Write a check while you still can if you have been thinking about it!
http://caveatemptorblog.com/2008/04/07/citibank-freezes-home-equity-lines-of-credit-nationwide/
Wachovia, others, cutting unused home equity lines of credit
5:04 p.m. 04/14/2008 By Alistair Barr
Provided by
Other banks pull similar credit lines; more homeowner defaults may follow
SAN FRANCISCO (MarketWatch) -- Wachovia Corp. said on Monday that it's limiting homeowners' ability to tap home equity lines of credit that they haven't used yet as the giant bank tries to cut its exposure to the broadening housing crisis.
Other mortgage lenders, including Washington Mutual (WM), Countrywide Financial (CFC) and Indymac Bancorp (IMB), have also been cutting home equity lines aggressively, Fred Cannon, an analyst at Keefe, Bruyette & Woods, wrote in a note to investors on Monday.
Bank of America (BAC), Suntrust Banks (STI) and some other smaller lenders are also starting to cut these credit lines, Cannon added.
Banks are taking such action to reduce potential losses from the housing bust. But Cannon said that if enough lenders pull home equity lines of credit, it could make industry losses even worse.
"Lenders have presented the reductions in home equity lines of credit as a prudent response to the rising home equity credit costs, declining home prices, and the risks of rising home equity exposure from the drawdown of lines of credit," Cannon wrote.
"While for an individual lender, such actions appear prudent, the consumer response to the reduction of lines can create additional problems for the home equity lenders and for the economy as a whole," he added. "Cutting unused lines will add to, rather than subtract from, credit costs on home equity portfolios."
Wachovia (WB), which reported worse-than-expected quarterly results on Monday, said in a presentation to investors that it's "implementing additional limitations on utilization of undrawn equity lines."
The bank has more than $60 billion of home equity loans and lines of credit. Almost 1.4% of those are at least 30 days delinquent, Wachovia reported on Monday. That's up from 0.78% a year earlier.
$1 trillion for a rainy day
Home equity lines of credit let homeowners borrow extra money, up to a pre-arranged limit. The loans, which can be tapped when needed, are backed by people's homes, so the interest rate on this type of financing is lower than other unsecured sources such as credit cards.
During the housing boom earlier this decade, U.S. consumers borrowed against the value of their homes in record numbers. Home equity withdrawals grew at an annual rate of $300 billion to $400 billion. There's now roughly $2.2 trillion of home equity lines, which represents about 20% of all outstanding first mortgage debt, KBW estimated.
About $1 trillion of these home equity lines of credit haven't been used yet, Cannon noted. If a lot of that extra available cash is withdrawn by lenders, the economy could take another hit, the analyst explained.
"The importance of home equity lines as a source of household liquidity is a recent phenomenon and one which can have an outsized impact in the current economic cycle," Cannon wrote.
Home equity lines of credit were traditionally used for major home improvements and other big-ticket items. But as the housing market boomed and U.S. consumers saved less, these products evolved into cash-management and liquidity tools, Cannon explained in an interview.
"A lot of Americans don't have much savings but they have these home equity lines," he said. "These may have been used instead of a rainy day fund."
More consumer defaults
But now, throughout the U.S. , homeowners who may have borrowed $10,000 or $20,000 on a $100,000 or $200,000 home equity line of credit are being told by their banks that their lines have been cut to $15,000 or $25,000, Cannon explained.
Some of these homeowners may be relying on these lines of credit to cover expenses when regular sources of income decline. If this access to extra borrowing is pulled, people may default, or have to turn to more expensive financing like credit cards, Cannon said.
Other homeowners who haven't had their lines of credit cut yet may borrow the maximum amount quickly before it disappears, he added.
"It is likely that many of the most vulnerable borrowers are likely to take this action, potentially creating 'bad growth' in home equity portfolios," Cannon wrote.
WaMu question
Washington Mutual is the most exposed to home equity lines of credit. The company had almost $50 billion of such loans outstanding at the end of 2007, plus another $59 billion that hadn't been used yet by customers, KBW said, citing regulatory data and SNL Financial.
That represented more than 800% of WaMu's tangible common equity and was probably one of the reasons the lender had to raise $7 billion in new capital from private-equity firms last week, Cannon said.
WaMu reports quarterly results on Tuesday and the KBW analyst said he plans to ask the lender how much it's been reducing undrawn home equity lines of credit.
Other lenders exposed
National City, Bank of America and Wells Fargo are also among the most exposed to these problems, KBW said on Monday.
National City (NCC) had more than $36 billion of drawn and untapped home equity lines of credit at the end of last year, representing almost 480% of its tangible common equity, KBW data show.
Bank of America had more than $95 billion of outstanding and $120 billion of undrawn home equity lines of credit at the end of 2007, or 362% of the bank's tangible common equity, KBW reported.
Wells Fargo (WFC) had over $100 billion of undrawn and outstanding home equity lines of credit, or 369% of tangible common equity.
Wachovia had less than $27 billion of outstanding home equity lines of credit at the end of 2007, but a lot more potential exposure through almost $69 billion of undrawn lines, KBW data show. In total that represented 325% of its tangible common equity.
Capital requirements
Because banks can pull undrawn home equity lines of credit relatively easily, regulators don't require lenders to set aside much capital to back such exposures, Cannon said on Monday.
