| home equity freeze warning to CA homeowners
Posted: 6/12/2008 12:35:33 AM | i recently bought a home with a "relatively" decent deposit down. in addition to the federally sponsored, lower interest rate home mortgage, i was issued a home equity line of credit with a one percent below prime adjustable rate. i am now in the midst of construction and w/o any warning, i went to use some of the borrowing power to pay a contractor and was informed that a week ago, a letter was sent out, dropping my approved loan. i have not received that letter!
apparently CA has been so targetted with drops in the sale of houses and value, that automatic decreases are being applied to pre-existing equity lines and the homeowner must invest in a second appraisal if they feel that the drop is unjustified. my appraisal was done only a year and a half ago and i have good credit! the particular area where i live, has not seen a significant decline in value, although houses are taking longer to sell. plus, i have used my equity line to increase the value of my home.
but, who wants to spend more money proving to the bank that the loan they already have, is still in line with prior ratios of borrowing to value?
i had recently put a bunch of construction bills onto a zero interest card, with the intent of paying off most of it, but after the free period expired, has planned to put the balance back onto my equity loan. so, i called my mortage banker, who to my horror, called her employer and it appears that in the past couple of weeks, most banks have closed down their entire home equity divisions. in this area, she knows of only one bank that will issue these loans and that is only to lenders who take out their first mortgages with them as well. if i were to refinance, my interest rate on my first mortage, as well as my home equity line, would go up so high-- i would not be able to afford it.
so, here is my warning:
1) if you are a contractor, beware that your lenders may be relying upon non-existent balances in their equity lines to pay you. most people do not even know that their lines are or will shortly be frozen.
2) if you are a borrower, whose home value did not go down, and you are relying upon your low interest home equity loan to pay future bills or be there for an emergency, you may want to evaluate if you should take the money out now and put in an interest account. if not, you may not be able to borrow this money in the future. that being said, if the value is not in your house, don't do it, because most equity lines have hidden clauses allowing them to rescind their borrowing ceiling. i don't think they can demand total payment of what is already borrowed, but i do suggest you read the fine print of your contract and not borrow more than your house may be worth a year or two from now.
3) keep in mind that in CA , despite way higher housing costs, we are only entitled to the max in federal backed financing that lower housing cost states also receive. there are recent attempts to raise this benefit to match the cost of housing here, but so far way too many loopholes and catches are getting around the intent of the law.
so, here we go....get ready for the new generation. i do hope the longer term will create lower cost housing for others, but quite frankly i am not convinced that it will.
anyone else have this happen to them? before you answer, go make sure you still have your home equity ceiling in place and that your bank's home equity division still exists!!! | |
|
| home equity freeze warning to CA homeowners
Posted: 6/12/2008 8:16:24 AM | The type of loan you are talking about has been so abused that banks are deathly afraid of them. People have been using their houses as piggy banks. Have you gone to lender with a plan, written cost estimates, and shown them what you are using the money for? Let them know its not going to the Indian casinos or the Home Shopping Network.
Good luck | |
|
| home equity freeze warning to CA homeowners
Posted: 6/12/2008 9:45:55 AM | | This is why i took out a fixed equity loan. It didnt seem right to be able to use the equity in my home as a credit card when the equity could disapear at any time. Equity is fluid it goes up and down according to the whims of the market. I am sorry about your situation. Navy Federal Credit Union still does equity lines of credit but that is only for thier members. You could try to see if you could join them. | |
|
| home equity freeze warning to CA homeowners
Posted: 6/12/2008 1:26:32 PM | I got the same line about tighter lending standards when I approached my lender about a 12,000. line for Solar installation.
Unfortunately there is a world of difference between a year and a half ago and today's market. Most values in Socal have lost another
15% since then. If you don't believe me then look at what comparables to your house are selling for.
People who can afford it are just sitting on there houses and not selling. It will take at least 6 years for this to turn around.
Unfortunately it's unknown where the bottom is. Hopefully the demand will increase soon.
