The HELOC Lockdown
Wednesday, September 03, 2008SUSIE GHARIB: More fallout from the housing crisis for GMAC Financial Services. It is closing all 200 of its retail mortgage offices and laying off 60 percent of the workforce or about 5,000 employees. Most of those layoffs will come from the mortgage lending division, Residential Capital, also known as ResCap. That was one of the nation's largest sub-prime mortgage lenders. It has lost $7 billion over the past seven quarters.
PAUL KANGAS: Even before today's announcement, GMAC's ResCap unit was closing home equity lines of credit. The firm says the closings affected customers in areas where home values were falling. But as Stephanie Dhue reports, consumers say mortgage lenders are now arbitrarily shutting down credit lines in places that haven't borne the brunt of the housing slump.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Jeremy Epstein has good credit, a good job and a home in a good neighborhood. So when he received a notice suspending his home equity line of credit, he was mad.
JEREMY EPSTEIN, HOMEOWNER: How can these people be so stupid? They don't understand anything. They clearly didn't look at the values.
DHUE: Epstein's lender, GMAC, told him that according to its automated valuation model, his home is worth half as much as when he first took out the line of credit five years ago. Epstein says a 10 to 15 percent decline is more like it.
EPSTEIN: In the computer business, which is where I work, we say garbage in, garbage out. Their model seems to me to be garbage in, garbage out. They're assuming everything in my zip code, or something like that, is basically the same.
DHUE: GMAC refused to be interviewed for this story, but in an e-mailed statement said: "Our counselors evaluate every home equity loan on a case- by-case basis, leveraging detailed models. While models are involved, they provide a data point used by counselors to make individual decisions." Epstein is one of a growing number of homeowners caught in the deepening credit crunch. The FDIC reports $31 billion worth of home equity lines of credit were shut down in the second quarter. After a sharp rise in complaints, regulators at the Office of Thrift Supervision warned banks not to shut down credit arbitrarily. Consumer Protection Director Montrice Godard Yakimov says banks must prove their models are realistic.
MONTRICE GODARD YAKIMOV, OFFICE OF THRIFT SUPERVISION: Our job as regulators is to make sure that there's a reasonable, explainable, defensible approach that they can demonstrate when we go on site and we will be checking in on that.
DHUE: Mortgage Bankers Association Chief Economist Jay Brinkman says the market is forcing banks to be conservative.
JAY BRINKMANN, CHIEF ECONOMIST, MORTAGE BANKERS ASSOCIATION: They cannot afford to have a lot of loans out there that aren't supported by asset values, since this is essentially is an asset-based loan.
DHUE: Brinkman says banks are also worried about putting customers into loans they cannot afford, but Epstein isn't buying that.
EPSTEIN: I can't remember the exact words they used, but they said, we're doing this to help you. That sort of reminds me of when parents used to spank their kids and say, this hurts me more than it hurts you. DHUE: Epstein appealed to GMAC and was denied. He was told if he paid for his own appraisal, they made reconsider. He told me he's more likely to look for a new loan elsewhere. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
