In a bind, WaMu squeezes HELOC borrowers

I reported back in December that Washington Mutual had confirmed it was lowering the amount of some home equity lines of credit, or HELOCs. Judging from my e-mail in-box, WaMu is continuing to squeeze its customers.

This came in tonight:  "I just received the notice today of the reduction on our HELOC from WaMu ... As a customer I can verify that the amount they lowered it to is much less than the amount we currently have as a balance.  On 4/2/08 our balance was $69,778.47.  Today, 4/9/08, we received notice via mail that our limit was to be lowered to $64,900.  In addition to this change, which I should mention the letter was written on 4/3/08, the bank charged us an overlimit fee on 4/4/08."

Last week a Realtor in San Diego wrote, "Just after I made a large payment of $10K (only $350 payment was due), they took away all of my credit line.  This is putting me in a panic and possible bad situation.  I have been with WaMu for many years and have had many home loans with them, and never missed a payment, and have always had bank accounts with them, in addition, my credit is great. I had no notice or warning whatsoever, of course if I had, I would not have given them $10,000 that I did not need to."

More: "I am a Realtor, and times are tough, and it helped knowing that I had that cushion, making it a little easier to justify spending money on marketing and advertising in an effort to keep business coming in and thus enabling me to meet my payment obligations."

This is a significant trend in the economy right now: it is hard for lots of people to borrow money. Cal mentions this often in the comment section.  The Fed can cut interest rates 'til the cows come home, it doesn't matter, it's still hard to borrow.

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

Comments

[puckhead]

I agree that the FED can cut rates all it wants, but unless the credit market improves it will be very difficult for the economy and the housing market to improve. It's an unpopular view on this blog, but I think the govt will ultimately have to in some form backstop the value of mortgage back securities either by buying them in the open market or to guarantee them. And when that happens, all hell will break loose on this blog.

[Laker]

It might be tough to borrow money but that is only applicable to people that borrow against their "equity" in their house that is no longer there. If you have a mortgage of $500,000 and a home equity line of credit of $100,000 and the house was worth $700,000 in 2006 but today it is worth $500,000 (and that is if your're lucky to find a sucker to pay that...) so the bank finally realizes that and sure would do anything they can to eliminate that. And they are 100% right.
Think about it, if something happens and you need to sell, or can afford to keep paying, the bank will foreclose, and will most likely even not cover the 1st mortgage...the 2nd note - that is that HELOC goes straight to the dumpster...and thus the bank get 0 on the dollar....
Way to go WAMU! If there is no equity, there is not Home Equity Loan....

[Laker]

puckhead, the government does not have the money to buy all the mortgage backed securities...if you think they can simply print couple of trillion dollars...that will translate to a 100-200% price inflation...and you will be dreaming about $4 a gallon for gas because it will be $20-30

[l.a.guy]

Man that's cold. Nice touch with the late fee too.

I'm going to make a bold prediction that "I am a Realtor, and times are tough..." is going to get less sympathy than George W. at an Iraq anti-war rally.

[Fred]

All Americans should only use ATMs that are FDIC-insured. Homes are not.

[J in LA]

Does anyone else here think that one of the reasons we are in this mess, among others, is a silly belief that you can "take money out of your house?" This is a clever manipulation of words no doubt given life by realtors and lenders, but in all other respects converting equity into cash means actually selling an asset for cash. It's only when we talk about homes that people think **borrowing money through a loan collateralized by your home** is "taking money out of your house?" People, don't get upset at the banks for managing their risk profiles. You may be special, but in the bank's eyes you're just a person with X credit score in Y zip code who has Z line of credit available to him, and that translates into some likelihood of default regardless of how nice and responsible the person is that you see in the mirror. Don't hate the bank for doing what they should have been doing all along - ask yourself why you think it's a good idea to turn the occasion of a partially-paid off home (blessed equity) into an excuse to borrow borrow borrow some more. The whole notion of a HELOC seems to be the pursuit of ensuring that your personal balance sheet never ever actually gets into the black. Jesus, stop borrowing people. Is it the end of the world if you simply pay off your loans and only spend what you have?

[Carey Parker]

Hi Peter, It's interesting that WAMU is also having its share of problems too -- couldn't happen to a nicer bank. I contacted them not long ago as I am also a REALTOR and anticipated some setbacks in sales, and asked for an increase in my credit line to help with expenses. I'm only at 10% now, and they wouldn't do it under the same circumstances as when I originally obtained the HELOC, no doc, stated income. Now for me to have access to my original 20% down, they want me to provide docs, data, verification of income, as if I was the world's worst person. They surely have tightened their credit standards. WAMU in my experience has been the worse bank I have dealt with on a customer service level, including everything from confusing my personal accounts with my father's accounts because I am listed as a beneficiary, and then misspelling my name on new checks, and then sending statements to an address where I no longer live after two years, when trying to correct my records, thus creating several late payment scenarios. I have had to call several times to deal with this since it involved my HELOC and unfortunately and several late payments. Plus they continue to not provide an online payment program. Gee, I wonder why? The same is true with payments on cash reserves. Just another nickel and diming opportuning for WAMU to charge more fees to its customers for their apparent lack of performance to do something in light of WAMU's apparent plan of "we don't make it easy for the customer" scheme.

