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.

[Leavin' LA]

Spam: No, they don't -- I still get a dozen or more lenders a week offering stated loans. You should get a clue, then go back to your rental cave.

[Spam]

Why pay more for a stated income loan if you actually make that much money?

If people can't prove their income do they send the IRS a letter every year that says "I don't know"?

[Dominic Smith]

Spam, you just have it in your head as you dreamed it up and the facts aren't going to change anything, right?

I've done stated income each time I've done a loan. I don't lie, I don't cheat on my taxes either. Some of us have roller coaster incomes, My Fico is 850.
I always honor my contracts .
I don't share any more of my personal data with lenders than the lender requires at a minimum. I don't let the credit companies sell my data for offers either.
I don't do business with nanny lenders, and the 1/8 % difference in the cost of the loan is worth it to me.
Not all of us fit in your narrow world.

[Rob]

WaMu just sent me a letter limiting my $500K HELOC to $346,000 (my balance is $344,00) thanks WAMU, that's what I get for paying my loans on time. Never late on anything!!

[dlcooper]

WaMu just sent me a letter dropping my $190K HELOC to $74K. I just signed $110K of remodeling contracts and was going to use our HELOC to pay for it. Now what to do?

[Taylor]

What WaMu doesn't tell you is that if you'd like to get your HELOC reinstated, you need to use only the one appraisal company they have selected on your own penny which is non-reimbursable. It seems like a conflict of interest to me.

Also, they will not disclose the assement they used for justifying the reduction of credit limits which contradicts the truth in lending laws. The fact is that the value of our home has increased because of improvements, and now I'm out $400 for the new appraisal (I have no idea what it's going to say, since they work for WaMu), and the stop check fee for a check I sent out in the mail the same day I got the letter of the reduction, which they refused to waive.

I'm waiting to hear about a class action lawsuit so I can jump on board.

[Chris Shaw]

Though they are written providing notice, WAMU has now begun reducing lines in FL. I received notice this week basing the decision on "a significant decline in the value of my property". However, how "significant" is defined cannot be determined, since WAMU, through their loan care center in TX, stated that they will not provide the "updated value" they are relying on to make this decision. Do I not smell a regulatory compliance issue here? The language included in my orig. loan documents define the basis of a "significant decline" as the value they relied on at the time of application - which was never provided to me as the borrower. Again, misleading. In addition, should you want to dispute this action, you as the customer, are required to pay for the cost of a full appraisal, which would cost $200-$300. Once again, a requirement that was never included or stated in the original loan documents. Is WAMU possibly making these rules up as they go? And none of this is helping those WAMU borrowers who are and have faithfully met their obligations to WAMU without issue. In fact, you are likely being double penalized because as they reduce your line, your utilization rate effectively increases which will likely have an unfavorable impact on your overall credit score. Nice. Beware - folks, things with WAMU are not as they may seem. Make their primary regulator, the Office of Thrift Supervision, aware of it. Send your issue(s) regarding WAMU to The Office of Thrift Supervision Consumer Affairs Department, Western Regional Office, P.O. Box 7165, San Francisco, CA 94120, visit WWW.OTS.TREAS.GOV (Consumer Inquiries), or call the OTS at 1-800-842-6929.

[JP]

WAMU just sent out letters in the Chicago area. After a very emotional phone call (our limit was reduced by $11,000, wiping out our ability to pay our final payout on our 100K addition), the rep informed me that we just needed to have our house reappraised and, as long as the score came up "higher" than the computer program ("...even a few hundred dollars would be okay, Ma'am"), we could get the full, original limit amount reinstated. After further questions, I was told my new appraisal amount (which doesn't seem to match what I've been tracking). Interesting that we can only use an appraisal THROUGH WAMU to get our limit back...I think there's something fishy here, too!!

