Chase Turns Off Our Spigot—For Now at Least
Here’s an interesting twist in our refinancing story. We received in the mail earlier this week the following notice from Chase, which is the provider of both our current mortgage and our Home Equity Line of Credit: With home values falling in many parts of the country, we’ve used a proven valuation method to estimate…
Here’s an interesting twist in our refinancing story. We received in the mail earlier this week the following notice from Chase, which is the provider of both our current mortgage and our Home Equity Line of Credit:
With home values falling in many parts of the country, we’ve used a proven valuation method to estimate your home’s value at $1,000,000. Unfortunately, that valuation no longer supports the full amount of your Line of Credit, so we are suspending future draws again your account as of May 15, 2009.
Say what? Leaving aside for a moment our suspicion that their “proven valuation method” did not take into account the fact that ours is a five-story house, the most interesting part of this is the perverse incentive it creates: After we finished our renovation in late 2005, our HELOC was pretty close to maxed out at $62,500. Since then, we’ve chipped away a few hundred dollars a month at the principal, so that the balance is now around $47,000. (Our credit score, as of last week, was the equivalent of an “A+”, according to our Chase refinancing so that can’t have anything to do with it.) So now, instead of continuing to reduce our balance, we’re going to just pay off the interest, since we know we can’t tap the line in the future if we needed to. The appraiser came for our mortgage refi yesterday morning; if that goes okay, we should have a decent case to make for unfreezing the line of credit. Regardless, the “proven valuation method” sounds like some very unnuanced generalizing at best and suspiciously like the beginnings of some old-school red-lining at worst. If, for example, the computer is using zip codes to group areas by risk, then it has no way of differentiating between a house on Classon and a house on Clinton. Or if it’s merely using physical proximity, our house could be impacted by comps a half-mile away on a less valuable block of Bed Stuy. Scary.
Morgan Stanley froze my HELOC claiming my credit rating had gone down since I first opened it. Since my credit rating is 762, I thought that was pretty bogus. In order to appeal, I would have to submit reams of paper as if they never vetted me before. It’s quite annoying as I had planned to use it for some repairs. My understanding is that all the financial institutions are using any excuse to lower their debt ratio and that there’s no rhyme or reason to their freezing HELOCs.
mopar — don’t take out a mortgage at 12%. Renting is almost certainly going to be an option than a 12% mortgage.
Also, if you have 10% on that 425k house now, you should be able to have 20% by the time it gets down to 300k. And you are going to need 20% anyway, because you aren’t getting a mortgage with 10% down.
Everyone is very jolly and amusing today.
Arg, keep forgetting, mortgage in first example is 2032.
Hey BHO! I think you might have missed my very late reply to your comment about buy now or wait in a thread two days ago. Here it is, curious what you think:
BHO, every calculation I do shows us saving money if we buy now.
Example: House is $425,000 now. With 10 percent down and interest rates at 4.9 percent, the monthly mortgage payment is $2096.
If the interest rate goes up to 7.0 (reasonable — this was the rate in July ’08) and the price comes down to $350,000, it is slightly more expensive at $2096 a month.
If the interest rate goes up to 12.0 and the price comes down to $300,000, the monthly mortgage jumps to $2777.
We can’t afford that.
Banks always shrink credit in a recession. More banks would fail if they didnt.
People always complain about nonsense and stupidity of government workers. Well, here is perfect example of how the wonderful profit-making corporate world is cutting off its own source of income…. acting very bureaucratically
(all probably with non-union workers of course).
Very well-paid over rewarded MBA’s and the like (lots of top IVY league college grads) propably sent a 100 emails and had tons of meetings to come up with this great policy to cut of a source of revenue for them. And next year they will give them a bonus for doing so.
I so love capitalism. It is so efficient.
My guess is the appraisal will be way lower than you expect. That’s what happened to us with Citibank. They based our appraisal on an apartment half our size that happened to be two blocks away.
When the banks want to lend again, voila, all the appraisals will magically go up.
If the government did to the banks what banks are doing to their
customer the borrowers) It would be over for the banks.
Its great that the banks decide to restrict lending and credit
just when its really needed.