|
Dear Dr. Don,
Chase has put a block on our home equity line
of credit. The company says it is doing this because
the automated valuation model they use shows a
decline in the value of our home.
The automated valuation model (AVM)
is grossly inaccurate, showing a decline in the
home at 50 percent in four years. Thus far, Chase
has declined to take responsibility for the inaccurate
AVM.
We have outstanding credit, so there is no other reason they could have to block our account other
than a faulty AVM.
What steps can we take to get Chase
to fix their error? Actually, I don't think they
want to fix their error as their lowball false
appraisal gets them out of a line that is 0.25
percent below the prime rate. Whether it's on
purpose or not, it is wrong.
-- Robin Redress
Dear Robin,
The lender is looking to avoid exposure to declining real estate prices, not the low interest rate (0.25 percent
below prime).
Lenders can do just fine borrowing on or about the targeted federal funds rate and lending 2.75 percent
above that rate to borrowers with excellent credit like you. The prime rate in recent years has been tracking at 3 percent
over the federal funds rate.
Lenders using automated valuation
models to value property are saving costs versus
having a certified appraiser review the value
of the home. However, homeowners like you can
see their credit lines frozen when the AVM price
shows the homeowner with reduced equity or no
equity in the home.
You should review your loan documents to see what recourse you have in challenging the AVM price.
The FDIC's Financial Institution Letter (FIL-58-2008)
"Consumer Protection and Risk
Management Considerations When Reducing or Suspending Home Equity Lines of Credit and Suggested Best Practices for Working
with Borrowers" provides some guidance for lenders.
Here are some key excerpts from that document:
The purpose of this guidance is to remind institutions that if, for risk management purposes,
they decide to reduce or suspend home equity lines of credit, certain legal requirements designed to protect consumers must
be followed. The FDIC also urges institutions to work with borrowers, where possible, to minimize hardships that may result
from such suspensions or reductions.
Consumer Protection
Institutions must comply with several laws and regulations when HELOCs are reduced or suspended. The Truth in Lending Act,
as implemented by Regulation Z, specifies the circumstances under which lenders may reduce or suspend home equity lines of
credit. Lenders must also be mindful of their responsibilities under Section 5 of the Federal Trade Commission (FTC) Act,
the Equal Credit Opportunity Act and the Fair Housing Act, to ensure their actions are implemented in accordance with these
laws. Violations of these laws will result in enforcement actions and may have a negative effect on the Community Reinvestment
Act (CRA) evaluations of institutions.
Best Practices for Working with Borrowers
The FDIC also recommends that institutions offer borrowers the opportunity to seek a review of the institution's decision to
reduce or suspend a credit line based on a significant decline in a property's value. Particularly if the institution is
relying on an automated valuation system as the basis for this decision, the customer may be able to offer more detailed
information that could change the outcome of the institution's decision. Similarly, a periodic re-evaluation of property value
information may result in reinstating a higher credit limit or lifting a suspension.
Barring any violation of consumer protection provisions in the law, it's up to the borrower to work with the
lender to correct a credit decision based on a faulty AVM valuation.
I don't know all the details of
your credit line freeze, but it's more likely
that you'll see success in working with the lender
in getting an appraisal of your property's value
than in trying to show that your rights as a consumer
have been abridged.
An earlier column, "Ask lender to thaw
frozen home equity," makes the following point: "Because closing costs are generally low on home equity lines,
you can also consider voting with your feet and trying to find a new lender."
|
