Message to homeowners: If you have a line of credit or Home Equity (HELOC) and are even considering hitting it, you better hurry up and tap that thang.
Wait too long, and you may receive a nastygram from your Bank/Broker telling you "Too Late!"
At least, that’s what happened to "several thousand" Morgan Stanley clients. The nation’s second largest brokerage firm, after a periodic review, stated:
"Consistent with the terms of the HELOC, or home-equity line of credit, Morgan Stanley periodically reassesses client property values and risk profiles,” said Christine Pollak, a Morgan Stanley spokeswoman in New York. "A segment of clients was recently notified of a change in the status of their home equity line of credit or HELOC due to a change in the value of their property and/or their credit profile.”
Its good to see that lenders have become more proactive about risk, albeit 5 years to late.
There’s a lesson in this to home owners who were thinking about using this line of financing: If you have those HELOC checks your lender sent you — AND YOU CAN AFFORD TO SERVICE THE LOAN — then you better hurry up and use them before its too late!
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Source:
Morgan Stanley Said to Freeze Client Home-Equity Credit Lines
Christine Harper
Bloomberg, Aug. 5 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aBkoAMJY74G8&
Maybe it would be better NOT to cash those HELOC checks. It’ll just add to your debt load and delay matching your income to your expenses. Some banks on the West Coast already notified customers of restrictions some weeks ago.
Hmmm…… is this better or worse than having money tied up in a Citi Auction Rate Security???
In some cases, there must be individuals whose HELOC limit is much higher than the amount of down payment they used to purchase the property. Essentially they can cash out the money and simply let the bank foreclose their house. Wait out seven years and they will have a clean credit record again.
There’s a lesson in this to home owners who were thinking about using this line of financing: If you have those HELOC checks your lender sent you — AND YOU CAN AFFORD TO SERVICE THE LOAN — then you better hurry up and use them before its too late!
um, so you should take on added debt against a declining asset, even if you have no particular use for it, simply because it might not be available next week? Isn’t that the kind of ridiculous mindset that got the American consumer in this situation?
By that logic, if a position I have on margin goes against me, I guess I should increase the position to whatever level of margin I have left before it’s too late!
If we can’t tap that thang, how can we follow the Prez’s admonition to “go shopping” ?
I’m confused.
http://online.wsj.com/public/article/SB121798100185115205.html?mod=2_1569_topbox
This article is about FirstFed Financial…and there is one very sobering statistic in it…
“40% of its borrowers became at least 30 days delinquent after the payments on their adjustable rate mortgages were recast.”
40%…!!!
….just wonderin’..about the next 6 months…
Bruce in Tennessee
What the fuck is a broker dealer doing in the second mortgage business to begin with?? Anything for a fee I suppose….
wait, only if they can afford to service the loan?
what kinda quitter, defeatist hand-wringing commie-lefty thinking is that?
that’s like admitting it was over when the germans bombed pearl harbor.
don’t you remember george bush’s ringing words telling us our duty in the wake of 9-11? “NEVER FORGET, NOW GO FORTH AND SPEND!”
if you don’t take out every last penny of your HELOC that you can and SPEND AMERICA STRONG, the terrorists have already won!
and sir, i will not sit here and listen while you badmouth the united states of america!!!
WaMu did this a month ago. Not only can you not get the money, your credit score goes down at the same time.
Meanwhile, Wells Fargo (with whom I had no prior financial relationship) sent me an actual check yesterday. Not the usual CC or HELOC offer I get several times a week from everybody in the banking business but an actual, negotiable check that, had I deposited it, would have opened a LOC with an additional amount equal to the check amount.
Is this a new trend? Are banks so desparate that they’re tearing through databases looking for people who still have OK credit and positive equity in their homes to try and drum up some business?
Wonder how many fish they think they can hook with that bait. Mine went right into the shredder. I don’t want no stinkin’ credit.
For that matter, I don’t want no stinkin’ stocks either.
Are HELOCs recourse or non-recourse loans?
been thinking about this awhile now
if thats all you have to offer your community in these times – fall on your sword and bring that capital into your hometown – spend it smartly and not on drugs
Lawrence,
Are HELOC’s recourse or non-recourse? Hmmmm… most are non-recourse but generally even it were recourse, banks don’t go through the legal process to judicially foreclose or pursue their recourse remedies-unless anybody has heard differently. From what I understand, the biggest downside to default generally is the 1099 that you get.
This HELOC reduction game has been going on for months….
Just last year, my bank branch manager urged me to apply for a line of credit. I demurred, commenting that banks typically jerk these lines out from under you, just when you need them. And lo and behold — as we see with the HELOCs — it’s happening now.
Banks’ pro-cyclical behavior — spewing easy money at the top of the Bubble, then cracking down on borrowers during recession — amplifies the severity of the business cycle. To some extent, banks are just aping the Federal Reserve and the regulators, who got carried away with New Era thinking from 2002 on. You know who I’m talkin’ about: that Ol’ Dirty Lizard with the thick glasses who spent 18 years impersonating the Federal Reserve chairman.
All this just goes to show how catastrophically wrong is the purblind Greenspan doctrine that Bubbles can only be identified in hindsight. Had Bubble II (2002-2007, R.I.P.) been identified in real time, as many commentators in fact did, banks wouldn’t have to be yanking HELOCs now. How you gonna stay in the banking biz if ye don’t make loans? How can ye have any pudding if ye don’t eat yer meat?
Ian,
“Anything for a fee I suppose….”
Ground zero of our current predicament.
It’s all about the Benjamins.
.
Al Czervic says:
“negotiable check that, had I deposited it, would have opened a LOC with an additional amount equal to the check amount”
Once cashed, it gets packaged and sent to the Fed for Ts.
Its not about you or your credit score.
Further, Paul Desmond tells me that since we did not have any 90% Down Days close to the mid-July low, we have not seen the required selling exhaustion for a major bottom.
(could be right but not because of the 90% rule)
Technicians these days keep quoting Paul Desmond. In the 1990’s I also as a technician thought we could use the 90% rules and I had close contact with his company in order to be sure to get it right. Wow were they ever wrong. It was a very sorry lesson.
—AND YOU CAN AFFORD TO SERVICE THE LOAN
what the hell does that mean?
The best thing about this post:
Hearing the voice of Barry in my head saying:
“tap that thang”
I needed a good laugh after that “short tease” in the KBE today.
Are HELOCs not “money on a string”? The lender can pull an unused line subject to material changes in the collateral or customer situation, but I think LOCs also come with acceleration clauses for outstanding balances. The bank can basically say “pay us back $10K by next week”, no? (Subject to material changes of course, not just like that.)