February 6, 2008 Detroit Free Press
By SUSAN TOMPOR
FREE PRESS COLUMNIST
Michigan homeowners who think they're going to buy a new car, remodel the house or send the kids to college simply by tapping an existing home equity line of credit should pay careful attention to this latest twist in the credit crunch.
If the value of your house has fallen, as it has in many metro Detroit neighborhoods and across the country, your lender could shut off that credit line.
Thanks to the fallout in the housing industry and the credit crunch, homeowners now must be aware that their lender could one day freeze their access to an existing home equity line of credit.
David Stoyka, a homeowner in Grosse Pointe Farms, got one of those unexpected home-equity letters.
The lender, Countrywide Financial Corp., told Stoyka that he can no longer draw on his home equity line of credit and he cannot use checks that he had previously received with that account. Stoyka owes about $16,000 after initially borrowing $25,000 on the home equity line of credit.
"Now we got a note saying we can't borrow any more," Stoyka said.
Countrywide Financial Corp., the nation's largest mortgage company, sent letters to about 122,000 customers nationwide last week informing customers that they cannot borrow against their existing home equity credit lines.
Other lenders could turn to this strategy, too.
The reason? Lenders are finding ways to reduce their losses.
Yes, they're allowed to do that
Lenders say the fine print in the loans permits them to put a freeze on home equity credit lines -- if the home's value has declined significantly from the original appraisal or if the lender believes that the borrower doesn't have a reasonable chance to make the required payment.
"Customers affected by this analysis will be notified by mail," Countrywide said in its statement. "Customers who do not receive a letter may continue to use their home equity lines of credit."
Other lenders are reviewing their options.
National City Bank said it is continually monitoring the risk in its home equity credit portfolio.
"In the future, we may take action on a case-by-case basis," said Bill Eiler, a spokesman for National City.
Comerica Inc. said it continues to review its home equity portfolio and the overall real estate market to ensure that its lending policies are appropriate, given the current economic environment.
Chase is reviewing what to do with existing accounts, but it has not done a major mailing, said Mary Kay Bean, a spokeswoman for Chase in Detroit.
Bank of America Corp., which has agreed to acquire Countrywide, said it doesn't have a comment at this time on adjustments to existing home equity lines of credit. As of Oct. 1, LaSalle Bank became part of the Bank of America family.
Pain down the line
For homeowners who have credit lines, it may be smart to watch the mailbox or talk to a lender before making any big plans.
Stoyka's letter from Countrywide said: "We appreciate that you have handled your home equity responsibly, and want to make sure that you know this change is being made simply because your home's value has declined."
Stoyka, 41, bought his Grosse Pointe Farms home for about $250,000 in April 2003 and took out the home equity line of credit as a way to get a 20% down payment on the home. This strategy, promoted by some lenders, is known as a piggy-back loan. It enables some borrowers to finance as much as 100% of a home's value by combining a mortgage with a home-equity loan.
Home prices have been sinking in Stoyka's upscale suburban neighborhood. Stoyka said he's aware of some homes in the area that sold in the past six months or so for $205,000 and $217,000.
Fortunately, he and his wife, Lea, did not have immediate plans to tap into the additional available line of credit.
"Financially, it really won't affect us," said Stoyka, a senior account executive at Marx Layne & Co., a marketing and public relations firm in Farmington Hills.
At least, it won't immediately.
They have a 12-year-old son and had considered using a home equity line of credit to help pay for college. But now they question whether that strategy could even work.
"I don't see in six years it being an option for us," he said.
By SUSAN TOMPOR
FREE PRESS COLUMNIST
Michigan homeowners who think they're going to buy a new car, remodel the house or send the kids to college simply by tapping an existing home equity line of credit should pay careful attention to this latest twist in the credit crunch.
If the value of your house has fallen, as it has in many metro Detroit neighborhoods and across the country, your lender could shut off that credit line.
Thanks to the fallout in the housing industry and the credit crunch, homeowners now must be aware that their lender could one day freeze their access to an existing home equity line of credit.
David Stoyka, a homeowner in Grosse Pointe Farms, got one of those unexpected home-equity letters.
The lender, Countrywide Financial Corp., told Stoyka that he can no longer draw on his home equity line of credit and he cannot use checks that he had previously received with that account. Stoyka owes about $16,000 after initially borrowing $25,000 on the home equity line of credit.
"Now we got a note saying we can't borrow any more," Stoyka said.
Countrywide Financial Corp., the nation's largest mortgage company, sent letters to about 122,000 customers nationwide last week informing customers that they cannot borrow against their existing home equity credit lines.
Other lenders could turn to this strategy, too.
The reason? Lenders are finding ways to reduce their losses.
Yes, they're allowed to do that
Lenders say the fine print in the loans permits them to put a freeze on home equity credit lines -- if the home's value has declined significantly from the original appraisal or if the lender believes that the borrower doesn't have a reasonable chance to make the required payment.
"Customers affected by this analysis will be notified by mail," Countrywide said in its statement. "Customers who do not receive a letter may continue to use their home equity lines of credit."
Other lenders are reviewing their options.
National City Bank said it is continually monitoring the risk in its home equity credit portfolio.
"In the future, we may take action on a case-by-case basis," said Bill Eiler, a spokesman for National City.
Comerica Inc. said it continues to review its home equity portfolio and the overall real estate market to ensure that its lending policies are appropriate, given the current economic environment.
Chase is reviewing what to do with existing accounts, but it has not done a major mailing, said Mary Kay Bean, a spokeswoman for Chase in Detroit.
Bank of America Corp., which has agreed to acquire Countrywide, said it doesn't have a comment at this time on adjustments to existing home equity lines of credit. As of Oct. 1, LaSalle Bank became part of the Bank of America family.
Pain down the line
For homeowners who have credit lines, it may be smart to watch the mailbox or talk to a lender before making any big plans.
Stoyka's letter from Countrywide said: "We appreciate that you have handled your home equity responsibly, and want to make sure that you know this change is being made simply because your home's value has declined."
Stoyka, 41, bought his Grosse Pointe Farms home for about $250,000 in April 2003 and took out the home equity line of credit as a way to get a 20% down payment on the home. This strategy, promoted by some lenders, is known as a piggy-back loan. It enables some borrowers to finance as much as 100% of a home's value by combining a mortgage with a home-equity loan.
Home prices have been sinking in Stoyka's upscale suburban neighborhood. Stoyka said he's aware of some homes in the area that sold in the past six months or so for $205,000 and $217,000.
Fortunately, he and his wife, Lea, did not have immediate plans to tap into the additional available line of credit.
"Financially, it really won't affect us," said Stoyka, a senior account executive at Marx Layne & Co., a marketing and public relations firm in Farmington Hills.
At least, it won't immediately.
They have a 12-year-old son and had considered using a home equity line of credit to help pay for college. But now they question whether that strategy could even work.
"I don't see in six years it being an option for us," he said.
1 comment:
National City just did this to me...I read my fine print, and not allowed. Anyone else have National City or one of these others cut you off?
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