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-   -   Goodbye Etrade, you dummies (https://www.early-retirement.org/forums/f28/goodbye-etrade-you-dummies-35002.html)

laurence 04-18-2008 11:17 PM

Goodbye Etrade, you dummies
 
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 04-18-2008 11:56 PM

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 04-19-2008 06:46 AM

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 04-19-2008 06:48 AM

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

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 04-19-2008 07:41 AM

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 04-19-2008 08:07 AM

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 04-19-2008 08:19 AM

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 04-19-2008 08:38 AM

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 04-19-2008 08:41 AM

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 04-19-2008 09:36 AM

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 04-19-2008 11:54 AM

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 04-19-2008 04:32 PM

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 04-19-2008 06:15 PM

Quote:

Originally Posted by brewer12345 (Post 645792)
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 04-19-2008 06:22 PM

Quote:

Originally Posted by JustCurious (Post 645802)
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 04-19-2008 06:29 PM

Quote:

Originally Posted by laurencewill (Post 645751)
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!

Quote:

Originally Posted by laurencewill (Post 645751)
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 04-19-2008 06:32 PM

Quote:

Originally Posted by laurencewill (Post 646012)

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 ;D

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 04-19-2008 07:43 PM

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

E-trade's below that.

Quote:

Originally Posted by Nords (Post 646018)
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 04-19-2008 07:45 PM

Quote:

Originally Posted by laurencewill (Post 646012)
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 04-19-2008 07:49 PM

Quote:

Originally Posted by Hamlet (Post 646049)
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 04-19-2008 09:53 PM

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 04-19-2008 10:05 PM

Quote:

Originally Posted by brewer12345 (Post 646051)
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 04-19-2008 10:11 PM

Quote:

Originally Posted by ERD50 (Post 646100)
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 04-20-2008 03:05 AM

Quote:

Originally Posted by laurencewill (Post 645751)
... 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 04-20-2008 09:11 AM

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 04-20-2008 02:35 PM

Quote:

Originally Posted by laurencewill (Post 646012)
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!

lazygood4nothinbum 04-20-2008 07:01 PM

i signed up for heloc many years ago. don't know why. haven't used it. just to have it i guess. anyway, i seem to remember my bank making a big deal that it didn't cost me anything to set up the heloc account. just some paperwork and it was done. but have others paid points or fees to set up their helocs? is that money returned as the banks now cancel or reduce heloc accounts?

ERD50 04-20-2008 09:25 PM

Wasn't it CFB who kept telling us that you didn't face any liquidity problems if you used funds to pay off the mortgage? Just have a HELOC ready and waiting in the wings.

Looks like there is a hole in that strategy.

-ERD50

samclem 04-20-2008 09:57 PM

Hey, wait, is that fair? If people start holding me accountable for things I said before, this whole internets thing is going to be a lot less fun for me.

Notmuchlonger 04-20-2008 10:16 PM

Quote:

Originally Posted by samclem (Post 646469)
Hey, wait, is that fair? If people start holding me accountable for things I said before, this whole internets thing is going to be a lot less fun for me.

LOL that would kill the fun!

Spanky 04-20-2008 10:50 PM

Laurencewill,

This may be a catalyst to move your accounts to somewhere else since you have not been fully satisfied with their service.

Spanky

kombat 04-21-2008 09:09 AM

Quote:

Originally Posted by 2B (Post 645815)
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."

The idea is, why have a large sum of extremely liquid cash sitting on the sidelines earning almost no interest, "just in case" a very expensive surprise crops of that demands a huge amount of cash?

We have our money fully invested, and we will rely on our line of credit for our "emergency fund." Not surprisingly, we haven't had any real "emergencies" that have necessitated using it. However, it remains available, and if we ever do need it, and we find we're unable to pay it back at a pace we're happy with, then we can start liquidating other investment assets to pay it off. It's not like we've spent those funds on HDTV's or caribbean cruises instead of building up an emergency fund. We simply invested it into accounts that are harder to access than a regular savings/checking account (in exchange for earning more interest).

2B 04-21-2008 04:05 PM

Quote:

Originally Posted by kombat (Post 646632)
The idea is, why have a large sum of extremely liquid cash sitting on the sidelines earning almost no interest, "just in case" a very expensive surprise crops of that demands a huge amount of cash?

We have our money fully invested, and we will rely on our line of credit for our "emergency fund." Not surprisingly, we haven't had any real "emergencies" that have necessitated using it. However, it remains available, and if we ever do need it, and we find we're unable to pay it back at a pace we're happy with, then we can start liquidating other investment assets to pay it off. It's not like we've spent those funds on HDTV's or caribbean cruises instead of building up an emergency fund. We simply invested it into accounts that are harder to access than a regular savings/checking account (in exchange for earning more interest).

My emergency fund is in the form of laddered CDs which are part of my 60/40 equity/fixed income asset allocation. The worst case scenario would involve cashing in CDs early and paying the penalty.

If you have all of your assets "invested," I suspect you are almost 100% in equities which isn't what I would recommend but to each his own. :angel:

It just came to me. You're the guy who's hooked up with "Weath Builders" (on another thread). You need more help than I can give you. Your "investments" and asset allocation bear no resemblance to anything I'd want to own. Good luck to you.

laurence 04-21-2008 06:41 PM

Wow, I see the board rides to the defense of Etrade! ;) Again, I'm not saying they aren't within their legal right, nor am I saying that sobering up from their lending binge is stupid, it just seems they could have done a better job discriminating on who to shut down or shut out. If they considered my account to be a risk, they must consider all of their accounts a risk, and shut them all down, period. I can only conclude they want out of the business.