[Anderson]

We returned from vacation last week to find a letter from WaMu stating they dropped our HELOC from $155K to $43,600 - citing an updated appraisal and declining home value. No warning. We own a 2 year old condo in Belltown in a sought-after building. While prices are not climbing like they were 2 years ago, they are holding their value and certainly not declining proportionate to this cut. My personal banker is avoiding me and I'm not getting a straight answer when asking for a copy of the new appraisal. We only just applied for this loan a year ago. More importantly, we are trying to refinance 2 other properties in addition to this one, and we now have an unfavorable debt to credit ratio (we have a $35k balance). They said it wouldn't show up on our credit score but our lender found it and said our score has taken a hit for it. I'm seething. I've banked with them since I was 14, and my husband and I have 12+ accounts with them, from business to personal, checking, savings, credit cards and loans. Waiting for a class action suit and looking for a new bank in the meantime.

[Anderson]

We returned from vacation last week to find a letter from WaMu stating they dropped our HELOC from $155K to $43,600 - citing an updated appraisal and declining home value. No warning. We own a 2 year old condo in Belltown in a sought-after building. While prices are not climbing like they were 2 years ago, they are holding their value and certainly not declining proportionate to this cut. My personal banker is avoiding me and I'm not getting a straight answer when asking for a copy of the new appraisal. We only just applied for this loan a year ago. More importantly, we are trying to refinance 2 other properties in addition to this one, and we now have an unfavorable debt to credit ratio (we have a $35k balance). They said it wouldn't show up on our credit score but our lender found it and said our score has taken a hit for it. I'm seething. I've banked with them since I was 14, and my husband and I have 12+ accounts with them, from business to personal, checking, savings, credit cards and loans. Waiting for a class action suit and looking for a new bank in the meantime.

[Alessandro Machi]

Telling someone their home is "worth" 10 cents on the dollar is somehow protecting the banks?

That is nuts.

The solution is to limit the amount taken out per month rather than the total HOLEC to only 10%. Whomever came up with the 10% HOLEC solution is an imbecile who should not be in charge and someone with way too much power.

[E]

You want your "equity"?

Sell your house.

You want a nest egg?

Save.

[Wisecat Willis]

WAMU reduced my HELOC credit from 185,000 to 135,000, of which I have a balance of $127,000. Sure glad I consolidated those credit cards BEFORE they reduced my line, or else I wouldn't have had that option anymore. And darnit, I shoulda bought that $20,000 car I was thinking of getting right before they made this move. But I took a couple weeks to think about it (being prudent) and now I don't even have that option. I have to keep driving my $700 piece-of-crap car, until the wheels fall off.

Thanks WAMU. Sheesh

[MARK J LANDINO]

WE JUST TOOK OUR $25,000 CD MONEY & PUT IT TOWARDS OUR LINE OF CREDIT JUST A FEW WEEKS AGE.

BECAUSE THE CD INTEREST WAS MAKING LESS THAN THE INTERREST ON THE LOAN OUR PERSONAL BANKER SAID TO DO THIS.

THEIR ANSWER WAS IN AN EXTREME TIMES TOU CAN STIILL PULL WHAT YOU MAT NEED OUT OF YOU HELOC. WELL THEY JUST LOWERED BY HELOC BY ABOUT $25,000.

I COULD AFFORD THE PREVIOUS MONTLY PAYMENT ON THE HELOC BUT THEY SAID PAY IT DOWN WELL WE DID NOW MY FAMILY HAS NOTHING BUT A FEW THOUSAND TO FALL BACK ON.

I WANT BY MONEY IN MY CD REINSTATED & THE BALCANE OF MY HELOC BROUGHT BACK UP TO WHERE IT WAS BEFORE OUR PERSONAL BANKER AT WAMU SUGESSTED ALL OF THIS.

IM A REAL EASTATE APPRAISER & RESEARCHED MY MARKET WHIC IS HOLDING STRONGLY. THE REAL PROPLEM HERE IS THE BANKS FOR USING "ATVM's"

TO FIND A HOUSE VALUE. US APPRAISERS USED TO TO THIS BY INSPECTION, BUT DOING IT THE BANKS WAY SAVED THEM A LOT OF MONEY & TIME! WHERE ARE THEY NOW! THE ATV' S DO NOT KNOW CONDITION, ANY REMODELING OR ANY OF THE MAIN FEATURES OF THE HOUSE ALSO MANY TIMES THE INFO ON THE HOME IS ENTERED WROUNG.

