Homeowners Losing Equity Lines

[Gworker]

An article in today's Washington Post.

washingtonpost.com - nation, world, technology and Washington area news and headlines

Homeowners Losing Equity Lines

As House Values Fall, Some Banks Withdraw Credit


In one brief phone call, Nancy Corazzi's lender yanked away what was left of the $95,000 home equity line of credit that she and her husband took out five months ago.

The lender informed her that her Howard County home had plummeted in value and the company did not want the risk that she would owe more than the house was worth.

"I got off the phone and I was shaking," said Corazzi, who was using the money to pay preschool tuition for her twins ."I was near tears. We needed this credit line to get us through some tough times.".....

Tough times?? Pay for preschool tuition?? Now I don't have kids so maybe I don't understand but how much preschool tuition costs. Maybe we need some federal scholarships to help pay for preschools, so this family doesn't need to tap their home equity. Amazing.

 

[FinanceDude]

Well, when my kid was in a preschool, I paid $1100 a month for their care, my wife worked and so did I...........

So it can be expensive..........

 

[dumpster56]

Well, when my kid was in a preschool, I paid $1100 a month for their care, my wife worked and so did I...........

So it can be expensive..........

Have your wife stay home, then no preschool at 1100 a month. Need money do what many other men have done work a second or third job at night evenings weekends whenever so your wife can stay home.

Home equity lines of credit are some of the dumbest ways of spending money in america for the average joe. I want it now mentality, sorry but if you need to borrow from the equity in your home for extra purchases you have no business buying it since you cannot afford it.

 

[thefed]

I use my equity lines as a reserve, as leverage, as temporary credit, etc.

IF my bank were to rescind these,I'd be bummed out too. I keep 25k in cash for just that reason....what if my HELOC's 'go away'....and I had no CASH...I'd be tapping retirement accts!! no thanks

I use these responsibly though...for instance I am now writing a $3k check from one to side a rental. The next 6months rent will go toward that balance. I also use them to transfer a few balances around to keep my ccard companies sending those 0% offers....

I also use them as 'revolving credit lines' for business expenses,which thiss pring might be $10k....but that10k will be paid off by june-july

 

[youbet]

While I'm sympathetic towards those whose lives get temporarily shaken up by changes in the rules, personally I'm glad to see the terms of these loans become more conservative and the liquidity of value "locked up" in real estate be reduced.

 

[dumpster56]

I use my equity lines as a reserve, as leverage, as temporary credit, etc.

IF my bank were to rescind these,I'd be bummed out too. I keep 25k in cash for just that reason....what if my HELOC's 'go away'....and I had no CASH...I'd be tapping retirement accts!! no thanks

I use these responsibly though...for instance I am now writing a $3k check from one to side a rental. The next 6months rent will go toward that balance. I also use them to transfer a few balances around to keep my ccard companies sending those 0% offers....

I also use them as 'revolving credit lines' for business expenses,which thiss pring might be $10k....but that10k will be paid off by june-july

That is just it, people like you are on point and use it wisely to move money to the needs of your corporation. too many use it to buy flat screen tvs, cars that are well over 30K and vacations because they say they deserve it.

 

[jazz4cash]

Surprisingly, the lender is USAA and the loan is only ~6 month old. Howard County, MD recently topped the household income list, I think. Here is the real irony:

"Corazzi initially used her line to consolidate debt. She and her husband took out the credit line in October because they thought her job was in jeopardy.
It was. In December, her salaried position as a loan-processing manager at a local mortgage bank changed to a commission-only job. "

 

[ziggy29]

I would expect the lender to reimburse any and all fees the borrower may have paid to originate the loan.

Still, preschool "tuition"? Gotta get that three-year-old ready for Harvard. Good grief.

 

[Notmuchlonger]

Going to be some hard lessons [-]earned[/-] er learned.

 

[Retire Soon]

I want it now mentality, sorry but if you need to borrow from the equity in your home for extra purchases you have no business buying it since you cannot afford it.

Point is well made. Americans no longer seem to grasp the concept of deferred gratification. It's too bad this had to happen. Maybe this will change with the bursting of the real estate bubble.

 

[growing_older]

With both parents working, they have the kids in some kind of daycare and often daycare for 4 year olds just calls itself "preschool" so without more info it's hard to know much about whether that's reasonable or not. I did think it interesting that their lifestyle fully consumes all their income (and maybe plus a little bit) so that when her income dropped they turned to spending down equity. Also, given her line of work she might have anticipated that house prices could be falling. In any event they appear to be living paycheck to paycheck so any employment change puts them in financial danger, yet still live in a half a million dollar house, fully fully mortgaged. They don't seem like helpless victims of their plight, but more like avid consumers who prefer not to LBYM and instead leveraged to the max. If things don't go well, there is a downside to that plan.

