Homeowners Losing Equity Lines

[Walt34]

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Originally Posted by chinaco How is it that some manage to live within their means and others do not? Some people have to learn the lesson the hard way. Welcome to reality lady!

I wish I knew. A few years after we were married DW was laid off from her job, found another, laid off from that a year later, then it took 3-4 months to find another. It was financially inconvenient but since we lived below our means there was no struggle. Other than the house mortgage at the time there were no other loans. To us this is just common sense.

We are in awe of another couple we know - I've mentioned them here before - he's a carpenter, she just retired as a math teacher (of all occupations!) - and they are over $500K in debt! These are people who I will have zero sympathy for when they're out on the street.

[clifp]

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Originally Posted by laurencewill I think people need to take responsibility for their own actions, but at the same time, there is something criminal about how HELOC's are sold to people. "Unlock that equity in your home!" "You deserve it!" as if it's a special bank account with free money rather than a secured loan.

I agree that HELOC are promoted as free money. On the other hand virtually every product in the USA from Apple Computers to cubic Zirconia is marketed aggressively. By the time somebody is old enough to have children they better have figured out that they don't need everything they see advertised.

Sadly the alternatively to not cutting off home equity lines is make all American pay for bad loans, via either direct taxpayer bailout or indirectly via higher banking fees.

[jazz4cash]

You guys are going waay overboard criticizing these folks and thier lifestyle and making all sorts of assumptions. If only we knew the details of thier situation, perhaps they have made lousy choices which we could legitimately criticize...if we knew. A half-million dollar home is not a big deal in howard county which is right up the road from me. Childcare costs can easily run 50/day/child...they have FOUR kids ranging from 4 to 8 yrs. The only point that can be taken from this story goes to the risk of using HELOC as an emergency fund which is a seperate thread. I am very curious about the lender making a loan and 4 months later deciding the property value has dropped 16% when the actual sales figures for this area indicate no more than 5-8% decline which is YOY, not from when they applied.Yeah, I know they can do whatever they want, but I don't like the process.

Newguy...outstanding! Congratulations!........... Rutgers?

[clifp]

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Originally Posted by jazz4cash You guys are going waay overboard criticizing these folks and thier lifestyle and making all sorts of assumptions. If only we knew the details of thier situation, perhaps they have made lousy choices which we could legitimately criticize...if we knew.

Clearly we don't know all of the details, but judging from what we do know they are living above their means.

1. They are not kids; Judging by the picture Nancy Corazzi is in her 30s if not early 40s.
2. Even with two jobs they were still running into debt hence the original HELCO to consolidate debt.
3. Faced with a likely loss of income their first instinct to get a bigger line of credit.
4. Nancy no longer has salaried job but still thinks it is a necessary to send the twins to pre school. Sorry mom, if you aren't working and hubby can't make enough to support the family, you cut expense by keeping the little ones at home.

[chinaco]

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Originally Posted by jazz4cash You guys are going waay overboard criticizing these folks and thier lifestyle and making all sorts of assumptions. If only we knew the details of thier situation, perhaps they have made lousy choices which we could legitimately criticize...if we knew. A half-million dollar home is not a big deal in howard county which is right up the road from me. Childcare costs can easily run 50/day/child...they have FOUR kids ranging from 4 to 8 yrs. ...

You could be right on the criticism. But something seems a bit off. If they have to rely on a HELOC to finance their ongoing needs, then maybe a mortgage on a $500k house is too much for them. The lender (i.e., investors) is unwilling to loan on the house and put the loan upside down (that's is the way it appears). If the woman is upset, one would conclude that they have no other liquid resources or they would go for plan B. Something seems off. Do you think they have a 6 month emergency fund they can tap into?

The article is just showing how the spenders out there have been spending the equity growth of their homes and that has ended for now.

This sounds like another "house poor" middle class family living paycheck to paycheck. If their cash flow is interrupted, they are probably in trouble. And it looks like a source of their cashflow just got interrupted.

[Sandy]

Had twins in daycare and preschool - it was about $1000/month as i recall about 10 years ago (pick age 2). Went through a couple of tough spots. First, when DH was unemployed, while we had a mortgage, alimony, and preschool - together equal to about 3 mortages. We didn't take the kids out of daycare when DH was unemployed because you loose your place - and wouldn't be able to get back in. There are few quality places (or even good enough that you would want to leave your dog), so if you expect to return to the workforce, daycare is just an ongoing fix expense.

When we first moved to Tallahassee, while both working we had old mortgage, alimony, daycare, and rent (now we were up to the equivalent of 4 mortages on 2 state salaries)

Nevetheless, we trudged on, met our obligations and didn't go into additional debt - used that ole emergency fund as a bridge - that is what it's for.

[jazz4cash]

I won't defend the couple's actions as we don't know any details, but obviously they're not optimal. I will say the feedback in the Wash Post was much much more harsh than what was posted here!

