Thursday, January 31, 2008

Lenders Suspending HELOCs

by Calculated Risk on 1/31/2008 10:49:00 AM

In the previous post, I noted that mortgage equity withdrawal (MEW) was apparently still strong in Q4. Unlike previous years, this appears to be the result of homeowners drawing down HELOCs as opposed to cash out refis.

The lenders are starting to be concerned about the risk of homeowners drawing down HELOCs, while at the same time their property value is declining, leaving little or no equity in the home.

The Implode-O-Meter has posted a letter today from Countrywide suspending certain HELOCs.

A portion of HELOC customers have already or will soon be notified by CFC Loan Administration that their HELOC draws have been suspended indefinitely. These HELOCs were identified as candidates for suspensions for various reasons including:
Significant decrease in supporting property value – If the customer's current untapped equity (home value minus all mortgage liens) drops by 50% or more from their HELOC opening date, his/her line will be suspended.

HELOC payment delinquency – If the customer's payment is made two or more days after the grace period ends, his/her line will be suspended.

Product Terms/Conditions Violation – In cases where the customer violated terms or conditions of the HELOC Agreement, his/her line will be suspended.

Examples include, but are not limited to: HELOC on property originated as owner occupied, but now believed to be non-owner occupied or unpaid taxes or insurance on the subject property.

Be aware that there may be other actions that could trigger draw suspensions.
This is not a one-time event, but an on-going strategy as we continue to manage our lending risk.