urgent - chase heloc warning

dave_donhoffMay 15, 2008

URGENT - Chase HELOC WARNING

Folks,

Chase Home Equity & Subprime divisions just sent the "we're closing" alerts.

NOW... the likelihood of Chase freezing undrawn HELOC balances... even in NON-declining markets, just leapt up (I suspect) by a point of magnitude.

ANYONE here who has a Chase HELOC (or their sister competitor, Citi,) I would STRONGLY recommend drawing it completely TODAY, and parking the funds in a seperate bank account (non-Chase, non-Citi, as applies.)

NOBODY has even been forced into bankruptcy or foreclosure by having too much liquidity.

MOST who are foreclosed have more than sufficient equity... but no access to it.

TAKE CARE!

Dave Donhoff

Leverage Planner

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richardallen

THIS IS GREAT NEWS

Now people will have to live within their means

What a Radical concept!

    Bookmark   May 15, 2008 at 4:48PM
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joyfulguy

Thanks, Dave.

Should we tell them to go chase themselves?

Inflation being what it is becoming ... we'll be able to pay off the loan later (supposing we still have a job - or our pension carrier hasn't gone broke) ...

... with cheap (devalued) dollars.

ole joyful

    Bookmark   May 15, 2008 at 5:31PM
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busymom2006

I've seen some neighborhoods where there are a ton of foreclosures, some of which are "under contract". But I haven't seen any "sold" signs in these neighborhoods yet. In spite of this, people are still putting on additions and doing other types of home improvement projects. They must still have HELOCs available to them.

What's up with that?

    Bookmark   May 16, 2008 at 9:03PM
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cmarlin20

I've seen some neighborhoods where there are a ton of foreclosures, some of which are "under contract". But I haven't seen any "sold" signs in these neighborhoods yet. In spite of this, people are still putting on additions and doing other types of home improvement projects. They must still have HELOCs available to them.
What's up with that?
People can and do make home improvements in other ways, why do you assume they must be using a HELOC?

    Bookmark   May 16, 2008 at 10:43PM
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busymom2006

Why do I assume they are using HELOCs? Because I doubt they are using credit cards.

You think they are taking money out of their savings for these improvements? That doesn't make sense to me. "Hey, honey. Our HELOC is frozen! Lots of homes are being foreclosed on in the neighborhood! Time to put on an addition!!" Huh?

    Bookmark   May 17, 2008 at 9:28AM
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cmarlin20

Why do I assume they are using HELOCs? Because I doubt they are using credit cards.

You think they are taking money out of their savings for these improvements? That doesn't make sense to me. "Hey, honey. Our HELOC is frozen! Lots of homes are being foreclosed on in the neighborhood! Time to put on an addition!!" Huh?

I really don't understand your reasoning?
Why would you be certain a person would use a HELOC rather than cash for a home improvement?
Do you think they will then walk?
Why would it not make sense to use savings?
Why would a HELOC make more sense?

    Bookmark   May 17, 2008 at 11:14AM
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dadoes

I've never understood what's the big deal attraction on HELOCs. My mortgage company *constantly* sends solicitations on it. "Our records indicate you may have $117,000 cash available from equity in your home." Junk mail, shredded. Pulling that out in cash is nothing more than a loan that must be paid back with interest, or playing against future sale of the property. I'm not planning to sell any time soon.

    Bookmark   May 17, 2008 at 3:59PM
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busymom2006

In all fairness, I have no idea how these people are paying for their home improvements. They haven't told me and I wouldn't ask. Could they be using cash? Sure. Maybe they have decided not to worry about the foreclosures in their neighborhood and add on to/improve their homes anyway, using their savings to do it. I never meant to imply that I thought these people had any intention of walking away from their homes. I actually do not think that is true at all.

But, it is also possible (maybe probable) that they still have access to HELOCs, in spite of the foreclosures in their neighborhood. I thought that was interesting.

    Bookmark   May 17, 2008 at 5:09PM
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qdognj

in some situations, it is a not a bad idea to use a Heloc to fund an improvement rather then cash...And if it is a rather costly improvement, how many people have the cash to pay for such...

    Bookmark   May 17, 2008 at 5:58PM
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dadoes

One must have the cash to pay off the HELOC eventually, somehow. If it's understood to be another interest-bearing loan on the balance sheet, then there you have it ... but I get the idea that a lot of people are thinking it's "free" money ala the buzzwords "tapping into your equity."

    Bookmark   May 17, 2008 at 6:35PM
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bethesdamadman

dadoes: "I've never understood what's the big deal attraction on HELOCs."

The attraction is that the interest is tax deductible, thereby reducing the effective interest rate by a third or more. Back in the day, all interest was deductible. When that was changed, HELOC's became a popular loophole to get around the loss of that deduction.

    Bookmark   May 17, 2008 at 9:33PM
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qdognj

" but I get the idea that a lot of people are thinking it's "free" money ala the buzzwords "tapping into your equity"
I highly doubt that even the most un-informed homeowner believes this to be true..A ridiculous stament if i have ever read one

    Bookmark   May 17, 2008 at 9:51PM
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cmarlin20

" but I get the idea that a lot of people are thinking it's "free" money ala the buzzwords "tapping into your equity"
I highly doubt that even the most un-informed homeowner believes this to be true..A ridiculous stament if i have ever read one
I agree, who really believes buzz words in an ad?
All loans include signed disclosures.

