Goodbye Etrade, you dummies

[laurence]

So DW and I watch the news, see all the hysteria about sub prime mortgages and say, "that's too bad". I didn't even get that worried when Etrade got into some trouble, since I knew my accounts were protected from their troubles.

But then yesterday we got a letter from Etrade saying they were freezing our HELOC due to the housing downturn. Not due to our credit (800+) or our payment history (always on time) but because they suspected our home didn't have any equity in it. Or rather, than any home in north San Diego county had any equity in it. So we aren't allowed to draw on the HELOC for money, period. WHAT THE HECK IS THE POINT OF A HELOC THEN? In addition, we owe less than 300k on a house that, even by the most conservative estimates with the downturn, is worth 450k.

Oh, we are allowed to appeal, though. If we pay them a fee and then hire an appraiser to prove our house is worth something - AT OUR EXPENSE - they may deign to give us the privilege of borrowing from them. @#%%@#

I get that they are worried, but burning good customers is not the way to keep your business afloat! I called the number and the script reading monkey on the phone was as pleasant as he was useless. I informed him I will be closing my HELOC and closing my IRA and ROTH IRA's with them as well.

This makes me so mad at so many levels, from the FAQ on the back where they state "we told you we have the right to screw you like this for no reason in subsection 3.c.6.x of the contract..." to the fact that they take no account on our history with them or our credit/payment history in general, to the fact that irrationality and inept management reaches new heights for the industry in general.

The only logical conclusion is they plan on selling/getting rid of their lending business/division soon, and don't want it to stink any more than it does. But come on, they could hire a small group of software engineers to write some scripts to make a better guess on who to lock down than "everybody in these 100 zip codes...". Bleh. Brewer, I bet you've got some plan to take advantage of all this irrational behavior and FIRE in the next 2 years. Can we get in on it?

Oh yeah, BOYCOT ETRADE! Close your accounts if you have any! Never use them for anything! Their service was always marginal, I only had them because I got into online trading very early, and inertia is hard to break. No longer.

 

[ladelfina]

I didn't even know E*Trade was doing mortgages!

Laurencewill, it's not only E*Trade.. other banks are doing this as well. They are finally pulling up their panties as it has been drafty for quite a while..

I've been following this here:
Calculated Risk: Lenders Suspending HELOCs
Calculated Risk: Chase: Max HELOC LTV 70% in Certain Areas
Calculated Risk: HELOC Nonsense
+ hundreds more; you can Google search the site for "HELOC"

 

[2B]

I am an Etrade brokerage customer as a legacy from when I did invest in individual stocks. I have liked their on line bank with free ATM and free bill pay. I've been considering moving everything to Vanguard which would help consolidate my various IRA accounts. I'm not overly excited about Vanguard's brokerage business but that's a small issue these days.

Etrade got into the mortgage business just a few years ago. They got caught up in the euphoria because they are headquartered in California. Most of their business was in the boom areas. Their standards for qualifiying were not very high. They are almost the poster child for the subprime debacle but other California firms were even less attentive to who got their loans from them.

I really expected to get my accounts transferred to someone like TDWaterhouse or Scott Trade. I'm amazed Etrade is still around. From what I've seen they will now be able to survive because their brokerage is doing ok.

 

[W2R]

Laurencewill, how aggravating, even if they aren't the only ones doing this!

I would probably do exactly what you are doing, too! It sounds like they don't want your HELOC business, despite your stellar credit, payment record, considerable equity, and other accounts with them. As 2B says, it's amazing that Etrade is still around.

 

[brewer12345]

Etrade and many other banks have gotten burned with HELOCs and they are rapidly running away from this and other forms of lending. So its not just you or Etrade.

I would suggest you try setting up a line with a bank that doesn't have problems. My first choice would be Pen Fed.

 

[Dog]

We have a HELOC through WaMu. We have had it for about 4 years and never touched it. We owe about $220k on our mortgage and the house is valued around $325k - but I expect we will see it frozen as well. I work for a megacorp and the knee jerk reaction decisions they make never ceases to amaze me!

 

[maddythebeagle]

Dont have a Heloc, but I have always liked Etrade's online savings account...I dont blame some of these banks cutting off potential issues in markets that could see considerable more downside...as if they dont have enough issues on their books...dont take it personally...

 

[JustCurious]

I really don't see what the big deal is. Etrade had the right to cancel the HELOC at any time as part of the terms of the contract. You also had the right to cancel at any time (I assume), so that seems fair to both sides. If you didn't like that term, you shouldn't have agreed to it.

