Squeeze: Lenders pulling back on HELOCs

News item just breaking on LATimes.com: "Tens of thousands of homeowners with home equity lines of credit are getting a rude surprise: They’ve been told by their lender that they can no longer take money out on their credit lines because sinking home prices have put them 'upside down' on their mortgages.

More: "Countrywide Financial Corp. sent letters to 122,000 customers last week telling them they could no longer borrow against their credit lines because the total debt on the home exceeded the market value of the property. The lender says it is using computer modeling to determine which of its customers would have their cash spigot shut off."

Tell us about it: Have you been told by your bank or lender you can no longer borrow against a credit line? If you have, and want to tell your story to the LATimes, click here.

Comments, of course, are also welcome. Let loose. Email story tips to peter.viles@latimes.com

Comments

[mike]

good. you can't lend money on an upside down asset without creating huge problems. i will be happy to rent to any former homeowners at an elevated deposit rate. afterall what are we if everyone has the same credit score.....communitst maybe?

[NationalBubble.com]

This is an interesting video that explains how the mortgage mess started and how the latest changes are impacting the average homeowner.

http://www.nationalbubble.com/how-the-mortgage-
mess-started/

[MyLessThanPrimeBeef]

Not to perpetuate 'Der Ewige Araber' (The Eternal Arab) stereotype, but I just got a call, in Arabic, telling me that I have used up my credit and that if I want to spend more, I would have to work as a maid in the shining man-made city of Dubai.

How did I know since it was in Arabic? It's becuase I have an universal translator I found on the Star Trek set.

[Uncle Billy]

Anyone notice that the new banner ad showing up at the top of the blog now (edging off Pardee Homes and Standard Pacifiic Homes) is.... Levitra, an anti erectile dysfunction drug. Yup.. that about sums it up.

[RC]

"This week, California homeowners can tap as much as 90% of the equity in their homes. Starting Monday, however, Chase won't let homeowners in certain parts of the state -- including Los Angeles, Orange and Imperial counties -- borrow more than 70% of the value of their homes."

So this seems to mean that Chase pretty much believes that home values could go down by as much as 20-30% more in SoCal.

[Mike S]

Long overdue. Surprise more rollbacks didn't occur starting in 2006.

[Keith - LetItSink.blogspot.com]

Countrywide and the rest of the banks can't be blamed for doing what they have to to protect their own best interests. Of course, this should put people's minds to rest about walking away from their homes if they are upside down, even if they can pay.

To follow the tone of the banks, each person should do a financial analysis of the situation, follow his contract to the letter, and do what is best for himself. It's only business.

I am advocating that home owners walk away from their homes if it suits them on my blog - LetItSink.blogspot.com.

[CD]

woahhh,no more beamers,no more SUVs, no more trips abroad, no more $2000 Louis Vuitton bag ??????

[Joseph...The Real Estate Guy]

Could they be creating more of a problem for themselves by injecting Negativity into the marketplace?

Just a thought!

[Laura]

They'd probably be doing these home "owners" a favor

[JBA12621]

I think this is a good idea. These people probably are still way over extended and will probably loose their homes anyway. Me and my husband bought a 2 bedroom townhome in 2005 and can't wait until prices drop enough that we can afford a real home with a yard. Hopefully, this will help us get our wish faster.

[Mary C.]

Why should the banks be responsible for keeping "negativity" out of the marketplace? It's more like reality. It probably was and is irresponsible to offer home equity loans and lines up to that much value of the property, anyways. Even 70% is risky. If the homeowner can't meet the loan payments, then eventually the bank will have to take possession of the home. I don't think banks need anymore foreclosed properties on their hands than they already have due to first mortgage failures.

[Laker]

Might be a little off but since i saw Countrywide i remembered they had the home auction for LA last weekend using REDC in downtown LA.
Did somebody from the blog attended and mind to give some sale prices for properties.

Thanks much
Laker.

[Kaye Thomas]

My understanding is that it will wind up being all banks and they are doing it by area /county not zipcode. If they determine values in an area have fallen they will freeze the HELOC.. There is an appeal process per the lender. There may be a few lawsuits against lenders as this may be a violation of the agreement.

[Cal]

I loved the marketing remarks for this home on the MLS:

"Marketing Remarks: SHORT SALE!!! Very Nice 3 and 1.5 with 2 car garage. Garage has workbench and plenty of storage cabinets. Very large backyard with private garden, excellent for planting your fruit and vegetables. Home is in a desired area in Simi Valley close to shopping, parks and recreation. STOP RENTING AND START OWNING.

