Homeowners outraged over cancellation of their home equity lines
SAN JOSE, Calif. -- A growing number of homeowners around the country are finding themselves unable to borrow against the equity in their home, as beleaguered banks take away a financial safety net many homeowners had counted on. And now some of those homeowners are fighting back.
Cupertino, Calif., homeowners Jeff and Jenifer Schulken filed suit this summer against JPMorgan Chase, charging that the bank unfairly terminated their home equity line of credit even though the couple provided documents showing that they could repay the money.
"They weren't even interested in verifying whether I could pay it back. They just want these things off the books," Jeff Schulken said, adding he had $160,000 available on his credit line in March when he got a letter from Chase asking for tax documents. He sent them immediately, and was told when he called the bank that the inquiry was only a formality and his equity line was not in jeopardy.
"The next morning, I got online and we had zero available credit," he said.
A spokeswoman for Chase said the company would not comment on pending litigation.
In the early part of this decade, home equity lines of credit, or HELOCs, were a regular feature of homeownership. Longtime owners sitting on a few hundred thousand dollars in equity could easily borrow against it to remodel, pay their children's college tuition or use as a rainy-day fund. But falling property values and the financial meltdown that started last year have led banks to cut off many HELOCs, not letting the homeowner borrow any more money against his or her house.
Attorney Steven Lezell of Chicago law firm KamberEdelson is representing the Schulkens and hopes to gain class-action status for their case and other similar suits. The firm filed a suit against Wells Fargo last month on behalf of an Illinois homeowner who claims the bank used faulty appraisal methods to undervalue his home and freeze his credit line.
Lezell said that following the news of that lawsuit, his firm has fielded at least 500 calls and e-mails from homeowners who may have been similarly affected. Well over half are from California, he said.
Lezell said the banks' strategies for reducing their exposure to the risk from home equity lines was to "slash and burn, and close as many HELOCs as possible, hope people don't complain too much and just go away."
But in a statement, Wells Fargo said last month's suit "appears to mischaracterize credit controls designed to sustain homeownership." Further, the company said, "We are confident in our fair and responsible lending practices, including how we determine home equity credit limits available to customers depending on the amount of equity in their home." The bank also said it has a "fair appeals process."
Nationwide, homeowners borrowed $116 billion worth of home equity loans and lines of credit in 2008, down from about $350 billion in 2007, according to Inside Mortgage Finance. California borrowers make up 20 to 25 percent of the market.
Since early 2008, lenders have been methodically suspending many homeowners' lines of credit for one of two reasons -- banks either determined that declining home values made it imprudent to extend the credit to certain homeowners, or they judged that homeowners' worsened financial situations made them a bad credit risk.
Guy Cecala, publisher of Inside Mortgage Finance Publications, said there's no data on how many homeowners have had their HELOCs reduced or frozen in the past couple of years. But, he said, "As far as lawsuits, it's just going to get worse, because there are more people who've been impacted."
The Schulkens got a $250,000 line of credit against their three-bedroom Cupertino house in 2005, used about $123,000 to remodel their home and had paid down the balance to about $90,000 by the time they got the letter from Chase, Jeff Schulken said. Schulken said every month he pays extra on his mortgage and more than the minimum due on the equity line of credit, carries no credit card or other debt, and his income from the family business -- a day care run from his home of 21 years -- has not faltered during the recession. Having the remaining $160,000 on his line of credit yanked away irked him.
He said he's not interested in making any money from his lawsuit, but just hopes to make a point. "Bottom line, they weren't willing to listen or look at any of the facts," he said. "I feel we were wronged."