No. of Recommendations: 0
Anyone know of a lender that does 3rd position HELOCs?
In California?
Anyone?
Anyone?
Dave? :)

I already have a 1st and 2nd lien in place, and want a HELOC to be available, mostly as an e-fund.
The couple of lenders I've talked to are not willing to give me a HELOC in 3rd position. (even with a sizable amount of equity in the property and an excellent credit history)

For those wondering why a 3rd:
1st is $417k (conforming limit, so cheaper than jumbo)
2nd is ARM at 3.6% (annual adjustment; uses TBill + 2.0%)

I could just refi the 2nd into a HELOC and pay 4%+, but I like that it's locked in at 3.6% until next year, and I don't currently need the funds, so I'm not liking the idea of paying that .4% or more "just in case". I say more because I think prime is going up in the future, but that's just my opinion.

PS: Hi everyone - been a while since I posted... I was too cheap to pay for a subscription. :D
Print the post Back To Top
No. of Recommendations: 0
Hi Foo1bar,

Anyone know of a lender that does 3rd position HELOCs?
In California?
Anyone?
Anyone?
Dave? :)


Newp... ain't nobody (institutionally) offering 3rds anymore currently...


2nd is ARM at 3.6% (annual adjustment; uses TBill + 2.0%)

Wow... where'd/how'd you get into that?

If you want emergency "just in case" money, you may either be best off with one of these two strategies;
A) go to your checking bank & ask for an unsecured line... if you're uncomfortable that they may freeze it inaccessible when you may need it most, you can protect it by drawing it in full and putting it into a different institutional interest account.

B) play "round-robin balance shifting" on the 0% APR teaser credit cards, playing the float with the covering-cash working in a money market account or similar.

BOTH are a bigger hassle, riskier, and possibly more expensive than that 0.4% differential in just taking a replacement HELOC...

I wouldn't spend too many brain cells worried about rising interest rates... the paid rates rise just as much when the charged rates rise.


PS: Hi everyone - been a while since I posted... I was too cheap to pay for a subscription. :D

Silly monkey! There's a green "Invite A Friend" button up on the left, and us old-time regulars (IIRC) get a certain alotment of "free newbies" we can provide an invitation to. Ya shoulda just axxed one o' us!

Cheers,
Dave Donhoff
Leverage Planner
Print the post Back To Top
No. of Recommendations: 0
>>2nd is ARM at 3.6% (annual adjustment; uses TBill + 2.0%)
> Wow... where'd/how'd you get into that?
Star One Credit Union.

From what I can see, it looks like Treasurey+2.0% is very close to what the best 1 year CD rates are (ex. 4.1% or 4.25% right now for CDs, and the 1 year CMT is 2.05%.)
And it looks like the rate I got that way is better than if I went with prime-1% Of course if next June rates are high when it adjusts, and prime drops in July/August, I'll be unhappy about that, but that's the (little) risk I take.

>There's a green "Invite A Friend" button up on the left
I left when Fool went subscription only (well, a year later, when they didn't comp me - I am too cheap to pay for a subscription)
I just haven't come back until now.
Print the post Back To Top
No. of Recommendations: 0
Why not pile up some cash instead of being leveraged? I dunno if in an emergency taking on MORE debt is such a good idea. I definitely don't like borrowing my way out of anything, because it usually doesn't work.

I put a $1,000 a month draw on my primary checking account for a year and stockpiled bonus money and other income into a money market fund. Took about a year, but now I have 20K as a cash reserve.
Print the post Back To Top
No. of Recommendations: 1
Why not pile up some cash instead of being leveraged?
1> My assumption is that I am unlikely to need this money.
2> I am considering using it as a conduit for some 0% balance transfer offers.
3> Savings account pays 1-2%
4> CD rates return 4.25%; paying down 1st mortgage essentially pays 5.75%
Based on the above, my projections say that wouldn't be the best approach for my financial wellbeing.
Piling up cash would cost me 2-4%+ in opportunity cost on the ~$50K.
For a e-fund that I have a tiny tiny chance of needing.
That's too high a price for insurance against that need.
I could get the same insurance for ~.5% * 150K if I made my 2nd a HELOC.
(Still more than I want to pay...)
If I have to use those funds (that tiny tiny chance happens) then having it in cash is cheaper than if I do a HELOC draw. But based on the likelyhood of needing it, that's much less important to me.

