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.
how does one just pay the interest on their HELOC?
“…our house could be impacted by comps a half-mile away on a less valuable block of Bed Stuy. Scary.”
The market is a continuum. Welcome to the crash. ROTW’s not up yet. So allow me…
KERBOOM!!! (I love it when he says that)
***Bid half off peak comps***
> “Condemned to repeat history, we are.”
Master Yoda, is that you?
Credit rationing. They don’t have the balance sheet to lend.
In fact, they are so overextended on NYC property – we are talking billions over where they should be. So can’t do more.
Banks – they lend too much, then too little.
Condemned to repeat history, we are.
“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.”
You realize every banker who reads this will have a little shudder of joy.
I mean, I understand if you need to protect yourself and build an emergency fund to take the place of that line of credit, and it makes perfect sense to do that.
But if you are asking *why* would bank cut back on your credit limit, you need look no further than the fact that you are now going to make them richer by giving them interest only payments.
FWIW, banks are cutting back their credit liabilities all over the place. Also they know with all the unemployment out there, that default rates will be going up on personal loans.
Bank of America recently cut my credit limit on one of my credit cards. Now, the limit was absurd (it was about 40% of my annual salary…), and I still have a much higher limit than I need, but they had no reason to do this based on *me*. I pay the balance in full every month and have never been late, have fine credit, yadda yadda yadda. The reason they did it, I presume, is that they have pretty much given out too much credit across the board, so they are cutting back across the board. No doubt their balance sheet will look prettier because of it.
Oh, and I decided to stop using that card and use one of my 4 other credit cards for no reason except to hopefully confuse one of their market research people (“OMG! we cut his limit and he stopped using our card! Who would have thunk it!”)
the proven valuation method sounds very much like red lining. I’m sure the same general principals are at work.
I heard the same thing from my mortgage broker so I pulled down 99% of my 2.99% $140k line and put it in an ING account! It’s worth the 1.25% interest cost / year to have an emergency cash cushion. Plus, with my low rate from back in the day (Prime – 0.25%) I’m sure I was a prime candidate for line reduction, regardless of comps. Banks are lame.
arent you supposed to be on vacation mr b? hahah
*rob*
My understanding is that the “proven valuation method” is something proprietary but very much like zillow. We ran into this problem with BOA and Wamu a few years back when, contrary to how WAMU treated the rest of the world, the appraisal came in low. My zillow suspicion is based on how quickly during my initial phone call with each they could tell me what they thought my house would appraise for and whether I was within the LTV they needed to make the loan. Obviously, they plugged our address into some software. The problem with this method is not only data error (wrong # floors, bedrooms, etc.” but that, if you have put a lot into your home, you are not compared with similarly renovated homes, but lumped into an average of sales that includes unrenovated houses. That drags the number down.