The action leaves some homeowners — in New Jersey and elsewhere — with less borrowing power than they thought.
Many lenders in recent years let homeowners borrow against 100 percent or more of the value of their homes. But as home prices have slipped, lenders tightened policies, generally allowing loan-to-value ratios — including first and second mortgages — of only 85 percent or less of the updated market value.
Offering more a loan to value ratio of more than 100% was never a sound lending practice. Taking into account a 6% realtor fee and possible foreclosure costs any lending over 90% LTV is very risky. But a lot of things during the Great Housing Bubble was not rational. So how are things looking in New Jersey.
Bank of America lowered its loan-to-value ratio in New Jersey to 85 percent this year, said David Bradley, a company spokesman. The previous limit was “somewhat higher,” said Bradley, who declined to be more specific.
... Countrywide, which is under contract to be sold to Bank of America, said in an e-mail that about 122,000 customers nationwide were affected by its decision to suspend access to some existing home equity lines of credit.
... Chase dropped the limit on its loan-to-value ratio for new loans this year to 80 percent from 100 percent in all but two New Jersey counties, Kelly said. The limit was dropped to 85 percent in Atlantic and Cape May counties where the real estate market is comparatively strong.
... Wachovia has not cut limits on existing equity lines but it has tightened underwriting criteria for new lines, said spokeswoman Fran Durst. Changes include “requiring income verification in some cases and increasing [credit] scores,’’ she said.
Executives at Valley National Bank and Kearny Federal Savings Bank say they have made no recent changes to their home-equity lending standards because they didn’t make high-loan-to-value loans in the first place.
Gerald Lipkin, CEO of Wayne-based Valley National, said, “We would never advance more than 75 or 80 percent, including the first mortgage.’’ Lipkin told investors in a recent conference that Valley has a home equity portfolio of more than 14,500 loans and at the end of the first quarter only 16 of them had payments that were late more than 30 days.
Bank after bank is tightening their standards. There were sound lenders like Valley National that never bought into the risky loan business - 75-80% is a very conservative lending practice. With the low number of 30 day late payments it sounds like the prudent decision making worked.
And let's just remember why people need their equity lines -
While there may be some compassion for those using it for college tuition - something that should pay back and could affect the next generation. Losing the equity lines that were going to pay for weddings, cars and vacations are not going to gain much sympathy. A government bailout or bank write-off to fund a luxury cruise, a hummer or a sit-down wedding at the West Orange Manor just seems to unsettling. Great if you can afford these things, but complaining that you can't mortgage your house at 110% to be able to live your dream life is just not right.Phyllis Salowe-Kaye, executive director of consumer watchdog and non-profit debt counselor New Jersey Citizen Action, said some New Jersey homeowners are feeling the pinch and have come to her organization to complain.
“There are people looking to use home equity lines, and they find they have no equity in some areas,’’ she said.
Home equity lines are often used for making home repairs or to pay off high-interest credit-card debt. Some homeowners use them to pay for college tuition, weddings, cars or vacations. Borrowers sign over their homes as collateral for the loans, which generally have lower interest rates than credit cards.
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