Thursday, August 21, 2008

Another HELOC Sob Story

Once again we are offered up a story about someone doing work on their home and finding they have their HELOC line reduced. This time the story is brought to us by the San Diego Union-Tribune with a story titled Homeowners left in the lurch. This time the surprised victim (/sarcasm) manages a ReMax office. Maybe when the new comps came in he just did not realize that the prices were substantially lower over the last year. That would ruin the victim status that these stories seem to seek out. The real part of the story is that either he is still drinking way too much of the real estate Koolaid or he is not very bright and is unqualified for his job.

Either way it does not sound to good - but it is sure fun to read. Sounds as bright as the math teacher that had monthly housing payments of $10,000 on the $50,000 salary. Maybe the bubble blogs should start a RE Darwin awards - there is definitely a lot of material out there, just this week we have two good contenders this week. Well, lets get started with the story -

When he took out a $206,000 home-equity line of credit in 2007, Kevin Hall thought he'd secured all the funding he'd ever need for a major remodeling project at his Carlsbad home.

That's why his heart skipped a beat when he went online in February to transfer money from his account. He discovered that his credit line had been slashed to $72,000. Formal notification wouldn't arrive in the mail for several weeks.

“I got sucker-punched on the thing,” said Hall, who manages a ReMax real estate office in La Jolla. “I was at the point in construction where the drywall was going up. I was flabbergasted.”

Deep into his project, which included kitchen remodeling, landscaping and the construction of a granny flat, Hall contacted his lender to find out if there had been a mistake. There hadn't.

Like thousands of borrowers, Hall was a victim of falling real estate values. In Washington Mutual's judgment, the home equity used to secure the credit line had significantly declined. And under the terms of the agreement, the bank had the right to pull the plug.

Once again he is in the real estate field and now decided would be a good time to get into more RE debt. Well since bubbles are for bathtubs and real estate always goes up and now is a good time to buy he probably knew what he was doing. At least there are some intelligent people out there, lets take a look -

Mark Goldman, a real estate finance instructor at San Diego State University, said it makes no sense for banks to notify borrowers before they reduce their line of credit.

“Of course they aren't going to call you up and say we're taking a look at your loan,” he said. “The borrower, upon receiving that notice, would likely draw down the remaining available balance on the home-equity line.”

People really think that any amount quoted during their bubble is their to spend. The advertising used to sell HELOCs seemed to have worked too good. Now everyone is convinced they are brilliant and know the best way to use their own money. Only problem is the money is not there and most of us are really not that smart.


Tom said...

I noticed a few people in foreclosure listed on my site also seem to be in the real estate business.

What seems to happen is the ones spreading the positive spin tell the ones lower down the food chain the same thing they tell their clients. These people were too busy making money to realize what was happening in the market and just did what they were told.

I'm sure there were a few that realized what was going on and didn't take the same bait.

The number of people that went into real estate this past decade means there were also a lot that aren't the sharpest knife in the drawer. It was easy to get in and easy to make money in this type of market.

They based their knowledge on their success, but just as their success was inflated because of the bubble... well... now reality is setting in.

the bruiser said...

Kevin Hall got caught smoking his own dope. "Now is a great time to buy", "Draw down your equity - Its your money", "House prices are falling nationwide, but this market is different - real estate is local". What a tool.

Anonymous said...

In articles like these I don't understand why people go public with this type of info. At least the math teacher from the other story was smart enough not to give out all his info. This guy broadcasts his full name and his work. He works in the very field he on the record basically being clueless about. Not knowing that your HELOC is based on your equity and if your house values declines so does the amount of your equity. The really scary part is that people go to guys like this for advice.