Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Borrowers Face Equity Roadblock
Old 02-02-2008, 09:31 AM   #1
Full time employment: Posting here.
Retire Soon's Avatar
 
Join Date: Nov 2005
Posts: 655
Borrowers Face Equity Roadblock

The effects of sinking home values are having a negative impact on homeowners who wish to take equity in their homes. Many lenders across the U.S. are now requiring that homeowners maintain a larger percentage of home equity as a precautionary measure against financial problems. Some lenders have even gone so far as to tell their customers that they can no longer take any more money out on their line if credit. Countrywide Financial, for example, sent out 122,000 letters last week telling homeowners with equity lines of credit that they could no longer take any more money from their credit line. In many cases, according to Countrywide, many of these second trust deeds in combination with the first now make the loan upside down, with the borrowers now owing more than the home is worth.

Chase Home Loans, in the face of mounting deliquencies has completely revamped their loan underwriting requirements and beginning Monday will only allow California homeowners to borrow up to 85% of home equity, down from 90%. Additionally, in six California counties Chase will not allow a home equity loan exceed 70% of home value. They will also cap the entire state of Florida at 70% and Nevada at 65%. By the way, the new loan to value percentages will be even lower for borrowers with low FICO scores.

Not only are falling home prices effecting second trust deeds, they are having a negative impact on first trust deeds as well with Fanne Mae
warning lenders that it will require a lower loan to value ratio on loans it buys from them in areas that have experienced significant price declines.


The legendary economist, John Kenneth Galbraith had this say in the introduction of his 1997 edition of The Great Crash 1929, "If we now have a downturn-what is called a day of reckoning some things can, indeed, be foreseen. By some estimates a quarter of all Americans are directly or indirectly in the stock market. Were their a bad slump it would limit their expenditures, especially of durable goods, and put pressure on their very large credit card debt. The result would be a generally adverse effect on the economy. This would not be as painful as the aftereffects of 1929..."

As we all know, these words were written many years before the dot-com bubble burst. We also know that the housing bubble bailed us out from the that speculative bubble shortly thereafter. If John Kenneth Galbraith were alive today, what statement would he make about the alarming way in which consumers are now maxed out not only on credit card debt, but home equity debt as well, with lenders currently having to cut life support from both? What bubble will rescue us from the easy credit/housing bubble as housing did with the burst of the dot-com bubble?


Folks, the easy credit party is quickly coming to an end and we will finally face a "day of reckoning!"

Sign Up
__________________

__________________
Retire Soon is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-03-2008, 01:02 PM   #2
Full time employment: Posting here.
old woman's Avatar
 
Join Date: Dec 2005
Posts: 551
The people using the house as a piggy bank are going to hurt. I owe about half what my house is worth but more than I paid for it. My nephew owes more than he paid for his but if he rolled in his other debt he would be upside down. He has subprime credit ARM mortgage and very high other debt. He may need to quit spending when is mortgage goes over 10% next summer and he can't refinance because he doesn't have enough equity and too much other debt.
__________________

__________________
old woman is offline   Reply With Quote
Old 02-03-2008, 01:32 PM   #3
Thinks s/he gets paid by the post
growing_older's Avatar
 
Join Date: Jun 2007
Posts: 2,608
All this news coverage about foreclosures has got my 11 year old daughter asking if that can ever happen to us. Talk about prime moment for the LBYM lecture. Nailed it.
__________________
growing_older is online now   Reply With Quote
Old 02-03-2008, 01:34 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
HFWR's Avatar
 
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 12,964
Owe $91k on mortgage; house is allegedly worth around $140k. No other debt.
__________________
Have Funds, Will Retire

...not doing anything of true substance...
HFWR is offline   Reply With Quote
Old 02-03-2008, 03:15 PM   #5
Recycles dryer sheets
Arc's Avatar
 
Join Date: Sep 2006
Posts: 370
How do interest rates not go up eventually - in this environment? I mean as credit becomes more difficult - won't the banks want more money for extending it? And how else do they make up for the losses on bad loans? Seems inevitable to me - despite government's attempt to stop / delay it.
__________________
Arc is offline   Reply With Quote
Old 02-03-2008, 03:34 PM   #6
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,044
I think it is plain mathematics. Just a few years ago, many people felt secure and they spent their entire paycheck (1) + put some on credit cards (2) + put some on a home equity line of credit (3), hence a negative savings rate. Take away (2) and (3), and people will have to reduce their spending as they are left with only (1) to spend. Scare people into saving money and you won't even have (1) left. So I don't want people to start saving money right now because it would have a seriously negative impact on the economy. What can rescue us?

