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 credit revocation. Show all posts
Showing posts with label credit revocation. Show all posts
Friday, June 13, 2008
WaMu Suspends $6 Billion in HELOCs
Friday, May 9, 2008
Banks Are Putting Credit Cards on Ice, Too
If you've got a credit card "just for emergencies" that hasn't been used for an extended period of time, you may find that when that emergency does come, your card is no longer good.
According to a report by Smart Money, the soaring number of credit card delinquencies has banks trying to reduce their exposure to risky or unprofitable accounts. And it's been suggested that the Fed's proposed new rules restricting the banks' ability to arbitrarily raise interest rates and give consumers more time to make payments may be triggering an increasing number of credit card closures.
Even if you don't rely financially on your credit cards, closing credit lines can hurt your credit score. That's because your FICO score depends in part on your credit history and the amount of available credit you have compared to the amount of debt. If the card that is closed is the one you have had the longest, your score will certainly drop. And reducing the amount of available credit you have will have a negative impact on your debt-to-available credit ratio, which will decrease your score.
So... use your backup credit cards occasionally. If you've had a card issuer close your account, and you want to keep it open, contact the company and ask them to reconsider.
According to a report by Smart Money, the soaring number of credit card delinquencies has banks trying to reduce their exposure to risky or unprofitable accounts. And it's been suggested that the Fed's proposed new rules restricting the banks' ability to arbitrarily raise interest rates and give consumers more time to make payments may be triggering an increasing number of credit card closures.
Even if you don't rely financially on your credit cards, closing credit lines can hurt your credit score. That's because your FICO score depends in part on your credit history and the amount of available credit you have compared to the amount of debt. If the card that is closed is the one you have had the longest, your score will certainly drop. And reducing the amount of available credit you have will have a negative impact on your debt-to-available credit ratio, which will decrease your score.
So... use your backup credit cards occasionally. If you've had a card issuer close your account, and you want to keep it open, contact the company and ask them to reconsider.
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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