At this point, since I have no source for a 3rd position HELOC, I think I'm most likely to use some 0% balance transfers and park the money somewhere fairly liquid, so that effectively the banks pay me for the insurance I am looking for. (I like the idea of making 2-4% on 50K+ better than the idea of losing out on 2-4%+)

I dunno if in an emergency taking on MORE debt is such a good idea.
I think it's a better solution than having to pay penalties on CDs or taking money out of investments when you really don't want to.
And a better idea than having more debt now just in case I might need that cash later.

Took about a year, but now I have 20K as a cash reserve.
That's not enough available resources for my comfort level / lifestyle.
I'm looking to have $50K+ easily available beyond the $10-20k in normal checking/savings.
Print the post Back To Top
No. of Recommendations: 2
1> My assumption is that I am unlikely to need this money.

Well, duh, that's why its an emergency fund. Personally, I found many of your responses to be completely silly. Having a HELOC as an emergency fund is a bad idea. Banks can cut off the HELOC without notice (banks have already started closing HELOCs in high-risk markets such as CA). In the event you DO have an emergency (say, out of country medical issues, or medical issues in general, sudden death in the family, catastrophic uninsured asset damage, etc), you will need something probably like 72 hours to liquidity. Money Market funds, 3rd tier cash reserve mutual funds, CDs, savings account, etc. That 1% you might miss out on returns with cash-like assets would be a godsend knowing the money is available to write a check on, or even wire. HELOC as an emergency fund is up to the bank, and can be closed with little notice. You *need* that money available to you, or else its useless as an emergency fund.

>I think it's a better solution than having to pay penalties on CDs or taking money out of investments when you really don't want to.

You're acting like you wouldn't pay a penalty if you exercised the money in a HELOC. You're interest rate would be much much larger than a CD penalty, and also you'd now have an additional expense, shrinking the time that the money buys you until the emergency subsides. Not to mention, aren't there fees and costs associated with lining up a HELOC? The bankers won't do it for free, will they?

>That's not enough available resources for my comfort level / lifestyle.

Ok, well, you need to adjust the number to whatever your income and expenses are. $20K is six months worth of non-saving expenses for me. That means that if I lose my job, or my income goes to zero, 20K will last me six months of my mortgage, my food, etc. That's assuming at that time that I cut nonessential spending.

Personally, based on the limited info provided, you sound highly-leveraged. And that's fine, but if you want an emergency fund to mitigate risk, then you seem to want the benefits of the emergency fund (less risk) by using leverage (more risk). Doesn't really put you in a better position, IMHO
Print the post Back To Top
No. of Recommendations: 0
Having a HELOC as an emergency fund is a bad idea. Banks can cut off the HELOC without notice
They can, but they generally do not.
Especially when they know there is sufficient equity that their assets are not at risk, they have no reason to.

You're acting like you wouldn't pay a penalty if you exercised the money in a HELOC.
I would not pay a penalty - I would pay interest.

You're interest rate would be much much larger than a CD penalty, and also you'd now have an additional expense, shrinking the time that the money buys you until the emergency subsides.

CD penalties are 3-6 months of interest or more. Depending on what the emergency was, that could be more or less cost (in actual dollars) than the interest paid on a HELOC withdrawal.
HOWEVER the price paid on using such an efund is not the primary concern to me. As I said it is something I would be very unlikely to use, therefore the weighted cost of usage is a small factor.

It is the ongoing cost to have the money available that is the primary decision driver once I weight things for likelyhood of scenarios happening.

