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

[arroyogrande]

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

Monkey see, monkey do...change the statement to:

"I find it amazing how addicted to credit some GOVERNMENTS are.."

Good ol' US of A, show your people the way.

- arroyogrande

[Maggie Knowles]

Michael Snyder - I too tried working with WAMU, they offered free business checking. The problem was they held my deposits for three weeks before I could write checks against them. I asked them why they had to hold my funds for three weeks in this day and age. They couldn't give me a good reason. I told them that it was impossible for me to have my funds held for three weeks, it creates a serious cash flow problem. They didn't care. I closed the accounts.

[Cal]

RadioManTodd, your scenario quite simply wouldn't happen. It would be rewriting the mortgage contract after the fact.

Where the HELOCs have provisions written into the contract to be pulled under various circumstances, additional after the fact mortgage insurance is quite simply not a part of the landscape. People have enough issues with you not making up new ones. Stick with the facts.

Usually the HELOCs contain a word for word use of the following phrase (which is demanded by the FDIC when extending credit, I believe under TILA):

______

We can refuse to make additional extensions of credit or reduce your credit limit if:
• The value of the dwelling securing the line declines significantly below its appraised value for purposes of the line.
• We reasonably believe you will not be able to meet the repayment requirements due to a material change in your financial circumstances.
• You are in default of a material obligation in the agreement.
• Government action prevents us from imposing the annual percentage rate provided for or impairs our security interest such that the value of the interest is less than 120 percent of the credit line.
• A regulatory agency has notified us that continued advances would constitute an unsafe and unsound practice.
• The maximum annual percentage rate is reached.

[E]

Oh Lawdy

I'm reading these pathetic sob stories everywhere now.

Everybody claims that their HELOC was a "cushion" to be used for emergencies.

Stupid People....didn't you SAVE any MONEY for emergencies?

Oh...yeah...I guess not. You spent every last dime on frivolities from manicures to lattes! Just listen to the Country Club living realtor who DEPENDS ON DEBT to get by.

Pssssst....

The ponzi scheme is over.

Deal with it.

Get your customers to lower their prices (substantially) and you might make a few sales.

Give it time and all you debt whores won't be whining about losing your HELOCS, you'll be whining about losing your homes.

[sfvrealestate]

I agree with Arroyogrande for once! Anyway, people have always borrowed money from financial institutions for various reasons. And they've put up collateral to guarantee those loans. What's so different about that with HELOCs? If home values rose (regardless of what the posters here think), they rose for the bank, too, and the "collateral" was worth more.

For those of you who believe nobody should borrow money on credit, ever: please! What color is the sky in your world? Ever opened a business, gotten braces for your kids' teeth, bought a car?

[EEF]

Is this even legal? I called my credit union about 4 months ago to ask if they could lower my LOC and I was told "no". When I asked why, I was told that unlike credit cards, HELOCs are recorded and the only way to reduce it would be to refinance. Maybe these people should look at the fine print and research whether WAMU can do this. I've been paying down my loan instead of refinancing. I'm getting ready to call my credit union and ask again about this.

[Laker]

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

Manny, Since you like so much the F' word, i have no problem with you F' ing WAMU or any bank.
However, i do not rant and rave ! racial overtones?? What are you talking about.
To the point, what makes you think WAMU owes you anything or your parents? They did right and run the bank, and went somewhere else.
The bank gave you credit, they have the right to take it...
Or....maybe the banks know something that we don't...Maybe the banks know that values are going down 50-70%...and they know that all HELOCS, and 2nd notes are worth 0 on the dollar....put yourself in their position, wouldn't you try and limit your future total losses???

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

puckhead, not every single house is going to foreclosure....but Mark my words! 95% of the houses bought 2002-2007 will !
my family lost a house to foreclosure back in 1994 and that after having $100,000 skin in the game...they actually bought the house in 1990 with $100,000 down payment...
So all the people that bought with zero down...all the smart people will not walk away, they will run away!
It is 100% stupid to keep paying mortgages on 2006 prices...when you bought with no money down...AND that you can simply buy next door house for 40% discount on the spot!

[puckhead]

“puckhead, not every single house is going to foreclosure....but Mark my words! 95% of the houses bought 2002-2007 will !”

