The sourcing is a bit shaky on this one, but maybe someone here has other contacts. If this is true it's pretty huge:

http://portlandhousing.blogspot.com/2007....

Washington Mutual customers are in for an ugly Christmas surprise from their bank. WaMu plans to start reducing existing home equity lines of credit (HELOC) as early as this week without notifying their customers prior to doing so.

Here is an example of how it will go down. If you owe $50,000 on a heloc and WaMu reduces your limit to $40,000 then you have $10,000 due immediately.

Merry Christmas from your soon to be liquidated savings & loan.

From the comments in the blog:

A friend of mine who works for WaMu told me about this new plan which rolls out the 27th of this month, one thing I forgot to mention is this will only effect 3,000 accounts for now. My assumption is this number will grow as we are only 1 year into 3 years of increasing mortgage problems.

Oh and HELOC contracts are written so they can be changed at any time, all lenders reserve this right.

Ruh roh.

If that is true then...WOW!!

well at least Wamu is doing someting sensible...... most of the others just have one plan, hide the truth and get some SWFs to subsidize your losses.

Sounds a bit suspect that they would demand immediate payment of a large amount like that. That would be an immediate way to force losse/defaults for themselves. I would not be surprised if, say you had a 50K line where you had drawn 40K, they would reduce the line to 40K so you couldn't borrow more, however. I guess we'll just have to wait and see.

He who panics first, panics best.

I agree, I think their first step is going to be to trim the unused portion of the line... Still, huge bad news if you were saving that for a rainy day...

My parents have a HELOC through WaMu, and last night I actually told them that I expected WaMu would have to take an action like this soon. It's just a rumor for now, but I bet the first step would just be to cut limits, so people can't take out more instead of making people pay them back.

"Still, huge bad news if you were saving that for a rainy day... "

Sadly, there probably are people out there that think of unused HELOC balances as "savings."

I said months ago this would happen - HELOCs are ALL callable.

All of them.

They will do an asset search and see what you got, then call the ones that they THINK you can liquidate to pay - somehow.

So if you bought a car with the HELOC, they'll for you to sell it. Same with a boat. Same with an RV.

Its trivial for them to do this as most of the "stuff" that people bought with these HELOCs are titled or otherwise discoverable via an asset search.

This is how the try to deleverage and get out of the hole. It won't work, but its what they're going to try.

Who are they going to sell the assets to and they are going to lose money on those assets that they are going to sell at fire sale prices. Collecting, finding buyers and then selling asset is going to be a pain in the butt with huge overhead expenses. Just like CDOs.

So even with sale of assets they collected, it' down the drain. A lose lose situation.

No, they're going to force YOU to sell the assets so you can pay the line down.

Your alternative is that they foreclose and take your house.

And yes, this will suck if you are one of the people who gets nailed with this.

99% of the people out there do not understand that HELOCs are callable without cause (e.g. without you defaulting), entirely at the discretion of the issuing bank, as are nearly all commercial lines of credit.

Hmmmm, lotta tuition payments due in January...

Well HELOC callee will say I cannot find a buyer in this weak market. You better find a buyer for me and do the leg work. If you want to foreclose on my house for 20K HELOC, then that's fine with me. And that's not good for the lender or bank especially in this environment. That's the whole purpose of government bail out for lenders/banks and they are making the bail out worse by making HELOCs callable.

So the bank cannot force this thing down the callee's throat. Yes it would be different when either the housing market or economy is strong or both.

The hell they can't force it down their throat.

You are simply wrong on this account.

The idea that you can "resist" a callable loan with success is just simple bull****. If you attempt it your credit will be destroyed, all your credit cards will reset to default rates, you won't be able to get any more credit anywhere and the spiral towards a bankrupcy will ensue.

You clearly don't understand how this works.

In the last recession this was done to a fairly significant number of small businesses and it bankrupted nearly all of them as banks pulled back in. It hasn't hit HELOCs before because this is the first time that the HELOC collateral has been impaired.

This is beyond amusing that you think you can "resist" such a capital call.

That is just pure horse**** and shows how little you really understand about what documents are signed when you get a HELOC and what the rights and responsibilities of the parties truly are, and who holds the leverage.

The banks will not issue these calls if you don't have assets that can be liquidated; they're not totally stupid. But if you do, they will, and there is NOTHING you can do about it other than sell the assets and cough up the cash.

You guys who think that HELOCs are like 30/fixed purchase mortgages are 100% full of **** - they never have been and are not now.

Calling spent amounts will cause more cascade actions as folks are FORCED to walk away from their houses where otherwise they would hang on, at least for a while. Doesn't make sense that they would call some of the spent $s...but, we will see.

Sushi, it is sad... I know people that add up their available credit and say "WOW! I have $XXX."

I also know people that have them as SHTF insurance and use them as such.


Gen, I know the banks can call the loans, but do you think they really would? Or do you see selective enforcement going on? I.e. Joe WanaBeRich has an RV, a Harley and a fishing boat all paid for and a 200k HELOC... RV, Harley and boat are worth 50k liquidated so lets call 50k of his line...

