|Screeching To A Halt
Last month, Chase froze my friend’s credit line. Just like that, he lost access
to the $70,000 he believed was still available to him on his $150,000 line.
This was a sobering moment in a country where borrowed money has flowed like
cheap wine at a gallery opening for the past several years.
Chase told my friend his house appraisal had gone down to $447,000, half of what
the Nyack home appraised for when he took out the credit line in March 2007. He
had needed to pay for significant renovations after a fire destroyed good
portions of his gracious Victorian that overlooks the Hudson River.
Plans to remodel his kitchen are now on hold.
The day before I heard his story, I had called Citibank to see about
consolidating my mortgage and home equity line of credit (HELOC) for a better
rate. Rates had fallen, but not enough to make it worth my while.
The treacly mortgage counselor advised me, “You’re lucky to have a credit line;
we’ve stopped offering HELOCs.”
Our houses are no longer ATM machines spitting out cash every time we have an
itch to renovate or buy a new car. Homeowners were like hungry babies who wanted
to be fed now — and often. Therapists — or collection agencies — will need to
wean us off our addiction.
I will defend myself for just a moment at the risk of sounding smug. I have a
grave aversion to debt. I do not use credit cards; neither does my husband.
House projects are paid for with money we have, not money we have to borrow. Our
two worn cars are owned outright.
I did take out a mortgage when I bought and rebuilt an old farmhouse in Rockland
County three years ago. I got a HELOC when we had a financial emergency stemming
from a legal skirmish with the house contractor. My HELOC gave me six figures of
available credit. And it launched many a daydream.
“I want a sister,” my daughter says. OK, I think. We have a two-bedroom house.
She’s not willing to share her bedroom. We could tap into the credit line and
build an addition.
Oh, and we could build that conservatory facing our woods. And while we’re at
it, why not throw in a playroom so I don’t have to hear SpongeBob shrieking in
the living room when I work at my desk in the nearby, door-less office.
Watching house prices rise every year for the past six years has made us feel
falsely rich. Our dreams were super-sized faster than the waistline of someone
who lives on fast food.
With house prices dropping up to 20 percent in the suburbs and portfolios
pummeled by the world financial crisis, the best part about having a credit line
is knowing it’s there — and not using it. An unused credit line is the only
thing — other than money in the mattress — that feels safe. Or at least it used
When I was on the phone with the aforementioned Citibank mortgage counselor, she
suggested I refinance the credit line at a lower interest rate: from a 10-year,
6.99 percent fixed rate to an adjustable 4.2 percent.
My first instinct was to jump for the bait. Then I asked her what it would cost
to convert into a 10-year fixed rate if adjustable rates rose again. “Between 8
and 9 percent,” she answered.
Thanks, but no thanks, I said. That’s a bargain to nowhere.
These are scary times. I got two calls last week. A lady said she was looking
for Loretta. Did I know where she was? Was she a neighbor? “Who wants to know?”
I asked. Capital One.
I got a second automated call from another bank looking for someone named Julio.
If I were Julio, who was obviously ducking creditors, I should press 1.
Everyone is afraid of becoming the next Loretta or Julio. I have another friend
who used her house like a cash card and now she has no equity left. She’s been
wondering how she’s going to fund her son’s college tuition next September.
When I gaze at my 150-year-old house sitting serenely on a mountain pass, I
don’t see a diminished asset. Sure, my home has lost value like everyone else’s,
but my house is where I make memories and dream about the future. It’s just that
now the future looks more like the past: a place where houses get renovated
slowly, McMansions don’t exist and kids are given passbook savings accounts to
help them save for college.