As a journalist, it has been years since I interviewed as many angry people for a story as I did for the one published on Sunday about banks reducing home equity lines of credit.
Before the story ran, we published in May a brief solicit in the Marketplace section asking homeowners if banks had reduced their HELOCs. I received dozens of emails and phone calls from Orange County residents.
Even when consumers said banks were responding reasonably to falling home prices and higher loan defaults, they still hated the way banks cut HELOCs first and told borrowers (homeowners) second. They also objected to the automated valuation models used by the banks, as inaccurate and not as good as having an appraiser come out and physically inspect the property.
I interviewed seven borrowers, including five with Washington Mutual. So either WaMu, as the company is known, has most aggressively cut HELOCs in Orange County, or did so most recently before we ran the solicit in May. (Of course, this is a totally unscientific measure.)
In my story I said:
Washington Mutual, in an email to the Register, said it reduces home equity lines based on a borrower’s payment history, creditworthiness and the value of his or her property.
“Given the current housing market, WaMu, as well as other lenders, have taken the fiscally responsible steps to reduce select credit lines when warranted by declining home values,” the company said.
One of the WaMu borrowers I interviewed, but didn’t quote in the story, was Frank Baker, a Mission Viejo homeowner. He said WaMu slashed his HELOC from $130,000 to $13,000.
“I thought, ‘This is a mistake. There is a zero missing,’” Baker said. No mistake.
Baker, like many people, mostly kept the HELOC as a rainy day fund, just in case he ever needed it. He has used about $12,000 for home improvements, which means he only has $1,000 left to draw upon.
He was also spending savings to finish his home improvements and planned on drawing a little more on the HELOC, maybe another $3,000, to replenish his savings. But that’s not possible now.
Baker has considered disputing the reduction, but a real estate agent told him values have dropped so much in his neighborhood that an appraisal wouldn’t come in high enough. Baker is one of the borrowers who understands why WaMu cut his HELOC, but didn’t like getting an unexpected letter in the mail saying his HELOC was already reduced.
Anthony Hsieh, who formerly ran a unit of LendingTree, feels this chaotic time in the mortgage and housing markets is perfect to launch a new take on the lending biz.
