There is a Bank Run on Home Equity Lines! There has been another disturbing trend in the Florida housing market. This past week we had five clients who informed us that the bank whom they have an open equity line with, lowered the available credit limit to their remaining credit balance. Unlike a depression era run on the bank where investors run to the bank to withdraw their money because they are scared of losing their life savings do to their bank going under. It appears the opposite is happening and the banks are decreasing their exposure to loss of money do to lower home prices and a skyrocketing foreclosure rate. Over the past few years, home equity loans where a big part of the overall loosening of credit. Many of us have home equity lines that where opened at 90%, 95%, and even 100% of our homes value and based on the inflated home values of a couple years back. Not to mention the fact that these same loans where obtained with the lower underwriting standards common at that time. It appears to me, that the banks in an effort to lower their exposure due to falling home prices in our area, all of Florida for that matter, are lowering existing credit lines. It is too early to know how many banks will follow suite but we are at three already just from our clients. The Dear John letters that the banks are sending, state the reason for the decrease in credit line is due to the decrease in home values. The problem is, it’s too expensive for the banks to go out and get an individual appraisal for every property they have a loan on, so they may just indiscriminately make cuts across the board. What does this mean to you? The answer to this question will depend on your individual circumstances. Many people are using their equity lines for shortages in their expenses, others for investment opportunities, some use it like a checking account and for many of us, it is a security blanket in case of sickness, down turn in business or loss of job. The scary part is with all the negative news about our economy, many of these scenarios are more likely today than in years past. These have been reported by our clients just this past week: $100,000 equity loan, never used, closed by bank. Equity lines lowered to outstanding balances (4 clients) One of those clients used his equity line to place a large deposit with the intent to withdraw to pay bills when they came due. A smart strategy to offset interest. After he made the large deposit the bank lowered his available credit to his outstanding balance, now he does not have access to those monies to pay his bills. As you can see the banks actions can have devastating consequences, that is why I am bringing it to your attention, so you can assess your individual circumstance. I am not trying to alarm anyone but I feel it is in your best interest to be informed. How many loans they will lower and if only higher loan to values (LTV) will be affected is anyone’s guess. Maybe it’s a fluke and it only happens to these five people, I don’t know? The letters from the banks so far have sited home values as the reason for the decrease in credit line. Maybe this is all there is to it, or maybe the banks are feeling the credit crunch and trying to shore up their cash reserve requirements? If you have an equity line that is 80% or less of your homes value you probably don’t have to worry about it. If you are in the position that you feel you need access to these monies, then you might want to consider withdrawing what you need from what’s left of your equity line and put it into an interest bearing account at another bank just to be on the safe side. The cost of doing this at least for a few months to see how things shake out might be cheap insurance, if your circumstances warrant it. Don’t think about it too long, you won’t get a second chance! Unscramble these letters to find the names of two of the banks....... ABCIIOT To Your Financial Health,Todd Dawkins
There has been another disturbing trend in the Florida housing market. This past week we had five clients who informed us that the bank whom they have an open equity line with, lowered the available credit limit to their remaining credit balance.
Unlike a depression era run on the bank where investors run to the bank to withdraw their money because they are scared of losing their life savings do to their bank going under. It appears the opposite is happening and the banks are decreasing their exposure to loss of money do to lower home prices and a skyrocketing foreclosure rate.
Over the past few years, home equity loans where a big part of the overall loosening of credit. Many of us have home equity lines that where opened at 90%, 95%, and even 100% of our homes value and based on the inflated home values of a couple years back.
Not to mention the fact that these same loans where obtained with the lower underwriting standards common at that time.
It appears to me, that the banks in an effort to lower their exposure due to falling home prices in our area, all of Florida for that matter, are lowering existing credit lines. It is too early to know how many banks will follow suite but we are at three already just from our clients. The Dear John letters that the banks are sending, state the reason for the decrease in credit line is due to the decrease in home values. The problem is, it’s too expensive for the banks to go out and get an individual appraisal for every property they have a loan on, so they may just indiscriminately make cuts across the board.
What does this mean to you?
The answer to this question will depend on your individual circumstances. Many people are using their equity lines for shortages in their expenses, others for investment opportunities, some use it like a checking account and for many of us, it is a security blanket in case of sickness, down turn in business or loss of job. The scary part is with all the negative news about our economy, many of these scenarios are more likely today than in years past.
These have been reported by our clients just this past week:
As you can see the banks actions can have devastating consequences, that is why I am bringing it to your attention, so you can assess your individual circumstance. I am not trying to alarm anyone but I feel it is in your best interest to be informed. How many loans they will lower and if only higher loan to values (LTV) will be affected is anyone’s guess. Maybe it’s a fluke and it only happens to these five people, I don’t know?
The letters from the banks so far have sited home values as the reason for the decrease in credit line. Maybe this is all there is to it, or maybe the banks are feeling the credit crunch and trying to shore up their cash reserve requirements?
If you have an equity line that is 80% or less of your homes value you probably don’t have to worry about it. If you are in the position that you feel you need access to these monies, then you might want to consider withdrawing what you need from what’s left of your equity line and put it into an interest bearing account at another bank just to be on the safe side. The cost of doing this at least for a few months to see how things shake out might be cheap insurance, if your circumstances warrant it.
Don’t think about it too long, you won’t get a second chance!
Unscramble these letters to find the names of two of the banks....... ABCIIOT
To Your Financial Health,Todd Dawkins
Todd Dawkins www.MortgageCreditCare.com 2424 North Federal HWY, suite #415 Boynton Beach , FL 33435By Phone: 561-714-5541 (Office)By Fax: 561-739-8333 (Fax)By e-mail: ToddDawkins@gmail.com
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