Not to mention, aren't there fees and costs associated with lining up a HELOC? The bankers won't do it for free, will they?

My experience (5 HELOCs over the last 8 years) is they *will* do it for free.
The costs are in the $200-$500 range. And the bank / credit union absorbs those costs anticipating that they'll recoup them as part of your interest payments. (A recent HELOC I looked at said basically "You must keep this open 3 years, or if you close the line within 3 years, you'll have to repay the $300 costs.")

then you seem to want the benefits of the emergency fund (less risk) by using leverage (more risk). Doesn't really put you in a better position, IMHO

I am looking for availability of cash in case of an emergency.
I consider that mitigation of risk, not less risk. The chances of an emergency happening (ex. job loss, etc.) are not changed.

What do you believe entails more risk in using leverage (ex. HELOC) to provide availabilty of cash from equity in the house vs. using savings account for availabilty of cash?
Only increased risk I see is that the lender could close/reduce the HELOC unexpectedly. But that doesn't seem to be what you're trying to say in this sentence.
What increased risk do you see with using 0% CC for funding of an efund?

based on the limited info provided, you sound highly-leveraged.
How would you define "highly-leveraged"?
Using home's LTV? Using equity amount in the home?
Ratio of total assets vs. total liabilities?
I don't think I'm "Highly leveraged", and I didn't think I implied that in my posts.
I am leveraged, but so are millions of other american homeowners - many/most of them more leveraged than I am (depending on your metric)

20K will last me six months
I would like to have 6 months of income or 12 months of expenses available. Preferably more. But that is my comfort level - I expect others to have their own comfort level.
Print the post Back To Top
No. of Recommendations: 6
I tend to agree with Richthofen80. "I found many of your responses to be completely silly."

Having a HELOC as an emergency fund is a bad idea. Banks can cut off the HELOC without notice
They can, but they generally do not.
Especially when they know there is sufficient equity that their assets are not at risk, they have no reason to.

You think they need a REASON to? Not. Have you read the loan documents? You'll find a clause in there that lets them decline a draw or freeze your HELOC whenever they damn well feel like it. Worded slightly differently, of course, but that's what it means.

I am looking for availability of cash in case of an emergency.


You are being silly, right?

The very definition of an emergency need for money is that it is completely unexpected and unforeseen and you MUST HAVE the money immediately.
You don't meet this need by hoping that the bank will honor your HELOC check. They don't have to, and they can come up with plenty of reason to not do so if they choose to. Just because you think that "they have no reason to" doesn't change the fact that they have the right to.

You need to have the money under the control of somebody who will absolutely NOT decline to give it to you. That means that it must be in an account under YOUR name. Money that belongs to YOU, not money that belongs to someone else which you would have to borrow from them.


You're acting like you wouldn't pay a penalty if you exercised the money in a HELOC.
I would not pay a penalty - I would pay interest.

That's what he was talking about. Penalty..interest..whatever---it's money that gets taken from your wallet.


...they generally do not...
Huh?????
Neither does your house generally catch on fire. Neither does an uninsured driver generally run a stopsign and crash into you.
By definition, an emergency generally does not happen. That's, like, why it's called an "emergency". It's something that only very rarely happens.

Emergency (def'n): "A sudden unforeseen crisis that requires immediate action."
It's pretty silly to try to protect yourself from an unforeseen crisis by depending on another rare unforeseen event not happening.

"Nobody ever got run over by a bus that they saw coming."
Print the post Back To Top
No. of Recommendations: 0
They can, but they generally do not.

Until this year. Just google for HELOC freeze, and you'll find lots of stories about it. Holders of hundreds of thousands of HELOCs have had their ability to borrow decreased, if not completely eliminated.

Especially when they know there is sufficient equity that their assets are not at risk, they have no reason to.