INVESTORS***** Owner would like to rent home from you so you don't have to chase down a renter...
Call Dennis Roczey At 661-492-6411 For More Information Or To Show"

STOP RENTING AND START OWNING. Because as we can all see the joys of home ownership really worked out well for the former homeower / soon to be renter. Too funny.

[Willie]

Sorry, cannot complete the transaction at this time due to insufficient funds. The ATM then sucks up your card and advises you to speak to an agent.

[anon1137]

It's astonishing to me how many people, in these stories about distressed homeowners, are people who actually work or used to work in the real estate industry. Talk about a house of cards! Most of the "victims" of this mess are none other than the people who profited from it in the first place.

[Brian L.]

"My understanding is that it will wind up being all banks and they are doing it by area /county not zipcode. If they determine values in an area have fallen they will freeze the HELOC.. There is an appeal process per the lender. There may be a few lawsuits against lenders as this may be a violation of the agreement." - K. Thomas

The HELOC freeze letters hit the greater Chicago metro area, too, where properties in high demand areas are NOT in decline; they continue to appreciate.

The terms of the HELOC agreement usually state that the lender can suspend or restrict the HELOC if: "the value of the Real Property declines significantly below its appraised value for the purpose of my Account." - NOT some properties in your general 400 sq mi area have declined in value, so we believe yours has declined, too.

This is clearly a violation of the agreement.

There will be a lot of lawsuits.

[Bob Field]

I had my Indymac Bank Heloc frozen this week. A form letter stating the value of the property had been adversely affected and the appraised value was less the the originating loan appraisal value. No one to call who had any answers. They hoped I would continue paying them though. I said, if someone doesn't call me back they can stick their payment where the sun doesn't shine. They have not called me back. Countrywide has the frist, and they said the 8 acre property with 2 homes that sold for $740k Aug 2006 was now worth $631k according to their appraisal program. It lost 14.5% in value, but they said 11.5 % of it was lost since Nov 2007.Our zip code is 94952 in Sonoma County. It appears that there is very little chance of getting a new loan right now. No one can meet the requirements of the banks these days. I think everyone should just stop paying the mortgaes, and see what they do then. It cost more to forclose then the homes are worth.
Motor home here I come. Under gound society here I come. Screw these bastards.

[Dave P]

I am in New York, not California, but I stumbled on this thread after receiving one of these letters and wanted to add my two cents. I will share the text of a letter I wrote to my representative and the state banking regulators after spending an entirely frustrating half hour listed to Chase give me the run around this morning after they shut down a HELOC that had NO MONEY OUTSTANDING.
I am writing to raise my concerns about Chase Bank's cancelling HELOCs (Home Equity Lines of Credit) based on arbitrary re-evaluations of home values. In a climate where banks are receiving billions of dollars from the government, their failure to reasonably extend such credit should be subject to scrutiny. I recognize that it is in Banks' best interest to protect their loans, and that there has been a drastic rise in HELOC defaults, but there should be a rational basis for the valuations these decisions are ostensibly based on. In my case, I was informed that the home I purchased last year for $875,000 (which was then appraised for $885,000) is now worth $520,000, a reduction in value of some 40 percent. There are only a handful of counties in the United States where values have fallen so much in the previous year, and none are in Manhattan.

The FDIC, in a guidance letter on the subject last updated on June 26, 2008, stated that "Although full individual appraisals need not be obtained, institutions should have a sound factual basis for determining that a property has experienced a significant decline in value." Chase used the "MDS" automated valuation method to arrive at the 40 percent reduction in value of my apartment over a year where leading New York City based concerns, such as REBNY, show market fluctuations over the last year in the single digits. I would argue stridently that regardless of the workings of the MDS system, the result strongly suggests that there is no such "sound factual basis" for the decision.

It is also worth noting that this action was taken with no advance warning whatever (in fact, I received the letter informing me of the freeze a week after my HELOC was frozen, which could easily have led to delinquencies) and that my only redress is to pay for a new appraisal, which Chase may or may not accept.

I appreciate that there are many pressures on your office related to the financial crisis, but I think in a climate where virtually everyone supports the idea that freeing rational access to the credit markets is a vital component of any recovery, Chase's actions in my case (and, undoubtedly, for many thousands of others) fly in the face of economic, political and rational considerations.

[Michael Walsh]

These letters are still going out to solid, creditworthy, and current borrowers, with lots of equity in their homes and no negative changes in their financial circumstances.

Check out my blog for all the gory details of our situation, including violations of the Truth in Lending Act.