Countrywide sends out "suspension letters"

A week ago, I got word from my Countrywide Account Executive that they are mailing out “suspension letters” to some holders of Home Equity Lines.

I made calls to my past clients who have countrywide lines, and sure enough, a couple had already had their accounts suspended.

If you have a client or friend who has a Countrywide line of Credit, you might want to tell them to be aware of this. It may not be available to them when they go to use it.

It doesn’t seem fair for them to go back on the agreement, but it’s in the note the client signed that they have the right to do this. They say that other lenders are doing this or are considering this. Its in response to the declining values in many markets.

Its really not fair if you had to pay closing costs to get this line. Countrywide was one of the last lenders to offer a true “no closing cost” line of credit. Because they’re being absorded by Bank of America, they have no incentive to refund any closing costs paid.

If I had a Countrywide line of Credit and I knew I would need it soon, I would probably max it out, and stick it in my savings account until this market comes back.

Bank of America paid all the closing costs on the LOCs I have on my NOO properties. I took these out in 2006. One has a zero balance, but for the other I have used about 78% of my credit line.

I notice that the Countrywide web site is till offering home equity loans.

Do you have any details on the target group for the suspension letters?

I have seen this scenario when the home value drops below the mortgage and HELOC.

Its my understanding that if Countrywide feels the equity position in your home has decreased by 50% or more, they might suspend your line of credit. For instance, You have a first mortgage of 80% with a 10% equity line for a combined LTV of 90%, that’s 10% equity. If the value of your home drops 5%, then your equity position has dropped 50%. There are not too many areas that have been immune to this. Some have seen their equity disapear completely or are upside down.

I called my private banker today at Bank Of America to see if they had similiar plans… i was assured there would be no suspensions of any BofA HELOCS. Whew!


I hate to break it to you but if you are pinning your hopes on the word of a private banker you are setting yourself up for a HUGE fall. As a former employee of BOA I can tell you this they are not going to put the word on the street that they are suspending HELOC withdrawals. All that would do is set the bank up for a HUGE run on HELOC balances. I am not saying your PB was lying but I would definitely not take his word as gospel.

From the following:
See glowing highlight below.

By Dina ElBoghdady Washington Post Staff Writer Saturday, February 23, 2008; A01

Homeowners Losing Equity Lines As House Values Fall, Some Banks Withdraw Credit

[i]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.

Now that home prices have dropped in many parts of the country, lenders are nervous that they may never collect the money that they extended to borrowers. They are responding by freezing or lowering the credit limits on home equity lines, leaving thousands of borrowers like Corazzi in the lurch.

“Nearly all the top home equity lenders I know of are doing this or considering doing this,” said Joe Belew, president of the Consumer Bankers Association, which represents some of the nation’s largest home equity lenders. “They are all looking at how to protect themselves as real estate values go down, and it’s just not good for the borrowers to get so overextended.”

Countrywide Financial, the nation’s largest mortgage lender, suspended the home equity lines of 122,000 customers last month after reviewing their property values and outstanding loan balances. The company, like others, has an internal automated appraisal system that tracks values.

The company declined to disclose how many of the affected borrowers lived in the Washington area. About 381,000 borrowers in the region had home equity lines at the end of last year, according to Moody’s

USAA Federal Savings Bank froze or reduced credit lines for 15,000 of its customers, including Corazzi, and will not reconsider its decisions until “real estate values improve substantially,” the company said in a statement.

Bank of America is starting to do the same and is contacting some borrowers, said Terry Francisco, a bank spokesman.

“We know this can cause hardship to our customers,” Francisco said. “If they used the credit to make payments that are in the pipeline, we will work with them to make sure the payment goes through.”

The appeal of home equity lines has always been their flexibility.

They operate like credit cards, with the home as collateral. Borrowers can use the money when they want, up to a limit, then repay it over time. The limit depends on the amount of equity they have in the house. Home equity lines, which grew popular in the late 1980s, have typically attracted educated borrowers with above-average incomes and job stability who tend to repay what they borrow in a timely manner, industry studies show.

Since the crisis in the housing and mortgage markets started, however, delinquencies on home equity lines reached 0.84 percent in the third quarter, the highest level in a decade, the American Bankers Association said.

Because missed payments are often a precursor to foreclosure, lenders are spooked. Companies that hold credit lines typically recoup little, if any, of their money in a foreclosure, hence the retreat on home equity lending.

Larry F. Pratt, chief executive of First Savings Mortgage in McLean, said most mortgage documents he has seen give lenders wide latitude to suspend or freeze credit lines.

“A layperson would not recognize the language because it’s not that blatant,” Pratt said. “It talks about deterioration of the value of the asset or the value of the collateral. . . . It’s not boilerplate language by any means.”

Maggie DelGallo did not realize that when she took out a home equity line a few years ago on her home in Loudoun County. Her lender recently froze the line.

DelGallo, a real estate broker, has used some of her credit line over the years. Had she known the freeze was coming, “I would have drained it,” she said. “I would have taken every dime and possibly placed it in a money-market vehicle.”

DelGallo said she does not think she is in dire straits. “It’s more like a huge disappointment,” she said. “I have this line of credit attached to my home that’s useless.”

Last year, 34 percent of borrowers said they used their home equity lines to pay off other debt and 29 percent used them for home renovation, according to a survey of lenders by BenchMark Consulting International. Another 31 percent used them to pay for other things, such as medical bills, weddings or vacations.

Corazzi initially used her line to consolidate debt. She and her husband took out the credit line in October because they thought her job was in jeopardy.

It was. In December, her salaried position as a loan-processing manager at a local mortgage bank changed to a commission-only job.

Given the slowdown in the industry, Corazzi has collected only one paycheck since then. Her husband, Ron, sells large-format copiers and printers to builders, and his salary alone cannot support them and their four children, ages 4 to 8.

By the time their lender called, the couple had $45,000 remaining unused on the credit line. Ron Corazzi is now looking for a second job, and his wife is hoping to pick up work as a substitute teacher.

Meanwhile, they are trying to open a new home equity line elsewhere, but chances are slim given the change in Nancy Corazzi’s job status and the drop in their home’s value. Five months ago, the Ellicott City house was appraised at $560,000; the lender says it is now worth $469,100.

"I told them, ‘You guys are wrong,’ " Nancy Corazzi said. "They said, ‘Sorry, this is what we’re doing in the entire area.’ "

Corazzi said she was blindsided by what’s happened. “I didn’t know they could do that. I thought I was too smart to have something like this happen to me.”[/i]