CHESSNOID

There are many banks out there killing homeowners equity credit lines. People who have had them for awhile in case of emergencies or for large future purchases are being shocked and told they have been cut off. The banks are definitely tightening up credit in a big way. Even though my credit lines are not tied into any real property, my credit lines were reduced to my outstanding balance without specific reason towards me. The banks and financial institutions are going to the other extreme to avoid further losses in the other areas of their bank portfolios.

This is actually a good defensive move for their overall company, but if they don’t do it with reason they will definitely lose long term and loyal customers. I work in credit and collections and can see it from the CEO’s point of view trying to minimize losses in the short term, but they will sacrifice long term profits by alienating their current client base with sweeping policy changes regardless of who it will affect and not taking into consideration of the customers history with the company.

I have plenty of open credit lines with no balances, but it won’t shock me to see some of them closed out or reduced to minimal amounts now the banks are going into extreme defensive moves. I read this article about some homeowners being hurt because they weren’t aware the banks could adjust credit lines or eliminate them altogether without any discussion. According to the Washington Post:

In one brief phone call, Nancy Corazzi’s lender yanked away what was left of the $95,000 home equity line of credit that she and her husband took out five months ago.

The lender informed her that her Howard County home had plummeted in value and the company did not want the risk that she would owe more than the house was worth.

“I got off the phone and I was shaking,” said Corazzi, who was using the money to pay preschool tuition for her twins .”I was near tears. We needed this credit line to get us through some tough times.”

Several of the nation’s largest lenders, along with smaller ones, are shutting off access to home equity lines in areas where home values are declining. It’s an unusually aggressive move as the industry grapples with fallout from the mortgage crisis that began unfolding last year.

When you see the banks acting in this fashion to protect themselves, you can’t really blame people when they react to the same way banks are treating them. I read about a homeowner who has stopped paying since 2002 and can’t be foreclosed upon because the banks can’t produce proof they are the legitimate owner of the note. Now that is crazy but true. Who knows maybe you are in the same situation as this guy. According to Bloomberg:

Joe Lents hasn’t made a payment on his $1.5 million mortgage since 2002.

That’s when Washington Mutual Inc. first tried to foreclose on his home in Boca Raton, Florida. The Seattle-based lender failed to prove that it owned Lents’s mortgage note and dropped attempts to take his house. Subsequent efforts to foreclose have stalled because no one has produced the paperwork.

“If you’re going to take my house away from me, you better own the note,” said Lents, 63, the former chief executive officer of a now-defunct voice recognition software company.

Judges in at least five states have stopped foreclosure proceedings because the banks that pool mortgages into securities and the companies that collect monthly payments haven’t been able to prove they own the mortgages. The confusion is another headache for U.S. Treasury Secretary Henry Paulson as he revises rules for packaging mortgages into securities.

Obviously this may not be moral, but lawfully he is in the right until proven guilty. I would guess this guy found a loophole in the process. In this case, the greed of lenders of yesteryear caused this accident and this borrower is exposing this error and making them pay for their lack of due diligence. I also have heard stories of homeowners loans getting sold and payments not being forwarded to the appropriate new owners of the note. Maybe he is trying to avoid that problem and putting himself in that situation. Ultimately, this person would not have the ability to exploit them if the banks did their jobs properly.

I really thought we were getting closer to the bottom of this business cycle. My assessment has changed for the worse. I think the actions the banks are taking will actually make it worse for them. The federal reserve reduced interest rates to stimulate lending by the banks. It seems the bank is just trying to float the money instead of really loaning it out. They are reducing limits on credit cards indiscriminately even on prime AAA customers like me without reviewing my overall situation of credit, income, debt ratio. You know the things they took into consideration when they approved me for the credit card. Banks are cutting home equity credit lines completely even though customers have perfect credit, never made a late payment, and probably do have the actual equity since they are just going over comps. These are just bank generic excuses that are causing people to scramble and figure out how to live without credit they thought they had available for emergencies.

Now the stock market finished higher on bad news. Investors seem to view to view a bond insurer who has done a bad job on doing its job but avoided a lowering of its rating as positive. The big picture is the losses they announced for last month are nothing compared to the months coming ahead. Now that we have had a couple of days up, the market is overbought and we will see a reversal as investors sell into the rallies to lock in their gains. The market technicals haven’t changed and we are still in a downtrend. Some economists and analysts are being overly optimistic in their opinions and trying to call the bottom of this market. If you are like me, you will wait for a better sign than people who have been consistently wrong in the last 2 years and said houses would never go down in value. Cash is king right now to minimize risks. Looks like oil and gold is the place to be to make money in this recession.