    Bookmark   May 17, 2008 at 11:24PM
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busymom2006

We used a HELOC to spruce up our 40 year old house (windows, siding, roof, etc.). And I would do it again. Used wisely and in moderation, HELOCs are an affordable way to finance home improvements and maintenance.

But I don't know about pulling HELOC money out just for the purpose of remaining liquid.

What would happen to a person's credit rating if they pull out all of their HELOC money and then the value of their home goes down? Wouldn't their credit rating be hurt by owing more than their home is worth - even if the money is tucked safely away in an interest earning account? Even if they are paying the loan on time?

    Bookmark   May 18, 2008 at 9:44AM
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cmarlin20

The FICO score doesn't consider a person's home value. It doesn't know if the house is worth more or less than the loan. The credit report doesn't give any asset information.

    Bookmark   May 18, 2008 at 11:22AM
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busymom2006

But wouldn't the debt from your HELOC show up on your credit report? Couldn't having all of that debt hurt your FICO score even if it is parked in your checking account? And, if so, could that make the interest rate on your HELOC zoom up/make it harder to refinance?

    Bookmark   May 18, 2008 at 11:42AM
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dave_donhoff

Hi Busymom,

But wouldn't the debt from your HELOC show up on your credit report?

It will show, but any HELOC larger than $50,000 is reported on credit as a home equity loan (which helps your scores, as long as it is paid on time,) rather than a revolving line of credit (which, synonymous with credit cards, hurts your credit if you are drawn higher than a 30% balance.)

Couldn't having all of that debt hurt your FICO score even if it is parked in your checking account?

No.

And, if so, could that make the interest rate on your HELOC zoom up/make it harder to refinance?

Nope. Your credit cards interest rates may fluctuate relative to balances, but not your HELOC.

Cheers,
Dave Donhoff
Leverage Planner

    Bookmark   May 18, 2008 at 4:55PM
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busymom2006

So, people could still get car loans, credit cards, etc. even if they have a ton of HELOC debt? They could still get good interest rates on other types of loans?

    Bookmark   May 19, 2008 at 8:52AM
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dave100

I just spent about 12k this week on new siding for my home - came out of savings (bank was only paying me 3% and the contractor was hungry.)

    Bookmark   May 19, 2008 at 12:34PM
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cmarlin20

yes, busymom2006, I have millions of dollars of mortgage debt (not HELOC) but my report only shows it as mortgage debt. I own investment property by my credit report doesn't differentiate the type of mortgage.
Funny thing, I did try several years ago to get a simple online car loan, I was declined. My debt shown was more than the annual income I included on my online app.

    Bookmark   May 19, 2008 at 3:42PM
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busymom2006

Cmarlin - Your annual debt payments are more than your annual income???

    Bookmark   May 19, 2008 at 7:44PM
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bethesdamadman

No, his debt is more than his income, not his debt payments. That is not unusual. Most people have one mortgage that is more than their annual income. CMarlin just has several mortgages, that is all.

    Bookmark   May 19, 2008 at 9:53PM
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busymom2006

Why was he declined a car loan based on his total debt being more than his annual income? I agree, lots of people have that situation but they are still able to get car loans! Maybe his debt to income ratio is a problem?

    Bookmark   May 20, 2008 at 9:24AM
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cmarlin20

Think of it this way...
I complete a simple online credit app. It asks my income, I report $100,
The credit report then shows my total loans as $50,000, with my monthly payments as $200.
The lender or the computer says no good, they owe more than they make.

I have no problem getting a loan with a full app that asks for my complete financial statement showing all assets and liabilities, but a simple credit app doesn't ask that.
I just applied online for a new airline CC, it told me it needed to review me, but I did get it a week later.
My point is, the credit report only tell so someone you pay your bills, it doesn't give much of a financial picture.
Someone reviewing my report doesn't know what my $1mil loan attaches to, is the property worth $600k or $6mil? Do I receive $6k or $600k in gross income from that property?

    Bookmark   May 20, 2008 at 11:43AM
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cmarlin20

oh I wish this forum had an edit feature, use the above income and expense number as monthly. I hope i made th point clearly...

    Bookmark   May 20, 2008 at 11:48AM
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busymom2006

Another dumb question. Sorry, I'm really trying to understand this! Why didn't you just report the income you get from your property? Isn't that part of your annual income?

    Bookmark   May 20, 2008 at 2:32PM
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cmarlin20

I meant to say I report my net income, that is the income that comes into my house after paying investment expenses. That is the same income that working people report on their apps.
So to answer your question, busymom, I do report the NET income from my property. It is still below my expenses as shown on my credit report.

    Bookmark   May 20, 2008 at 4:25PM
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busymom2006

O.k., I think I get it now:)

    Bookmark   May 21, 2008 at 9:31AM
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