5 miles or less from the coast will rebound first. The inland areas may not recover for at least a decade. Maybe more. | |
|
| home equity freeze warning to CA homeowners
Posted: 6/12/2008 11:27:50 PM | the values in my neighborhood have not gone down. if it takes longer, people just hold onto their homes and wait or rent. i live right near the ocean. so, if the above person is correct, my area is better off. except when it comes to earthquakes and tidal waves! oh to be back and safe in the nyc subway system --home sweet home!!! by the way, where did you get the stats on length of time for recovery? every genius i know in the banking industry has "NO CLUE"!!!
it seemed fruitless to take a long term fixed equity loan at 7-8 percent, when i knew i had sufficient down to cover fluctuations and i could borrow short term at a way lower rate. i did not plan to use my loan for frivolous purchases, just for my home renovation to increase value or in the event of any rare or extreme emergencies. if i pay back what i borrowed, who is to stop them from lowering my ceiling further? so, at the lower interest rate, i now need to hang onto it, even if i don't need it and keep savings for emergency use.
i also planned to pay the loan back over a year. i would not have taken it out at a higher rate. i keep my credit cards at o balance, except in rare instances when i know i can pay them back quickly and the interest is less than the home equity loan (after tax deductions). i had planned to pay this teeny rate loan back in six months and put the balance on the equity loan again. i can still do this or over even a longer period, if the rate stays down.
where i am screwed is that i can not borrow what was promised to me, even though i have the equity-- and the proof is on me--not on them!!! thus "i" have to pay for a second updated evaluation, after paying for one already a year and a half ago. they don't want receipts for purchases. they want me to stop borrowing at such a low rate--one percent below prime. no money in it for them. they are taking a statewide rate and a rate for neighboring towns and using it against me, to "not fulfull their obligations". there should be a clause that if i prove them wrong, they should pay for a new assessment and not moi!
plus, i am fortunate to be able to pay it back. but what about the poor shmuck (sorry, my brooklyn is coming out), who had no clue and went to pay his/her contractor--only to find that the money promised was rescinded? now two people are screwed!!! but the bank gets off scott free, for loaning money at 100 percent value just to make a quick buck. | |
|
| home equity freeze warning to CA homeowners
Posted: 6/21/2008 1:07:04 AM |
it seemed fruitless to take a long term fixed equity loan at 7-8 percent
It's called "managing risk", something the majority of Americans have abandoned in favor of instant gratification. You traded immediate cash flow for risk. Did you not understand that?
Crash isn't even close to being over. For California, there's probably another 20-30% price drop in the cards over the next 18 months. And demographics strongly suggest that prices will flat-line for years. | |
|
| home equity freeze warning to CA homeowners
Posted: 6/21/2008 11:56:15 AM | shimbo, i have a masters business degree from one of the top business colleges in the usa. i am not a moron, my assets as a "package" are fine. sure i could refinance and get a fixed loan at an exorbitant rate, but not with these good rates i have secured to date! the math does not compute. i simply will not borrow more and stop renovations until i have more cash.
my intent is to put forth info about a practice that has never been exercized in this "manner" before and in fact, several are thinking about a class action suit because it was not done by proper legal protocol.
sure, i could have cashed out other investments and covered this "decision" if i had to do so, but i was lucky. my point was that others are not so lucky. if i waited to have cash for a house in CA, that would be poor financial planning as too many eggs would have been in one basket. by the same token, i did have a signifcant portion down. the 20-30 percent projection you cite, varies from one source to the other. CA is not just one entity. this varies region by region and is hit hardest in areas where there was way too high a level of financing.
my point is that the stats should be by area and not applied "blanketly" to an entire state (this large) when withholding mortage commitments and with absolutely no notice in writing until two weeks after the money was withheld. furthermore, should i decide to "prove" that my house has not devalued to the degree "assumed", i should be reimbursed for the second assessment. or date should be put forth that covers my area solely. my mortgage banker did the math and that is not the case that my house has gone down that much. | |
|
| home equity freeze warning to CA homeowners
Posted: 6/21/2008 12:15:24 PM | Hi Serenity,
Its unfortunate about your situation, however, I'd have to say that all homeowners have seen a decline in their property values.
my mortgage banker did the math and that is not the case that my house has gone down that much.
the reality between what the mortgage company appraises your home and its current market value are two very different things. Most of the time, appraisals come in much higher than the current fair market value. I would not let myself be misled by those figures. Instead, try to find out what homes in your area are selling for. Since most of California (yes even coastal and luxury areas) is in a declining market, current active listings are the best way to determine what your property is valued at.
