One of my quiet expectations is now coming true, and I expect it will happen more aggressively in the immediate future. What is it? The cancellation of home equity lines of credit by mortgage lenders.
One of the first big example is Morgan Stanley, the second largest securities firm in the United States. According to Bloomberg, Morgan Stanley notified thousands of their customers who have open home equity lines of credit that those credit lines have been terminated.
The same thing has happened to many customers of Bank of America, Washington Mutual, and JP Morgan Chase.
This is actually a very smart move by banks - it’s a great way to keep assets on the books in the form of the property that serves as collateral for existing HELOC loans while simultaneously reducing the perceived credit exposure of lenders.
My advice? Expect that more lenders and securities firms will cancel HELOC’s in coming days. And if you need to use the credit available to you through your own HELOC, consider talking with your lender to make sure that the money will be available if you choose to withdraw it. Or, as a more extreme measure, go ahead and make the withdrawals you’ll need right away while that option is easily available to you.
So, to reiterate - make sure you know the status of your home equity line of credit before you get a nasty surprise from your lender.
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11 Comments So Far»
Thank you Bryan. This information is so timely and practically useful - I just don’t get this type of information anywhere else. Thanks again.
too late, Wells Fargo got me last week………
Hey Bryan,
How’s it going? Just here to ask a quick question on this.
I’m with Countrywide with a HELOC which I did on a 100% purchase a couple of years ago. I just talked to them about 2 weeks ago and tried to see what I could do with the equity line as far as refinancing into one loan. They couldn’t do it as the value is way down and they wanted 80% LTV. So what happens when they do what this article talks about? Do they call the loan due or does it automatically change to something fixed?
Thanks,
Gabrielle
Gabrielle - I wish I could answer this for you, but I think you’re going to have to consult with your loan paperwork. My suspicion is that any “available balance” on your HELOC will just disappear and any “outstanding balance” will continue under the terms of the loan. But again, that’s purely conjecture. — Bryan Ellis
Bryan, in Gabrielle’s case, you are essentially correct. The common practice is to not cancel but to reduce the available balance to the level of the outstanding balance. Some lenders are quite aggressive with this and will Drop the available down each month.
I am living proof!!!!!!! I took a 200K loan out before Christmas and last Monday I still had 160K sitting there ready to go, and Tuesday morning I had $2,000. No warning whatsoever!!!!!! They re-evaluated home prices!!!! Wells Fargo did me in!!!
Thank you for your fast responses to my question. It makes sense.
Gabrielle
Hi Bryan,
You can ad Wells Fargo to the list as well. I keep very close track of all my credit and finances and when I checked my account a couple of weeks ago, I noticed $50,000 had mysteriously disappeared from the “available credit” on our HELOC.
I called Wells to check into it and they referred me to the fine print, blah, blah, blah………
More than a week after I called, I finally received “notification” from the bank regarding the reduction in our HELOC due to the “perceived” reduction in the value in our home brought about by the sub-prime mortgate fiasco. I really hate banks.
You provide a very valuable resource to me and all your readers. I always look forward to your articles. Forewarned is forearmed. Thank you so much! Keep on doing what you do!
Thank you so much, Dave! I regret what’s happening with your HELOC at Wells. Maybe soon it will be resolved. — Bryan Ellis
This feedback is so great; thanks guys for sharing your info.
Aunt Pam
I received a letter from WAMU on 7/5/08 reducing my line of credit from $150K to $45K. I wrote to them on 7/11/08 asking for documentation on why they made this reduction. They have not responded to my request to “Provide me with written documentation by which [they] made this reduction in the Credit Limit.”
When I spoke to someone on the phone at WAMU they said they had obtained an updated home value assessment for the property by “BPO” or “Automated Value” by Freddie Mac, i.e. a 3rd party RE company.
Will let you know if they respond to my letter.
Can anyone recommend reputable no doc lenders for HELOCs? I have an unsolicited offer from ThirdFederal Savings & Loan. Does anyone have any experience with this lender?
LOK
Same story here… checking out my HELOC online one day and noticed my LOC listed as $164K instead of the $222K that it was. i called the bank right away (Chase) and got the “we re-assessed the value of your home” response. The bank rep said I was one of the lucky ones… many people’s HELOCs are being cancelled altogether. I’m fine with it - fact is our value HAS plummetted since we took out the LOC.
I have a different question though… when we took out our HELOC we soon received a lien on our property from the tax assessor for the amount of the HELOC. We DIDN’T receive a release of lien when they lowered the LOC. It appears that even though we have a $164K HELOC the bank has a $222K lien against the property. Should we press them to release and refile for the proper amount? (Or should we just count our blessings that we still have a HELOC and keep our mouths shut?)
Alex
Wells Fargo did the same to me. Dropped our H.e loan by 25k. Funny I paid points on the amount I took out…..Does anyone think these banks will recall the loans. I wouldn’t think they would want more foreclosures on the books. Banks suck! I agree. They DO NOT want to help anyone they want our money for the loan and they want bailout money from us taxpayers. I need bailout money to I am broke!!!
That’s an interesting issue that you paid points on the whole amount, and now that amount has been reduced. I don’t know if that gives you any recourse, but it’s a curious question. — Bryan Ellis
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