$6 billion in cuts in WAMU HELOCs

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I’ve posted several times about lenders -- notably Washington Mutual -- freezing or reducing HELOCs, or home equity lines of credit. This article indicates that letters are going out right now to notify more borrowers that their lines of credit have been suspended or slashed: ‘Washington Mutual 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.’

More: ‘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.’

Analysis: This is why the Federal Reserve’s job is difficult right now. On the one hand it is cutting interest rates to make borrowing more attractive. On the other hand it is strongly encouraging banks and lender to improve their balance sheets, which in many cases means: stop making the kind of loans you’ve been making lately.

There is also a fairness angle here: is it fair for banks to unilaterally reduce credit to even their best borrowers? I would point out, whether it’s fair or not, it’s not new; banks have always done this. Mark Twain: ‘A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.’

It’s raining, folks. Cats and dogs and housing prices are falling from the sky. The banks want their umbrellas back.

Your thoughts? Insights? E-mail story tips to peter.viles@latimes.com.
Hat tip: Miami Meltdown