I do not have a Masters (I have a Bachelors) but I am a practicing Real Estate agent and I do a lot of price opinions for many banks so I am a bit familiar with this topic. | |
|
| home equity freeze warning to CA homeowners
Posted: 6/21/2008 12:20:01 PM |
Crash isn't even close to being over. For California, there's probably another 20-30% price drop in the cards over the next 18 months. And demographics strongly suggest that prices will flat-line for years.
shimbo, I have to agree with you somewhat on your statement. However, it also depends on the area of Cali you are in. In my service area (High Desert/Victor Valley) prices decline about 10% per month (on average). I've done BPOs where the decline was 40-45%. I know that seems unreal but its true. Homes that were purchased for $325,000 are now being sold at $170,000 or less.
However, in my area we have started to notice that the inventory is shrinking a little but prices are still dropping. Experts are estimating that this market wont change til 2010. | |
|
| home equity freeze warning to CA homeowners
Posted: 6/21/2008 12:23:58 PM | yes, i know the difference. my mortgage banker went with "current" selling rates and we imposed upon that a variety of scenarios. it would be in her interest to have me refinance, but the data screams NO. i would not hire an appraiser to lie as that would put me in a poor position strategically. in the past, i have hired appraisers to do "full" reviews and tell me the truth from the investment point of view as well as the sales point of view. the appraiser i got when i bought this house, but was already renting it, saw all the work going on and so his appraisal to the lenders was not far from the truth. i had already redone the electric fully knowing this would take away from capital deductions upon sale, but i was not about to live in it rented, while selling the other house, and not be safe. i also did not want to buy it if i felt the real assessment varied that much. my banker's assesment was even better than his. she is also a friend.
but in general, when most people go for a loan, the brokers always find someone to overlook the reality --another contribution to the demise. i also performed and revealed full inspections that took home inspector and termite inspector a good five hours apiece to conduct and i traced my home back to the 50's at the county. most people here do not seem to want to invest in this kind of detail before buying a home, but coming from back east, that is how i was raised to deal with my property and i'm very glad i unfolded it all. i got my house down a good $100, 000 as the law says once revealed, sellers must continue to pass on the info. my work has been to bringing it up to "real" par, not cosmetic.
note: where i live the houses right on route one have suffered,but they have always suffered because of the noise. most people are simply not selling or waiting a good six months to get their price--assuming reasonable. some bought their houses ages ago and were expecting to cash in on the big boom. but i bought mine only a year and a half ago and as i said above, i got the price way down when i bought it due to my "discoveries". i also plan to live here a while.
many of my inspection findings are already tended to and fixed. as to my particualar market segment, it is holding fairly well. back east, before i came here, it was the norm to take a good six months to sell a house. people here are way too spoiled and their expectations are unreasonable. i did not have these expectations. my bank is just trying to undo the low rate they agreed to give me! | |
|
| home equity freeze warning to CA homeowners
Posted: 6/21/2008 2:27:06 PM | I have to agree somewhat with Shimbo,a fixed rate loan is your best bet and now is not the time to get a second mortgage.I don't see the Fed cutting the prime rate anytime soon because that would weaken the dollar.The market right now is great for first-time buyers but hell for those who want to sell.
As for home prices in general:the market needed a correction after that rediculous markup in price the past few years,we have to remember these cycles come and go.I remember in the late 80's we went through the same markup then in '91-92 we crashed,the S&L scandals then are eerily similar to the subprime meltdown today.
