First Again is one such company. Their recent press release explains:

“According to Gary Miller, cofounder and CEO of FirstAgain, an emerging online consumer lender focused on excellent-credit borrowers, consumers should think outside the bank and go online for convenient, quick, hassle-free lending. “At FirstAgain, our goal is to deliver the best possible consumer loan experience by making it fast, efficient and completely paperless, including signing their loan agreement with a computer mouse,” he explains. “After all, shouldn’t people who have worked hard to achieve excellent credit be rewarded with a better way to get a loan?”

To that end, FirstAgain has developed the AnythingLoan, a completely online, unsecured personal loan that can be used for any purpose, including home improvements, vehicle purchases, educational and medical expenses, timeshares, vacation ownerships, marine products, loan refinancing and more…

 

While FirstAgain cannot defrost your frozen HELOC, thousands of customers, many of whom plan never to return to old-time lending institutions, have found that a superlative online loan experience can warm their hearts and fill their wallets.”

While these loans are very different from home equity lines, they may come as a relief to borrowers who can no longer rely on their home equity for planned expenses.

It’s important to note that these personal loans are not the same as the equity sharing programs such as the Rex Agreement which give lenders a portion of your home’s increase in value.

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Home Equity Borrowers - Beware of the Rex Agreement

Don’t Rely on a Home Equity Line to Save You During the Crisis

Why Are Qualified Home Equity Borrowers Suffering?

“Home equity loan origination dropped more dramatically, falling 77% on a year-to-year basis. “Declines reflect tighter underwriting standards and the overall reduction in liquidity in the financial markets,” the bank said.”

We known that taking out a home equity line has become more difficult due to recent economic turmoil, but that’s still a pretty shocking number.

I recently spoke with a few mortgage brokers in California - They say times are are so tough entire offices are empty, many support services (such as couriers) have gone bankrupt, and their peers are looking for hourly wage jobs doing just about anything.

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65% Find it Harder to Take out a Home Equity Line

HELOC Loan-to-Value Requirements Get Tough

Review Companies Cancel HELOC Foreclosures in California

“BasePoint Analytics(TM), a leading provider of scientific fraud and risk analytic scoring solutions, today announced the availability of FraudMark(R) for Home Equity, the industry’s only fraud detection solution designed to address the home equity market, enabling lenders to fund loans with confidence…

The FraudMark for Home Equity solution applies BasePoint’s proven pattern recognition analytics to new loan applications, enabling lenders to focus investigation on the most risky applications before spending resources for underwriting and external verifications.”

This program may help lenders avoid awarding bad home equity lines in the future. However, it seems that the current problem of poor performing home equity portfolios has more to do with lax lending standards and dishonest brokers rather than borrowers trying to trick the system.

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Is a HELOC Right for You?

How to Qualify for a HELOC

HELOC Loan-to-Value Ratio Requirements Get Tough

Now it’s  looking like only a handful of major HELOC lenders will come out of this. The next time you go to take out a home equity line of credit, you may have to choose from five massive lenders rather than twenty or so.

Just recently, MarketWatch reported that Wachovia is in serious negotiations with Wells Fargo. They explain:

“Wachovia Corp. was in advanced discussions over the weekend to sell itself to Wells Fargo & Co.

The Wall Street Journal reported Monday, citing a person familiar with the situation. Wachovia also held talks with Citigroup but by late Sunday Wells Fargo appeared to be the preferred bidder…”

What happens with these banks and the proposed bailout is yet to be seen. However, it is clear that a massive consolidation process is taking place between the nations largest banks.

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Who’s to Blame for the Home Equity Crisis?

New WaMu CEO Faces $60 Billion in Home Equity Loans

Market Watch reports:

“Late Thursday, J.P. Morgan announced an agreement to buy WaMu’s banking subsidiary after the nation’s largest thrift was seized by the Federal Deposit Insurance Corp.

In a presentation on its WaMu acquisition, J.P. Morgan forecast a 58% peak-to-trough slump in California home prices if the U.S. enters a severe recession. In Florida, house prices could fall 64% in such a scenario, while nationwide prices could drop 37%, the bank said…

J.P. Morgan assumes cumulative losses of at least 20% on WaMu’s home equity lines of credit and home equity loans. KBW’s Cannon was expecting cumulative losses of 10%.”

No wonder WaMu was freezing HELOC lines. It looks like J.P. Morgan is expecting huge losses on the home equity lines of credit they now own.

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How a HELOC Works

WaMu Cuts HELOC Program

WaMu has already frozen or closed many home equity lines of credit, despite their customer’s preferences. But, more risky loans remain.

CNN Money reports:

“The Seattle-based thrift gave itself a facelift on Sunday when it ousted its embattled CEO

Kerry Killinger and replaced him with Fishman in the wake of three consecutive quarters of heavy losses. That string of bad quarters, replete with layoffs and the need for new and expensive investment capital, stemmed almost entirely from its large and troubled $181 billion portfolio of home loans.”

It is now becoming more difficult for major lenders to close home equity lines, due to repeated warnings from the FDIC and the Office of Thrift Supervision about following proper regulations.

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WaMu Cuts $6 billion in Home Equity Lines

WaMu Eliminates HELOC Program

A recent American Banker article explains that lenders should avoid punishing those who would borrow responsibly:

“To be sure, many lenders will say the questionable mortgage lending innovations of the last 10 years provide all the more reason for across-the-board tightening now. The trap in that response, however, is that various groups of borrowers are in very different circumstances. Absent an analytical understanding of differences in customer segments, crisis-mode initiatives are sure to translate into lost opportunities for profitable growth with solid borrowers, lost opportunities to anticipate and cap loss exposure with distressed borrowers, and lost opportunities for effective repayment negotiations in a world where delinquent households generally have multiple creditors standing in line.”

Ignoring responsible borrowers hurts those who have planned their finances with care. But, it also hurts the banks who are already struggling and, in some cases, going under.

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New List of Lenders Sending Home Equity Line Freeze Letters

How the HELOC Freeze Can Damage Your Credit Score

The Philadelphia Inquirer explains:

“Wachovia credit-line customers whose home equity has declined 50 percent or more received letters in the last several weeks saying that their credit lines had been reduced or blocked, Wachovia spokeswoman Barbara Nate said.

“Our rationale is that we don’t want customers to get in a situation where they can’t afford their outstanding commitment,” Nate said.”

You have to admit, 50% is a huge drop in equity. Homeowners experiencing that kind of decline may have more to worry about that accessing their HELOCs.

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Wachovia to Freeze HELOCs

The Best HELOC Lenders Ranked

The Wall Street Journal explains:

“Wall Street firm Morgan Stanley added some of its well-heeled clients to the long list of customers whose lenders have frozen or reduced their home-equity loans.

While federal laws do not allow lenders to force responsible borrowers to repay the loans immediately, those same federal statutes allow lenders to reduce or eliminate customers’ home-equity lines of credit if the lender can reasonably determine that a borrower’s home has fallen in value.”

HELOC freezes can often be appealed. But, as we’ve mentioned before, the reversal process can take time and be expensive for borrowers who must pay for new property appraisals.

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Morgan Stanley Freezes HELOCs

More HELOC Freeze News