"So it's interesting to see them being so active in reducing these lines," he added. "It could be driven by concerns about their own liquidity or future credit losses or regulatory pressure that has to do with safety or soundness."
http://caveatemptorblog.com/2008/04/07/citibank-freezes-home-equity-lines-of-credit-nationwide/
Wachovia, others, cutting unused home equity lines of credit
5:04 p.m. 04/14/2008 By Alistair Barr
Provided by
Other banks pull similar credit lines; more homeowner defaults may follow
SAN FRANCISCO (MarketWatch) -- Wachovia Corp. said on Monday that it's limiting homeowners' ability to tap home equity lines of credit that they haven't used yet as the giant bank tries to cut its exposure to the broadening housing crisis.
Other mortgage lenders, including Washington Mutual (WM), Countrywide Financial (CFC) and Indymac Bancorp (IMB), have also been cutting home equity lines aggressively, Fred Cannon, an analyst at Keefe, Bruyette & Woods, wrote in a note to investors on Monday.
Bank of America (BAC), Suntrust Banks (STI) and some other smaller lenders are also starting to cut these credit lines, Cannon added.
Banks are taking such action to reduce potential losses from the housing bust. But Cannon said that if enough lenders pull home equity lines of credit, it could make industry losses even worse.
"Lenders have presented the reductions in home equity lines of credit as a prudent response to the rising home equity credit costs, declining home prices, and the risks of rising home equity exposure from the drawdown of lines of credit," Cannon wrote.
"While for an individual lender, such actions appear prudent, the consumer response to the reduction of lines can create additional problems for the home equity lenders and for the economy as a whole," he added. "Cutting unused lines will add to, rather than subtract from, credit costs on home equity portfolios."
Wachovia (WB), which reported worse-than-expected quarterly results on Monday, said in a presentation to investors that it's "implementing additional limitations on utilization of undrawn equity lines."
The bank has more than $60 billion of home equity loans and lines of credit. Almost 1.4% of those are at least 30 days delinquent, Wachovia reported on Monday. That's up from 0.78% a year earlier.
$1 trillion for a rainy day
Home equity lines of credit let homeowners borrow extra money, up to a pre-arranged limit. The loans, which can be tapped when needed, are backed by people's homes, so the interest rate on this type of financing is lower than other unsecured sources such as credit cards.
During the housing boom earlier this decade, U.S. consumers borrowed against the value of their homes in record numbers. Home equity withdrawals grew at an annual rate of $300 billion to $400 billion. There's now roughly $2.2 trillion of home equity lines, which represents about 20% of all outstanding first mortgage debt, KBW estimated.
About $1 trillion of these home equity lines of credit haven't been used yet, Cannon noted. If a lot of that extra available cash is withdrawn by lenders, the economy could take another hit, the analyst explained.
"The importance of home equity lines as a source of household liquidity is a recent phenomenon and one which can have an outsized impact in the current economic cycle," Cannon wrote.
Home equity lines of credit were traditionally used for major home improvements and other big-ticket items. But as the housing market boomed and U.S. consumers saved less, these products evolved into cash-management and liquidity tools, Cannon explained in an interview.
"A lot of Americans don't have much savings but they have these home equity lines," he said. "These may have been used instead of a rainy day fund."
More consumer defaults
But now, throughout the U.S. , homeowners who may have borrowed $10,000 or $20,000 on a $100,000 or $200,000 home equity line of credit are being told by their banks that their lines have been cut to $15,000 or $25,000, Cannon explained.
Some of these homeowners may be relying on these lines of credit to cover expenses when regular sources of income decline. If this access to extra borrowing is pulled, people may default, or have to turn to more expensive financing like credit cards, Cannon said.
Other homeowners who haven't had their lines of credit cut yet may borrow the maximum amount quickly before it disappears, he added.
"It is likely that many of the most vulnerable borrowers are likely to take this action, potentially creating 'bad growth' in home equity portfolios," Cannon wrote.
WaMu question
Washington Mutual is the most exposed to home equity lines of credit. The company had almost $50 billion of such loans outstanding at the end of 2007, plus another $59 billion that hadn't been used yet by customers, KBW said, citing regulatory data and SNL Financial.
That represented more than 800% of WaMu's tangible common equity and was probably one of the reasons the lender had to raise $7 billion in new capital from private-equity firms last week, Cannon said.
WaMu reports quarterly results on Tuesday and the KBW analyst said he plans to ask the lender how much it's been reducing undrawn home equity lines of credit.
Other lenders exposed
National City, Bank of America and Wells Fargo are also among the most exposed to these problems, KBW said on Monday.
National City (NCC) had more than $36 billion of drawn and untapped home equity lines of credit at the end of last year, representing almost 480% of its tangible common equity, KBW data show.
Bank of America had more than $95 billion of outstanding and $120 billion of undrawn home equity lines of credit at the end of 2007, or 362% of the bank's tangible common equity, KBW reported.
Wells Fargo (WFC) had over $100 billion of undrawn and outstanding home equity lines of credit, or 369% of tangible common equity.
Wachovia had less than $27 billion of outstanding home equity lines of credit at the end of 2007, but a lot more potential exposure through almost $69 billion of undrawn lines, KBW data show. In total that represented 325% of its tangible common equity.
Capital requirements
Because banks can pull undrawn home equity lines of credit relatively easily, regulators don't require lenders to set aside much capital to back such exposures, Cannon said on Monday.
"So it's interesting to see them being so active in reducing these lines," he added. "It could be driven by concerns about their own liquidity or future credit losses or regulatory pressure that has to do with safety or soundness."
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