Side note:the stock market was mirroring the housing market a couple of years ago by having phenomenal growth but when the subprime lenders folded it took the whole financial sector down,investors took their money and invested in commodities. | |
|
| home equity freeze warning to CA homeowners
Posted: 6/21/2008 5:31:58 PM | so you are saying that i should turn in what is left of my one percent below prime equity loan for $45,000, that will be paid off in a couple of years, and reinvest in new points and an equity loan that offers me a high 8 percent fixed rate? i don't think so. if the prime goes up, i'll re-evaluate or my guess is cash in some other sources and just pay it off.
for a new homeowner, caught right now in purchasing their home, there are few home equity loans available AT ALL. most banks have closed their depts., some will only provide as part of a total package. for some, you need to just go and get "one big jumbo mortgage" at a higher rate than the govt. backed mortgages offering ceilings too low for home purchases in most of CA. the banks want to make money. the rates are insufficent for them to cover their greed inspired losses. however, if i were just buying, i would have to do the math. different math, than what i have now! they are improvising at offering new higher ceiling loans, but their offers to date are not in line with the intent of the legislation. that is still being "negotiated" and soon the courts will have to step in. | |
|
| |
| home equity freeze warning to CA homeowners
Posted: 6/22/2008 4:23:15 PM | "saying that i should turn in what is left of my one percent below prime equity loan for $45,000, "
I'll raise your MBA with my doctorate and I also, in 2005, went with the 1% below prime home equity line of credit. I thank you for the heads up because I have been concerned that my max would be decreased. It seemed only reasonable for them to want to do so. Home values have not dropped seriously in my area but have slowed. Even the slowing can be an issue for a lender.
That being said, given the reputation I have developed with my lender (positive) and the potential for a lower total mortgage, I do stay open to seeing if there are better options available today than back when I opened the original mortgage/HELOC. I know I have to be very very very careful about switching cause there is a lot of trickery going on to pull some of us out of our very good deals. I have a friend about to lose her house as a result of her refinancing (she isn't an MBA) | |
|
| home equity freeze warning to CA homeowners
Posted: 6/22/2008 7:02:08 PM | SEE the other thread on this in relationhip to the overall lendor markets. i believe it was in current events. thank G-d i don't need a car loan!
poster above. i was not bragging about my degree. just responding to the thread above that was treating me like i was an idiot.
once i told everyone i knew personally, two of my friends went immediately and took out the balance of their equity loans , also at one percent below prime. they are banking the money in case of an emergency, knowing that they would also have gotten the ax pretty soon. my banker called everyone she knew and informed them as well.
that was the intent of this thread.
i just wanted to warn people to decide how each would take action. every case is different. not saying to take out the money and spend. but if the deal is as good as mine was, and you were relying on it for ER purposes or to bring your house up to par, in order to sell it, then at least you know it will be taken out from under you. i was not noticed until one week after they withdrew the balance!!! i shudder for everyone who went to pay their contractors and found their money was not there!!!
oddly,my old banker went to this bank and just sent me a marketing letter. however, my current broker really knows her stuff and i trust her math. so, i am staying put.
other pof friends said i should have posted this in current events, not CA. however,
CA houses have the same federal limits and their market prices are about 3-4 times higher than elswhere. i hope this makes houses "more" affordable for the average person, if nothing else. | |
|
| home equity freeze warning to CA homeowners
Posted: 6/25/2008 8:57:38 AM | as usual, when a republican administration is about to leave office, the economy is in a shambles.
If Obama gets in, I think the economy will start to get better immediately. Even wall st. knows this. That's why he's getting the big donations instead of McCain. Right now, the oil industry's sucking money out of everything else... housing, transportation, you name it... so now they're trying to get the republicans out.
I think all this will change when they do... IF they do. | |
|
| home equity freeze warning to CA homeowners
Posted: 6/25/2008 4:03:37 PM | Lets not go ther Stranger,maybe you forgot about 1979-80 when Pres. Carter was in the White House?
Let me refresh your memory:
Commodity prices were sky high(similar to today) and we had gas rationing(odd and even days to fill up).