 

[UncleHoney]

If things don't go well, there is a downside to that plan.

Years ago my old boss had a few sayings for all us young sprouts starting out.

#1 Everything is all right as long as everything is all right.

#2 You don't know what you don't know.

From an old penny pinching miser.

 

[laurence]

Second the comments on the preschool title just being a daycare. Our daycare was $100 a day for the two girls. Fortunately, DW only goes into the office once every other week and consults mostly from home. We just ended our business with her completely.

 

[UncleHoney]

Second the comments on the preschool title just being a daycare. Our daycare was $100 a day for the two girls.

Wow, at a thousand a week for two, that lady in the article should set up a "preschool" at home and watch her kids and a few others.

 

[FinanceDude]

Have your wife stay home, then no preschool at 1100 a month. Need money do what many other men have done work a second or third job at night evenings weekends whenever so your wife can stay home.

Do you have any kids? Because your response sounds like a guy who never had any kids...........

BTW, I never took out a HELOC to pay for that care, we just paid for it ourselves............

 

[chinaco]

The loss of overinflated value in the home is a shock for many of us. No one likes the paper loss. Those spending the value of the overinflated paper were headed for trouble anyway. We all see how people that are upside-down want to walk away... using the rationale of: It makes business sense!

This is not an article about kids or parenting. It is about financial responsibility and living within one's means.

Shocking isn't it. This woman works in finance and has little common sense regarding personal finance.

I do not feel sorry for her. It was stupid. Now if she said something like. DH or child has a severe health problem and it caught us by surprise (extreme unexpected expense)... I would have some sympathy.

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!

 

[dumpster56]

Do you have any kids? Because your response sounds like a guy who never had any kids...........

BTW, I never took out a HELOC to pay for that care, we just paid for it ourselves............

Raised two a daughter now a Pediatrician MD and a son with a PHD in Chemistry Now a prof at a Southern University.

I worked nights weekends, evenings. Coached three different seasons while teaching, taught summer school, taught at summer camps, threw garbage off a garbage truck one summer. Did what I had to do to pay the bills.

The best thing about the kids was they went to a public high school in NJ and get this did well and seemed to learn something even with the well bad teachers everyone says are teaching in american public schools. Then went to get this a Public State College and were able to pay tuition and living expenses without going into any undergraduate debt. Yes we paid some and they both worked. Oh this was in the mid 1990s so it still cost a bit. Then the son got into a PHD program in Chemistry at Columbia that PAID his entire 5 years of Grad school and paid him 23K per year for the 5 years with health insurance to be a teaching and research assistant. So his Ivy League degree was FREE.

Daughter took out Loans for most of her Medical school Tuition we paid her 4 year living expenses.

I know of so many parents that say oh my son or daughter wants to go to a private college and say well we will pay the 25K tuition with a loan against the house! Then get into 100K of debt for undergraduate school and now with the lose of equity well payback really is a bit&H!

It can be done. Give your kids credit and teach them resposiblity. Try and have their mothers stay at home when they are young it helps.

Just my two cents though.

 

[amy5708]

Tuition is an expense like any other. Should someone use a HELOC for their utility or car payments?

If they are, then they need to re-examine their day-to-day expenses. Sounds like someone is living beyond their means....

I don't think anyone should have a HELOC for emergencies; too easy to tap into for every little hiccup. I prefer Dave Ramsey's approach for emergency funds. We have 3 months income in a MMA.

Of course, I used to be a sub-prime lender (*gasp) before there was such a term, many moons ago. I've seen too many people use their HELOC's for "emergencies" like weddings, cars, and vacations. Then get into big trouble.

 

[ziggy29]

Tuition is an expense like any other. Should someone use a HELOC for their utility or car payments?

I think the only good use for a HELOC is to fund cost-effective home improvements. At least there, the amount you spend is likely tied to an increase in resale value, so your equity might not drop from using the loan. For example, $30,000 spent on a new kitchen may well increase the value by close to $30,000 or possibly more depending on the improvements and the local market.

It scares me when people use a HELOC to consolidate other debts, especially if they haven't already changed their spending habits. Swapping unsecured debt for debt secured by your house CAN be a good move if one has acquired the financial discipline to pay it down aggressively and not overspend or get back into more debt, but too many people think it's a "good idea" before they can be confident they won't repeat their past mistake...possibly losing their home in the process.

 

[laurence]

Wow, at a thousand a week for two, that lady in the article should set up a "preschool" at home and watch her kids and a few others.

Sorry for the confusion, $50 a day per, so $100 total. Olivia's Godmother/DW's best friend lives 4 houses away, has 3 young kids who play with mine all the time, and she needed some extra $$. Switching to her was a no-brainer once we found out she was more than willing.

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.

 

[Walt34]

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]

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]

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]

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.