1) Lower taxes, though at this point it seems a politically sensitive subject.
2) Higher incomes. Perhaps all those corporations that have been hoarding profits for the past 5 years can loosen up their purse and give their employees some much needed pay raises. Corporate profits have gone up double digits per year on average, but salaries have barely kept up with inflation during that time. But I think it is unlikely that corporations see it this way, especially at a time when unemployment is rising. They are more likely to lower compensations and show the door to those who don't like it.
3) Keep interest rates fairly low so that people can reduce the portion of their income going to debt repayment and they can spend the difference. But even that is not a silver bullet, as the Japanese could attest. Plus we already tried that and that's exactly what got us in trouble in the first place.
4) Create new jobs.

I can't think of any miracle bubble which could save us at this point.
__________________
FIREd is offline   Reply With Quote
Old 02-03-2008, 03:37 PM   #7
Recycles dryer sheets
 
Join Date: Sep 2006
Posts: 103
Quote:
Originally Posted by growing_older View Post
All this news coverage about foreclosures has got my 11 year old daughter asking if that can ever happen to us. Talk about prime moment for the LBYM lecture. Nailed it.

Good going Growing Older ! Teaching moments are priceless .

As are "I told you so moments."

Just got a phone call From my newly minted Chemical and Biomolecular Engineer. In college she worked for the school very part time on campus and was exempt from all taxes - including Social security .

While she was interviewing - I kept warning her to think of her after tax pay . She did not like the budget I outlined for her but listened fairly well . (OK she committed to a couple hundred higher each month - I was pushing for a bit over 20% savings )

Two weeks into her new job she just received her first paycheck including funds for relocation & signing . Quote - (her) "The government is stealing my money ! " (Me) "Join the crowd "

To be fair It seems they took GA taxes out. (7%) She moved to Tx (for work) before the job started In Jan. (TX has no income tax ) So now she gets to learn how to dal with payroll issues.

Which brings up a pet peve of mine - why does it seem nothing ever done correctly the first time ?
__________________
GLM is offline   Reply With Quote
Old 02-03-2008, 04:10 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Quote:
Originally Posted by Arc View Post
How do interest rates not go up eventually - in this environment? I mean as credit becomes more difficult - won't the banks want more money for extending it? And how else do they make up for the losses on bad loans? Seems inevitable to me - despite government's attempt to stop / delay it.
Umm, the banks effectively have a ceiling on rates they can charge for prime borrowers because of Fannie and Freddie. Everything else is priced off that.

They make up for losses on bad loans by borrowing (deposits) at 3%, lending at 5.5%, and going home at 4PM. Just like always.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Old 02-04-2008, 07:13 AM   #9
Dryer sheet wannabe
 
Join Date: Oct 2007
Posts: 11
""When you are self-employed, that's the money you count on to bridge the gap during tough times. And this is a particularly tough time in both the building and housing industries," Georgiades said."


I thought savings helped bridge the gap through tough times? Too bad.
__________________
earlyguy07 is offline   Reply With Quote
Old 02-04-2008, 08:48 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
I think anyone with a FICO over 750 can get whatever they want, 100% financed or whatever..........
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Old 02-04-2008, 10:15 AM   #11
Dryer sheet aficionado
 
Join Date: Jan 2008
Posts: 35
Quote:
Originally Posted by FinanceDude View Post
I think anyone with a FICO over 750 can get whatever they want, 100% financed or whatever..........
I approached USAA about a $20k home equity loan to complete the finishing of my basement. Instead of financing on my creditcards, ill do a tax deductable HE loan. I have been doing one thing at a time (Like plumbing, or electrical) then saving a little and doing some more etc. Decided to juts finish it off because I am tired of fooling with it.

Some background:
I put down 120k on a 570k purchase in 2005.
My credit score they used for risk assesment was a 758. (I never have problems).
Home equity loan…declined due to insfufficient equity in my house.
I called USAA and demanded to speak to a manager and talked about my 20 year relationship with them, my never having been late on a single mortgage payment in the 5 houses I have bought through them over the years. Yada yada.
Nothing.
My house is listed in a declining market and the appraisal they did was 520K. (Still giving me 70k in equity)….

They wouldn’t give me the loan. things are different now.
__________________
Buku is offline   Reply With Quote
Old 02-04-2008, 10:21 AM   #12
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 1,015
Quote:
Originally Posted by Buku View Post
I approached USAA about a $20k home equity loan to complete the finishing of my basement. Instead of financing on my creditcards, ill do a tax deductable HE loan. I have been doing one thing at a time (Like plumbing, or electrical) then saving a little and doing some more etc. Decided to juts finish it off because I am tired of fooling with it.

