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 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.