Shrinking Line of Credit
 

Just received a letter from Citibank reducing my line of credit from 450K to 250K.
This is from the depreciation of my house.
Here are the numbers, house was worth 1.3M now maybe 1.1M
First TD is 160K, I have 110K owed on the LOC. even at the new value I am still at 25% loan to value. My FICO is around 780, WTF !!!
Its not like I am going to use the 340K credit, but it kinda pisses me off.
It was like a security blanket, boy are these lenders getting tough, understandably so.

My house is worth nowhere near that much, but I had my signature loan availability cut in half by Wamu a few months ago. My house equity is twice what the loan was for originally, and my FICO is over 780. I think they're just running scared.

Same thing, WaMu in San Juan, cut us to the quick, we havn't used it for a couple years so I thought that was why. Now I know it's happening to more people.

I guess it's a matter of use it or lose it. :D

I told my wife that.

I don't think so. I had one with Wamu for a few years on this house, then cancelled it and then got this one as my equity and house value went up just a year ago. I didn't have a need for it, but it was a lower rate for more loan. So I don't think I had this newer loan long enough for it to be an issue.

The letter they included for the lower loan amount stated it was due to my home value declining. That's BS, 80% of my current value is still significantly more than my principle and the signature loan amount.

Consider yourselves lucky. 2 people that I know had their LOC cut 3-4 months ago.

I have a buddy who is into his LOC for 80 grand. So far, he has been making interest only payments. I think this is a good part of the reason that credit is being cut back.

The days of a house being a "piggy bank" appear to be coming to an end.

Maybe I'm in another world, but why are you worried about a LOC that is money you dont have to buy things you dont need. I've always thought that a LOC is for emergincies. The old way was to SAVE for things you want. Thats what is wrong with this society. My house is worth so much, say 190k, and if I sell it I hope to get 190k. If I want a new roof on the house, I save up for it and pay for it. What did you use the "extra" money for? If you used it, you owe it, plain and simple. I'm not trying to be harsh here, but correct me if I am missing the point.

It has the potential to hurt your credit score when it drops by large amounts . . . like closing out a credit card you're not using. It's better to have the money shown as available to raise your NW by that much in the eyes of the credit agencies.

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Well said.

However, with respect to CDC/
OC real estate. this is a new phenomena, and it takes a little getting used to.

This is a great point. I used my line of credit to improve my income producing properties.
I did not buy an Escalade, I did not buy "toys" I did not buy my wife jewelry, I did not remodel the kitchen, I did not take extavagant vacations, I did not buy a bigger house (same house 18 years) I did not impress my neighbors w new Acura's, BMW's, Hummers, Denali's, Suburbans, Leased Mercedes, you get my point.
I live below my means plain and simple. I know I know your saying "but life is short?"
Nothing worse than being old and broke. My inlaws are a perfect example.
I drive a 1984 car, and my wife, a 1991. They never break, knock on wood.
I cant even imagine a car payment, never

Oh yeah I forgot to mention the douche bags that drive Range Rovers, thats a whole new thread:p

I agree, but I don't see any cost to having it there and ready. I've only used it once and I paid it back in few months.

I have contemplated using it to buy a car though since the interest would be deductible unlike a car loan.

Lines are being pulled everywhere. Be happy it wasn't completely pulled, as I have seen that happen too.

Who really cares? A house is a house - not an ATM.

It's high time we as Americans started realizing this and living accordingly. This is long overdue, IMHO.

The biggest problem as I see it is that the banks/lenders aren't going to write any new mortgages for a long, long time, which will only penalize the people who were restrained enough to not participate in the recent housing market bubble stupidity and/or too young to do so at the time. The "American Dream" as it refers to people owning their own home will absolutely and positively be off the table for an entire generation of Americans because lenders are too stingy and prices are too high. I honestly believe this is the likely outcome long-term. Nothing less.

I still have no plans of using my signature loan, but I was surprised by the latest statement: the interest rate is 3.65%. I guess they really want me to spend!

I'm guessing that some banks are simply reducing their line of credit exposure to take pressure off the bottom half of the balance sheet. It is simple enough to look at a generic reduction in property value metric and the computer spits out a list of lower LOC's which helps to reduce the bank's overall loan exposure. Since banks have minimum capital requirements for outstanding liabilities or potential liabilities and they are being forced to write down loans daily, this is just one of the levers they can pull. So I wouldn't take it personally.

As for the purpose of LOC's, you are right that far too many people used them as an ATM. However, it is frankly handy to have an LOC available when you want a chunk of cash without the time pressure to selling stock at the wrong time or other longer-term investments. For example, you might have a CD coming due in a month, but have an opportunity that needs cash today. Or for any cash flow management need. Cash flow management is an appropriate use of an LOC and is how businesses and households are efficiently run.

My LOC was suspended about a year and half ago, I have about a 750 FICO and have never been late on anything related to a mortgage or car payment and not on anything else in a good 10-15 yrs. It's strictly a valuation thing, not an insult or due to your credit worthiness.

Go back to 2005, I had no mortgage and the only "debt" I had was my $600 a month Audi lease.


Fast forward to 2007, my business was doing poorly, revenue was about 25% what it was the year before, it was like someone threw a switch. I had no way to anticipate this..... well, I know it was coming I hoped it would be a year or two later.


while this was going on, we, for the first time, were carrying a balance on out AMEX card, normally, we would pay it off every month, whether the balance was 2K or 10K it was paid off every month.

Now we were carrying a balance, our saving grace was our vacation home, we had it up for sale and we stood to make 70K off of it....... the market crashed hard, we got lucky and sold for 40K more than we paid.

While this was going on we paid all we could to AMEX, they saw us carrying a balance and encouraged us to carry more, they increased out credit limit from 20K to 30K to 40K to 55K.......

We parked all our debt on the AMEX acct. . to the tune of 45K.. hell they offered us it.. why not use it?????? Then the house sold, we pad off the AMEX account. Keep in mind we were NEVER late with a payment and paid anywhere from 2K to 15K a month on it depending on the month.

What did AMEX do once the card was paid off, the card that THEY increased the limit on encouraging us to up the balance on???? They dropped the limit from 55K to 2K!!!!

Why???? Because they said we have too much debt.... I have no credit debt, I have no car loans (the Audi is GONE thank god that POS is gone) I have no debt at all except for a mortgage payment and a balance in my saving exceeding six figures.

Yet, AMEX feels I have too much "phantom" debt and cut my credit line to nothing.

To be honest its not a big deal to us, we are in panic mode over the economy and we onyl pay cash for whatever we buy now, we do not go out to eat anymore, we do not spend money anymore, we only save save save for when the bad times come, we are about 1 year away from bad times..... get ready.



In 3-6 months all the credit card companies will be crying that they are hurting, IMHO they brought this on themselves. Good riddance!!



There goes my Friday post.

Have a nice weekend fellas.

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

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.

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)

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.

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.

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.