Feds freeze HELOCs at IndyMac
A news item from Tom Petruno's Money & Co. blog: The new government management at IndyMac has frozen all home-equity lines of credit, as well as lines of credit to commercial contractors.
From Money & Co.: "Customers with home-equity credit lines will have their accounts frozen and 'reviewed on a case-by-case basis,' according to the FDIC. That’s a move by the agency to make sure its losses on the bank’s loan portfolio don’t balloon from the FDIC’s current estimates."
More: "Lines of credit to commercial construction contractors also will be frozen pending a review, but construction loans made to individual consumers won’t be affected."
Analysis from master of the obvious: The many readers who have complained here about similar HELOC freezes by other lenders will find the government's action disappointing. It's a pretty clear government endorsement of the practice of freezing HELOCs. The readers on the other side of the argument, who have applauded banks for freezing HELOCs, will wonder: Why hadn't IndyMac's previous management already frozen these lines of credit?
Your thoughts? Comments? E-mail story tips peter.viles@latimes.com.
Photo credit: L.A. Land
Not sure I follow at all. This blog is always outraged when our taxpayer money is on the line -- and in this case, it couldn't be more on the line. HELOCs are almost always second-lien loans, and that means a default loss is almost always 100%. Every additional dollar IMB loses is a dollar from the taxpayers (or a dollar less someone will pay for IMB; same difference).
Moreover. the government rules you're referring to require HELOC changes to be made on -- get this -- a case-by-case basis. Obviously everyone would be better off if IMB had done this sort of credit tightening before they went under. They didn't, however. So, you can either operate with an eye towards savings the taxpayers money or following federal guidance. I am glad they are choosing the former, and I'm not sure they have a choice.
Oh, and the other big difference between this situation and the others is that they ARE going to review each HELOC. The previous cuts were made across the board without regard to the deterioration in value of the specific property. That's the big no-no.
Posted by: bode | July 14, 2008 at 07:37 AM
How many HELOCS are we talking about? How much money? Are most in So Cal?
Posted by: CM | July 14, 2008 at 07:49 AM
"why hadn't IndyMac's previous management already frozen these lines of credit?"
This is, of course, why the bank's problems were a result of IndyMac woeful mismanagement, not Charles Schumer. It's convenient to blame Schumer, who is an annoying media hog, but Schumer is not the problem. The longer the public focuses on non-issues like Schumer, the longer management bozos will continue to worsen this sort of problem and the longer the OTS morons will look the other way.
Downey is now also on thin ice because of similar management stupidity. If they go under, you can expect the OTS will try to pass the buck again. The bigger question is: why aren't the regulators putting more pressure on lenders right now? Why are the OTS boneheads sitting by and twiddling their thumbs while troubled banks continue to make bad loans?
Posted by: Jack | July 14, 2008 at 08:11 AM
well none of this country neesd any more debt!!!!!!!!!!!!!!!!
i say freeze them
Posted by: mike | July 14, 2008 at 08:32 AM
Freezing HELOCs?? You mean there are people who still have equity in their homes??
Posted by: TC | July 14, 2008 at 08:51 AM
Peter,
What do you expect from FDIC? They already said that they will need to pay $4-8 Billion out of their funds to depositors just to be even, that was based on current position of all loans, deposits. Today, you might have a serious train of people cashing out their remaining fund in CDS, savings account just from fear...
At the same time, you will have people with line of credit pull all the money THEY think is THEIRS....
end result is much larger than $8 Billion to pay the poor remaining depositors...
One another note, i heard over the weekend that our beloved "honest" senator Dodd saying that the FED is at fault for not regulating the industry of loans/bank for the last couple of years....
I'm asking, WHERE THE HELL WAS DODD? WHY HE WAS NOT SAYING ANYTHING DURING THE LAST COUPLE OF YEARS??
And Schumer, He too Where was he during the last years???.
Posted by: Laker | July 14, 2008 at 08:55 AM
Many are asking: where is our Congressman Adam Schiff?
Schiff, Boxer, and Feinstein have been completely AWOL while their colleague Chuck Schumer intentionally sparked a bank run.
This failure is going to trash the Pasadena economy.
While Schumer was preparing to pounce on IndyMac, our congressman Adam Schiff was frittering away his time in Armenia, Azerbaijan, Afghanistan, and Pakistan. Seriously. Look at his website.
Why do voters and the media continue to give him a free pass???
Posted by: Qzaki Fan | July 14, 2008 at 09:59 AM
"why hadn't IndyMac's previous management already frozen these lines of credit?"
I don't see the point in asking questions like this, Peter - the main thing we need to discuss is that Chuck Shumer is an America-hating, terrorist fist jabbing, islamo socialist liberal democrat with san francisco values.
At least that's what the little fat man inside my AM radio told me to think.
Posted by: CaptHowdy | July 14, 2008 at 10:28 AM
No news from our governor. No news from our senators.
We are alone, they were only our reps in the good times.
We are alone. Paulson's plan is not working as he is the face of lies and deceits and people had enough of it, they are going the other way. The word is out in the masses, run for cover it's going to blow!!!!!!!!!!!
Posted by: CD | July 14, 2008 at 10:40 AM
One negative aspect of this is it will stall any sale of bank owned properties until the credit lines are assessed properly. It's fun to watch this snowball turn into a giant sphere of destruction feeding on itself.
OK, it's not fun, my home i bought in 04 will be worth less than I paid for it in 3.....2......1.....I have negative equity.
Posted by: TC | July 14, 2008 at 10:49 AM
Freezing and then reevaluating HELOCS when values are down 25% is just common sense. Just like changing the oil in your car (if you still have one).
As for Schumer, he didn't create the problem, but he did force FDIC to act when they might not have had to. Apart from coming to the party way too late, singling out a specific bank was completely irresponsible.
Speaking of federal bailouts, we just posted what looks like a surprisingly good analysis by NAR's Washington office of what's next for the "Federal Housing Finance Regulatory Reform Act of 2008."
Posted by: SoCalRealEstateNews.com | July 14, 2008 at 10:53 AM
interesting that the Federal government (at least one agency which has not been gutted and politicized by The Decider) is gonna run the bank more efficiently and smartly than a Big Corporation, will review HELOCs rather than offering blanket approvals/disapprovals, and will honor the deposits of all who invested according to the rules we have all known since childhood (caps on FDIC insurance). sounds so simple, but the private sector just couldn't pull it off. hmmmm. wonder why not? couldn't be mercenary greed, by any chance?
the real background: when ALL 50 STATES tried to step in and regulate the mess that the OTS were allowing these mercenary lenders to make, Bush directly and unequivocally stopped them and insisted on federal pre-emption, which has led to the disastrous results we have seen for the past 5 years. heck of a job, Bushie.
interesting that this story never made it to the LA Land blog, though. Don't feel bad, it never made it to Rush Limbaugh or Newsmax, either:
http://www.washingtonpost.com/wp-dyn/content/
article/2008/02/13/AR2008021302783.html
Posted by: sheila | July 14, 2008 at 11:25 AM