Yesterday, was the first day that I personally was affected by the so called Credit Crunch and Mortgage Crisis. To my astonishment when I tried to make a $5000 withdraw from my HELOC I was denied. I had not received any notification by mail to that point! If you read more about this Nation wide HELOC Credit Freeze you will discover that many people have had checks bounce because of this. I will go on to explain why my case is extraordinary but I believe that in all cases this is a travesty of justice for the very least reason because they are freezing credit lines 7-10 business days before the homeowner will get ANY notice.
The reason for this action is that the banks are trying to cover their own asses. Make no mistake they don’t give a crap about any of you! JP Morgan Chase alone had 5.1 Billion dollars in losses related to sub prime mortgages in this quarter alone and executives are scrambling to try and prevent further losses. Before you begin to feel bad for these banks please familiarize yourself with the sub prime crisis.
Sub Prime Review (you can skip this if you are very familiar with the sub prime scandal)
Sub Prime loans were predatory loans often pushed on people with aggressive sales tactics and in some cases (Detroit for example) in conjunction with fraudulent home appraisals. As little as several years ago people were falling over themselves to hand out these loans to the American people. In the olden days banks giving out loans were very careful in judging collateral because they were local institutions and the loans were backed with local neighborhood money.
These “sub prime” lenders however never had any intention of keeping your loan. While they were making fistfuls of cash on fees for every loan given out they were also bundling these loans together into equities equivalent to bonds and selling them to the big banks (the ones where you have your HELOC) They assuaged the banks fears and made these investments appealing by getting bond insurance companies to back the investments. Essentially they were sold as a risk free way to make tons of money.
Now you and I know there is no such thing as a free lunch, but apparently investment banking executives were convinced that this was the goose that laid golden eggs and jumped head first into these investments without doing the proper research. Now they are making the American people pay for their own mistakes.
YOUR HELOC IS FROZEN BECAUSE OF THEIR BAD JUDGEMENT!
That’s right they basically gambled money they should have been investing properly and are putting the squeeze on you when they lost their bet.
JP Morgan Chase(NYSE:JPM), Bear Stearns and the Federal Reserve
Now this is particularly offensive in the case of JP Morgan Chase (the nations third largest bank). You may or may not have heard that they recently bought Bear Sterns. Bear Stearns was a company that had invested hugely in these shady equities. And they went bankrupt because of it. Consequently JP Morgan Chase got to buy Bear Stearns for a steal! Not only did they get an excellent price but the American people guaranteed to cover JP Morgan Chase’s losses beyond a certain point. Well the Federal Reserve did. They put billions of tax payer dollars at risk by covering JP Morgan’s ass. So JP Morgan may very well reap huge rewards from their purchase and the tax payer will see none of those rewards even though our money covered JP Morgan’s ass.
Now what thanks do the American people get? A lockdown on our credit.
My Personal Story
6 months ago I went to Chase to obtain a HELOC to take advantage of low interest rates and consolidate student loans. 2 years ago my wife and I bought a house for 410,000 which we put a 120,000 down payment on. The house was appraised at that time to be worth $445000 but because it needed a new septic system they sold it to us for $410,000. Total in debt was just over $300,000. The tax appraisal came in at $415,000 (this determines property tax and is usually lower than the actual value of the home) So when I went into chase I was very surprised when they said that my home was only worth $380,000. It turns out they use an automated system to evaluate house prices called AVM (alternate valuation model). So we convinced them to authorize a drive by appraisal of our property. The drive by came back at $440,000 and they approved us for a $90,000 HELOC. That was less than 6 months ago. Within that 6 months our home was appraised for taxes at $430,000.
So now the squeeze is on chase and an executive decided to have all homes values evaluated again and to have credit lines reduced or frozen if the value was at all lower. Guess how they decided to evaluate the value of homes… That’s right AVM! So when their automeated computer appraisal came back at $394,000 The Froze my HELOC because my home had lost $46,000 in value.
Now this is complete Bullshit for several reasons. If you look at the numbers you will see that based on their automatic systems my home had actually increased in value by $14,000. This conforms with the increase in the Tax Appraisal ($15,000). Unfortunately for me the original AVM was not what was on the books. What was on the books was the appraisal from the actual human being that drove by my house. So they are comparing Apples to Oranges.
My only recourse (or so I am told) is to pay $300-500 to get my home appraised! It does not matter to them that I have never missed a payment. It does not matter to them that I never took out more than $18,000 on the HELOC. It does not matter to them that in the six months I have had the HELOC I have paid it down to $2,000 an average of over $3000 a month in payments! It does not matter to them that a comparative Market analysis CMA shows a mean sale of $456,000 (another indicator that my home value has actually increase $15,000).
I don’t know what it is like trying to get a HELOC now a days but I my first choice will be to finish paying off my Chase HELOC close it. Then close all of my chase credit cards(also never been late on a payment). Finally I think Chase also bought my mortgage I would even consider paying the 400-500 dollars to refinance my mortgage with another company.