WaMu lowers limits on HELOCs

Various blogs have been popping in the past 24 hours with rumors that Washington Mutual would be lowering limits on existing home equity lines of credit. It turns out there is some truth to the rumors -- WaMu is in fact lowering the amount of some existing HELOCs, but not as sharply as some bloggers have predicted. 

Here's a sample comment from the discussion board at Zillow.com:  "Washington Mutual customers are in for an ugly Christmas surprise from their bank. WaMu plans to start reducing existing home equity lines of credit (HELOC) as early as this week without notifying their customers prior to doing so. ... Here is an example of how it will go down. If you owe $50,000 on a heloc and WaMu reduces your limit to $40,000 then you have $10,000 due immediately."

Reality check: WaMu tells L.A. Land that's not true, though it is making some changes in HELOCs. This from WaMu spokesman Alan Gulick: "What you are hearing is part of our normal course of business for the ongoing management of the credit we extend our customers. ... We do have an enhancement to our program going in place this week and we contact customers in accordance with our agreements and as we always do when there is a change to their account. ... I can confirm that we are lowering the excess line amount to a level that is above the current balance -- we did not block or terminate credit lines."

While I'm on the subject, investors are very sour on WaMu at the moment. Its shares fell a new low today, trading as low as $13.50 before closing at $13.54 -- that's a decline of 71% over the past year.

Your thoughts? Comments? Insights? E-mail story tips to peter.viles@latimes.com

Comments

[National Bubble]

Wamu is doing what it can to protect its own interests. They already got burned with the subprime loans. I didn't know that they could legally do this but I guess it makes sense when you think that people keep spending money borrowed against their 2005 home equity which is now 10 to 15% less. They have the right to adjust the loans amounts accordingly

http://www.NationalBubble.com

[Tombstone Realty]

I'm unnerved by it - while I don't have any mortgage whatsoever, most of my regular banking and credit card is via WaMu. I had paid off the credit card already, due to the general overall economy - but now I'm really glad I did. I can see my accounts suddenly having rates/terms changed without notice. It's definitely kiboshed any idea of having CDs at WaMu, though. I don't know if that bank will be around long enough for it to reach maturity. Forbes Magazine says it might be sold off to Chase, since their liquidity/savings levels are really low.

Sad thing is, I don't know what other banks out there are safer. They all seem to be based on vapor.

I may take an old page from granddaddy's book and start storing money in my mattress!

[original thinker]

WAMU just sent me a $75. cash certificate, if I will open a checking account with them?... Current depositers, check your FDIC limits...

[Uncle Billy]

Check yer loan docs, folks. Could be a lot of very small and disturbing print in there about what happens when you go over a certain loan to value based on what they think is the new lower value of your home.

And let's not get into a lot of discussion about runs on the banks. Confidence is low enough. Mob psychology drives about 90% of our economy, and we don't need the mob making it any worse, now DO WE MOBSTERS?

[Cal]

I dismissed the rumor that was posted over on the Zillow board (it originated elsewhere) as the standard internet rumor monger stuff the banks would be going out of business before doing things like it described.

HELOCs were a pretty significant source of defaults in prime borrowers and by reducing the available credit it reduces their exposure. Its a really interesting story if they are doing it on a largish scale. I wonder if they are seeing a spike in the number of people drawing down at once. Or just decided that maybe stated income HELOCs weren't the smartest thing in the world to underwrite and are trying to reduce their exposure.

[l.a.guy]

You qualify for a loan based on set of conditions. If those conditions change (the collateral has dropped in value) then the lender has every right to revise the loan. It's the same reason interest rates can sky rocket on credit cards if you're late on a payment. If you're a bigger risk, the cost of money is going to go up or the amount you can borrow is going to come down. If you don't like, don't agree to the loan in the first place. I'm sure the contracts, in language that is impenetrable by mere mortals, spelled all of this out in great detail.

[jb]

"Wamu is doing what it can to protect its own interests. They already got burned with the subprime loans. "

"they got burned" sounds as though some unfortunate event happened to WaMu. How about they used the full power of highly paid risk management experts to purchase insane mortgages while every non-trained idiot (myself included) was screaming "bubble"!!!!

WaMu should fail. They took on enormous, crazy risk year upon year like crack addicts. Their highly paid suits made millions on the way up, now they must face the consequences on the way down.

Make no mistake - WaMu will be one of the first crying for a bailout. We must not allow this to happen. Other, better managed banks will take their place and a lesson will be learned.

[mattress man]

Who are the banks with the least exposure to this mess
who pay decent CD rates? My credit union's interest is
1.25% APY lower on a 6-month-CD than some of the larger
commercial banks. I need 5 banks to spread out $500,000
on a single individual's FDIC insured accounts of 100G,
apiece. I'm currently with Citibank, Wachovia, Wachovia Del.,
WAMU, and my employee credit union. Countywide was
actually offering the best rate (by a half-point) a month back
but I didn't want to go near them. Any suggestions?