I HAVE ALREADY DID SOME APPRAISALS FOR WAMU THU A APPRAISAL MANAGEMENT COMPANY FOR PEOPLE WHOSE EQUITY LINES HAVE GONE SOUTH.

WELL WHEN I INSPECTED THIS HOUSE IT WAS COMPLATELY REMODELED, THE SF OF THE HOME WAS NEARLY 300 SF LARGER. DID THE "ATV" KNOW THIS OF COUSE NOT. ALSO I PLEASE TO ALL YOU WONERS OUT THERE DO NOT USE ONLINE SERVICES SUCH AS "ZILLOW" AS MOST THE TIME THEY NOT EVEN CLOSE TO VALUE +/-.

THANK YOU
MARK J LANDINO
IF ANY OF YOU WOULD LIKE SOME MORE INPACT ON THIS STTUATION PLEASE FEEL FREE TO E-MAIL ME AT MJL20@COMCAST.NET
I LIVE IN CLARK COUNTY WASHINGTON

[Cal]

WAMU took his HELOC and his caps lock key.

Now that is cold.

The HELOC story is so fascinating, there are thousands of personal stories floating around blogosphere. It always boils down to "My house isn't declining" and "They took MY money". The way people think of debt has just changed so much in the last ten years, we as a nation are clearly addicted to it.

[wha]

WOW IF THAT IS THE KIND OF QUALITY PERSON YOU CAN TRUST TO APPRAISE A HOUSE THEN WE'RE GOING TO BE IN SOME DEEP SHEETS... OH WAIT WE ALREADY ARE.

[E]

Clark County WA? That's like the CA IE.

Sorry. Your value has fallen.

Per Zabasearch, Zillow and the Clark County property records it appears you completed a couple nice flips over on 163rd Ave. back in 05.

Props!

You made your profits. Now stop your complaining.

[Another Customer That Will Move And Never Come Back]

Wamu just lowered two equity lines I have with them. One from 380K down to 251K and the other from 250k down to 147K. I have a credit score of 830 and have 4 accounts with WAMU. I am in the real estate business and their appraisal on the first house is off by 110k and off by 90K on the other house. When I got the Equity Lines the representative swore this would not happen. I will be glad to join a class action suit...sign me up. I will eventually move my accounts away from them and never come back. I do this to companies that do this type of business. I will love it when in the future they ask me to come back and I can tell them where to go...

[Already in Idaho]

I had four loans through WAMU and one HELOC for four homes. Three (investment prop loans) have been moved to a another lender while the HELOC and primary remain with WaMu. I paid the line down from $38K to $18K before tapping it once again back up to $38K. Now we will slowly pay this puppy off...not much incentive to pay more than the minimum since the balance is at 5%.

My fear is that I find out after the fact that my LOC has been cut in half and that 50% of the balance is due "immediately." Could this happen? I hope not. I would hate to liquidate any of our stock holdings.

As to Laker, all our homes were bought in 2005-2007. Four of them. Three loans are 30yrFRM with an average rate of @5.65%, including two investor homes. One loan is a 15yr FRM @5.25, an investor home. Our houses were reappraised in Feb 2008 for refi and came in at 99% of the original purchase price. Not great relative to a number of investments we have but far from the gloom and doom. No house will ever get to foreclosure. Instead, we are very pleased, despite the terribly scary news out there.

BTW, Idaho is beautiful and while not immune, it is a far cry from the insanity that characterised(es) the Calif market. While we were priced out of Calif (we were partial to Santa Cruz, Foster City), we were very happy and grateful to have hitched our wagon to Idaho. We have no regrets and would not return other than for visits to relatives.