HELOCs Harder to Get, Harder to Keep
Home Equity Lines of Credit, the cash spigot that taps one’s home equity, are scarce, more expensive, harder to qualify for and harder to keep. It’s just a continuing sign of the current extinction of useful mortgage products.
In our office, the number lenders offering home equity lines of credit has been cut in half. The number of lenders offering second mortgages has been cut by around 90%. When you can find lenders offering the products, they are usually more expensive (higher rates) and much harder to qualify for.
For example, Chase is lowering the maximum loan to value on HELOCs from 90% to 70% in some California markets. It’s only a matter of time that policies like this spread to other severely impacted markets.
Through this week, Chase customers in California can tap as much as 90% of the equity in their homes. Starting Monday, however, that limit goes down to 85% in most of the state. In six counties, including three in Southern California — Los Angeles, Orange and Imperial — Chase won’t let homeowners borrow more than 70% of the value of their homes. The bank wouldn’t say how the six counties were chosen.
Indymac Bank exited the HELOC market completely. Hat tip to Calculated Risk.
Not only are HELOCs harder to get, they are also harder to keep. Lender Implode posted this letter from Countrywide on their site.
What’s Happening
A portion of HELOC customers have already or will soon be notified by CFC Loan Administration that their HELOC draws have been suspended indefinitely. These HELOCs were identified as candidates for suspensions for various reasons including:
Significant decrease in supporting property value – If the customer’s current untapped equity (home value minus all mortgage liens) drops by 50% or more from their HELOC opening date, his/her line will be suspended.
HELOC payment delinquency – If the customer’s payment is made two or more days after the grace period ends, his/her line will be suspended.
Product Terms/Conditions Violation – In cases where the customer violated terms or conditions of the HELOC Agreement, his/her line will be suspended.
Examples include, but are not limited to: HELOC on property originated as owner occupied, but now believed to be non-owner occupied or unpaid taxes or insurance on the subject property.
Be aware that there may be other actions that could trigger draw suspensions.
Countrywide is joined by Bank of America and USAA Federal Savings Bank, among others, in tightening HELOC requirements.
Many of these HELOCs were taken out to act as an emergency cash reserve. Well it’s emergency time now and these products are either being taken back or not offered.
Needless to say, there is a human impact caused by the HELOC tightening. For example we had a client who had a small Indymac HELOC. The purpose of the HELOC was an emergency fund. They had a death in the family and finances became strained. Just when the proceeds of the HELOC were needed, Indymac suspended all withdrawal privileges. Consequently, this client went into a financial free fall without the liquidity provided by the line of credit.
This is a prime example of why we are telling clients and prospective clients that they must move quickly when it comes to anything to do with home financing. The rules are changing everyday and not in favor of the borrower/homeowner.