Two of my in laws, my nephew and numerous co-workers bought between 2002-2007. None of them will loose their houses. What you fail to take into account is that many, many, many people owned property prior to 2002 and was able roll large chunks of equity into their new homes. And thanks to the generosity of Uncle Alan G, we’ve been able to refinanced our homes down to ridiculously low interest rates and we’ll be able pay off our loans much faster than anticipated. Find me one analysis from any reputable source that predicts that 95% of home purchases within the last 5 years will go belly up. Dude, get out of your bomb shelter and smell the air. The world is not ending. Don’t sell you double wide and move to Idaho.

[coakl]

WaMu is doing the same thing to its small business customers: business lines of credit are being reduced as well.

And just to round things out, they increased their overdraft fee to $33.

As part of their $7 billion bailout this week, they are closing 186 loan offices and canning 3,000 more staff. Obviously, WaMu doesn't see any hope of a near-term recovery in the real estate market.

[NoCal SC]

A realtor writes:

"Anyway, people have always borrowed money from financial institutions for various reasons. And they've put up collateral to guarantee those loans. What's so different about that with HELOCs? If home values rose (regardless of what the posters here think), they rose for the bank, too, and the "collateral" was worth more. "

Right. They put up collateral. If you don't have any equity in your house, you have NO freakin' collateral to put up!! And if banks are forecasting that house values are going to *continue to decline, it's probably a smart move to start reining in the credit extended that was based on those house values.

As far as braces, etc. That's what you *save for. Then, your braces only cost $1500 (or whatever) and not $1500 plus 7% compounded daily.

[peter m]

I have wamu heloc and fixed accts, wamu CC & wamu checking accts.
I don't think wamu will reduce my heloc line very soon. My home would need to take a 90% decline in value for my line to exceed what i borrowed on it. Ain't gonna happen in LA. I can absorb a 60% hit and still come out ahead. Unlike many idiots in LA i am extremely frugal in using helocs. My home is a place to live in, not a cash machine.

[shockg]

Laker and E have the usual diarhea of the mouth. Blah blah bah. Same thing every day Blah Blah. Talk down the market. Blah Blah. Im sure you must have sold your primary residence at the peak and are now sorry for making such a foolish move because prices haven't fallen to levels you gambled on. Oh wait, that would make you speculators. You're poor first-time buyers right?

[IToldu2CashOut]

If Lefty could post live in person it would be called performance art.

Everytime I read something a realestate agent writes on here I start laughing my a$$ off. This new one with the Heloc problems, I hope she sticks around also. Can't wait to hear the next idiotic thing that comes out of her mouth.

[tealeaf]

shockg: still affordability. call me when the pricing is in line with rents.

This may help: use 160x monthly rent for price. It's not perfect, but it's the historical average in LA for over 100 years running. Oh - until about 2001.

Sorry bud - history's just not on your side!

ps we'll "talk down" the market while unprecedented masses "walk out" of the market!

[SoCal Investor]

"The bank gave you credit, they have the right to take it...Or....maybe the banks know something that we don't...Maybe the banks know that values are going down 50-70%...and they know that all HELOCS, and 2nd notes are worth 0 on the dollar....put yourself in their position, wouldn't you try and limit your future total losses???"

Uh no... the bank most certainly DOES NOT have the right to take credit away. Just read your Deed of Trust.... you know... that 1000 page document that you signed when you closed your loan. Typically, the only recourse the lender has to protect their interest, is to lower the borrowing limits on a HELOC. The bank, in writing, has agreed to lend you money based on an appraisal and maximum LTV which they have approved. They are willingly taking the risk and you in return are promising to pay interest to them. If the house declines in value to the point the where LTV is higher than their normal limits, I'm sorry... tough s**t for the bank. I weep not for them!

[Cal]

EEF said:

"Is this even legal? "

Yes.

"I called my credit union about 4 months ago to ask if they could lower my LOC and I was told "no"."

You have a written contract, read it, their words means nothing in this regard.

" When I asked why, I was told that unlike credit cards, HELOCs are recorded and the only way to reduce it would be to refinance."

Completely untrue. Recording a lien doesn't say that the lien balance or limit change. For example, you pay down the balance on a mortgage, does that affect the recorded lien or its validity? How about a negative amortization mortgage, which balance can increase? Recording isn't even part of the equation in regards to what they can and cannot do regarding the limit of the credit extended. It is completely controlled by the legal agreement signed between the borrower and lender.

" I've been paying down my loan instead of refinancing. I'm getting ready to call my credit union and ask again about this."

You should read your HELOC agreement, it will contain verbage like I posted earlier today.

[Cal]

There was an article buried in the WSJ yesterday:

"Habit-Forming:
Borrowers Keep
Piling On Debt

The credit crunch has made it harder for Americans to indulge in their love affair with debt. So what are they doing?

