Countrywide Freezes HELOCs, Says "It's Not You, It's Your Home"
Eric writes:
I received a letter from my mortgage lender Countrywide yesterday that they are permanently suspending further draws against my home equity line of credit. Their rationale is that home prices in my area have dropped significantly and that if I borrow further against my home, I might not be able to pay it off.
The home equity loan in question here is a part of a 80/10/10 mortgage I took out 5 years ago to avoid PMI while only putting 10% down.
It should be noted that:
- In the 5 years I have lived there, I have never missed a payment, and in fact most months paid more than the required amount.
- The estimated value at Zillow.com is down only 4% from the purchase price 5 years ago
- The mortgage/HELOC combination is not "under water"
- Even if I were to draw my HELOC up to its limit, the mortgage/HELOC would still not be underwater. The house price would have to drop another 15% before I owed more on it than it was worth.
- My credit is spotless, and I am still gainfully employed.
- I've never actually drawn against the HELOC, other than the initial amount that went towards the purchase.
I found out today that is not just me either. A friend of mine who lives a couple towns over got the same letter.
Do you know if this is a nationwide phenomenon, or is it specific only to areas that went boom-to-bust in the past few years? Or possibly only the Chicago suburbs? I thought this bailout was supposed to keep the credit flowing, not stop up existing credit that wasn't even in trouble in the first place.
Eric
Have other Countrywide mortgage holders experienced the same thing? Below is a section of the letter Eric recieved. Countrywide calls this a temporary suspension based on an Automated Valuation Method (AVM) that looks at historical data and property value projections, and they say you can contact them if you think your home has a higher value than they do. However, their definition of temporary is fairly loose, considering all Eric knows is his HELOC is frozen indefinitely, perhaps for good.
(Photo: Kyle May)
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Comments:
Duh.. HELOC was used for the downpayment ( risk of being under water is very high ). If you think zillow is right call a real estate broker in your area and hope you don't get hung up on or laughed at when you mention the price.
Everyone is having trouble, including the bank, and they are reducing their exposure to risk.
If you're basing your homes value from Zillow, maybe you should have your HELOC suspended. I wouldn't trust Zillow for anything but a loose guide. The only way to know your homes true value is to get a full appraisal.
I fail to see how this is news.
BTW, it's very likely that HELOC's in general will get the shaft with "Cramdown" and other laws likely to be passed "real soon now"(tm). The bank is taking precautions to prevent more losses on these second mortgages that will get killed.
It could be that Countrywide thinks the value of your home is less than you think it is. Or it could be that they're being really careful and making sure there's a good buffer between the value of the home and what you can take out, as in - they're afraid that the house will fall in value more and that if they gave you a HELOC now, you might be underwater next year (through no fault of your own).
ahhh it's good to be a renter...
@Davan: Consumerist isn't a news outlet.
Anyone that has a HELOC should be aware that it can be cut anytime, like any other line of credit. This story just shows that we have to be mindful of the amount of credit that we have during this crunch.
I fail to see how your comment is, in any way, a contribution to the website.
If you think you can suffer a further 15% drop in the value of your home I suggest you just wait a while.
An actual reduction in risk? Oh my.
This heloc was done to avoid the PMI and didn't need to be sourced anyhow past the initial issuance. No matter what the original loan agent said about putting in a pool later etc, etc, etc.
When I had an 80% conventional /20% adustable rate heloc I couldn't wait to get the f--- out of the 20% and roll it into a 100% conventional loan as I was probably one of the three people to ever actually read the fine print which said "rates may adjust after the intial three year period" and I knew that rates NEVER go down...
@arikmoon: yeah until your landlord defaults on the mortgage payments and you find yourself evicted from your apartment through no fault of your own. I really hope that doesn't happen to all my fellow renters out there!
Same thing happened to me. It's not surprising considering my location in California had one of the highest rates of foreclosures and home devaluations.
It's not just Countrywide. I know the bank I work for has done this to some of its customers, but I believe it's mostly the more 'high risk' one.
(But I could be wrong; that's not my area.)
HELOC's should be outlawed. Stupidity flows on the lending and borrowing sides, therefore, to protect the rest of us, do away with this nonsense.
If you don't have the money to buy something, save up!!
Feel free to correct me, but why would anyone in their right mind borrow against their home equity anyway, especially now?
I'm not sure about what everyone else thinks here, but I am not surprised or shocked by this. The HELOC's are designed for you to tap the equity in your house, if there isn't any more equity (aka falling home values) then it isn't surprising that the HELOC would be impacted.
Realistically, Americans have been buying overinflated $$ homes for the past few years. When you think about it, these houses are just returning to their "natural" values... also, my condolences if you bought an overinflated house.
Also, the scary part is that your home has gone DOWN in value in 5 years. (I know, sorry for dbl post)
@Segador: He borrowed against a FUTURE home for his downpayment ( 80% mortgage, 10% down, 10% from a HELOC ) to avoid PMI.
@Robert Cooley: Or go to redfin and see what kind of sales prices are shown for neighboring properties that have recently sold. This method is also a loose guide but much more realistic than anything zillow will present, and actually pretty similar to where a good professional appraiser would begin.
Countrywide suspended my HELOC months ago, given the exact same reason.
