A recent Seeking Alpha article reports:

“For now, let’s realize that the JPM/WaMu combo has the highest concentration of 2nd lien loans (and Option ARMs) in the absolute worse housing areas in this country, CA, FL, and NV. Keep in mind that 2nd lien loans have diminished priority in terms of claims on assets, so if a house sells for 70% of its previous sales value, and there was a 70 LTV loan combined with a 80 CLTV (combined LTV) HELOC on top, the HELOC lender takes a 100% loss. Let me repeat that, “a 100% loss”.”

Some speculate that these mortgages keep the company vulnerable and more likely to respond with HELOC line cuts.
photo credit: TheTruthAbout…

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WaMu Goes Down – Bought by J.P. Morgan

WaMu Cuts HELOC Program

WaMu Cuts $6 Billion in HELOC Lines

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

Forbes.com reports:

Washington Mutual late Wednesday said it will commit an additional $1 billion to a fund intended to help eligible subprime mortgage borrowers and that it will trim its mortgage product offerings.

The bank will no longer offer negatively amortizing loans and has also stopped offering its Mortgage Plus loan, which combined a mortgage loan with a home equity line of credit into a single loan and linked the HELOC’s cap to payments of principal.

Since HELOC loans have become a greater risk to lenders, chances are high that other banks will limit programs in the future.

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HELOC Loans Now More Risky to Lenders

How a HELOC Works

Housing Wire explains the latest:

“Washington Mutual, Inc. has either suspended or cut down a total of $6 billion in available home equity lines of credit in the latest effort by a major bank to reduce its exposure to the mortgage mess. The cuts, which were first reported last week by National Mortgage News, affect an unknown number of customers; the bank has declined to identify the number of affected customers to the press.”

However you look at it, that $6 billion represents a lot of customers who have received home equity line reductions. Since the letters were mailed last week, almost all WaMu customers are now aware of their status. If WaMu is your lender and you didn’t recieve a HELOC freeze notice, you’re probably in the clear. For now, at least.

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Lenders Freezing HELOC Lines

How the HELOC Freeze Can Damage Your Credit Score

“Washington Mutual, Inc. has slashed or suspended $6 billion in available home equity credit to its customers in an effort to reduce its risk in a flailing housing market.

If they haven’t already been notified, WaMu’s customers across the country will learn of the change to their credit availability in a letter mailed to them in the next several days. The bank declined to disclose how many customers will be affected…

According to a statement released by the company: “We will continue to evaluate home equity lines of credit in relationship to the amount of equity a customer has in their home and, if appropriate, will lower the line amount according to WaMu’s line management guidelines.”

These notices are being sent without a formal appraisal of the properties. So, if you live in an area experiencing declining home values, your chances of receiving a HELOC freeze letter are high.

If you plan on using your HELOC line within the next few months, you may want to withdraw and invest funds now. If you’ve already received a notice from WaMu, it may be too late to withdraw. But, there are still a few options available including requesting a review of your home’s assumed value or refinancing with a different lender.

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How the HELOC Freeze Can Damage Your Credit Score

Which Lenders are Freezing HELOC Lines?

“Last week a Realtor in San Diego wrote, ‘Just after I made a large payment of $10K (only $350 payment was due), they took away all of my credit line. This is putting me in a panic and possible bad situation. I have been with WaMu for many years and have had many home loans with them, and never missed a payment, and have always had bank accounts with them, in addition, my credit is great. I had no notice or warning whatsoever, of course if I had, I would not have given them $10,000 that I did not need to.”

Since January, over 100,000 HELOC customers from multiple lenders have received such letters. HELOC lenders are freezing lines because they do not want to lose any more money from HELOC foreclosures on upside-down properties (homes for which the borrower owes more money than the property can be sold for).

Unfortunately, HELOC lenders do not need to warn their customers before freezing or reducing their limits. If you plan on using your HELOC in the next few months, you may want to withdraw the needed money now and place it in a high-yield savings account or CD.

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Strategic Withdrawals to Avoid the HELOC Freeze

What to if You’re Hit by the HELOC Freeze

Washington Mutual HELOC Basics

Lender Type : major bank

Website : www.wamu.com/personal/loans/home_equity

Phone Number: 877-551-2740

Washington Mutual HELOC Programs

The general WaMu HELOC offers a draw period of 10, 20, or 30 years. WaMu offers a variety of HELOC withdrawal options including checks, specialized credit cards, and cash advances. The repayment period is dependent upon the draw period selected. One of the best WaMu HELOC features is the option to switch interest payments between fixed and variable rates. Borrowers can also opt for interest-only payments during the draw period. The max WaMu HELOC line is $500,000.

New WaMu mortgage customers can take out a Washington Mutual Mortgage Plus Loan, combining both a primary mortgage and a HELOC account. Borrowers can withdraw from their ever-increasing HELOC line as their equity builds. Additionally, borrowers have the option of resetting their mortgage rate up to twice a year. It’s a relatively easy way to take advantage of lower rates without refinancing. The first rate reset is free as are changes from fixed to variable rates. Other rate changes are $250 a pop.

In addition to its HELOC programs, the lender also offers a WaMu home equity loan. Borrowers can be given a maximum of $500,000 in one lump sum. WaMu home equity loans come with a fixed interest rate and a repayment period between 5 and 30 years.

Washington Mutual HELOC Requirements

Like most lenders, WaMu wants borrowers who have stable employment, a good credit score, a low debt-to-income ratio, and a significant amount of equity in their property. See: How to Qualify for a HELOC.

Washington Mutual HELOC Freeze Information

In early 2008, WaMu notified some borrowers that they can no longer withdraw from their existing HELOC lines. This was in response to declining home values and not a result of borrower delinquency. New borrowers living in areas with declining home values may find it very difficult to take out a WaMu HELOC unless they have established significant equity. WaMu is still advertising for new HELOC customers.

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How to Negotiate HELOC Terms