Back To Common Sense

It seemed for a while during the Great Housing Bubble that everyone had lost any common sense. Housing price would continue to rise no matter what. Everyone seemed to believe this - even those who should have known better. Lenders were giving out home equity loans to upto 120% of the value of property. Having no equity would not impede getting a home equity line of credit. But common sense returned and not everyone is happy about that. In this article from Newsday called LI homeowners find home equity lines cut by lenders people are coming to terms with common banking sense returning. Here are a few choice graphs -

Banks and other lenders, wary after the subprime collapse, have been suspending equity lines of credit in part because communities have seen significant declines in home prices and homeowners' debts have exceeded their homes' property values.

...
"Please understand that this suspension of your account was not based on your payment record," Citibank wrote to one Amity Harbor resident. "Citibank wants to help protect you from borrowing beyond the value of your house."

In a statement, Citibank said, "These are standard industry practices and are consistent with safe and sound banking practices."

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But during the hot real estate market some lenders overextended on such credit, mortgage bankers and brokers said. When borrowers didn't qualify for bigger mortgages, lenders used the credit lines as second mortgages. Some lenders set the credit limit equal to the home's equity.

Safe and sound banking practices were seldom found during the great bubble. Common sense was a thing of the past - house values always rise. But reality and common sense have come back with a vengeance. Unfortunately some of the innocent people are getting hurt and many who should have known better will not pay any price.