Watch out. The home mortgage crisis may be about to belt you in the face and you may not even be aware the blow is coming.
A truly frightening article in the New York Times about the “shrinking lines of credit” and what it may mean for homeowners–and we are not talking about homeowners facing foreclosure,either.
What we are talking about are home equity lines of credit, often used to finance a whole range of things from vacations, to medical care, to new furnishings.
Simply put, such lines of credit are being abruptly taken away or greatly reduced, says the article.
Washington Mutual and others drop the ax
The troubled Washington Mutual, according to the article, has reduced or suspended “about $6 billion of available credit under existing home equity lines.” Other lenders are doing the same.
A main reason for having your credit line reduced or even suspended is a decrease in the value of your home.
“We will increase, decrease or suspend lines based on a number of factors, including a customer’s entire relationship with WaMu, their payment status and history, changes to their creditworthiness, and changes in the value of their property…We believe this is part of being a responsible lender,” says WaMu spokeswoman Sara Gaugl, as quoted by the Times.
A big problem is that most lending institutions apparently do not make public the guidlines they use to make their cutting decisions, so it may not be so easy to find out if you are about to have your own credit line severed.
The 20 percent solution?
According to the Times, as long as borrowers have in excess of 20 percent equity in their homes, they should qualify for credit. That benchmark sort of went away when real estate prices were skyrocketing, but now it is back in a big way!
And, there is one more thing to worry about—sorry.
According to the article, if you had, say, a $25,000 credit line, and you have already used $10,000 of it—-if the lender reduces your credit limit, credit reporting agencies are likely to lower your all important credit score making the argument that now you are over-stretched.
Heads you loose; tails you loose.Home Equity Credit Lines Cut. How You Get Screwed Two Different Ways by Charles Feldman