Two months ago we let you know to be prepared. Others are now learning the harder way.
[Brent Meyers] owns a substantial investment portfolio and a million-dollar house in Moraga. He pays his bills on time and has no credit card debt. His credit score, he says, is around 800, a rating more or less in the stratosphere. But in mid-March, Bank of America cut off his home equity credit line of a little more than $180,000, citing a decline in the value of his property.
∙ When Hell HELOCs Freeze Over… [SocketSite]
∙ Lenders retreat as housing market plummets [SFGate]
I can’t figure out why someone who has a “substantial investment portfolio” wouldn’t just pay cash for the upgrades. I also love the way he blames BofA for taking away “his” money. He sounds like a major league DB.
I can’t figure out why someone who has a “substantial investment portfolio” wouldn’t just pay cash for the upgrades.
He’s making more money on his investments than he pays on the interest on the loan? Seems pretty simple to understand to me.
Maybe he should consider moving his portfolio to Banc of America Securities Personal Wealth. I’m sure if he’s as solid as he says/thinks then they’d be more willing to extend him equity since they’d have his money elsewhere.
“I can’t figure out why someone who has a “substantial investment portfolio” wouldn’t just pay cash for the upgrades. I also love the way he blames BofA for taking away “his” money. He sounds like a major league DB.”
No, he sounds like he understands the rule of finance and is getting penalized unfairly. Why would anyone pay cash when they can use a HELOC? There is a significant tax advantage to using a home equity line and it doesn’t tie up your cash. Would you pay for your house with all cash?
He’s making more money on his investments than he pays on the interest on the loan?
Could be, but someone who has decided to save on airfare by driving to his next vacation because his HELOC was frozen sounds like someone who is overstretched to me.
I don’t believe the point is that this person is “rich” or not hurting, but rather the line of credit being taken away and on an excellent risk.
The fact that they are cutting back in expenses is the smart thing to do, specially since they have to save back up for the money that they are spending on the project.
If they have the money to pay for the project in cash, they are not that overextended, how many can say they can cough up $75K for landscaping.
Could be, but someone who has decided to save on airfare by driving to his next vacation because his HELOC was frozen sounds like someone who is overstretched to me.
that’s what I thought (and posted) a few threads back.
that said, he was able to fork out $75k in cash, so it’s not like he’s destitute or anything…
it just goes along with what I’ve seen in the Bay Area. People seem very overexposed to housing.
I read the article. It’s hard to feel sorry for him.
I don’t think the point is to feel sorry for Mr. Meyers. I think the point is that while banks entended too much credit during the boom time, they are now conservative to the point that they are not extending credit even where the borrow is (apparently) a good risk. This guy sounds like he has decent cash flow, and is willing to borrow now (and pay later) to have a renovated master bedroom. And that’s fine if he can swing it. But since the bank reduced his line of credit, the bedroom isn’t getting renovated and the crew of guys that would have been employed on the job are out of work. And that crew of guys now doesn’t have the money to spend, and so on, and so forth throughout the economy.
Oh, the humanity!! This is precisely why we need a national housing bailout! How can our fellow Americans and the fatcats in DC expect us poor Bay Areans to go without new BMWs every 2 years, or $75K landscaping jobs? How can anyone turn a blind eye to such suffering? Sure, I guess it could be worse. Have you seen how bad things are in LA? People are foregoing botox and plastic surgery treatments because of the housing slump:
http://www.latimes.com/features/health/la-na-plastic5apr05,1,110612.story
Dark days indeed. If things get any worse, Californians may actually have to spend less than they make, and our inflated sense of entitlement may suffer as a result. Heaven forfend.
Driving to vacation instead of flying, huh? People who truly struggle don’t vacation. This guy is fine. That BofA suggestion by j at 9:25 would probably work too.
Fluj
I don’t think many people feel that he is super struggling… the story just brings up a few points
1) “equity” is not yours unless you sell
2) you can borrow against your equity only if the lender’s valuation of the property allows this (this guys home is valued by the bank at $400k less than just 2 years ago)
3) even people with high credit scores and income/wealth are being affected by the credit world.
4) there are downstream effects to this as well (e.g. the landscapers who get jobs cancelled due to no HELOC money)
I wouldn’t say he is struggling, but I would question if he is over-extended. (no way to really know as we don’t see his finances)
It’s simply odd to hear about people in million dollar homes who don’t feel that they can afford to fly somewhere for vacation.
it reminds me of people who live in huge McMansions but have no furniture. they’re not struggling, just overextended.
Nothing makes this a “million dollar house” other than the fact he paid 1.475MM for it a couple years ago, and that he still owes more than a million.
If the bank says it’s not worth a million, and there isn’t a buyer lined up next week to buy for a million, there is nothing but emotions and his debt telling us it’s worth a million bucks.
Banks hate small 2nds behind big 1sts…and those I’ve worked for (portfolio lenders) never permitted them even in the good times. BofA is getting back to basics and it doesn’t surprise me much.
I will look for Brent thumbing it to Yosemite this summer, and pull my Yugo over for him and the family.
I think this is a basic LTV (loan to value) equation – assuming the first loan is a roughly a million plus the $180K line equates to 80% LTV on the initial purchase price of $1.475 million. If the value has dropped by a penny, then this would be more than 80% LTV on a huge non-conforming loan. If the value has really dropped to $1.09 million, then that would be 108% LTV. I think banks are once again realizing that the LTV factor plays a huge role in whether a loan is going to perform or not – way more so than the FICO score.
A zaba to zillow search shows Meyers also has a condo/townhouse in Moraga currently on “make me move” status at $850K. It sold Aug. ’05 for $765K. Could this be a factor in the bank’s action?
Could simply be that BofA is using Contra Costa county-wide data which would be very disadvantageous, inaccurate, and unfair to their customer. The Lamorinda market has remained stable with still some sales in contract over asking within a few days of list.
Here is recent info from Trulia that specifically shows Moraga’s median flat March 07 to 08: http://info.trulia.com/index.php?s=43&item=30
If it’s so unfair to the customer, he should then find a more generous (i.e., stupider) bank… Or perhaps AnonN would like to loan him money, since this is such a dumb, unfair move by the bank.
The bank is being smart. HELOCs are getting killed in the market right now. Even people who are paying on their firsts and seconds are defaulting on their HELOCs – and there’s nothing the bank can do about it, since they won’t get the money back in a foreclosure action.