Peter, You should ask for your payment back. It would seem to me that if WAMU has any respect for your business and you as a customer it should have given you some reasonable notice as to its intentions to reduce the credit line available, and/or exercise its option to do just that, so you could have made some reasonable decision as to what you wanted to do with your money and how to invest it, etc. WAMU doesn't care about its customers, and this is just another example.

Good Luck to you. I have enjoyed reading your blog and will bookmark it for more. Interested in property in the desert? Come visit me to find out more about La Quinta and Citrus Country Club homes at www.CitrusLifeToday.com
Thanks, Carey Ann Parker, REALTOR

[LeavinLA]

I can understand lowering a HELOC credit limit in light of declining value. But lowering it, then charing an overlimit fee is just wrong.

[Fredke]

"Now for me to have access to my original 20% down, they want me to provide docs, data, verification of income, as if I was the world's worst person."

WTF? Imagine a bank wanting docs, income verification, etc. before making a loan! BTW, is your original 20% actually equity in the house or is it sunk costs? (In other words, is the CURRENT VALUATION at least 20% more than you owe?)

[RottedOak]

The notion that a HELOC should be used as a financial "cushion" is one of the things that should be driving banks to reduce them. The times when someone needs a cushion are precisely the times they are most likely to default. I don't blame the banks for reigning that in.

That said, charging an overlimit fee the day after the limit is lowered (and probably before the borrower even knows it is lowered) is outrageous. The only defense I can think of is that it might have been an automated result that they didn't think to turn off. If that's the case, I'd expect the fees to be rescinded promptly. If it was intentional and they don't waive the fees, then a lawsuit would be in order.

[Truth2Pwr]

Scenarios like this merely illustrate the point that I continually try to make to friends considering "buying" a house. They aren't buying a house. The bank is buying a house and allowing them to live in it in exchange for a collateralized revenue stream of $X,XXX per month for the next 30 years, after which they will finally "own" the house. They may be able to sell that obligation or borrow against it, but it is the obligation that they are selling, not the house (which belongs to the bank). Based on the rapidly depreciating value of that contract, if you bought within the last few years and don't have a boatload of equity in your home, for all intents and purposes....

....you're just a really, really, DUMB renter.

[Michael Snyder]

The days of banks making ends meet of loan performance are long gone. The primary profit centers for banks are fees & penalties. WAMU has led the pack right along with BA & Wells Fargo in fleecing the consumer at every turn. I opened a checking account at a WAMU years ago because it was within walking distance of my home. Within three months I closed it after they'd repeatedly bounced checks while the funds were listed as available on my receipt & then refused to make it right. Their reason? I had bounced checks. Bankers must have a special version of Excel because mine won't calculate in circles.

Frankly I can't understand why folks don't get smart & join a credit union. I've been with mine for decades & it's open to anyone. They've made mistakes, but when they realized there was a problem, they've always made it right. With over a million members WESCOM offers every service I need for my self & a small business & most credit unions are linked by ATMs making their's the largest available ATM network. The only thing the financial sector knows or cares about is dollars. If you want to make an impression, take yours away from them.

[Bing]

When you have a balance that's above the house equity, banks should reduce their risk. People need to understand that there shouldn't be any free lunches. I recently came across a short sale situation. The seller max out on his equity and is now asking the banks to accept a huge loss. Does this sound fair to the banks? Would you lend me some money if you know I won't be able to pay you back? Stop borrowing if you have no means to pay it back; People complaining the HELOC reduction probably are the same folks who won't hestitate to take advantage of the banks with short sales or foreclosures. BTW, I had two HELOCs reduced by WAMU recently; and I am taking it just fine.

[Digitalian]

The problem is not that loans are unreasonably hard to get it's that the standards for borrowing have gone back to where they were before this mess all started. People have become accustomed to getting easy credit in recent years and relying on it to "cushion" their lifestyles. Well, welcome to the new reality and get used to it because it figures to stay this way for quite a while.

[lefty]

guys you know what WM doesn't have a page for foreclosures, they want you to use buybankhomes.com i don't know why.

hey did you ever wonder if your first mortgage can just cancel on you too? lol just kidding! anyway, WM's loss is your gain in amazing metro L.A.!! so start shopping today before you end up in riverside!

[tbgpalisades]

"for me to have access to my original 20% down"

Hilarious statement...people have to realize that it's the bank's money they're using. Guess what? You have to pay it back! It's called a bank loan, not an investment. Only 80% more to go.

[Cal]

I find it amazing how addicted to credit some people are..

Just wait until the banks start doing the same thing to CC limits.

I think you see the effects of the credit crunch not only on these individual transactions but you can see it spreading in the economy. I do not think the fact that 4 or 5 small Airlines went bankrupt in a week is a coincidence. Short term financing is drying up, especially for the higher risk borrowers, both corporate and personal. People are going to have to learn to stand on their own two feet.

And that is a huge change compared to the last 10 years.

