Forum Archive: Posts by: deetrane

Has anyone else had anything similar to this happen? It reeks of class-actionable fraud:

1. When we bought our house in 2004 for over $1m, we got a large piggy back loan from National City at prime for life.

2. Since then, we have paid the home equity line almost all off and only keep a small balance to maintain the revolver and butress our FICO scores. Yet we regularly make short term use of the credit line to fund larger, necessary, expenditures that exceed our limited cash balances. But we always hustle to pay it down ahead of schedule to keep our debt levels and interest costs low, not just because of the puny cash stockpile, but the mounting paranoia probably also plays a pretty big role.

3. Anyway, a couple of months ago, we got a marketing letter from National City offering to pay us $100 for every $10,000 by which we would agree to lower our credit line, which was in the low six figures. We don’t have big cash accounts, and who wouldn’t want the ability to draw down a large chunk, god forbid if necessary, at prime, with interest only payments? After all, that is exactly the deal we agreed to with National City, and which they agreed with us. We ignored the letter.

4. About a month after that, we get the same letter again. It offered $100 for every $10,000 of relinquished available credit, up to $1500, plus an additional $1000 if we would agree to close the account entirely and pay off any remaining balance over the normal term of the loan. We ignored this letter.

5. Then, the day before yesterday, we get a letter stating that while “We appreciate that you have handled your Line responsibly”, but, “Effective three business days from the date of this letter” (which would be the day I got the letter), “further draws against your account are being suspended”, because “the value of the property securing your Line is currently $305,572.” Despite the house next to ours (identical row house, but better renovation) having closed, oh, two weeks ago, for ~$1.7-1.8m. And despite our other neighbor, in the identical row house on the other side of us (medium renovation, in between the other one and ours), just having refied this fall at an appraised value of $1.6m. Wow. You gotta give it to them, that takes cojones.

6. Flabbergasm set in.

7. The first person I called was a class action lawyer in Chicago, who cried “send me that letter!”. She was an associate, and her partners just didn’t believe her that the letter could really say $305,572 on a $1.5m+ house.

8. After vowing a litigious Waterloo, we decided to we should probably just call the customer service number on the letter and (as politely as possible) request to be reinstated.

9. Called today. Spoke to a charming old dame named Barb in the “ADM” department (Assholes, Dicks and Motherfuckers? Ah, whatever.) She took us through the whole rigamarole, becoming surprisingly hostile almost from the outset. Surprising because the call had just started and I hadn’t even had a chance to work a few punches in yet.

Me: Can I reinstate me loan, please?

Barb: Let’s look at your account. Well, no, your house is only worth $305,572, which is not the value we agreed to when you took at the loan. So I’m sorry, you signed a contract which entitles us to suspend a line of credit if the value goes down. The loan will not be reinstated until the value recovers.

Me: But our house is worth much, much more than that.

Barb: No, actually, it isn’t. But if you want to be reinstated, you have to order an appraisal. We do it for you using iMortgage. They charge your credit card, it takes 4-5 days to set up an appointment, then another 7-10 to get the appraisal. If it comes back at or above the value at origination, we refund your appraisal fee and reactivate your line within 30 days.

Me: But why do we need an appraisal? Not only do you have the houses next door, but you couldn’t find a Brownstone anywhere in Brooklyn for $305k. Have you been to Brooklyn? Also, what about the fact that our equity is almost triple what it was when you made the loan?

Barb: Your house is worth $302,572. The value has gone DOWN (she didn’t have to say “, dumbass”. By her tone, that was already implied.) YOU SIGNED A CONTRACT. If the value goes down, we are entitled to suspend the loan.

Me: Ok. Can you tell me how you arrived at that valuation?

Barb: We have computer models used in the real estate industry that tell us this is what your house is worth. Our valuations are CORRECT. (“, dumbass!) They are used in the real estate industry.

Me: Can I get a copy of that valuation of our house?

Barb: Sure. I can order that for you. It will take approximately 30 days.

Me: Uh, ok. So maybe you can tell me, approximately how often does an appraisal come back high enough for you to reopen the loan?

Barb: Well, I’d say it’s about 50/50. I mean, it depends on the actual property. We don’t actually have time to look at every property, y’know. We look at regions. So that’s the way it is. There’s know other way to get reinstated unless you do an appraisal, and the house has to be worth whatever it was when we made the loan.

Me: Ok, but wait a minute, a moment ago you said your valuation models were correct? Now you’re saying they’re correct only half the time, the rest of the time they’re wrong?

Barb: I did NOT say that!!! (VERY heated now). I said our models are used in the industry!

Me: But you said it’s only right half the time!! You JUST said that!

Barb: I didn’t say anything of the sort! Now if you’re going to get belligerent, I can hang up on you, you know!!

Me: I can hang up on you too!

At which point I started hurling all kinds of badass anti-CSR rhetoric, the customer service call equivalent of “You don’t frighten us, English pig-dogs! Go and boil your bottoms, sons of a silly person. I blow my nose at you, so-called Arthur-king [that's Barb], you and all your silly English kaniggets. Thppppt!”

My wife got things back on track, and we somehow abruptly shifted back into phone-politeness, and ordered the damn appraisal. Guy’s coming Tuesday, I’ll post an update whenever I get one.

But here’s the real question I want to pose:

Is it me, or is it kind of surreal that despite the blatant destruction of wealth of the credit bust, brought about by unregulated growth of banks asset-to-capital ratios, funded by the unchecked securitization of those assets, resulting in the transfer of real risk away from the banks making the investments, followed by the spewing forth of free bailout money so that the banks, caught with a couple quarters’ worth of CBS (Crap-Backed Shit), could pretend none of it ever happened and get busy doing the opposite: not investing in anything, not lending to anyone, not selling anything to anybody – just sitting around, paying bonuses and praying for the Crap-Backed Shit to re-value – that National City thinks the way out of this is to unlawfully cancel all your outstanding HELOCS, hoping that only some their customers notice, and getting their capital levels back up by cutting all the credit they are contractually obliged to provide? Just willfully violating contracts en masse by hiding behind a “regional” computer model that seems to be accurate to within two standard deviations to the mean, and then putting the onus on the customer to fix it? They are doing this on purpose, knowing that no one is regulating them, and that most people won’t fight back, either because they don’t really need or want the credit, or because they don’t know how. But that’s not the point – these guys are trampling on the contractual rights of their customers.

The Reg Z FDIC statutes say that a HELOC company cannot reduce or suspend an equity line unless there has been a “significant” decrease in the value of the underlying property. Subsequently published clarifications and comments from the FDIC suggest that the definition of “significant” is that the owner’s equity has declined by 50% or more from when the loan was originated. Great, so make up a number that wipes out the equity and call that the valuation! WTF.

Now, I admit, I’m pretty lucky. My house value hasn’t gone down, and my debt is manageable. But what about the people who are out of work, whose home equity is still meaningful, whose house values may have held steady, or gone down a little, but not to the point where the bank is exposed? And who are depending on HELOC accounts as a lifeline to get through this time? HELOC accounts with both theirs AND National City’s signatures on the contracts?

Amazing that we could have such a huge bailot, but no reform. It’s still the inmates running the asylum. We all know what the banks are trying to do. They want to get their balance sheets back and offset some of their shitty CDO and subprime losses, by clawing back committed capital from creditworthy revolving loan customers who, yes, it’s true, signed contracts. But did’t National City sign those contracts, too?