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.

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.

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.

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.

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!

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.

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.

Notice that “advantages” is italicized in the post. I believe Tim was being sarcastic about HELOCs being an advantage of owning.

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.

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?

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.

The banks want more infusion money Tim, not more risky loans.

See the proof:

http://www.reuters.com/article/ousiv/idUSPEK14997020070829

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?