[Cal]

OT:

In case you didn't see the WSJ article regarding foreclosures:

http://online.wsj.com/article/SB120776827998402453.
html?mod=hps_us_inside_today

I thought this sentence was pretty amazing:

"More than half of callers are in far worse shape. Many took out so called stated-income loans that exaggerated their incomes and can't afford their mortgages even at a 0% interest rate. To make payments manageable, the mortgage company would have to cut the outstanding loan balance by an average of $76,000."

[NoCal SC]

Funny, I thought a savings account was supposed to be your 'financial cushion' in case of emergencies, not a HELOC. I agree with J in LA and the others who posted. I also love whenever someone is profiled about losing their HELOC they *always* say it was just there in case of emergencies and they would never dream of using it for 'frivolities.' Yeah right.

And Carey Parker, you get no sympathy from me. Heaven forbid a bank perform due diligence on someone they're loaning money too. You've just perpetuated the worst stereotypes of realtors that most regular readers of this blog have.

[Manny from Inglewood, because its Real Estate... unlike that other Fake Estate]

Laker you have no F’ing Idea what you are talking about!!
I read your rants & raves every day with your subtle racial overtones.

Just this last week WAMU canceled the 20k line of credit my parents had on their home, this wasn’t from some fake equity, this is home that is less than 10 years from being paid off, My parents are people that pay all of their bills on time.

WAMU is going after everyone indiscriminately, even people in good standing!!

What was chicken-sh** of them is that they didn’t even bother to tell them a head of time,

WAMU said that things had changed in their credit score (false) and said that is why they took the credit line a way. Yet they say that they can not verify their own information. (BS)

So you know what my parents did that day? Bank RUN BABY! BANK RUN!!

Good bye WAMU, Hello my old friend, Credit Union!!!!

F-You WAMU!!!

[puckhead]

"puckhead, the government does not have the money to buy all the mortgage backed securities...if you think they can simply print couple of trillion dollars...that will translate to a 100-200% price inflation...and you will be dreaming about $4 a gallon for gas because it will be $20-30"

Laker,

The govt does not need to buy ALL of the mortgage back securities. They just need to backstop them to create a market for them. Not EVERY house in the USofA is going to go to foreclosure (although I do believe some on this blog will insist they are). Govt can't afford this bailout????? How much do you think we’ve spent in Iraq? We’ll get through Iraq and this mortgage mess w/o the world ending

[ladybug]

On 3/27 I wrote a check for $15,000 from my LOC. (My available credit was 43,000). The person deposited the check in their BofA account on 4/1. On 4/3 he was notified that the check had bounced. I was so embarrassed, I called WAMU my credit line was decreased on 4/2 or 4/3 and now I really only have 2,000. I was quite upset. They then changed their story that BofA submitted the check for payment incorrectly. This issue has still not been resolved, we are still waiting for the actual check to return, WAMU has said that we might be able to redeposit, but am still waiting for another call. I had to speak to several people and then a manager. The worst part is that I know that the decrease was an error. This LOC is on 2 side-by-side properties, when they looked at a new appraisal, it was only the appraisal for one property. So my new Loan to Value is less than 50%, but they are saying it will take about 3 weeks to research and make a decision on that piece of it.
Something else, kind of unrelated/related. I had EMC call me on another mortgage. They called me on 4/8 to tell me that my APRIL payment is late because it was due on the 1st and wanted to know if I wanted to pay over the phone or just use their website to pay it today. I found this pretty outrageous, since for years, I have paid multiple mortgages online using my own bank without a problem. I know they are desperate for cash, but I pay my mortgages "on time", so they should not be bothering me.

[GDC]

It's obvious the banks are in real trouble. They deserve it. Why any bank would make a 0% down loan to subprime people boggles the mind.

I hope that this leads to the most credit tightening environment in history. They should just not make any home loans. If people were forced to buy homes with actual cash they have rather than loans, home prices would drop 80%.

[RadioManTodd]

Heres what I don't get..... if you take out a loan under certain terms (say, up to $69K at X interest), how is it that they can revoke those terms and just change the game mid-course?

How about this:

*knock knock*
Hello. I'm from your mortgage lender. You purchased this house for $500K with 20% down, but now its only worth $350K. We're now going to start charging you PMI unless you can come up with the additional 15% difference.

Memo to Banks: Its your fault. Deal with the consequences.

[Dave]

Carey Parker: "they want me to provide docs, data, verification of income, as if I was the world's worst person."

Let's just pause for a moment and think about what a strange world it is where someone who describes themselves as a "REALTOR" regards it as insulting to be asked for documents and income verification when applying for a bank loan.

The "world's worst people" are on death row. To be asked to provide documentation when you want a bank to lend you money means only that the bank is acting responsibly, rather than throwing money at anyone who wants it.

It wasn't long ago at all that going to a bank for a mortgage was a true process of application (supplication, really) where you'd approach a lending professional with a stack of documents and be carefully vetted to make sure you were a good bet as a responsible debtor. Hell, I had to produce proof of income and other personal documentation when I took out a $10k car loan last year.

The fact that a real estate professional feels entitled to a bank loan no-questions-asked is more evidence that the entire SoCal real estate world still needs a serious reality check.