You that line of credit you USED to have?...
Wachovia cuts unused home equity lines of credit
Other banks pull similar credit lines; more homeowner defaults may follow
By Alistair Barr, MarketWatch
Last Update: 3:58 PM ET Apr 14, 2008
SAN FRANCISCO (MarketWatch) -- Wachovia Corp. said on Monday that it's limiting
homeowners' ability to tap home equity lines of credit that they haven't used yet
as the giant bank tries to cut its exposure to the broadening housing crisis.
Other mortgage lenders, including Washington Mutual (WM), Countrywide Financial
(CFC) and Indymac Bancorp (IMB), have also been cutting home equity lines
aggressively, Fred Cannon, an analyst at Keefe, Bruyette & Woods, wrote in a note
to investors on Monday.
Bank of America (BAC), Suntrust Banks (STI) and some other smaller lenders are
also starting to cut these credit lines, Cannon added.
Banks are taking such action to reduce potential losses from the housing bust.
But Cannon said that if enough lenders pull home equity lines of credit, it could
make industry losses even worse.
"Lenders have presented the reductions in home equity lines of credit as a
prudent response to the rising home equity credit costs, declining home prices,
and the risks of rising home equity exposure from the drawdown of lines of
credit," Cannon wrote.
"While for an individual lender, such actions appear prudent, the consumer
response to the reduction of lines can create additional problems for the home
equity lenders and for the economy as a whole," he added. "Cutting unused lines
will add to, rather than subtract from, credit costs on home equity portfolios."
Wachovia (WB), which reported worse-than-expected quarterly results on Monday,
said in a presentation to investors that it's "implementing additional
limitations on utilization of undrawn equity lines." See story on results.
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