The Bank and Your Home Equity Line of Credit. Trouble ahead?

This past weekend when I discovered Steemit through following @dollarvigilante, I decided to post a story and had some success. My first thought, like most others, was is this real money I’m earning or just a crypto coin worth pennies on the dollar? Turns out it is real and this site is for real and the dollar figure shown is actual real $$$. That got me thinking about the past and how some things seemed too good to be true. A perfect example was the inflated real estate market of the 2006-2008 timeframe.

What was the feel of the time?
If you worked in the financial industry anytime around 2004 through the first part of 2008, boy was it great! Banks paid ridiculous commissions on anything involving commercial and residential lending. The good times seemed as though they would never stop so why worry about tomorrow? Live like a king today because the party would never end. If you remember the conversations all over mainstream media, except from a select few sound voices like Peter Schiff, was real estate never goes down and is an excellent buy at just about any price if you plan on holding for atleast five years. The five year stipulation was thrown in there just in case. But really, home prices don’t go down. They just don’t. End of story.

Now this wasn’t just a party for the lenders. If you owned property during this period, you saw your home appreciation going higher by the day. Your silly neighbors were selling for more than their asking price but yet we all knew prices were going higher. Why sell your home in this market? If anything you should be buying more homes. In fact “the smart folks” were refinancing with cash out or better yet, doing a quick home equity line of credit, HELOC, and using those proceeds to purchase another home they can rent out. Then, wait six months and see the price go higher and sell or take cash out and continue building your empire. You can’t lose, right?

What happened?
We all know the end of this story. Property crashed like there was no tomorrow and people ended up owning homes they had no business owning. The cashing out, riding the never ending wave and building your real estate holdings to mimic a mini-Trump had ended.

During this housing bubble millions of consumers placed HELOC’s on their homes as a way to leverage more home buying or lifestyle upgrades. Near the end of 2007, banks starting to realise this party was coming to an end. HELOC’s were slowly starting to be cut off. One night you go to sleep having a $90,000 cushion at your disposal only to wake up the next morning and it’s gone or greatly reduced. The real estate market value of your home stated you had this equity available, but yet the banks started to freeze all access never to give it back. Within six months most HELOC’s were completely frozen or the available equity was reduced to near nothing. You then go to your bank only to be told you can always reapply for an increase they just took from you. This was silly because they almost never re-upped that line again.

You can look at the bank actions as either noble “Haha” or crooked. Either way they wanted to protect themselves from a loss that hasn’t been realized yet or they snuck in your contract the right to close/block or freeze your HELOC at any time without notice or cause. I guess they can say they wanted to protect the consumer from owing more than the property was worth. Is that noble? I don’t know. Maybe noble shouldn’t be put in the same sentence with the word bank in it.

What’s happening?
The financial institutions are still running strong and pumping out more and more HELOC’s.

http://www.wsj.com/articles/banks-ramp-up-push-for-home-equity-lines-1458984782

To their defense they have been more selective in who is getting approved. But that’s how this rodeo always starts. The good credit with the low LTV, loan to value, are targeted first. Well we have past that phase. Now the standards have been lowered yet again to fuel the never ending need for banks to lend. Before you know it your unemployed brother-in-law will be bragging about his new HELOC.

What troubles me?
If you are a libertarian, anarchist or someone with atleast partial awareness of the economy then you probably feel we are entering deep trouble. A full on bubble that’s about to pop. A stock market bubble, credit card bubble, student loan bubble, real estate bubble etc.... This concerns me dearly.

If you experienced 2008 working in the financial industry, you were exposed to a lot of folks who had their HELOC turned off without notice. I couldn’t count how many conversations I had around this subject with people who needed this HELOC money for whatever their reason. Many were starting projects that were partially completed when funds were cut off leaving them high and dry. Many would lose thousands of dollars with no access to other capital to pull from.

The banks pushed themselves and many uninformed naive customers to the brink of collapse or further. With many casualties on both sides The point I want to get across here is that it’s time to put the power back in your hands as much as possible. Yes I know moving away from all banks is ideal, but for the purposes of those with HELOC’s you are going to want to be alert.

If you or a loved one has an open HELOC with available equity, please consider the times we are in. At the peak of the 2008 crisis is when banks started freezing the HELOC’s and left people in the cold. It feels as though we are at or close to that stage again. If you have an equity line you need to make a choice on how badly you need access to those funds. If you need them and your gut is telling you we are peaking and the bubble is about to pop then pull your equity out before they take it away. The other drawback of pulling out your equity is you will be making interest payments on money you're currently not using. If you are taking your equity out and we have another 2008 scenario you will probably go underwater on your home.

But in the end it’s better being your choice and not the banks.

Thanks for reading.