If that's the case that's HUGE deflation. I know that alot of people MEW'd their way into toys (classic cars, boats, bikes, etc) and I also suspected they would be the first to go. I want a 70 Chevelle convertible as a bookend to my hardtop... Bring on the fire sales...

Margin, most banks have agreements with various auction cos and can sell consumer junk (cars, rvs, bikes, boats, etc) in a jiffy. And they don't necessarily care for how much as long as they get cash...

Quote:

Gen, I know the banks can call the loans, but do you think they really would? Or do you see selective enforcement going on? I.e. Joe WanaBeRich has an RV, a Harley and a fishing boat all paid for and a 200k HELOC... RV, Harley and boat are worth 50k liquidated so lets call 50k of his line...

If that's the case that's HUGE deflation. I know that alot of people MEW'd their way into toys (classic cars, boats, bikes, etc) and I also suspected they would be the first to go. I want a 70 Chevelle convertible as a bookend to my hardtop... Bring on the fire sales...

Cobra, its not about what they necessarily want to do.

It is about Tier Capital requirements and violating them.

If you violate capital requirements (you have too much out for your asset base) you are subject to being SEIZED BY THE FEDS.

If a bank believes it is in danger of this happening THEY WILL CALL BACK IN DRAWN MONEY.

An undrawn-but-available line does not count against their reserves.

Drawn money does.

Reducing undrawn amounts simply stops their position from deteriorating further, but does nothing for CURRENT deterioration.

And yes, they both can AND WILL to prevent themselves from being seized.

As I said I knew a few business folks that got butt****ed by this in the 80s. Their lines got pulled and they were screwed, as they couldn't find a replacement for it and were forced to liquidate machinery and inventory for "whatever we can get" to pay it, effectively putting them out of business.

When a bank does this it is on the verge of being seized by regulators and is literally trying to prevent its own death. They KNOW how bad this is for customer "good will" (what good will after that!) and what impact it will have to their customer base down the road.

They literally have no choice.

Expect this type of action from more than just WAMU as this cash crunch progresses. Shades of the S&L crisis all over again.

As posted before on this topic; I was on the receiving end of this during the S%L debacle. It was a business line of credit with a commercial bank and even though the problem was within the S&L sector....regulatory scrunity causes banks to do funny things when their ass is on the line.

Get ready if you are vunerable...cause its coming.

Quote:

If you violate capital requirements

May be you could be right on callable HELOCs. And I never claimed that I am an expert. I am looking at possible outcomes, the best case and the worse case.

now is it possible for bank or lender to fudge with capital reserve ratios ? They fudge every thing possible on balance sheet including lying to public. So what makes you think they won't do that on this reserve ratio thing. Or is it possible FED will say (in private) Hey we know you are under violation as far as reserve ratio goes and we will give you let say three months to fix it or we will take over. Plus I don't think the banks compute reserve ratios in real time everyday just like margin buying power.

I am trying to figure out for how long this can drag alone since making HELOCs callable seems like the last desparte attempt to stay in line with the capital reserve requirements.

I have wondered for some time when this was going to happen - back when KD first mentioned it.

The very worst situation to be in is to have a house with no mortgage and a HELOC outstanding. The bank will cheerfully force the house sale at whatever the market will pay. They know they will always get more than HELOC back and if the borrower gets shafted - well so be it.

You will be ok if you are underwater on the mortgage since the sale will not pay the HELOC as it is second in line after the mortgage.

Sooo... this is mostly going to hit the frugal and careful near retirees first. Should make for some seriously outraged letters to congress and interesting societal ramifications.

Marginnayan, some of that is already going on. Banks like WaMu have probably been in violation of capital reserve requirements for some time if properly accounted for, and the regulators have to know this. There are lots of indications the regulators are looking the other way on a lot of this hoping the problems will fix themselves.

Its not "making HELOCs callable".

Essentially all HELOCs have always been callable.

The number of people who simply do not read what they are about to sign astounds me.

We never had an operating line of credit at MCSNet that was accessed for anything other than very, very short-term requirements (kinda like a 7 or 14 day "repo"), because I actually read the document I was asked to sign and was well aware that WHEN the tech implosion came the odds of that line being called would be quite high.

If that happens when you've got a big outstanding balance on it because you're floating this or that you're ****ed.

If you're using it to finance "operations" (e.g. like a homeowner buying a boat with a HELOC) you're REALLY ****ed.

The banks don't care how ****ed YOU are when the option is for THEM to be ****ed. You will be ****ee - bet on it.

They will asset-search the HELOC holders so they know who's worth nailing who's not. They're not stupid, and won't hit you if all they're going to do is force you into foreclosure where they take a 100% loss on the HELOC outstanding balance.

But if you've got a boat, motorcycle, car or RV out there that you bought with the HELOC and there's enough assets that they can find for you to be ABLE to pay the call, they'll issue it because it is pretty much the only way they can clean up their balance sheet.

When this sort of **** starts you are talking about banks that are literally underater on dive gear with 50psi left in the tank. They WILL mug you for gas because the alternative is that they drown - even if doing so kills YOU.