The Puget Sound Business Journal reported Friday on some more news from WaMu that is likely to affect local homeowners.
Washington Mutual Inc. has slashed or suspended $6 billion in available home equity credit to its customers in an effort to reduce its risk in a flailing housing market.
If they haven’t already been notified, WaMu’s customers across the country will learn of the change to their credit availability in a letter mailed to them in the next several days. The bank declined to disclose how many customers will be affected.
If a borrower’s home has depreciated — regardless of credit history — the line of credit will likely be reduced because the equity has fallen.
…
The Seattle-based thrift reported $1.1 billion in bad home equity loans and lines of credit in the first quarter, up 35 percent from the same time the previous year, according to a recent regulatory filing. The company saw a total of $9.2 billion in nonperforming assets for the quarter, or about 2.9 percent of its total assets. Nonperforming assets are a measure of bad loans.
Good. Making it super-easy to borrow from one’s home equity essentially eliminates one of the primary advantages of buying a home. A home “owner” that is simply building debt instead of building equity is actually worse off than the so-called bitter renters in my opinion.
Elsewhere on the home financing front, the P-I ran a syndicated column this weekend that contends that although rates on the new conforming-jumbo loans have dropped down close to conforming loans, they’re still pretty hard to get.
Higher loan limits, set early this year by the federal government as part of an economic stimulus package, were supposed to make jumbo loans more affordable in expensive housing markets. Rates finally have come down on these so-called jumbo conforming mortgages, though these loans likely will remain hard for most borrowers to get.
Unfortunately the article doesn’t really go into detail about why the loans are still hard to get, but I suspect it’s for all the reasons I laid out back in March.
(Journal Staff, Puget Sound Business Journal, 05.16.2008)
(Holden Lewis, Bankrate.com, 05.16.2008)
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15 responses so far ↓
1
Ballardite
// May 19, 2008 at 1:52 pm
I keep a tiny savings account at WaMu so I can have a safe deposit box around the corner from my house. They are not my main bank; just the closest fireproof box to stash my stuff.
They ran a flashy credit card promotion about a year ago, shortly after they acquired a regional bank that gave them better credit card network access (IIRC). Out of curiosity, I asked the teller to tell me more about their new credit cards. He immediately called over a “personal banker” to upsell me to HELOC. I threw out every objection I could think of, and the guy just kept going. He practically promised to send me out the door in 30 minutes with a $300K line.
I wonder now how widespread this credit card bait-and-switch was. I guess we’ll see. As HELOCs get yanked, and this trickles through to FICO scores, how long until another pro-cyclical feedback loop emerges?
2
softwarengineer
// May 19, 2008 at 2:25 pm
BANKS WANT MORE CASH INFUSION [TO STAY AFLOAT?]
The banks want more infusion money Tim, not more risky loans.
See the proof:
http://www.reuters.com/article/ousiv/idUSPEK14997020070829
3
NotaBull
// May 19, 2008 at 2:49 pm
“Good. Making it super-easy to borrow from one’s home equity essentially eliminates one of the primary advantages of buying a home.”
Well, HELOCs are most commonly second liens on a property and usually second to a large first loan. So in a situation in which home prices are declining, there isn’t any equity to actually borrow against. HELOC has an ‘E’ in it after all. HELOCs are secured credit, and secured against the equity in your house. If there is no equity available, the credit line should be frozen. If there is minimal equity available, the bank needs to look at the area and make a determination of the likely future equity you’ll have in a year or two.
So I don’t think it’s the case that they’re making it less easy to borrow against equity, but instead they’re making adjustments (large ones) to your expected future equity position due to the declines in your local market. When the market was going up, the future equity was always bigger, and therefore you could borrow up to 100% CLTV. Now, they’re limiting to 70-90% CLTV depending on the market and other factors.
I don’t disagree with your statement, but I just don’t think that’s what’s happening here.
“A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”, Mark Twain.
4
Gill
// May 19, 2008 at 4:20 pm
“Good. Making it super-easy to borrow from one’s home equity essentially eliminates one of the primary advantages of buying a home.”
This is a strange thing to say, IMO. Of course it shouldn’t be super-easy to borrow on one’s equity if it’s unsound financially, but why is it ‘good’ to eliminate the advantages of home-buying?