The problem is, with values in many places dropping significantly, and nationwide, predictions of 25% decreases in home values, there may not be 'sufficient equity' if the first mortgage is over about 65% - 70% of the value of the home at the time the HELOC was issued. 100% minus 25% for decrease in value minus 5% - 10% for foreclosure costs leaves 65% - 70% of the value at the time the HELOC was issued to secure all loans. If the first loan is already at 80%, the HELOC lender gets nothing.

AJ
Print the post Back To Top
No. of Recommendations: 0
They can, but they generally do not.

Until this year.


How many HELOCs are there out there?
How many have been frozen?

If you can show me data that most HELOCs have been frozen, I'll stand corrected.
I do not believe that is true however.
I believe that even just a few percent of the HELOCs getting frozen is out of the ordinary and therefore has been in the news lately.

If the first loan is already at 80%, the HELOC lender gets nothing.
Yes.
But that's not relevant to my situation.

You need to have the money under the control of somebody who will absolutely NOT decline to give it to you.
The risk of a HELOC draw not being funded is a risk I would knowingly and willingly take. (and have taken in the past). The risk exists but IMO is small if there is sufficient equity in the property, and I have alternatives that would mitigate the impact if that were to actually happen.

I don't claim that having a HELOC available as an e-fund is the right choice for everyone. Or even that anyone here needs to be comfortable with my choice. However I have looked at the options, and it is a good choice for me (if it were available)

I'll be happy to listen to reasons why it might not be a good idea - possibly there are reasons I haven't considered. The risk of a HELOC draw not being funded is one I've considered before and not found as a compelling reason to avoid HELOCs for my situations.
Print the post Back To Top
No. of Recommendations: 3
How many HELOCs are there out there?
How many have been frozen?

If you can show me data that most HELOCs have been frozen, I'll stand corrected.
I do not believe that is true however.
I believe that even just a few percent of the HELOCs getting frozen is out of the ordinary and therefore has been in the news lately.


I never said 'most' HELOCs have been frozen - just that it can and does occur, as compared to your statement that it generally doesn't occur.

Here is some information that I was able to find on WAMU.

According to page 22 of this investor presentation http://www.snl.com/Cache/1500018145.PDF?FID=1500018145&O=PDF..., as of 3/31/08 the original LTV for WAMU's HELOCs was as follows:

Combined LTV    % of HELOC Portfolio
<= 50% 12%
>50 - 60% 8%
>60 - 70% 13%
>70 - 80% 33%
>80 - 90% 32%
>90% 2%

But, according to page 7 of the same presentation, the estimated percent of LTV > 90% is 14% of their portfolio. So the difference of 14% current LTV >90% vs. 2% at origination means that at least 12% of the loans have deteriorated beyond the original 90% ceiling that WAMU applied, and therefore, have likely been frozen.

If you believe the table in this article from CNN Money http://money.cnn.com/2008/04/18/real_estate/heloc_freeze.mon... that WAMU is now limiting their HELOCs to 80% LTV, and that they are applying these standards to current customers, that means that there is a potential that 32% of WAMU's HELOCs have been frozen.

So, for WAMU, it is likely that somewhere between 12% and 32% of HELOCs have been frozen.

And of the 4 lenders in the table, WAMU was 'conservative' in that the origination 2007 LTV was only allowed to be 90% - the other 3 lenders allowed 100% LTV. For originations (and potentially current customers) in 2008, WAMU has dropped the 90% to 'up to 80%' - likely less in areas that have suffered price declines - in some of those areas, LTVs are only being allowed up to 60%.

While 12% - 32% is not 'most', it's still a pretty big chunk, and more than 'a few percent', especially considering that WAMU pretty much didn't loan above 90% LTV. For lenders who did loan up to 100% LTV, my guess is that the numbers of frozen HELOCs could be 10% to 20% higher.

AJ
Print the post Back To Top
No. of Recommendations: 0
I never said 'most' HELOCs have been frozen - just that it can and does occur, as compared to your statement that it generally doesn't occur.

