Squeeze: Countrywide freezes Vegas HELOCs

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News item from Bloomberg News: ‘Countrywide Financial Corp. has suspended the home equity credit lines of almost all its Las Vegas customers...’

More: ‘Since January, Countrywide, Bank of America Corp., Washington Mutual Inc. and IndyMac Bancorp Inc. have frozen about 600,000 equity credit lines nationwide, said Michael Kratzer, president of a Bankrate Inc.-owned website that’s fielding consumer complaints. The lenders are targeting borrowers in cities where property values are falling, including Las Vegas, Chicago and Los Angeles, he said.’

Coupla thoughts: I receive a couple of e-mails a week -- usually from WaMu borrowers -- who complain that their HELOC has been unfairly, or unwisely, frozen because of declining home prices. Sorry to say, but from the perspective of the lender, these freezes make good sense. Home prices are falling rapidly; it doesn’t make sense to loan against a declining asset. That kind of lending in this environment would be, to use a technical banking term, stupid.

This is particularly true in the case of Countrywide: the time to stop making dumb loans is now. A note to the readers who know for a fact that your case is the exception to the rule, that you have equity to borrow against and you’re a good credit risk: It doesn’t matter. If Countrywide lends to a thousand people like you and four of those loans go bad, that is four too many.

Also: This is what the Fed is up against. Credit is tightening, regardless of how steeply the Fed cuts interest rates, and how many billions of dollars it shoves into the pockets of banks, investment banks, convenience stores and car dealers. (OK, I made that part up. The Fed isn’t giving loans to convenience stores and car dealers. Yet.)

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
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