Wednesday, April 2, 2008

The Squeeze Part II

We have determined that home values in your area, including your home value, have significantly declined. As a result of this decline, your home's value no longer supports the current credit limit for your home equity line of credit. Therefore, we are suspending your account immediately.... Please understand that this suspension of your account was not based on your payment record. Rather, the change is being made simply because your home value has declined, and Citibank wants to help protect you from borrowing beyond the value of your home.


  1. I yanked my money out before they could close it down.

  2. Which is probably why they closed it. The banks are monitoring equity lines, particularly in troubled zip codes. When you maxed it out, it sent warning bells as the banks are seeing many homeowners max their LOC right before defaulting.

  3. That's possible. I was warned they were closing the credit lines beforehand, which is the only reason why I did it. They closed it down 6 days later. It's actually a big disadvantage to me, since I'm paying about 3% to have that extra money; I just couldn't risk them closing it down arbitrarily.

  4. But if banks hadn't been falling all over themselves to lend much more than the "real" value of homes in the first place, homes wouldn't have grown nearly so expensive.

    This is an area where the lenders really control the market - it's not as if many home-buyers have all the cash they need, so it is the lenders who actually determine whether or not a home is too expensive.

    When I sold cars, I'd ask customers if they were members of the local credit union - because they could see if the credit union was willing to pay the asking price for a given car to check if it was overpriced. If the CU told them the car wasn't worth x dollars, I'd tell them to look at another car.
    I'd have them do this even if they were paying cash - because that credit union didn't make stupid loans - they also didn't charge high interest rates to their members. Since they didn't make high risk loans, they didn't need to charge outrageous interest.

    This may help explain why I only sold cars for a brief period of time, but why my customers loved me.