Generally doesn't occur means that most of the time it does not occur.

While 12% - 32% is not 'most', it's still a pretty big chunk, and more than 'a few percent',

12% is close to what I expected (I would have guesstimated somewhere in the 5-10% range) - I consider 10% to be a few percent.

32% is more than I would have guessed, but even if that percentage were to be what the entire HELOC market is at, I would still say my original statement was accurate that they generally do not get frozen.

Also - the numbers may be lower, as those %ages are LTV at time of funding. And quite likely payments have been made on the 1st mortgages bringing down the LTV.

FWIW, Until middle of this month, I had a HELOC with WAMU. Still have my 1st with them. I'd have to look up what the limit was, but most likely it was the max LTV for their best rate. I did not receive a notice that they were limiting / reducing the line available to me. So there's one anecdote that they didn't freeze / reduce line available on a HELOC. I don't know when they went to 80%, so if it was since June 1, I likely wouldn't have been notified.

Another thought - why do they have 14% at >90% LTV if they are freezing HELOCs? If they are freezing HELOCs that get above 90%, those accounts would drop down to the amount already borrowed, which I would guess would be much lower in many cases. So I would say either they aren't freezing those that get above 90%, or there is much greater than 12% that were above 90%, and its just the ones that had already maxed out their HELOC that are still showing up at that >90%.

I think the countrywide stat from the same article saying 122,000 countrywide accounts were frozen is an interesting number. All I can find for how many HELOCs countrywide has is that they have 9 million loans they service (which would include 1st as well as HELOCs)
http://money.cnn.com/2008/02/11/real_estate/countrywide_expa...

If 1/3 of those 9M loans are HELOCs, then 122k is 4.1%
If 1/6 are HELOCs, it's 8.1%
If 1/10 are HELOCs, it's 13.5%
My guess would be somewhere between 1/3 and 1/6, but I have no data to back that up.
Print the post Back To Top
No. of Recommendations: 0
Another thought - why do they have 14% at >90% LTV if they are freezing HELOCs?

Because the values of the homes continue to drop. Or people make minimum payments on Option ARMs first mortgages, resulting in negative amortization.

Also - the numbers may be lower, as those %ages are LTV at time of funding. And quite likely payments have been made on the 1st mortgages bringing down the LTV.

On page 16 of that same presentation, 16% of Home Equity Loans (both HEL and HELOC) are estimated to be above 90% of current LTV, using the OFHEO Dec 07 data. So it's current LTV - showing that the LTV has deteriorated since origination, meaning that values are dropping faster than people are paying down principal.

Plus, there are lots of Interest Only and Option ARM loans out there that don't require any principal paydown.

I think the countrywide stat from the same article saying 122,000 countrywide accounts were frozen is an interesting number. All I can find for how many HELOCs countrywide has is that they have 9 million loans they service (which would include 1st as well as HELOCs)
.
.
.
My guess would be somewhere between 1/3 and 1/6, but I have no data to back that up.


As of July, 2007, page 7 of this presentation http://about.countrywide.com/Presentations/docs/2Q07%20Earni... shows that Countrywide had 1,318,852 HELOCs. So that's about 14% of their loans.

However, the 122k is was the initial set of loans frozen by Countrywide in late January, according to this Feb 1 LA Times article: http://articles.latimes.com/2008/feb/01/business/fi-loans1. With a limited serach, I found reports of Countrywide continuing to freeze HELOCs as late as May, as the 3rd comment on this blog entry shows: http://financeambition.com/2008/01/16/heloc-jeopardy/ And here's an indication that they froze 15k HELOCs in Las Vegas in May: http://www.helocbasics.com/countrywide-freezing-almost-all-l... So, 122k was not the total number of HELOCs frozen - if they froze another 60k (15k a month in Feb - May), it would be 14% of their HELOCs that were frozen. If they froze another 120k (30k/month from Feb - May), it would be 19% of their HELOCs. And as home values continue to drop, my guess is that Countrywide will be freezing more HELOCs.

