As banks look for ways to stop the bleeding and reduce their losses, WaMu has decided to tighten its purse strings by joining Bank of America, Countrywide, JPMorgan Chase and others in reducing or suspending home equity lines of credit (HELOC).
The amount of money that WaMu has eliminated is about $6 billion. The company cites those customers with declining home values and poor payment histories as primary targets for a HELOC reduction or suspension.
If you have had your home equity line of credit suspended or reduced, you will want to keep an eye on your credit score. That's because this type of action can increase your debt utilization ratio and drop your score significantly.
For example:
If you had a $25,000 credit line and you have used $10,000, your debt ratio is:
$10,000 (debt) ÷ $25,000 (total available credit) = 40%
But if the bank suspends your account to your existing balance, your debt ratio is maxed out:
$10,000 (debt) ÷ $10,000 (total available credit) = 100%
Since 30% of your credit score is your debt ratio, going from 40% to 100% debt ratio will not only decrease your financial flexibility but also your credit score.
Showing posts with label HELOC. Show all posts
Showing posts with label HELOC. Show all posts
Friday, June 13, 2008
WaMu Suspends $6 Billion in HELOCs
Thursday, May 8, 2008
Warning: Frozen HELOCs Ahead
I recently read about a Hollywood Hills homeowner who had a $60,000 home equity line of credit (HELOC) that he was going to use to remodel his kitchen. He had already begun ripping out the cabinets and appliances when he discovered that his bank had frozen access to his HELOC, citing falling home prices in California. Not only was the remodel work delayed until the homeowner found other bank financing, but he was dismayed that the new interest rate was higher than his approved HELOC rate by more than three percentage points.
Thousands of consumers are receiving notice that their HELOCs are being cancelled. According to Bankrate.com, Countrywide, Bank of America, Washington Mutual and IndyMac Bancorp have frozen about 600,000 equity credit lines nationwide since January. Countrywide alone has already suspended an estimated 122,000 lines of credit where homes fell below appraised values; USAA has frozen or reduced 15,000 accounts. Other big lenders, including Chase and Citibank, are doing the same in an effort to quell the rising number of delinquencies on HELOCs. Economy.com pointed to a 47 percent increase in delinquencies on HELOCs as of September 2007, and predicted that the numbers would be even worse in 2008.
Areas of the country where home values have plummeted by 10 percent or more are at greatest risk for HELOC cancellations, especially affecting those who purchased homes in the past few years with little money down. These cities include Los Angeles, Chicago and Las Vegas. Homeowners in Las Vegas are being hit especially hard - it is estimated that 15,000 people (5 percent of the total homeowner population) have had credit lines suspended.
Missed payments or a decrease in credit score can also trigger a HELOC freeze, although homeowners with credit scores in the upper 700s and lower 800s - considered a very good score - are being affected as well.
If you are in the middle of renovations or are counting on having access to the funds for bills, college tuition, or as an emergency account and you think your line of credit may be at risk because you are in a troubled market, you may want to draw a lump sum and put it into a high-yield savings account. While you will be decreasing your equity and will have to begin paying interest, you will guarantee that the money will be there when you need it.
If your HELOC has already been cancelled, you can try to fight it. A realtor or appraiser can help you bolster your case by showing what houses have been selling for in your neighborhood. Be aware of how the tighter lending standards may affect you – in the hardest hit markets, homeowners can only borrow 60 percent of a home's value. If a drop in credit score is the reason for the cancellation, be sure to pull a copy of your credit reports and review them carefully.
Banks may be willing to compromise by giving you a lower credit line rather than cutting off your funds completely. And you can always shop around with other lenders if you have at least 10 percent equity.
Thousands of consumers are receiving notice that their HELOCs are being cancelled. According to Bankrate.com, Countrywide, Bank of America, Washington Mutual and IndyMac Bancorp have frozen about 600,000 equity credit lines nationwide since January. Countrywide alone has already suspended an estimated 122,000 lines of credit where homes fell below appraised values; USAA has frozen or reduced 15,000 accounts. Other big lenders, including Chase and Citibank, are doing the same in an effort to quell the rising number of delinquencies on HELOCs. Economy.com pointed to a 47 percent increase in delinquencies on HELOCs as of September 2007, and predicted that the numbers would be even worse in 2008.
