National City Home Equity FrauD
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…
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 responsiblyâ€, 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 suspendedâ€, 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!â€. 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 “, dumbassâ€. 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!â€
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?
Thanks everyone for the frank comments. So here’s the update.
I ultimately took invisible’s advice and took a chill pill, and went through the bank’s process. The appraiser came yesterday, and sent the appraisal back today. They appraised the house at $1.45m (despite using all 3-story comps, whereas ours is 4-story plus basement). Either way, it was more than enough to get the HELOC reinstated, so case closed.
I understand the predicament banks are in, needing to clean balance sheets, etc., and why my unused loan is a burden on them. But still, a deal is a deal, so my original indignation was about the bank’s breaching the contract by picking a valuation out of thin air and using that to freeze the credit line. Like Petebklyn above, I too did not use the HELOC much at all, I just wanted it in case something terrible happened. I agree I was given a crazy amount of credit way back when banks were doing that thing. But just because I didn’t use it doesn’t mean the bank can just take it away (in this particular case -I’m sure nyc_sport is right that banks nowadays will protect themselves better).
Nothing strikes me as odd about this. Banks have been freezing the unused portion of HELOC’s for over a year, and they are almost impossible to get now. National City Bank has been taken over by PNC Bank, so one would expect changes in policy at this point.
The debate over appraised value is likely to be fruitless, as credit standards have tightened. Banks used to lend using a CLTV (combined loan to value) of first and second loans to the property value of 90%, now you can forget that. Lenders who hold heloc’s are getting stuck with non performing loans on properties whose current value will pay off the first but not the second loan so these loans are not going to come back any time soon. This will likely be the train wreck of 2010, and worse than the defaults on first mortgages, which for the most part were sold into the secondary market, so they aren’t on the books of the banks who originated them. Most heloc’s are kept on the books of the bank who made the loan, and they are going to do everything they can to clean up their balance sheets and get these loans off.
I’m not as sanguine as some commenters that this is a computer flub that will easily and willingly be corrected. But the best route is to play through. Get them to send a copy of their appraisal. Go ahead and order yours. Run your address through Zillow for yet another take on current valuation — not fully accurate or reliable, but it sort of mimics what the banks are doing to get a quickie value on a property. Make good contemporaneous notes of all your conversations. Also, use zillow to generate a list of comps and then carefully select the 5-6 most applicable — closest and most similar to your house (and be honest, not pie in the sky about it). Give the list to the appraiser (saying, I know you have to do this independently, but you may want to check some of these out). If, after all this, you get nowhere, you’ve got a lot more to go on.
A little after Lehman, I maxxed out my HELOC and stuck it into a high yielding CD precisely to prevent my bank (Citi) from pulling the line as the housing market fell. I lacked the cojones to put it into the stock market, but had my own mini carry trade by drawing my line at prime minus one and plugging it into a (slightly) higher yielding savings acount. Consumer credit is still contracting, so if you want to preserve access to your HELOC, go tap it in full and put it aside somewhere safe. Paying a few basis points is worth the price of having access to liquidity when you need it.
this is the way things work. first, people get exciting about something (anything really). then they realize their enthusiasm was incorrect b/c the world isnt as rosy as they imagined.
Then, with their new jaded attitude, they over-correct and miss out on viable opportunities that are there.
Well, it doesn’t seem to matter that the money the banks are using is taxpayer money given to the banks by the Fed. The banks are going to keep as much of it as they possibly can, especially in these times of low interest rates. But wait until the rates go up; these bastards will be knocking down your door to get your business.
It’s not enough that, over the course of a mortgage lifetime, we are paying almost twice the cost of a house for the “privilege” of doing business with a bank or any other lending institution.
I’m in a similar pickle with Wells Fargo and Rels Valuation. These two companies are in bed together and screwing everyone who does business with them.
Get used to it. The Fed, the banks, and the extremely wealthy who own them run this country, if not the world. (But the Chinese are silently taking over!)
After 15 years of doing business with Wells Fargo (Well ForgetU) I told them where to put their loan and took my business elsewhere.
I recommend you do the same. It looks like you’re going to lose the HELOC anyway, and there’s not an effing thing you can do about it EXCEPT take the rest of your business away from them.
maybe they’re just jealous of Marty’s slip and fall bonus money.
Seems to me this is the least of their sins.
Here’s what a skeptic sees:
1) deetrane takes a chill pill, philosophizes about the perils of living on conditional credit and orders up a (ultimately free) appraisal given the obvious computer flubb.
2) opportunistically looking to hit the lottery, decides to spew big bad bank / poor people in liberal and litigious brooklyn in an effort to get some sort of class action of the ground. The goal being, as we all know class actions, to be lead plaintiff – http://bk.ly/bdb – while the lawyers get most of the rest, and the rest of us can at least say they stuck it to the man. yeah!
So, let’s see, that’s 20 mil for you, $500 for me, where do i sign up?