Countrywide expects you to hold up your end of the contract, yet they do not feel the need to hold up their end, meaning they are in breach of contract, yes?
If they are in breach of contract, does that not mean the homeowner can suspend payment until a new contract is written up?
Before anyone jumps on me for responsibility of paying one's debt, please keep in mind that I am not saying welch on the debt. Countrywide changed the terms and conditions of a contract that was 100% valid. Does that not eliminate the debt, so to speak?
@Segador: Yes, yes it is... using "fancy" accounting in order to basically get a 0 down house without the penalty of putting less than 20% down ( since you are immediately tapping the 10% down to cover the HELOC ).
I can has foreclosure?
HSBC did this about a year ago to us in Maryland even though we had significant equity and not even 10% drawdown on the HELoC. Turns out they had to recapitalize after taking huge losses. Nothing personal, just business. Wasn't worth their $400 re-appraisal to fight it.
@Segador: home improvements. this is often the preferred way to pay for improvements b/c the interest is tax-deductible & improvements can often increase the value of your home.
@Robert Cooley: This is true. The home I just bought had a "Zestimate" of $291K in December. Actual appraisals in December and early-January came in at $248K and $251K, respectively.
Covering each of your points in order.
- You haven't missed a payment: This doesn't matter, price has dropped, and nobody actually knows what it's actually worth, just that it'll be worth less tomorrow than today.
- Zillow.com assessment: Garbage. They have no clue either. Worse than garbage; at least a face-to-face assessor would look you in the eye when they lie to you.
- Mortgage/HELOC not underwater: How do you know, when you don't know what the house is actually worth? Using the HELOC for the downpayment is a very bad sign.
- Credit spotless: If it turns out that you are underwater, and you very well may be if you purchased 5 years ago with 10% down, you'll walk away from the house just like everybody else. It'll be in your best interests, and you'll do it.
- Never actually drawn against the HELOC after the downpayment: Immaterial.
Nobody knows how low prices are going to fall. HELOCs are a thing of the past. Your house is not a piggy-bank, and it's not an investment, it's a roof over your head.
@Robert Cooley: I think I purchased my house for about 8% less than the Zillow value. I think the only real way to know your house's real value is to sell it, even most appraisals are BS, the only thing that matters is how much someone else will pay for it.
Good on Counrtywide, it is nice to see the banks are starting to reduce their risk.
@snowmoon: Zillow says my home is now worth over $3 MILLION! Uh, it's not. Not. Even. Close. It also says the last people bought it two days before we did and paid $426k. And it says we have an extra bedroom and one fewer bathroom. It's a fake!
I got the same letter a couple weeks ago from Citi. I knew it was coming. I've decided to protect myself by hoarding my cash instead of paying extra on my mortgage. I pay the minimum required each month ... but thats it. If the value of the house continues to decline for years and the value is cut in half or more... the bank can have their house back. I know this probably isn't most ethical thing to do, but I don't care. The bank can afford to lose that money more than I can.
@SabreDC: Yeah, weren't they disemvowelling commenters for dumbass comments like Davan's, or is that just on Gawker?
This isn't a newsfeed. It's a consumer website. This story is perfect for what Consumerist aims to cover.
@Adrienne Willis: Sounds like you've got a horror story of your own. Should submit it to Consumerist as an article.
@drkev1976: "The bank can afford to lose that money more than I can." ...actually they can't, have you been watching the news for the past 3 months? If not, Google "bail-out".
The only value your house has is what you can sell it for, not what Zillow says.
This is pretty common these days, if you really think you are right and "not underwater" you might be able to challenge by paying for an updated appraisal.
@Rodalpho: You forgot the, essentially, 0 down move this guy made ( 10% downpayment and 10% HELOC ) which left him with 0 in equity.
The bailout was for CORPORATIONS, those poor things. They had trouble paying bonuses and for trips and buying up other companies. You will just have make do as just a plain ole taxpayer.
This guy is almost assuredly underwater, he just doesn't know it yet.
@mac-phisto: Still, borrowing against borrowed money for any reason seems like walking even further onto thin, cracking ice. The fact that your house is now worth 5% less than when you borrowed the money to buy it doesn't seem to help, either.
@snowmoon: Not exactly correct. OP bought house for (lets say) $100k, so he put down $10k and 'borrowed' another $10k from the bank. He now has 10% equity in his house, not 0%.
Because we are in a recession and people are being fired, trying to eat and hold on to the little they have left. They are desperate. What would you do if you had no income or too little coming in and a family? You can't sell your house in this market unless you give it away. No one is going to loan you money. If you were in their shoes you do the same.
@savdavid: Yeah, but this guy is acting put upon, believes zillow's assessment, effectively "bought" his house with 0% down, and is now surprised when they won't allow him to borrow against his nonexistent equity. He's part of the problem. That's why he's finding little sympathy here.
@Robert Cooley: I just did a refi, and the zillow price was $100K under what the bank appraisal came in at. Plus, it has my neighbors house at $150K under what they bought it for only about 8 months ago. Their algorithms are flawed.
As for the heloc lock, if your credit is that good, refi. Or, get a HELOC from a different bank. There are options...
HELOC
Fixed that for you.