As far as, "well, you refinance whenever it works for you." that's true, but ultimately, I'm the customer, I'm paying them. Turning people away at the door just doesn't seem like a way to do business. But hey, I'm over it, I'll just move on to somebody else with my business.

UncleHoney 04-21-2008 06:54 PM

Quote:

Originally Posted by laurencewill (Post 646897)
Turning people away at the door just doesn't seem like a way to do business.

I think things are getting a little dicey in the HELOC trade these days. Look at the latest default numbers.

UPDATE: Most Home-Equity Line Delinquencies Keep Rising

Quote:

Standard & Poor's said delinquencies on home-equity lines of credit issued in 2005 and 2006 shot up in March, underscoring continued trouble in the U.S. economy.
S&P said that 9.19% of lines issued in 2005 and 11.45% of loans issued in 2006 are delinquent, up 6.49% and 6.51% from February. Serious delinquencies, where lines are 90-days plus overdue or in foreclosure, shot up 8.83% and 8.75% for 2005 and 2006, respectively, representing 5.3% and 6.34% of the years' total issuance.
The lines S&P tracks were sold to investors as residential mortgage-back securities. Their declines have fueled the current credit crisis.
Delinquencies on lines issued in 2007, which have the worst record of cumulative losses in the credit crisis so far, fell 9.06% to 4.72% of the aggregate. S&P said 3.5% of year-old lines issued in 2007 have been booked as losses - more than three times the rate for year-old 2006 lines. Seriously delinquent 2007 lines were flat at 2.64%.
During the heady days of the housing market run-up, homeowners took cash out of their houses in the form of higher mortgages - under the assumption that values would continue to rise. Now that housing prices in the U.S. are falling, many people have seen that value of their home fall below what they owe, and some have been forced to simply walk away from their homes.

ERD50 04-21-2008 07:01 PM

Quote:

Originally Posted by laurencewill (Post 646897)

it just seems they could have done a better job discriminating on who to shut down or shut out.

How many HELOCs does ETrade hold? I think you may be underestimating the effort it would take for them to make these determinations on a case by case basis. They probably need to worry about discrimination suits too. And they would need to do it quick. Once word got out, anyone with a HELOC would make a quick draw on it.

Quote:

I'll just move on to somebody else with my business.
That's exactly how free markets work. Let your wallet do the talking.

One thing that sometimes keeps me from bailing on a company/service when they do something I don't like: how do I know the 'other guy' is any better?

-ERD50

mexmeme 04-21-2008 07:32 PM

They could also be cleaning up their mortgage business to sell.

ladelfina 04-22-2008 12:48 AM

"turning people away at the door":
I have the impression pretty much every financial institution is hurting badly for cash. Less cash = fewer loans.. and fewer loans would seem to translate into less income. You're right, laurencewill --some of that is missed opportunities -- but I don't think they have a choice. Banks are paying OUT 8%, 10%, 12% themselves just to stay "solvent". It's just the reversing out of the past irrational lending and it's unclear how long it will take and how badly it will seize everything up [cue tinfoil accusations now].

It's not that I love or care about E*Trade.. but I can't see how anyone can get angry over losing credit based on a depreciating asset, either. The keg is empty and the party is winding down. :(

ERD50 04-22-2008 06:13 AM

Add this thread to the 'Pay off the Mortgage?' FAQ?
 
Maybe this thread should be added to the 'Pay off the Mortgage?' FAQ?


There are a number of references there about using HELOCs for liquidity. Might be good to point out that these HELOCs can and have been frozen. Right at the time when the people could be most likely to need them.

-ERD50

ladelfina 04-22-2008 07:15 AM

ERD50.. right.. AND "when people could be most likely to need them" is exactly when banks don't/shouldn't want to be on the lending side.

kombat 04-22-2008 09:03 AM

Quote:

Originally Posted by ladelfina (Post 647079)
ERD50.. right.. AND "when people could be most likely to need them" is exactly when banks don't/shouldn't want to be on the lending side.


What's the old saying? "A bank is someone who will only lend you money if you can prove you don't need it?" ;)

Abreutime 04-22-2008 01:01 PM

Quote:

Originally Posted by ladelfina (Post 647036)
"turning people away at the door":
I have the impression pretty much every financial institution is hurting badly for cash. Less cash = fewer loans.. and fewer loans would seem to translate into less income. You're right, laurencewill --some of that is missed opportunities -- but I don't think they have a choice. Banks are paying OUT 8%, 10%, 12% themselves just to stay "solvent". It's just the reversing out of the past irrational lending and it's unclear how long it will take and how badly it will seize everything up [cue tinfoil accusations now].

It's not that I love or care about E*Trade.. but I can't see how anyone can get angry over losing credit based on a depreciating asset, either. The keg is empty and the party is winding down. :(

This post is pretty correct. Many financial firms that are highly leveraged (ie. they borrow huge sums of money, and then lend it out to their customers) are de-leveraging due to the more restrictive borrowing environment. They likely need to restrict some of their outstanding obligations, and HELOC business isn't their core business. E-Trade was having trouble with financing earlier in the year and there was a non-trivial risk of blowing up, so they probably have little choice but to reduce some of their secondary businesses.

While you may not be a risky borrower, you probably aren't very profitable.


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