Homeowners losing equity lines

[lanlady]

Source: Washington Post

Homeowners Losing Equity Lines
As House Values Fall, Some Banks Withdraw Credit

By Dina ElBoghdady
Washington Post Staff Writer
Saturday, February 23, 2008; A01

In one brief phone call, Nancy Corazzi's lender yanked away what was left of the $95,000 home equity line of credit that she and her husband took out five months ago.

The lender informed her that her Howard County home had plummeted in value and the company did not want the risk that she would owe more than the house was worth.

"I got off the phone and I was shaking," said Corazzi, who was using the money to pay preschool tuition for her twins ."I was near tears. We needed this credit line to get us through some tough times."

Several of the nation's largest lenders, along with smaller ones, are shutting off access to home equity lines in areas where home values are declining. It's an unusually aggressive move as the industry grapples with fallout from the mortgage crisis that began unfolding last year.

Read more: http://www.washingtonpost.com/wp-dyn/content/article/2008/02/22/AR2008022202987.html?nav=rss_email/components

[WillParkinson]

1. Hrm...we just closed on ours...

And we signed contracts. Unless there's something in their contract I'd think the bank was in breach.

[Tesha]

12. The contract almost certainly said something about "borrowing against existing equity".

When the equity's gone, so is your ability to borrow
against it.

Tesha

[Gormy Cuss]

14. Yes, and the banks are being prudent to cut off the line when their assessment says it's gone.

It's unfortunate that some people aren't registering that fact until the lender puts on the brakes.

[demnan]

2. I'm asking because I don't know

Was it within her rights to use the loan for something other than improving the value of the house?

I thought these loans were principly given when someone wanted to improve the equity in a home.

And $95,000 for preschool tuition????

[pokercat999]

3. Used to be that was the case, now they are like credit cards

kinda like the "don't ask don't tell" policy but without all the restrictions.
:evilgrin:

[mahatmakanejeeves]

4. home equity loans are used for all sorts of things

I feel they really represent abuse of the system. There was a thread over at Americablog two weeks ago about a guy, with high income, who borrowed against his house's equity to buy stocks during the dot com craze. That bubble burst, and his money was gone. Now the value of his house has dropped too, and the banks are coming around. He now is in danger of losing his house.

A house is where you live. Treating as some sort of surefire investment is asking for trouble.

I'll get that link.

[dysfunctional press]

5. she didn't spend $95,000 on preschool tuition...

the bank extended them a line of credit worth up to $95,000, based on the equity in their home.
it's like being issued a credit card with $95,000 worth of available credit- and no, you're not required to use it to improve the value of the house- it's a home equity loan, not a home improvement loan.

[splat]

6. It's tax-deductible like a mortgage if you use it for home improvement

[rayofreason]

7. interest on HELOCs is tax deductible period...

...no matter how you use the money. A HELOC is a good way to consolidate debt - as long as you don't pile more on.

[slackmaster]

10. Yes, the tax code changed several years ago to allow it

It wasn't always that way.

[AP]

16. ...

...

[Xenotime]

19. We used our to take a vacation to Europe

[hadrons]

8. It looks like she was depending on that line of credit to paid for the preschool tuition ....

I doubt it was $95,000 but whatever the cost was she was going to use that line of credit for it and if you need your home equity to pay for preschool tuition you're in trouble.

[Xithras]

11. Not really. Lots of people pull loans for education.

Yes, I've even known a few who have pulled loans for preschool. One of my nephews attended a preschool that was almost $2,000 a month, and my stepbrother had to take out a loan to pay for it.

Like credit cards, using a HELOC makes more financial sense than taking out a conventional personal loan because the interest on the debt can be deducted. It reduces the overall cost of the debt.

[Xithras]

9. Yep, mine got cut.

Only I didn't get a phone call. I received a letter stating that my line of credit had been suspended as of five days earlier, and that any checks I'd written since then would bounce. Major suckage, but that pretty much describes Countrywide as a whole lately.

Yes, I did use it like a credit card. No, I didn't feel bad about that. When you use a credit card, you're giving a large percentage of your money to the banks, pissing it down a hole if you will. When you use a HELOC card, all interest is tax deductible. I spent over $6000 in interest on the card, and every penny of it was deducted when I did my taxes a few weekends ago.

People who use credit cards when HELOC's are available to them are simply burning money. If you know how to use a credit card responsibly, and you use your HELOC line as responsibly as a credit card, HELOC's are actually the wiser financial tool to utilize.

[cap]

15. the law should be changed to abolish HELOC's

go back to making credit card interest deductible. Get people back into the habit of really owning their homes. You pay down the mortgage and the house is yours -- real financial security.

Other debt is the debt to be made tax deductible. Dont monkey around with the house.

[AP]

18. If credit card debt were deductible again, tax revenue would plummet.

You couldn't do that unless you seriously regulated credit lending so that banks weren't giving everyone and her dog a credit card without any regard to the ability to repay.

Lot's of people spend more than they make on cards with effective interest rates over 15%.

[AP]

17. Credit card debt isn't secured by anything. Some people would say that you're crazy to take

out a loan secured by your house (a HELOC) when you can take out an unsecured load (your Visa card).

It really depends on your situation, but the tax advantage of deducting a couple thousand dollars from your income (especially if you're in a low tax bracket and have other ways to reduce your taxable income) might be a lot less valuable than shifting debt over to loans that aren't secured by anything.

The deductibility of all that interest isn't going to seem so important if you get foreclosed and the banks takes your home.

[Earth_First]

13. YET ...our property tax assesments continue to rise!

Just recieved ours!

[Marthe48]

20. Our taxes went up also

We paid off our house last year, live in Ohio. Own a river lot in WV and are trustees for my mom's former home in Colorado--taxes on all 3 went up. We got the notice last year, paying higher taxes this year.

All the properties are paid off, but the taxes will never stop and never stop going up. And of course the value has gone down, not just because of the housing bust, but because of jack-built development in our neighborhood, that no one asked the neighborhood about, just did it.

We have a HELOC, bought a car using it. We'll have the car paid off this year and then we won't use it any more, will cancel that account because of the outrageous fees connected with it. Even though we have incredible shrinking equity, we are trying to protect what's left of our hard work and planning, so we can salvage what's left of our retirement plans. That means even if we have an excellent credit rating, we won't go into debt unless we absolutely have to.

I know we're lucky to have the property paid off, but its a matter of degree -- our sensible plans are wrecked by a profligate government and greedy corporate sleaze.