Borrowing more."

http://online.wsj.com/article/SB120779065895103637.
html

It reminded me of a saying (by Mark Twain I believe) : "A banker is someone who gives you an umbrella when it is sunny and takes it away when it is raining"

[bottom line]

Calling EEF, may I explain the confusion. You posted;

Is this even legal? I called my credit union about 4 months ago to ask if they could lower my LOC and I was told "no". When I asked why, I was told that unlike credit cards, HELOCs are recorded and the only way to reduce it would be to refinance. Maybe these people should look at the fine print and research whether WAMU can do this. I've been paying down my loan instead of refinancing. I'm getting ready to call my credit union and ask again about this.

A HELOC is a Home Equity Line of Credit, approved for a set amount, & with widely varying parameters for draws, time limit for loan, payment schedules, etc. You could be approved for $100,000, yet never access any of the draw for years.

What you are referring to is a Home Equity Loan. If you told your bank that you wanted a loan for say $50,000 to do whatever, after being approved, you would get the entire amount, with a fixed or adjustable rate, for a set amortized period, say 15 years, or whatever. After you sign the loan docs, the proper documents are recorded later at the court house, & no, those terms cannot be unilaterally changed. Folks make regular monthly payments on these.

Two different animals, hope this helps. : D ........

[timtooth]

If people would only read the loan docs they sign, they would not be so SHOCKED! when the loanholder does things that are described in the loan docs!

The complainer here is a Realtor. I am quite sure that if they had been paying attention during their training, they would have known how these loans work (and how to read a contract.)

For the future: How about some truly stringent training requirements to become Realtors? Hmmm?

[Edgar]

Lefty's back! Woo hoo!

I love the smell of crazy in the morning.

[Laker]

shockg, "....sold your primary residence at the peak and are now sorry for making such a foolish move because prices haven't fallen to levels you gambled on. Oh wait, that would make you speculators. You're poor first-time buyers right?...."

shockg Realtor, Indeed i sold my house couple years ago...but sorry to disappoint you, it is worth less today that the amount i sold for...I might not be rich, but i'm not poor and not 1st time buyer...You can call me speculator as i'm speculating that home prices will drop to 2001 levels. However, unlike speculators like yourself, I'm not expecting the government to bail me out in case my prediction does not come true....
I have nothing against speculators. All i want it to have them keep the rewards AS WELL AS risks!

[E]

ShockG...

why do you continually mount personal attacks?

I can understand the anger that Realtors have these days.

I really don't care though.

Really...I don't.

And I care even less about people with a feed bag mentality that have overspent themselves into debt misery.

[shockg]

shockg Realtor, Indeed i sold my house couple years ago...but sorry to disappoint you, it is worth less today that the amount i sold for...I might not be rich, but i'm not poor and not 1st time buyer...You can call me speculator as i'm speculating that home prices will drop to 2001 levels. However, unlike speculators like yourself, I'm not expecting the government to bail me out in case my prediction does not come true....
I have nothing against speculators. All i want it to have them keep the rewards AS WELL AS risks!

I knew it. The point you are not addressing is that for you to even break even after paying all the transaction costs, moving costs and rent on your 300 sqr foot apartment, you NEED prices to drop significantly below what you sold for at the peak. Even lower if you still expect to make a fat profit. And lets not forget that in the meantime you are getting hammered on taxes. I would be mad too if I was you. I would be mad at myself for being so foolish! Your motivations are now very clear to all!!!

[Laker]

shockg,
I currently rent a 2500-3000 sf house in south of the bl tarzana. I pay half of the mortgage for similar house.
I'm already well better than break even - right now $150,000 net and counting up...
I'm not getting hammered by taxes...i have other deductions and credits that ease the pain...and i don't have property taxes....
My motivation is to see all the greedy and fraudsters paying the price. I want all the prudent people to get rewarded and i want all the speculators to pay the consequences.
I also want all the used house salesmen to get back in line and start being productive.
And lastly, i want to have all our politicians voted out of office. Vote out all incumbents.

[EEF]

Thanks for trying to clarify things for me (?) I need no help. I do have a HELOC and I don't want it. I'm closing it down when I pay it off. Unlike some, I want my line of credit lowered and was surprised when I was told it couldn't be done. Obviously, not all contracts are the same, and the terms and conditions of my loan may be different. However, if I were in these people's shoes, I would review my documentation and make sure the bank is acting legally.