5
Michael
// May 19, 2008 at 4:26 pm
WAMU stole $3,000 from me so I hope the place goes bust. A few years ago I had a business account with WAMU. One of my clients send a check that was stolen and cashed by WAMU.
This was a For Desposti Only Check! What makes the story even better is that only me and my business partner could get money out of the account. They sent us to the customer service department. We went through the notary process and all the BS they could throw at us. Finally we got a copy of the check pulled. It looked to us one the copy that we were sent that we had no signiture on the back. So WAMU cashed a for deposit only check without a signiture! They kept telling me that customer service was going to do something but all they did was keep putting me off until I quit calling (about a year later). I should have filed with the state attorney general against them but I couldn’t be bothered for $3,000.
6
singliac
// May 19, 2008 at 4:35 pm
@ #4
Notice that “advantages” is italicized in the post. I believe Tim was being sarcastic about HELOCs being an advantage of owning.
7
The Tim
// May 19, 2008 at 4:38 pm
Sorry, apparently I wasn’t clear.
I was trying to say that building home equity is one of the primary advantages of home “ownership.”
HELOCs are a method of depleting that home equity. Therefore, in my opinion, anything that reduces their use is a good thing.
8
Gill
// May 19, 2008 at 4:47 pm
I agree, Tim. Thanks for the clarification on that.
We were considering getting a home loan through WAMU when we started our recent buying process but found out 2 days later they went belly up!
Doesn’t surprise me, though, as they have major problems across the board — mismanagement hell over there IMO.
9
budbrad
// May 19, 2008 at 4:53 pm
As I’ve mentioned here before, this has been happening for at least a month. They cut my HELOC in half about 6 weeks ago.
I have a HELOC with WaMu, but my first mortgage is with another lender. My situation is non-jumbo, non-teaser rate, and I have "golly"ed fine credit scores. I purposely set the credit line so that between the two loans I wouldn’t be below 90% equity.
Completely out of the blue, I get a form letter saying we’ve cut your credit line based on an appraisal done on your property. It was effective immediately.
First of all, I doubt seriously they are actually doing appraisals on all of their loans. (If they are, I want a copy btw.) Secondly, my response is going to be to close the line and move to another bank. Thirdly, it sucks to get stuck in the morass caused by all the people who milked it to the very last drop, while I took a very cautious approach.
Whoo-hoo!
10
Garth
// May 19, 2008 at 4:53 pm
HELOCS have been around for a long time, and I don’t really think they are the problem. The real problem is 100% or greater financing, and the use of HELOCS in the last few years for “Expensive electronics and vacations”.
If you have gotten a loan for anything recently you probably noticed them asking a lot more questions and calling back for information more, so the really lax lending is already dead and not coming back.
11
Mikal
// May 19, 2008 at 6:04 pm
I used my HELOC to buy a business and then paid it down. Anyone who uses it for a vacation or a television is an idiot. Using it for a remodel may make some sense if you were planning on selling soon and it penciled out. Otherwise… your an idiot.
12
b
// May 19, 2008 at 6:14 pm
For some reason when they decided to change advertising from the name “second mortgage” to HELOC, people all of the sudden thought it was free money to buy stupid "chocolate" with. Many people I have talked to think they are two entirely different things, and I am sure if you said “want to take out a second mortgage to buy an SUV?” most of those who used up HELOCs would think you were nuts. Its funny how a terminology change like that can make such a fundamental shift in behavior.
13
TheHulk
// May 19, 2008 at 7:01 pm
I wonder if it is possible to find out how much people owe on their house. i.e. What is the loan to value ratio on their house at a particular time. Houses having high LTV ratios are going to be increasingly difficult to keep considering the trifecta of rising inflation, falling house prices and the credit squeeze.
And as some people have said before, unless the said owner used the HELOC for either necessary renovation or something like funding his kid’s college education, that person is an idiot.
14
Garth
// May 19, 2008 at 8:17 pm
b,
That is a great point, though I seem to remember the loan my parents got when the redid their kitchen (in 93-94) was referred to as a second mortgage equity line. Only when people check your credit do they call it a second mortgage anymore.
15
Other B
// May 21, 2008 at 8:02 am
The story that’s been lurking in the background waiting to smash banks like a dropped anvil has been that HELOC performance is also pretty abysmal (what? it’s not just “subprime”?).
Watch for a lot of these programs to shrink and disappear.
Also watch for lots of banks to get kicked in the teeth once they have to start realizing these losses.
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