 

[growing_older]

I have a HELOC (not through E-Trade, I abandoned them years ago in response to other customer service screw-ups) and am similarly concerned that it could be frozen. I have mostly been relying on it as a form of emergency fund, but with all the talk of possible freezes (despite good credit and plenty of equity) I started piling up an actual cash emergency fund, since I didn't feel confident that HELOC would stay available in the face of panic on the part of lenders. Looks like that panic has spread to E-Trade now, too.

 

[2B]

I've heard of "financial advisors" (internet columnists and pundits) recommend HELOC's as an "emergency fund." You could qualify while employed and still solvent. When you were broke and out of work, you could live off of credit until.....

It never really seemed like a good idea to me to borrow money when you are already in a financial mess. It's the old saw -- "When you find yourself in a hole, stop digging."

It does fit well with the "new financial age" thinking that says no minor issue like poverty should limit our spending. When you're out of work is the perfect time for that 3 week Italian adventure. Easy HELOC money is perfect for this. My BIL and SIL did this (not sure about the credit part) but they do live in California so it would have been "normal" for them.

I think it is a smart move for the banks to reconsider the universal HELOC loans if for no other reason than to tilt the more sensible amongst us towards real money in our emergency fund. It might even save a few of the banks from bankruptcy when "the big one" finally hits and what we are in now is a long way from it.

 

[Maurice]

I've read stories of other banks suspending HELOCs. Its hard to blame them. They'd be hard pressed to sell subordinated mortgage debt using LTVs from 2005, and they can't afford to keep it on their balance sheets either.

 

[gryffindor]

I got a note from B of A reducing my HELOC by 30%. Didn't need it immediately but it opened my eyes in terms of planning liquidity. Gives an argument against paying your mortgage down quickly without building the emergency fund and liquidity fund first

 

[laurence]

Etrade and many other banks have gotten burned with HELOCs and they are rapidly running away from this and other forms of lending. So its not just you or Etrade.

I would suggest you try setting up a line with a bank that doesn't have problems. My first choice would be Pen Fed.

I was explaining to DW last night what Pen Fed was - definitely where we are going.

 

[laurence]

I really don't see what the big deal is. Etrade had the right to cancel the HELOC at any time as part of the terms of the contract. You also had the right to cancel at any time (I assume), so that seems fair to both sides. If you didn't like that term, you shouldn't have agreed to it.

They are definitely within their legal right, just like a car lot is within their rights to refuse to sell me a car, or any other business. But it's idiotic to blanket the freeze on everyone and not do at least a bit of research.

As far as agreeing to the terms, well, I guess you got me there, all 3,741 of them were only perfunctorily reviewed. Quick, without looking, tell me what the the exact terms of a cash advance on your credit card is!

We are through with HELOCs, I chose it as a bet for paying off student loans we no longer qualified for tax deductions on. So far I'm ahead when compared to a traditional second. But I'm going to monitor Pen Fed and lock in a rate with them for their cool 10 year 2nd.

 

[Nords]

But then yesterday we got a letter from Etrade saying they were freezing our HELOC due to the housing downturn. Not due to our credit (800+)

Dude, I'm impressed. That score is a lot higher than mine ever will be!

Oh, we are allowed to appeal, though. If we pay them a fee and then hire an appraiser to prove our house is worth something - AT OUR EXPENSE - they may deign to give us the privilege of borrowing from them. @#%%@#

Hey, you're not paying a variable interest rate or high fees or late fees or any fees at all-- so they're just attempting to convert you into a profit center. In fact I bet they sent that letter out to every single client of theirs who hasn't been hit with some sort of junk penalty.

Is your HELOC less than two years old? One caveat with a lot of them is that if you obtained the HELOC with no closing costs, there may additional fees/penalties for canceling it within the first two years. E-trade may be trying to deliberately [-]piss you off[/-] fire a customer in order to ambush you with more fees. Same with the IRAs and their "account maintenance, closeouts, and transfer fees".

Hmmm... wonder if we should short the stock, too. Naaaah, they'll unload their remaining loans on some other sucker, clean up their balance sheet, and raise their share price.

 

[Texas Proud]

As far as agreeing to the terms, well, I guess you got me there, all 3,741 of them were only perfunctorily reviewed. Quick, without looking, tell me what the the exact terms of a cash advance on your credit card is!

Let's see..... 3% fee... interest is not deferred... and I THINK the minimum fee is $10... maybe I will check it out to see if I got it right

But then again.. I do not have any intention of getting a cash advance...

