A front page article in the Sunday edition of the San Francisco Chronicle titled "Lenders Retreat as Market Plummets" (Sam Zukerman-staff writer April 6, 2008) may frighten some people into cashing their home equity line checks fast.
The article states that many banks such as Bank of America, Country Wide Financial and Washington Mutual are freezing homeowner's equity lines in fear of losing more money to foreclosures. Let's hope Wells Fargo continues to believe in the Bay Area like Bank of America used to.
This could spell a downward spiral as lenders cut back on honoring equity lines that might just be the thing which could keep some folks from losing their homes. The opportunity to tap into existing equity to forestall a foreclosure, even just pay the bills may be just the shot in the arm credit worthy people might need yet now many banks appear poised to pull the plug.
Of course bank don't want people spending their equity line of credit like they used to-especially if home values in their area have dropped significantly; but cutting them off may just send many more of their customers to the front of the foreclosure line.
IF WE AREN'T ALREADY IN A RECESSION, WE COULD BE SOON
This could spell more doom and gloom in the economy as less available cash for spending-or simply knowing that emergency cash flow could be cut, will likely be the nail in the coffin for economic growth this year.
It's a calculated risk on the part of the banks-at least we hope they have calculated it. They don't want to throw good money after bad but by freezing equity lines when people need them most they could mean they end up taking back more property than if they left these loans in place.
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If there is any line left on your LOC and you're in a downward market, you may want to consider taking out the money now, before the bank cuts you off. I wrote a blog today about keeping your home equirty at work. http://activerain.com/blogsview/453734/Why-You-May-Want
Honestly they should freeze HELOCs only because most are in over their head to begin with so if they cant help themselves the home owners that is then someone has to step in. But I think we are in the beginning phases of a recession how deep we go is the question.
No, we are not in a recession!!!! The market is turning!!! Buyers are writing offers!!!!!!! They are always multiple offers on REOs in good areas!!! IT IS TIME TO BUY!!!
Sure hope this doesn't happen. It will be more doom and gloom for sure.
AAAAHHHHHHH!! THE SKY IS FALLING!!!! THE SKY IS FALLING!!
NOT!!
Try this piece of advice my dad gave me when I was 10...it has served me well thus far. He said: "Believe none of what you hear (or in this case read) and only half of what you see and you will do well..."
Perhaps too in this case, consider the source....
I agree with Kathy Low! We are selling homes to investors and today I have one client that I spoke with tell me that he is looking to pick up 4-6 homes. I have another client that is talking about 8-10 homes. We had a Fly & Buy this weekend and sold tons of homes. The buyers are back. They want great deals on properties and they are getting them!! I know several Realtors who are out there buying up homes now as well.
Kathy, Shannon--I'm not saying the sky is falling I'm just stating the facts that it's getting cloudy overhead. We might already be in a recession and if not we may be headed there--we're certainly close at no growth.
But I lived through a lot of recessions and most are so small you don't even know you had one until it's over with-like the earthquakes we deal with here in California. Everyone in the country thinks we're nuts to like here but truth be told there are earthquakes everyday and most we never feel.
My point is the banks may be exacerbating the problems they have by cutting off people's equity lines. They'll protect some of their interests, but may do more harm to their clients and themselves in the meantime,
I'm already noticing more buyers taking advantage of the market conditions. My high-end savvy clients with a background rooted in smart business decisions are snapping up property and plan on getting more this year. They aren't waiting until an "all clear" sign goes up in the media.
Drew
Good post. I do feel like there are different opinions on the economic outlook, and time will tell the true story. Lenders continue to go back to traditional underwriting, which makes strong borrowers a target for great rates.
Lack of liquidity (e.g. not being able to convert your equity into cash) is certainly a very scary prospect. Personally, I am not looking forward to it at all. It is very unsettling that at certain points we might have to rethink the way we invest and save. So, let's look at the positives! we have higher conforming loan limit and summer is coming. We should see some improvement, at least for a few months!
Colton, thank you for the invitation to the Peninsula group.
I hope lots of homeowners see your post - as a mortgage broker I have had several clients call me in the last few months asking me to help them get a new loan because their equity line has been frozen. I think many people see their equity line as their safety net, but more and mor lenders are taking it away.
Despite the "Official Statistics" released, I believe we are already in a recession and are in line for higher inflation in the future.
Just fill up your gas tank or buy groceries - that'll tell you what's really happening!