etc.) I might be able to help. I can be reached at
LA2427@Adelphia.net
I agree we need to help all the victims of this great heloc reduction travesty with immediate re-appraisals by city approved local appraisers...a class action lawsuit must be filed against the banks asap for putting property values at risk of declining.
clearly the banks do not understand the true premium of mb real estate...they are applying macro banking policies on a zip code that we all know is not exposed to the same troubles of the rest of the socal market.
let's be honest it's nonsense to think mb a homeowner could pose a credit risk on a line of credit.
Just shows what a Mickey Mouse market we're in when banks are using Zillow for values.
Zillow is wildly inaccurate.
if my first mortgage is 1 million and my house is worth 4 million (down from 5 at the top)
and i get a heloc is the interest deductible or is it not deductibe since i already used the one million?
union bank sticks out as one bank that is slightly more aggressive in its lending practices in this environment. not a surprise if you figure it's owned by a japanese bank - their credit chain probably isn't as paranoid as that of wall street banks...
Not deductible. If you really own a $4M house, I think you would have known that.
I just received a notice from Chase reducing my credit line from $75,000 to $2000. Even with the new appraised value (compared to that used to get the original approval) it is clear that they change the allowed combined loan to value ratio. Initially it was 90% and now it is 80%. So not only are the appraisal values coming down, but the banks are changing the rules.
I take issue with the guy that stated his HELOC with WAMU was cut and he was "Pretty sure they'd ensure the new appraisal figure to be too overly conservative to result in an increase from the new level."
Please be assured that the appraiser who would come out to "see" your property would have no idea what your prior value was unless you told them. The appraiser would value your property at a "fair market value" and nothing more or less. Your lack of confidence in the appraisal industry saddens me....
I have a $250K HELOC with Chase (initiation date 8/07) and a $250K first. I assume that I have not heard from Chase because even with worst case scenario on MB property values, I would still have better than 40% loan to value.
http://sanfrancisco.bizjournals.com/sanfrancisco/stories/2008/05/12/daily49.html
WaMu reduces home equity credit to homeowners
San Francisco Business Times - by Kirsten Grind
Washington Mutual Inc. has slashed or suspended $6 billion in available home equity credit to its customers in an effort to reduce its risk in a flailing housing market.
If they haven't already been notified, WaMu's customers across the country will learn of the change to their credit availability in a letter mailed to them in the next several days. The bank declined to disclose how many customers will be affected.
If a borrower's home has depreciated -- regardless of credit history -- the line of credit will likely be reduced because the equity has fallen.
WaMu (NYSE: WM) joins other big-name lenders such as Bank of America (NYSE: BAC) and Countrywide Financial Corp. (NYSE: CFC) in reducing its home equity lines.
"It's not surprising to me that they're doing that," said Joey Warmenhoven, senior vice president of trading for Seattle-based McAdams Wright Ragen, who specializes in small banks across the country.
"Part of the big write-downs for all these banks has to do with home equity lines," Warmenhoven said.
The Seattle-based thrift reported $1.1 billion in bad home equity loans and lines of credit in the first quarter, up 35 percent from the same time the previous year, according to a recent regulatory filing.The company saw a total of $9.2 billion in nonperforming assets for the quarter, or about 2.9 percent of its total assets. Nonperforming assets are a measure of bad loans.
Home equity loans, while lumped together in the company's financial reporting with home equity lines of credit, will not be affected, said WaMu spokeswoman Darcy Donahoe-Wilmot.
Home equity lines of credit allow the borrower to pull from the equity of a home, and typically come with a variable interest rate. Home equity loans, according to WaMu, are different because the borrower pulls out all the equity at once, and it typically comes with a fixed interest rate.
"It's an effort to protect the borrower as well," said Donahoe-Wilmot. "We don't want them to have a line of credit that's higher than the value of their home."
According to a statement released by the company: "We will continue to evaluate home equity lines of credit in relationship to the amount of equity a customer has in their home and, if appropriate, will lower the line amount according to WaMu's line management guidelines."
WaMu's decision will affect consumers who were relying on home equity lines to finance major purchases, said Warmenhoven.
"So much of the spending and growth over the last several years has been tied to people using equity out of their homes," he said. "It's access to money that's no longer there."
In its statement, WaMu said the bank "has a process in place" for customers who want to appeal a decision on a credit line decrease and it will assist homeowners who have "unique or special situations."
Live in Western NY, and on 5/19/08 received a letter from Chase Bank reducing my HELOC limit by 40% to just above my outstanding balance. No warning, and only vague references to drops in property value given as reason. This HELOC was just increased last year by the bank at my request, after THEIR appraisal of my home value. Now to appeal I am expected to get an appraisal at my expense. I'm considering applying for a HELOC at my local credit union instead and buying Chase out. The internet is full of references to this going on all over and with all different banks. Many people had outstanding HELOC checks that bounced. Luckily not me. I'm just stuck in the middle of major renovations without financing for further work.
We are investigating several home equity line of credit (HELOC) lenders for their practice of freezing HELOCs based on claims of reduction in property values without obtaining actual appraisals to substantiate the decline in value. This practice may violate state and Federal law as well as the terms of HELOC policies.
If you would like more information regarding our investigation or have any information that you would like to share please contact Noah Sacks at noah@moginlaw.com or call toll free 888-557-2545.
This post may be considered legal advertising. No legal advice is offered and no attorney-client relationship or duties are created or intended. Attorneys are licensed in California.
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