And I could not tell you much on my HELOC... so I do get your point.... just having some fun with ya...

 

[Hamlet]

Is there still a $5 minimum share price to short a stock?

E-trade's below that.

Hmmm... wonder if we should short the stock, too. Naaaah, they'll unload their remaining loans on some other sucker, clean up their balance sheet, and raise their share price.

 

[brewer12345]

We are through with HELOCs, I chose it as a bet for paying off student loans we no longer qualified for tax deductions on. So far I'm ahead when compared to a traditional second. But I'm going to monitor Pen Fed and lock in a rate with them for their cool 10 year 2nd.

Hmmm, you mean you don't get banged with AMT? I do, and unless you meet very specific criteria, you cannot deduct home equity interest.

Since the Fed is not excatly champing at the bit to raise rates, I would probably go for a HELOC instead of a fixed second, myself.

 

[eridanus]

Is there still a $5 minimum share price to short a stock?

E-trade's below that.

You can buy puts at a $2.50 strike.

 

[ERD50]

My read on this is exactly the opposite. It seems that Etrade is trying to make sure they protect their interests, and they are doing it per the contract - so isn't that good business?

I can see how you would personally be a bit PO'd, but it is tough for a big business to review each and every one of these, they probably just set some rules and the computer decided who to freeze.

-ERD50

 

[laurence]

Hmmm, you mean you don't get banged with AMT? I do, and unless you meet very specific criteria, you cannot deduct home equity interest.

Since the Fed is not excatly champing at the bit to raise rates, I would probably go for a HELOC instead of a fixed second, myself.

Somehow we fell below AMT, but my tax preparer/step mom told me to be prepaired for bad news next year.

 

[laurence]

My read on this is exactly the opposite. It seems that Etrade is trying to make sure they protect their interests, and they are doing it per the contract - so isn't that good business?

I can see how you would personally be a bit PO'd, but it is tough for a big business to review each and every one of these, they probably just set some rules and the computer decided who to freeze.

-ERD50

Heck, they could just leverage off of zillow! Seriously, it's pretty easy to leverage off of publicly available data, build in a pad and work from that.

I'm not disputing that they are in their right, I'm just saying it's poor business practice to screw your good customers. But as others have posted here, they aren't the only ones doing it. I guess the market will determin if their decision was wise.

 

[chinaco]

... we got a letter from Etrade saying they were freezing our HELOC due to the housing downturn. Not due to our credit (800+) or our payment history (always on time) but because they suspected our home didn't have any equity in it. Or rather, than any home in north San Diego county had any equity in it. So we aren't allowed to draw on the HELOC for money, period. WHAT THE HECK IS THE POINT OF A

They were too loose with credit in the last several years. IT would be too costly to reexamine everyone after the fact.

How would they know that you are an acceptable risk?

It appears that lenders are finally coming to their senses (a little).

My guess is that if you get a HELOC somewhere else, you will probably be scrutinized much more. For that matter... getting a HELOC at a securities brokerage firm... what do you think happens with that money most often? I am sure that they have some stats on it... I would wager to say it gets pushed into the market.

I would suspect that there are more than a few people using HELOC money to invest...

Would you loan money to someone who may not have the money to pay up...

 

[ERD50]

Let's put the shoe on the other foot. There are plenty of threads on this forum where people state they are going to refinance their mortgage, because they can get a lower rate than what they have now.

I don't see anyone screaming - 'Oh, you shouldn't do that to your bank. Hang in there with them, they gave you the mortgage, you owe it to them to keep paying that higher rate. Show some loyalty'.

When we take out a mortgage, it is in the contract that we can pre-pay it. So it's fair-and-square to do so. No apologies required for acting on a better deal.

That HELOC had this written in the contract, I don't think ETRADE needs to apologize or be demonized for acting on it.

-ERD50

 

[youbet]

But it's idiotic to blanket the freeze on everyone and not do at least a bit of research.

By allowing you to appeal and present a fresh appraisal aren't they doing the research? Can you really blame them for not wanting to pick up the expense of a fresh appraisal for all their HELOC customers?

Historically, I don't think it has been uncommon for lenders to reconsider lines of credit when the assets used to back those lines of credit become suspect due to market volatility.

I understand you being generally pissed for the inconvience this is causing and the fact you now have to go change some financial plans. But when markets get volatile, that's what happens.

Frankly, it sounds like Etrade is doing the right thing from a profitability and risk control standpoint within their loan division. They just did a horrible job of selling it and the way they're undertaking this may negatively impact other divisions!