Comments on: Is Bank of America Behind the HELOC Risk Curve?

By: mag

mag — Thu, 07 Aug 2008 17:16:13 +0000

I’ve heard from a real estate appraiser here that she is doing appraisals for BK attorney’s now and that they are petitioning the BK court to discharge the HELOCs due to them not being secured by the house anymore since a drastic drop in value which is why they order an appraisal to prove it. Anyone else heard of this?

By: Stu

Stu — Sat, 02 Aug 2008 18:05:45 +0000

G Cox, I thought if the Heloc (80/20) was used for the primary purchase then it was not a recourse loan. Only if a Heloc is taken out after the mortgage does it fall under the same rules as say CC debt and is fully recourse. At least that is the way I understood it to be, but I may be incorrect on that.

By: G Cox

G Cox — Sat, 02 Aug 2008 08:09:24 +0000

Stu
‘but in essence is free to the underwater home-owner filing bankruptcy’

I think you miss the point. People who walk are not planning on bankruptcy. They are just taking advantage of the stupid rule (in the sense that it engenders world financial instability due to over borrowing) in many states that mortgages are non -recourse and all walkers suffer is a temporary bad credit rating (and can even mitigate that if they buy a new house with
mortgae before they walk, so stupid are the banks).

So probably walkers cannot avoid their Heloc debts as they are recourse, unless they are happy with bankrupcy.

Advice to max your Heloc is only wise if you are desperate for money (and only moral, ie worthy for Mr Mortgage to recommend, if you are not facing / planning bankruptcy) .

By: Stu

Stu — Fri, 01 Aug 2008 23:25:23 +0000

Well said fedwatcher!!!

By: fedwatcher

fedwatcher — Fri, 01 Aug 2008 20:21:22 +0000

There are many people who have no liens on their homes and should be given HELOCs.
There are many people with little or no equity in their homes and should not be given HELOCs.

The problem is that back in the 1990′s, the banks laid off most of their loan officers who could make the call and now just push paper.

They are all still dancing but lack the skills to avoid the ‘holes’ in the floor.

By: Just A. Thought

Just A. Thought — Fri, 01 Aug 2008 19:33:37 +0000

My overall conclusion is that the FDIC insurance fund (DIF) will soon be exhausted, and the FDIC will have to borrow from the Treasury to cover insured losses. This will lead to over-issuing of Treasury debt, which will cause Treasury bond prices to drop and interest rates to rise. The last bubble to burst will be the “safe” Treasury bonds, because that is the final back-stop to this entire financial system house of cards.

Final backstops always finally fail.

By: evil-A

evil-A — Fri, 01 Aug 2008 19:05:29 +0000

Yes Alex, and addition OD you cancel the card (obviously after being paid off) in written form and make sure that it is clear that it is your choice not that of the bank – why pay anything to a company that will not work with you, but that’s me

Although I do disagree a bit on the fico score thing, while I realize you can be in college and have a high credit score which means nothing, you do (I am pretty sure) get credit for paying off debt (on time), and yes if you have no debt you never develop a score, or how often you use and pay off debt. There are tons of factors, and many that make no sense, My dad’s wife actually worked with fair issac way back in helping to develop this system, (albeit very flawed!!!)

By: Alex

Alex — Fri, 01 Aug 2008 19:04:29 +0000

od – no, it goes down, because your balance ratio goes up. If you have $5,000 balance across all cards, with a max limit of $20,000 on all cards, you have a 25% ratio. If you close a $10,000 card, you now have a 50% ratio, and that will draw down your score pretty heavily. If you carry a higher revolving account balance ratio, you’re considered higher risk.

At least, that’s how I’ve always understood it.

By: od

od — Fri, 01 Aug 2008 18:42:34 +0000

Alex,

It’s a myth that your score goes down after canceling a card.
It only goes down if you close the card with outstanding debt.

By: Tobby

Tobby — Fri, 01 Aug 2008 18:41:18 +0000

We should be clear on the risk profiles of HELOC borrowers. MortgageMan your friend who put the 20% down is statistically, even in the past two years, a good borrow risk. He is in somewhat of a dangerous position in that his HELOC is with recourse much like a credit card.

Those that used 80/20s (a HELOC behind an 80% LTV first mortgage) to ORIGINALLY purchase a house are a substantially higher credit risk of several orders of magnitude. That HELOC used to purchase is without recourse, and borrowers that never put money down are much much more likely to default and walk away.

Unfortunately, a significant number of HELOCS were used for purcase, especially in the bubble states, which does not bode well for banks doing business there.