[elmo the expert real estate marketer]

Hey, I just wanted to say Happy New Year and thanks for an excellent real estate blog. Please don't stop writing this stuff it is excellent. By the way, there is an excellent article on real estate at the New York Times here is the link: http://www.nytimes.com/pages/realestate/index.html

God Bless!
Real Estate Professional Websites and Marketing

[Kathryn]

I have a HELOC with WAMU, I'm not at all worried. When I got the HELOC at WAMU, they gave me a line of credit way higher then what I asked for, and when I locked in the rate a year later, they raised that limit even higher, because they had to change something when they locked in the new rate. Don't understand all the details, but what I do know is that WAMU use to give way too much rope for home owners to hang themselves. I'm responsible, but I know a lot of people aren't, and I bet WAMU's starting to wise up and correcting their mistake. If people get a line of credit for all of their home equity, and now there home is worth less, they should make sure people can't borrow so much. I don't think WAMU would or could change the terms of the loan for what was borrowed, but it would seem to be in everyone's best interest if they revised what people could borrow on the unused part of the line of credit.

[xtine]

Hey Mattress--
Have you looked at ING Direct?

[GoldMan]

Matressman,

Buy gold. We'll beat any store's advertised price, or your bullion is freeeeeeee!

[DaveS]

One thing to keep in mind is to not "throw the baby out with the bathwater". For self-employed people, or those with complicated finances (e.g. lots of accounts/assets not just lying) the stated income loan is really the only viable option. As one mortgage gut once told me, 'we treat self-employed people like criminals'. Does this mean we should give NINA loans to retirees on pensions (like the option ARM article profiles)? Reducing financing options will hurt the reeling market especially in high costs areas like California. Here conforming loans are (have haven't been for years) much help.

[jaded]

yes, move your money to ING Direct. I have more than one acct. with them, and have nothing but good things to say. They had among the highest savings/CD rates, it is easy to open and maintain accounts online, and I get no junk mail from them for credit card offers. I will seriously consider them for a mortgage when the time comes because they have good terms on those, too.

I have a WaMu checking acct., and they took themselves out of the running for my next mortgage a long, long time ago.

[El Guapo]

Looks like Dave S wants a return to the credit cocaine that started this mess. I guess withdrawal (pun intended) is too much to bear. The reason conforming loans haven't helped is because NINJA loans artificially doubled the cost of owning a house. Take out the NINJA loans (besides, who are the banks going to sell them to now?) and voila! conforming loans become relevant again - even in California (in about two years).

[Tim K.]

Speaking of rumors, is it true that the LA Times parent company, Tribune Media, is reporting a 40% decline in advertising revenues due to the slowdown in real estate activity?

It would stand to reason that the LA Times is not exactly unbiased in its reporting of the state of the housing market. More information is at the Financial Times today, or you can look up the TXA stock ticker on Yahoo and read the headlines.

[National Bubble]

jb,

I'm not defending Wamu at all. As you said, they took excessive risks and they deserve to pay the price.
However, they have the right to protect themselves. Just because they made a huge mistake in the past and gave loans to people who couldn't afford it, doesn't mean they have to add another mistake by allowing people to keep borrowing against equity that is not there anymore. By the way, it is not just the banks fault, it is also the fault of all those idiots who accepted those loans. I was offered the same teaser rates but I never took them. Even today, I still get offers in the mail to take equity out of my home at teaser rates and I toss them in the garbage right away.

http://www.NationalBubble.com

[Drew]

Wamu does this regularly with all of its other loan products, so no reason to expect they would not do it with HELOCs as well. Are they also raising interest rates on HELOCs, as they frequently do with credit cards? (Wamu is one of the more "aggressive" banks on "managing risk" in this way.)

[Spam]

Stated income folks are usually criminals. They lie to the IRS about their income or they lie about their income on their application. Either that or they sign a paper where their con-artist slimeball mortgage broker has lied about their income and somehow they fail to notice it.

This is becoming obvious to everyone and this is behind most of the sob-stories we are reading about idiots losing their houses.

One or more of these banks is going mammaries-vertical before this is over.

[Leavin' LA]

Spam: you're an idiot. Many did lie. But I also know plenty of good people who went stated and actually used their real numbers -- writers, sales execs, small business owners.

Sweeping generalizations like yours are the last bastion of the uninformed and trollish.

[Spam]

Why would a writer, sales executive, or small business owner not be able to to document their income?

[stever]

After this bubble, we will get to see the Dow hit 5,000! Everything is overpriced! Can't wait for stocks to tumble with houses, they all deserve it.

[Joseph C]

"Why would a writer, sales executive, or small business owner not be able to to document their income?"

Because writers, sales execs, and small biz owners don't get regular monthly paystubs showing a "fixed" income -- which is needed to apply for a traditional mortgage...

[joeinlosangeles]

The Tribune Company reported that in the third quarter real estate classified ads fell by 26%. (Help wanted fell by 19 percent, and auto by 10 percent). Overall ad revenues decreased 9 percent in the quarter for its publishing division.Without question, the real estate decline is hurting newspapers.

--Speaking of rumors, is it true that the LA Times parent company, Tribune Media, is reporting a 40% decline in advertising revenues due to the slowdown in real estate activity?--

[Spam]

"Because writers, sales execs, and small biz owners don't get regular monthly paystubs showing a "fixed" income -- which is needed to apply for a traditional mortgage..."

They all pay taxes, W2s and paystubs are not the only way to prove your income.

Banks and the government agree with me now, stated income liars should get lost.