More about our HELOC

harriethomeownerMay 6, 2008

I was looking at the letter we received suspending our HELOC, and the numbers didn't add up. That is, the amount they say the house is worth now (i.e., the "declining market value") is MORE than the credit line plus the amount we refinanced our mortgage to last year by about $45k.

So I called the mortgage company. The person who answered the phone kept reading me canned responses that didn't seem related to my questions. Me: Our line of credit plus our current mortgage is for LESS than the new lower value of the house. Her: We suspended your line of credit because of the declining market, not because of what you borrowed. Etc. The only useful piece of information I learned is that they will waive the penalty for closing the line early (which was NOT in the letter).

Am I missing something here?

It just ticks me off that they apparently lumped all of their customers together without making any effort to keep the good ones.

We're looking into taking our business elsewhere -- like to one of our credit unions. Both of them have better HELOC deals.

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If you only have 45K left in equity, I would lay off the HELOCs. You may one day need that money to get out of your house. If you are using your HELOC to pay for living expenses or to make your house/credit card payments you are living above your means. If that is the case you should sell sooner rather than later.

If you believe your house would appraise for more than the bank is saying and you can afford your payments, then take your business elsewhere. I would.

    Bookmark   May 6, 2008 at 3:29PM
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I think you are missing that the HELOC lender doesn't want to be a 100% lender. They want a comfort margin. It doesn't matter to them that there is still unused equity on the table. It should matter more to you not to borrow up too much on your home.

    Bookmark   May 6, 2008 at 3:50PM
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Oh, I should have mentioned that even according to this company's AVM, we have about 50% equity in our house. When we refinanced last year, we didn't take cash out; we just refinanced our existing debt to a longer term (from 15 years to 30 years) to get the lower payments so we could build up a better cash reserve.

At that time, we decided to keep the line open as an additional emergency fund. We do have a small balance (~6% of the value of the house) that was incurred when we did some home repairs a few years ago. Other than our first mortgage, that is our only debt. We could theoretically pay it back today, but that would put a serious dent in our emergency fund, so it's not really an option. But we haven't been using our house as our personal ATM!

We don't want to pay $400 for an appraisal because we don't actually need the money right now.

Is this so strange? Apparently it is to the mortgage company. It didn't fall anywhere into the customer service rep's script.

    Bookmark   May 6, 2008 at 4:03PM
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Hmmm, you've got 50% equity and they don't want to give you a HELOC? That does sound strange. I'd be scratching my head, too. The only thing I can figure is that they are denying you based on your income? Or maybe they are just up and taking them away from everyone now. Maybe you can use a low interest credit card as a back up instead?

    Bookmark   May 6, 2008 at 4:34PM
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That's my peeve about this -- it was just a blanket suspension of HELOCs based on being in a "declining market" -- nothing to do with the individual borrowers. We've had this LOC for three years and only drew on it a few times, last time about two years ago.

This is apparently a widespread trend. Someone posted about it here a few weeks ago.

I haven't checked to see how this has affected our credit rating. Guess I should to ward off any problems. We have always had excellent credit.

I guess this really proves Dave Donhoff's point about not tying up all your cash into your house. See how easy it is to not have access to it?

    Bookmark   May 6, 2008 at 4:56PM
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Yes, now I'm finally seeing what those darned financial advisors have been saying all along!

    Bookmark   May 6, 2008 at 5:11PM
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We had ours frozen under similar circumstances, except we don't even have a balance on ours (and our development's home prices have not decreased, even though the lender's "valuation method" claims they have). They're obviously not looking at individual circumstances. If anything, I think they're just CYA because they don't want to have to give out large sums of money (as they are circling the drain, as they say).

    Bookmark   May 6, 2008 at 6:28PM
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I really prefer to be lauded and vilified with celebration about my being right... rather than with the realization of regret that I hadn't been heeded as foresightful.

Here's hoping that the GOOD news is that there is STILL plenty of "light of day" to have your overall equity and balance sheet rebalanced for safety first, liquidity second, returns/savings third.

Dave Donhoff
Leverage Planner

    Bookmark   May 6, 2008 at 7:06PM
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Dave, we are very happy that we refinanced last year. The lower payments are allowing us to build up a cash safety net that we wouldn't have had otherwise.

Understand that we are generally in good shape (knock on wood!) and are on the pay (cash) as you go system. But you never know what will happen. The HELOC was just something that we thought gave us the option to borrow economically if a dire emergency arose. A lot of other people are probably actually hurting from this.

    Bookmark   May 7, 2008 at 12:03PM
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Ditto on that. Used correctly, a HELOC is a great idea. Unfortunately, many were handed out and taken without enough consideration. Like you, we were keeping ours open just in case (if needed, for our kitchen renovation, with the interest rate and interest deduction making it a better option for some short-term financing).

A poster to another message board I read contacted his loan officer and managed to get the line reopened with some documentation provided to the lender. We're considering going that route. Otherwise, I'l just find someone else who wants my business.

PS: If that isn't a kick in the ass, this is: our property assessment just came in and the county is claiming our property increased close to $40K in value last year, so up go our taxes. Talk about the worst of both worlds.

    Bookmark   May 7, 2008 at 12:36PM
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Just taken out a HELOC. Only did it because we thought it would be a good idea to have a large sum of money available it needed. (have a mortgage and car loan, no other debt)..The bank offered us prime -1/2 point. Said they were very conservative with regard to HELOCs. Had read about HELOC's being 'taken away' and asked the bank about it. They said that normally these are only stopped if the lending institution is over extended. Or the homeowners credit score drops dramatically ( not sure how they would know about that unless they monitored it).

    Bookmark   May 7, 2008 at 6:34PM
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Things really are crazy now for sure- I am the one who posted before out my HELOC getting frozen right in the middle of my major house renovation.

I decided to contact another bank for a new HELOC, and at the same time went down the path with my existing bank providing a new appraisel.

Before we did our renovation, we had two realtors come to our home to advise us on what houses were selling for in like size, condition to ours, and what they thought the renovation might add. They both replied with a number that was very close to each other, assuming that things do not change too much (we live in a very desirable part of town, that did not get the huge run up on prices and no big drops lately).

Then, the appraisor gave us another number, about 20% lower than the realtors but high enough to continue our HELOC if our original bank actually wants to do so.

Then, the new bank denied us a HELOC, stating that their compturized valuation came in too low- It was so low it was laughable- it was almost half lower than our actual appraisel. Now, I understand being conservative, but that is ridiculous. I almost wonder it they had the wrong house.

As by chance, on the same day the county sent us our new assessment, which went up by 10% of course.

At this point, our contractor has to be paid and the original bank is taking forever to review our new appraisel and I am about done with the whole thing.

We are very fortunate in that I am going to be able to sell enough stock to cover what we owe, but it was not what I planned when I started this whole thing, and I hate putting so much more cash into the house. Even with the HELOC, we would have been at 80% LTV, and now we will be more like 60%.

We don't plan to sell for at least 10 years, so at least I can enjoy my investment :)

    Bookmark   May 7, 2008 at 6:38PM
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