Who Will Save US from the Banks?
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I predicted todays economic woes over two years ago, and I predicted it would be the credit card industry that would lead the way.
Recently, the United States Banking cartel declared war on hundreds of thousands of american homeowners, customers, by denying these homeowners access to most of the equity they have built up in their own homes. In the past, a homeowner with a fully paid off 300,000 dollar home could qualify for a substantial Home Equity Line Of Credit (also known as HELOC). Generally, banks may set the HELOC cap at 25% to 50% of the Equity that has been built up in the home. In theory, if a homeowner broke the law and took their entire Home Equity Line Of Credit as cash and disappeared, the banks could still sell the home and recoup the entire HELOC. HELOC's make a nice rainy day nest egg for many people. I view a HELOC as the rubber band that holds our economy together since it literally allows a home owner to fairly access their own assets when they have cash flow problems.
On April 14th, 2008, Banks announced a bold move to reduce most if not all HELOC's down to 10%. This HELOC reduction may decimate the american economy, and it may do it quickly and effectively. Banks have basically stated that home equity ownership is "worth" 10 cents on the dollar. Just as the banks have mishandled the sub prime mortgage crisis and consumer credit card debt, the reduction of HELOC to 10% may actually lead to a bank induced depression. Simple math could have been used to protect banks from customers drawing too much money out too quickly, but instead the banks have chosen knee jerk "solutions" that bring the hammer down hard on many hundreds of thousands of american home owners. The banks hammerhead approach might lead to several hundred thousand premature foreclosures and theft of homeowner equity as desperate homeowners attempt a quick sale of their home at a severely depressed price.
Originally, banks would politely badger their customers into taking a Home Equity Line of Credit. For those customers who originally accepted a 25% to 50% HELOC and have already borrowed over 10%, their nest egg HELOC has been instantly swiped from them. What the banks have done is bait and switch their own customers. Bait and Switch is actually considered illegal in many instances.
Hundreds of thousands of american homeowners are relying on their HELOC to carry them through hard financial times. HELOC's are used by many families to buy time. Buying time allows struggling homeowners to survive a temporary layoff from a job, train for a new career, to back to school, investigate self employment possibilities, get through a medical emergency, or plan a move to a less expensive home. Reducing HELOC to only 10% apparently is going to immediately doom those who have already borrowed more than 10% of their HELOC, and it will also doom those who based their future on the belief that they had their 25% or greater HELOC equity to fall back on for the next few months to perhaps a year or two or three.
By downgrading HELOC to only 10% of the portion of what a homeowner owns in a home, a homeowner who is already over 10% must now IMMEDIATELY STOP any additional withdrawals, yet continue to pay all of their monthly bills with some new form of magical money. The banks may even demand the borrower immediately pay back money until the borrower is back under 10% of their HELOC OR BE FINED first, and then FORECLOSED upon! Banks will now be able to repossess a home owners home even though a home owner might have 70, 80, or 90 percent equity in their own home! Or the Homeowner can try a quick sale, which in turn might result in a huge reduction in the sale price, not to mention a complete and unexpected uprooting of a persons life just because...the BANKS ARE PANICKING!
There are ARE Simple Solutions.
How can banks justify reducing HELOC to just 10% of the amount of equity one has built up in a home? How can banks further justify suddenly reducing HELOC's to 10% of the value of a fully paid for home? The answer may be that an economic dividing wall has just been instantly created. This dividing wall is much more dangerous than rampant illegal immigration or the War on Terror. The elite of our society have just proclaimed that unless you own a home AND have either substantial savings or an incredibly well paying job, you WILL BE FORCED TO IMMEDIATELY FIND WORK anywhere you can find a job if you previously fell for the HELOC trap that was started several years ago. Many home owners will no longer be able to take a more practical approach to their life issues and call a HELOC "time out" to help figure out what job and career path is best suited for their future.
Keep in mind that HELOC's are probably being used to keep people current with their bills. Why would the banks want to stop ANYBODY from staying current on their bills, especially when many of these bills GO BACK TO THE BANKS TO MAKE CREDIT CARD PAYMENTS and other monthly payments! Banks are saying that any debt you have is more important than any equity you have built up, even if you have a lot more equity than debt! Even if a person reached their HELOC cap of 25-50% and had to sell their home, the banks would not lose a penny as they would be paid back upon the sale of the home. Instead, the banks have put hundreds of thousands of americans at risk of foreclosure by reducing their HELOC to only 10%.
The banks could easily protect themselves AND the homeowner by creating a HELOC glide path for struggling homeowners. Banks could limit the monthly amount that can be withdrawn against a HELOC. Limit the monthy withdrawal to 1% of the total equity in a home. Offer a homeowner a HELOC cap of 10-15% cap on big one-time purchases, or a 25%-50% overall HELOC cap for those that just desire smaller, monthly withdrawals. By limiting the amount that can be taken out per month the bank has completely protected themselves while still allowing the homeowner access to a more realistic amount of their HELOC and just as importantly, buying the homeowner time. The HOLEC that the banks are so afraid of allowing their customers access to is in many instances going right back to the banks to pay off debts!
See how simple math can solve a complex problem? By simply limiting the monthly amount that can be taken out by a homeowner, the banks protect themselves while allowing homeowners fair access to a reasonable amount of their HELOC.
While I can commend the banking system for wanting to prevent certain types of HELOC abuse, saner solutions are available that don't throw out the honest homeowner with the criminals. But who will stand up to the banks and make them see the error of their ways? Home equity was one of the few things people could call their own, now that has been taken away as well in what can only be called a not too well thought out, or perhaps purposely sinister bait and switch maneuver by the banks.