U.S. Lenders Freeze Home Equity Credit Lines
April 14th, 2008Via: IHT:
It was the lending institutions and mortgage originators that got the United States into this credit mess, but it is the American consumers, taxpayers and those companies’ shareholders who will end up shouldering most of the costs.
The latest example of this is in the mass freezing of home equity lines of credit going on across the United States. Reeling from losses on their wretched loan decisions of recent years, lenders are preventing borrowers with pristine credit and significant equity in their homes from tapping into credit lines that they paid dearly to secure.
In the past 30 days, lenders have sent several hundred thousand letters advising borrowers that their home equity lines of credit are frozen, estimated Michael Kratzer, president of FeeDisclosure.com, a Web site intended to help consumers reduce fees on home loans.
Major lenders – including Washington Mutual, IndyMac Bank and the Greenpoint Mortgage Unit of Capital One – say that declining property values are prompting the decisions to cut off credit.
Banks have the right, of course, to rescind these credit lines at any time under the terms of the contracts they struck with borrowers. And as home prices have tumbled in many parts of the United States, banks are undoubtedly trying to protect themselves from exposure to additional losses.
But these actions are being taken even in areas where property prices are rising, Kratzer said. What’s worse, the letters provide no explanation for how the lenders determined that the property values underlying the equity lines had fallen.
Frozen home equity lines will surely intensify the consumer spending downturn and put added pressure on an already weak economy.
