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.
The Washington Post has published a story about families in the D.C. area that are losing these lines of credit, oftentimes with devastating consequence. These mortgage companies are ending these lines of credits suddenly with no warnings:
"A layperson would not recognize the language because it's not that blatant," said Larry Pratt,- chief executive of First Savings Mortgage. "It talks about deterioration of the value of the asset or the value of the collateral. . . . It's not boilerplate language by any means."
And how widespread is this?
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 economy.com.
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.
You know this isn't good news for the economy...
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Tags: countrywide, home equity, mortgage crisis
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