A front page article in the Sunday edition of the San Francisco Chronicle titled "Lenders Retreat as Market Plummets" (Sam Zukerman-staff writer April 6, 2008) may frighten some people into cashing their home equity line checks fast.
The article states that many banks such as Bank of America, Country Wide Financial and Washington Mutual are freezing homeowner’s equity lines in fear of losing more money to foreclosures. Let’s hope Wells Fargo continues to believe in the Bay Area like Bank of America used to.
This could spell a downward spiral as lenders cut back on honoring equity lines that might just be the thing which could keep some folks from losing their homes. The opportunity to tap into existing equity to forestall a foreclosure, even just pay the bills may be just the shot in the arm credit worthy people might need yet now many banks appear poised to pull the plug.
Of course bank don’t want people spending their equity line of credit like they used to-especially if home values in their area have dropped significantly; but cutting them off may just send many more of their customers to the front of the foreclosure line.
IF WE AREN’T ALREADY IN A RECESSION, WE COULD BE SOON
This could spell more doom and gloom in the economy as less available cash for spending-or simply knowing that emergency cash flow could be cut, will likely be the nail in the coffin for economic growth this year.
It’s a calculated risk on the part of the banks-at least we hope they have calculated it. They don’t want to throw good money after bad but by freezing equity lines when people need them most they could mean they end up taking back more property than if they left these loans in place.