Interest rates were 18% which meant buying a home was out of the question for most Americans.
I do agree that there is a malaise in this country and I hope the next President(and Congress) will do something about it. | |
|
| home equity freeze warning to CA homeowners
Posted: 7/10/2008 12:22:48 AM | | wow i can not believe what i am hearing, now i do not have a high degree like the ubber smart east coast poster that started this but i do have 13 yrs in the mortgage industry in all aspects of it. first of your appraisal that you got 1 1/2 yrs ago is out dated by 1 1/4 yrs. they are no longer valid after 3 months, that is because of the way the market is either up or down. and your heloc for home improvements while with good intentions, home improvements will never return the value you paid for it. a pool for instance, if you paid 20,000 for it when it is done it will increase value by 15,000 at aboslute most probably more like 10,000. as far as a lender decreasing a excising heloc because of market values is something new to me i have never heard of a lender doing that but not saying they dont. you said your prime rate is prime minus 1% that is awesome but what was prime when you got the loan? prime is now 5% so that would mean you have a 4% loan, if you got it a yr and a half ago and prime was at 7.5% that means you are at 6.5% so maybe a heloc now would be better. and your broker telling you no one does heloc's anymore is on a.d.d. med's or maybe off them, they are harder to come by but they are still there. i live in california but i do not know where exactly aptos is but ALL of california is experiencing depreciation in value (and for the poster that said it is a decade before it gets better needs to lay of the wacky weed) but is will rebound. will it return to where it was 2 yrs ago? who knows, but come one, everyone is blaming the lenders, it is the idiot brokers fault the idiot lenders the idiot customers who buy a house and then 3 months later takes out a heloc without thinking about it over the long term, its everyones fault, i know what some posters might say, that because i am a broker i am biased but i have been doings this a long time and you don't stay in this business that long by doing bad loans and cheating people. my advise is take the letter from your lender saying they are lowering the amount you are allowed to take from your heloc to a lawyer and see if that is legal, i dont know if it is like i said i have never heard that before. i better end this post before i write a novel and piss someone off, of course i probably already did, sorry folks | |
|
| home equity freeze warning to CA homeowners
Posted: 7/15/2008 11:03:29 PM | Without notice, Paul Financial pulled my credit line on a second property, saying they were under no obligation to loan greater than what my homes were worth.
I had refinanced a 2nd time, paying thousands in fees. Never used a dollar of the equity lines, and my broker thought I was an idiot for demanding a refund.
Lesson learned... | |
|
| home equity freeze warning to CA homeowners
Posted: 8/30/2008 4:26:45 PM | I haven't read all the responses...so this might be a repeat, but appraisals are required with every new home purchase as well as loans applied to existing property owned [at least with the lenders/realty companies I have held dealings with here in CA].
I am unfamiliar with how an appraisal can be a year and 1/2 old and slip by any lender in today's market?
With today's market a year old appraisal or an owner's assertion that a property has not lost value is not enough for banks to go off of.
Sorry this happened to you though, Serenity. The $150.00 or so cost for an appraisal is a necessity under the current market conditions.
It seems unfair to me that bank owned properties require a buyer to pay for appraisal as well [since the bank must have done a market appraisal when placing the foreclosed property for sale] . Yet lenders have to ensure wise decisions since not only home owners have lost due to subprime loans [The financial/banking instrustry is in a world of mess right now too]. | |
|
| home equity freeze warning to CA homeowners
Posted: 8/31/2008 5:44:31 PM | As a former VP of Underwriting for a mortgage company let me tell you something: an appraisal is considered outdated at 6 months at the latest, sometimes 90- or 120-days is the maximum age before you need a new one.
Also, having been on the collecting end earlier in my career, the bank has the right to freeze lines of credit if something is happening to the housing market. After the Northridge earthquake, January, 1994, my company put flags on ALL real estate loans in the affected zip codes in order to keep from advancing funds on homes that may no longer have been there! We did, however, offer emergency advances of $5k or $10k to help people who were not maxed out on their lines. | |
|
|
Home
login 