I just believe that if lender accepts an appraisal in Oct of '07 of $560k on thier home and four months later they decide NO!.....it's only $469k, it's not right. Maybe lender uses Zillow for appraisal info. It's not like the loan was extended at the height of the bubble. What if it was a loan for the max LTV instead of a HELOC.....would they call the loan?

[FinanceDude]

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Originally Posted by Sandy Had twins in daycare and preschool - it was about $1000/month as i recall about 10 years ago (pick age 2). Went through a couple of tough spots. First, when DH was unemployed, while we had a mortgage, alimony, and preschool - together equal to about 3 mortages. We didn't take the kids out of daycare when DH was unemployed because you loose your place - and wouldn't be able to get back in. There are few quality places (or even good enough that you would want to leave your dog), so if you expect to return to the workforce, daycare is just an ongoing fix expense.

I agree 100%, we had a similar issue when DW got let go due to an overzealous boss, was burned out anyway, and took 12 months to find the right job. Luckily, we had savings and LBYM to get us through.

Many, many other folks in our circumstance would take out a HELOC or something..........

[youbet]

For me, the real bottom line is that lending institutions should be using much more conservative criteria in determining the size and terms of loans folks "qualify" for. So conservative that even 10% - 20% swings in appraised value of a home don't cause the lender to change the terms of the loan.

My hope in the current lending crisis was that the government would allow lending institututions to suffer enough before any bailouts that the lending institution management would regret the day they were born. Apparently not going to happen, at least not to the extent I would have liked. Somehow the big bux guys at the top of the food chain always seem to dodge the bullet.

[Jay_Gatsby]

I don't see any problem with lenders yanking HELOCs before they can be exploited if there is a legitimate basis for believing that house values in a particular area are on the decline. It's only good lending discipline. Would anyone here prefer the opposite, namely, loose lending that puts the bank at risk? Why should the bank be the one to tolerate the risk, especially if doing so funds a lifestyle choice that might preclude the borrower from ever paying it back?

In previous times, HELOCs could be used for home improvements or other expenses where there were assets that could be levied upon for repayment. In other words, there were more restrictions on their use. True, banks shouldn't be in the business of approving how people spend money -- but only if it is THEIR money. Until the bank actually loans the money, it is the bank's money, and the bank has a right to make sure it can be repaid.

[FinanceDude]

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Originally Posted by Jay_Gatsby I don't see any problem with lenders yanking HELOCs before they can be exploited if there is a legitimate basis for believing that house values in a particular area are on the decline. It's only good lending discipline. Would anyone here prefer the opposite, namely, loose lending that puts the bank at risk? Why should the bank be the one to tolerate the risk, especially if doing so funds a lifestyle choice that might preclude the borrower from ever paying it back? In previous times, HELOCs could be used for home improvements or other expenses where there were assets that could be levied upon for repayment. In other words, there were more restrictions on their use. True, banks shouldn't be in the business of approving how people spend money -- but only if it is THEIR money. Until the bank actually loans the money, it is the bank's money, and the bank has a right to make sure it can be repaid.

I disagree, I think once the customer has been APPROVED for the loan, why yank it because market conditions have changed? Regardless of the "abuse" we are debating, how has the lender been "wronged"? they still got extra interest, and if things go really haywire, they still have a secured loan

I think unsecured debt is more risky than secured debt, but that's just me........

[Marquette]

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Originally Posted by FinanceDude I disagree, I think once the customer has been APPROVED for the loan, why yank it because market conditions have changed? Regardless of the "abuse" we are debating, how has the lender been "wronged"? they still got extra interest, and if things go really haywire, they still have a secured loan I think unsecured debt is more risky than secured debt, but that's just me........

do they still have a secured loan? If you're the second lender, doesn't the primary lender have first rights? If someone has an 80/20 on a $200k house and the house value drops to $160k, then wouldn't the second lien holder, for all practical purposes, be stuck with an "unsecured" loan?

I'm not arguing that the lender has been wronged... obviously, they're accounting for the additional risk with higher rates pegged to higher LTVs (at least, with the HELOCs I've seen). But, given the borrower behaviors we've seen posted in stories here, it might seem the lender is a bit worried about walk-aways and higher-than-anticipated defaults.

[armor99]

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Originally Posted by chinaco How is it that some manage to live within their means and others do not? Some people have to learn the lesson the hard way. Welcome to reality lady!

Well said chinaco!!! Some of us choose to live under the laws of reality, while others try to cheat. Sooner or later when you live a dilusional lifestyle, reality WILL come back to bite you.
I guess this is the banks answer to the so called "jingle mail". Where people were simply mailing in thier house keys to the bank and walking away. So now the banks are retracting their offer of credit instead. I wonder how long it will be until someone trys to sue a bank for not offering them anymore credit, while at the same time mailing back their keys to the same bank because they cannot pay.