Areas of the country where home values have plummeted by 10 percent or more are at greatest risk for HELOC cancellations, especially affecting those who purchased homes in the past few years with little money down. These cities include Los Angeles, Chicago and Las Vegas. Homeowners in Las Vegas are being hit especially hard - it is estimated that 15,000 people (5 percent of the total homeowner population) have had credit lines suspended.
Missed payments or a decrease in credit score can also trigger a HELOC freeze, although homeowners with credit scores in the upper 700s and lower 800s - considered a very good score - are being affected as well.
If you are in the middle of renovations or are counting on having access to the funds for bills, college tuition, or as an emergency account and you think your line of credit may be at risk because you are in a troubled market, you may want to draw a lump sum and put it into a high-yield savings account. While you will be decreasing your equity and will have to begin paying interest, you will guarantee that the money will be there when you need it.
If your HELOC has already been cancelled, you can try to fight it. A realtor or appraiser can help you bolster your case by showing what houses have been selling for in your neighborhood. Be aware of how the tighter lending standards may affect you – in the hardest hit markets, homeowners can only borrow 60 percent of a home's value. If a drop in credit score is the reason for the cancellation, be sure to pull a copy of your credit reports and review them carefully.
Banks may be willing to compromise by giving you a lower credit line rather than cutting off your funds completely. And you can always shop around with other lenders if you have at least 10 percent equity.
Friday, March 28, 2008
Lenders Begin Revoking Home Equity Lines of Credit
On the heels of Bank of America's eyebrow-raising mass mailing telling thousands of customers that their credit card interest rates were jumping by as much as 100%, Countrywide has informed 122,000 customers that their home equity lines of credit (HELOC) have been suspended due to falling home values.
A HELOC is a revolving credit line with a limit proportionate to the homeowner’s equity in their property. They typically offer much lower interest rates than regular credit cards because they are issued against a “secured asset” — a home.
Other lenders, including Bank of America, Wells Fargo and Chase have acknowledged that they, too, will be following in Countrywide's footsteps by reviewing customer credit lines and lowering limits or suspending credit lines.
During the housing boom, as property values soared, so too did the number of homeowners who tapped into their equity to fund remodeling projects, cars, vacations and other luxuries. Lenders were writing loans for 120% of a home's value – 100% for the primary mortgage and another 20% for a HELOC. Now that the pendulum is swinging the other way, and properties are losing value at a double-digit rate with no bottom in sight, the line of credit soon may no longer be covered by the value of the home. Nervous lenders are pulling back the reins, even on good customers who may not have used much of their HELOC and have made timely payments.
Many affected customers are expressing outrage, particularly those with high credit scores and stellar repayment histories. The lenders, they say, are miscalculating the value of their homes in an effort to be uber-conservative, and punishing them even though they have been good customers.
Countrywide has reportedly advised some irate customers that they can get another appraisal (at a cost of more than $400) if they want to appeal the closure of their HELOC. But given the fact that consumers may already have paid $2,000 or more in non-refundable fees just to open the HELOC – some just a year or two ago – the idea of paying for another appraisal for the mere "possibility" that the HELOC will be reinstated is a bitter pill to swallow.
A HELOC is a revolving credit line with a limit proportionate to the homeowner’s equity in their property. They typically offer much lower interest rates than regular credit cards because they are issued against a “secured asset” — a home.
Other lenders, including Bank of America, Wells Fargo and Chase have acknowledged that they, too, will be following in Countrywide's footsteps by reviewing customer credit lines and lowering limits or suspending credit lines.
During the housing boom, as property values soared, so too did the number of homeowners who tapped into their equity to fund remodeling projects, cars, vacations and other luxuries. Lenders were writing loans for 120% of a home's value – 100% for the primary mortgage and another 20% for a HELOC. Now that the pendulum is swinging the other way, and properties are losing value at a double-digit rate with no bottom in sight, the line of credit soon may no longer be covered by the value of the home. Nervous lenders are pulling back the reins, even on good customers who may not have used much of their HELOC and have made timely payments.
Many affected customers are expressing outrage, particularly those with high credit scores and stellar repayment histories. The lenders, they say, are miscalculating the value of their homes in an effort to be uber-conservative, and punishing them even though they have been good customers.
Countrywide has reportedly advised some irate customers that they can get another appraisal (at a cost of more than $400) if they want to appeal the closure of their HELOC. But given the fact that consumers may already have paid $2,000 or more in non-refundable fees just to open the HELOC – some just a year or two ago – the idea of paying for another appraisal for the mere "possibility" that the HELOC will be reinstated is a bitter pill to swallow.
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