AJ
Print the post Back To Top
No. of Recommendations: 1
foo1bar & AJ:

I don't have a dog in this fight, but if you step back and look at it from a distance, this is a stupid, stupid argument.

You guys are getting bogged down in minutiae and completely missing the big picture. And getting off-track of the original topic.
I thought the original topic was about a HELOC being a suitable substitute for an emergency fund.

What does it matter if WAMU has frozen 32% or 12% or even 2% of their HELOCs due to declining home values?

Is a change in LTV the only reason a bank would freeze a HELOC? How about other reasons---like, for example, if the homeowner got laid-off and the bank found out. Isn't that a very common reason for needing an emergency fund?
Print the post Back To Top
No. of Recommendations: 0
I thought the original topic was about a HELOC being a suitable substitute for an emergency fund.

The original topic was where I could find a 3rd position HELOC.

Everything else, including whether my using a HELOC as part of my e-fund is a wise choice is a tangent.

What does it matter if WAMU has frozen 32% or 12% or even 2% of their HELOCs due to declining home values?

If it were >50% I would probably not consider it a useful source of money in an emergency. (or for that matter in a non-emergency)
And it's interesting data - at least to me - even if it is nothing more than trivia.

How about other reasons---like, for example, if the homeowner got laid-off and the bank found out.
If the HELOC is with a small local bank in a small town, I could see that happening. Outside of that (ex. large bank like WAMU lending to someone, or small bank/CU in a large metro area), I don't think the bank would find out at the same time as the borrower.
But in a small town, sure - I probably would be worried if I was setting up a HELOC with a loan officer that I sit next to at the local Kiwanis meetings.
Print the post Back To Top
No. of Recommendations: 1
Outside of that (ex. large bank like WAMU lending to someone, or small bank/CU in a large metro area), I don't think the bank would find out at the same time as the borrower.

I worked for Motorola in Schaumburg, Illinois, a Chicago suburb. We lived & banked in Crystal Lake, some 23 miles to the northwest (a 45 minute drive). Sevral years ago, when Moto laid off some 2000 people (nationwide), I happened to be in my bank that evening. BTW, my branch was in a Jewel grocery store. The branch manager greeted me and asked "Were you affected by the layoff?"

Don't kid yourself---they keep their ears to the ground.
Print the post Back To Top
No. of Recommendations: 0
*** Having a HELOC as an emergency fund is a bad idea. Banks can cut off the HELOC without notice***
They can, but they generally do not.

They can and do. Lately, they've been doing this quite a bit actually. So yes, it could happen.

It's still good to have an HELOC for an emergency (I recently decided to set one up again), but it shouldn't be one's only e-fund. In this case, OP has an e-fund and just wants this as backup so it's probably OK.
Print the post Back To Top
No. of Recommendations: 0
In this case, OP has an e-fund and just wants this as backup so it's probably OK.

As the OP, whether I have a complete e-fund or not depends on how you define an e-fund. How much money is it? Is it that the funds are available? or that they're in a savings/checking account?

I went looking for how other people have defined it, and came across this article:
http://www.fool.com/personal-finance/saving/2006/06/23/you-r...

Which doesn't define it very rigorously either - but does go over a number of options for sources of funds in an emergency. (including a home equity loan)

I thought it was a good article on how you can have funds available for an emergency. It covers the various sources I have used/am using.
HELOC, credit cards, savings acct/MMA, CDs, 401k loan, margin loan, personal loan.

I especially like this line from the article:
"If these options make you nervous, then stick with the more conservative alternatives."
Those options don't make me nervous - I pretty much use all of them so that I can have less cash in a low yielding (but safe) savings/checking acct. Sure there's some risks in those approaches, such as a HELOC being closed for whatever reasons, but when you have known risks such as that, it's possible to make plans to mitigate the potential effects.
Print the post Back To Top
Advertisement