Shrinking Line of Credit

[RWebb]

you ran up monthly balances of $10k on a credit card??

[SteveinTO]

This post opened September 10 when Citibank was the largest financial institution on planet earth. As of today, November 21, Citibank, your lender, is virtually valueless. They need your commitment to be gone off the books because they lack the liquidity to make the loan.

Even though you FICO at 750 or whatever, their primary source of repayment is from your source of income, i.e. your job (or your investments if retired). Oh oh, you say you're an ashtray system designer for Ford Motor Company. Bummer.

Your secondary source of repayment is liquidation of collateral, i.e. your house. Oops, dropped in value by 40% (in L.A.) and the bottom is no where in sight. And the 1st T.D. puts your Home Equity lender in a bit of a sticky wicket.

In the end, banks operate on about a 1/2 of 1% net interest margin. There's no upside for lending venture capital, which your loan has become. Banks have to be repaid, the depositors and the Federal regulator's demand it. Your home equity line of credit went from being a highly valued bank asset to a criticized loan commitment in the period of three months, with no effort on your part.

The entire world is de-levering, as will you.

[jorian]

LOC's are sometimes cut back by your lender without cause but sometimes can be reinstated by just asking. Most cuts are made to LOC's that do not revolve. (IE - 0 balance -people not using them)

[turbo6bar]

Originally Posted by SteveinTO

Your home equity line of credit went from being a highly valued bank asset to a criticized loan commitment in the period of three months, with no effort on your part.

Well, dunno about the "no effort on your part." Much of that HELOC cash was used to buy depreciating assets (American SUVs, granite countertops, flip houses in Southwest Florida, plasma screen TVs, Botox injections, etc). Those assets did not enhance one's income potential, and eventually the bill came due, "You mean I have to pay for this stuff???" The Federal Reserve has documented the effect of equity extraction on GDP, and we're seeing segments of the economy that were flush with speculative/play money.

The only unfortunate part is many responsible individuals are being caught up in the downsizing. Thing is, those HELOCs were aligned with unrealistic housing valuations. Now, those lines are being retuned to properly reflect reality. That's life.

[Jims5543]

Originally Posted by RWebb

you ran up monthly balances of $10k on a credit card??

Mind boggling that such a stupid person like me (in your book) can actually run up 10K a month on my AMEX, isn't it?????

That was a slow month back in 2005 there fella, now get back on the porch with the little dogs...


I ran all my business expenses though that card, everything. Have you ever walked into a car dealership and bought a car or truck with your AMEX???

I have and the points I got were awesome, the better feeling was paying off 30K the next month like it was nothing.


I have over 330K in points on my AMEX Starwood preferred guest card, I have enough points to stay for a month in a Westin or 15 days in a 5-6 star hotel in Italy which is my plan for 2010. I never pay to stay in a hotel I am always staying for free and have been for years.


Of course, I have scaled back my spending in these last 2 years as the economy has slowed but during the good times I was working that card over, running everything I could through it, I likey my Starwood points.


As far as an economic slow down, I am ready, sold off the toys, have almost ZERO debt and I am working had to get my small mortgage back to zero. (I had to lend my business money in order to keep it afloat, it is turning a profit again and I hope to pay off the small mortgage in the next year.)

I never got in over my head, I always had an out, and now with the forecast for really bad times, I can get by flipping burgers if I need to.

[nostatic]

Originally Posted by RWebb

you ran up monthly balances of $10k on a credit card??

Mine is $9K this month. A huge chunk of that is business M&S and travel that I'll get reimbursed for. The other couple $K was various stuff, a weekend away and some one-off purchases. Just trying to do my best to help the economy to a soft landing. Only thing that sucks is that I'll have to cover the work part out of pocket until the reimbursement is processed. But I get the airline miles...fair trade.