Equity Line of Credit: Seek Other Financial Shelter

“As long as the music is playing, you’ve got to get up and dance.” – Charles O. Prince, III, former CEO of Citigroup

Earlier this year, the HELOC on our Newport Beach home was reduced to practically nothing and the line on one of my rental properties was suspended completely. Both notices came as a result of the decline in home values.

I could argue that our house in Newport still has equity – covering at least, if not more, than the original amount of the equity line. In order to reinstate it, we would need to hire Citibank’s exclusive appraiser (LSI) at our cost – which back then was quoted at $750. But even if I went through this whole process, Citibank could rescind the reinstated credit line at any time according to the terms of the agreement since property values continue to decline.

After I wrote those posts, the blogosphere quickly took me to school about other people’s money. While I never used these lines of credit, I considered them part of my “peace of mind” strategy. That said, it’s nearly a year later and despite the warnings, I’m still here, paying my mortgage in Newport and on my rental properties.

So when the latest “your line of credit has been suspended” letter arrived the other day, I half glanced at it - out of curiosity - and to understand the current reasons. This HELOC (for $21,000 – and never used) was on a single family home I purchased in 2002 for $136,000. Recent / comparable sales in the neighborhood are in the $180,000 to $200,000 range. I owe $101,000 on the property – I have equity. But that’s not the problem.
This time they’re placing the blame – not on declining property values – but on Lehman Brother’s:
Dear Customer,

GreenPoint Mortgage Funding, Inc. services your home equity line of credit, which was sold to Lehman Brothers, Inc. some time ago. As the servicer, GreenPoint is responsible for temporarily advancing draws against your line of credit.

Lehman Brothers’ recent bankruptcy has created a situation where GreenPoint is not being reimbursed for those draws, making it imprudent for GreenPoint to continue advancing the funds. As a result, your line of credit has been suspended.

We appreciate how well you have managed your account, and we sincerely apologize for this inconvenience.
The reckless days of lending are finally over although the letter ended with this provision:
We may still allow line advances in cases of extreme financial hardship. If you believe you qualify, or it you have any question, please contact us at…
I’m sure GreenPoint will be getting a lot of calls this week. Of course, not from me. My peace of mind is banked in other places these days. What about you? Feel free to comment over at Queercents.

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