Some background:
I put down 120k on a 570k purchase in 2005.
My credit score they used for risk assesment was a 758. (I never have problems).
Home equity loan…declined due to insfufficient equity in my house.
I called USAA and demanded to speak to a manager and talked about my 20 year relationship with them, my never having been late on a single mortgage payment in the 5 houses I have bought through them over the years. Yada yada.
Nothing.
My house is listed in a declining market and the appraisal they did was 520K. (Still giving me 70k in equity)….

They wouldn’t give me the loan. things are different now.
Wow.
This paints a different side of the realities of the changing economy. I can understand putting the screws on someone with a shaky credit report, but I would have thought that you would be a sure bet.

Wow.
__________________
Achiever51 is offline   Reply With Quote
Old 02-04-2008, 10:27 AM   #13
Dryer sheet aficionado
 
Join Date: Jan 2008
Posts: 35
Quote:
Originally Posted by Achiever51 View Post
Wow.
This paints a different side of the realities of the changing economy. I can understand putting the screws on someone with a shaky credit report, but I would have thought that you would be a sure bet.

Wow.

I called USAA and was astounded, i even got a call back from some muckety muck....they have draconian standards they have to adhere to apparently...no leeway.
__________________
Buku is offline   Reply With Quote
Old 02-04-2008, 10:30 AM   #14
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 1,015
Sounds like the financial institutions are trying to close the barn door now that the horses have run away! Do you think that this over-compensation will have a negative effect on the recovery, if the "good" borrowers are shut out of the market?
__________________
Achiever51 is offline   Reply With Quote
Old 02-04-2008, 10:37 AM   #15
Full time employment: Posting here.
Retire Soon's Avatar
 
Join Date: Nov 2005
Posts: 655
Quote:
Originally Posted by Achiever51 View Post
Sounds like the financial institutions are trying to close the barn door now that the horses have run away! Do you think that this over-compensation will have a negative effect on the recovery, if the "good" borrowers are shut out of the market?
IMHO, I think the excessive risk taken on my financial institutions over the past decade or so will hurt everyone, even the "good" borrowers like us.
__________________
Retire Soon is offline   Reply With Quote
Old 02-04-2008, 10:40 AM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Quote:
Originally Posted by Buku View Post
I called USAA and was astounded, i even got a call back from some muckety muck....they have draconian standards they have to adhere to apparently...no leeway.
Try another bank. Lots of lenders out there...
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Old 02-04-2008, 11:27 AM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,627
Quote:
I approached USAA about a $20k home equity loan to complete the finishing of my basement. Instead of financing on my creditcards, ill do a tax deductable HE loan.
Interesting. Last September USAA gave me a $25,000 no-fee 0% interest 1-year loan on a USAA credit card.
__________________
LOL! is offline   Reply With Quote
Old 02-04-2008, 12:52 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Quote:
Originally Posted by LOL! View Post
Interesting. Last September USAA gave me a $25,000 no-fee 0% interest 1-year loan on a USAA credit card.
So, UNSECURED credit is easier to get than SECURED credit..........how ironic........
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Old 02-04-2008, 02:27 PM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,451
Quote:
Originally Posted by FinanceDude View Post
So, UNSECURED credit is easier to get than SECURED credit..........how ironic........
I guess the lenders are wising up to the fact that borrowers have figured out you can walk away from a mortgage with no penalties, but walking away from credit card debt is harder thanks to the new bankruptcy laws.
__________________
clifp is offline   Reply With Quote
Old 02-04-2008, 02:33 PM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Quote:
Originally Posted by clifp View Post
I guess the lenders are wising up to the fact that borrowers have figured out you can walk away from a mortgage with no penalties, but walking away from credit card debt is harder thanks to the new bankruptcy laws.
The govt would have made more friends "helping out" the credit card folks than the sub-prime folks........

After all, you can't charge 30% on mortgages.......
__________________

__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Human Face of the Mortgage Mess haha FIRE and Money 29 12-22-2007 08:30 AM
Partial face transplants REWahoo Other topics 8 07-31-2007 03:33 PM
Muslims face extra checks in new travel crackdown Craig Other topics 33 08-20-2006 09:35 AM
Best way to shoot a telemarketer in the face? cute fuzzy bunny Other topics 30 07-23-2006 02:40 PM
Consumers face challenges in handling debt cute fuzzy bunny FIRE and Money 6 07-04-2006 06:24 PM

 

 
All times are GMT -6. The time now is 12:01 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.