A quick review of my current financial situation: Same job, higher income, a perfect payment record, and a better FICO score (800+) than when the loan was originally approved.
From the guidelines issued by the Office Of Thrift Supervision (OTS):
TERMINATING, REDUCING, OR SUSPENDING A HELOC: LEGAL RISKS
Truth in Lending Act (TILA) / Regulation Z
[...]
With some exceptions, Regulation Z prohibits a creditor from changing any term of a HELOC account. Notably, however, a creditor may prohibit additional extensions of credit or reduce the credit limit during certain periods, as long as any reduction in a borrower’s credit limit below the outstanding balance does not require the borrower to make a higher payment. Consistent with Regulation Z, creditors may freeze or reduce a HELOC account when:
[...]
The creditor reasonably believes that the consumer will be unable to make payments as agreed because of a material change in the consumer’s financial circumstances. It is important to recognize that this exception requires both a material change in a borrower’s financial situation and the creditor’s reasonable belief that the borrower will not be able to repay the HELOC account as agreed.
So why has Chase/Wamu frozen this line of credit? Since my income is higher than when I obtained this HELOC, and my documented income is higher than that which I declared on this Stated Income / Verified Asset Loan (SI/VA) loan, it can’t be because “your income is significantly less than the income information provided when you applied for your credit line”.
Could it be that Chase/Wamu’s decision “was based on whole or in part on information obtained in a report from the consumer reporting agency [TransUnion].”? Let me take a look at my FICO score conveniently reported by the Chase/Wamu Website by TransUnion.
Wow – my credit score is excellent and unchanged – from their own website! It appears that Chase/Wamu has no actual evidence to support the Regulation Z’s requirement of a “material change in a borrower’s financial situation”.
Could it be that they just made this all up to close an under-used line of credit? Looks like I’ll also be filing a Regulation Z violation complaint with the FDIC.
I have heard, and it makes a lot of sense if you think about it, is that banks and financial institutions are freezing or reducing low interest HELOC lines becasue if you reapply, the new HELOC lines will have much higher insterest rate. My wife’s HELOC was frozen by WAMU (now JPMorgan Chase) even though nothing in her situation has changerd and her credit score is over 800. Her HELOC interest rate was 3.25% and now if she reapplies, there is nothing available below 6.5% or 7%.
From what I have seen from corporate America and what they are capable of, I am not surprised if this is true. We are ready to walk into our JP Morgan branch and demand a reinsatatment of the HELOC line under regulation Z and Fair Credit Act and, if they refuse, threaten them with a lawsuit.