I assume the notice you received said you had to apply for reinstatement. Did they suspend the credit limit or just stop further advances? Is there a first lien under the credit line which has since been reduced, or increased? If a first mortgage balanced has been increased, you may not succeed even if your home value hasn't dropped much.
Usually these notices are being sent out for AVM (automated valuation model) drops. Their figure may or may not be close to the ballpark. You can get your own appraisal and challenge theirs, but be aware that you have to prove not just that the value of the home doesn't exceed your original credit limit plus preceding liens, but that they are allowed to keep a cushion in line with the cushion they had when the credit was first extended. Appraisals are a little tighter now, and the appraiser will look not just at comparable sales, but at list prices if prices in your area are trending down. Zillow and other such services seem frequently to be overstating values, so you may get an unpleasant surprise. First ask them what they think the value of the home is.
Do you know what the appraised value was when you originally received the credit line? Also, do you know the value of any prior liens at that time?
I am posting the applicable regs and official staff interpretations below in case you need them for a written complaint or for the purpose of arguing your case. If you can find anything else they did wrong you can use it, but it seems unlikely. I bolded the most relevant portions. "For the purposes of the plan" is the catch, so read on to the commentary section where that is defined.
They do not have the right to cut your credit limit below the current outstanding balance unless they allow you to keep paying off your balance on the original terms.
Call first. If your notice says you have to request reinstatement in writing, tell them you are going to do so. If your notice said that you had to request reinstatement, then that creates a duty for them to investigate upon your request. Therefore, if you are correct and their model was wrong, they are in a bit of a bind, and if you handle this properly, you might be able to get them to reinstate without paying for an appraisal, or get them to pay for the appraisal, or get them to run another model and check it more thoroughly. The thing to do first is call and tell them you believe they are wrong, and find out on what basis they valued your home. If they don't want to give you that information, you will need the stuff below and you probably can get this suspension lifted.
Notice the last bolded section of the commentary and let them know you have it. Because if the significant decline did not occur, then they were not allowed to suspend you, and they are not in a good position if you make a complaint against them to their regulator. They aren't required to get an appraisal, but if their equity cushion hasn't dropped by 50%, they will have a heck of a time arguing that a significant decline has occurred. The total value of your other liens (credit balance plus other mortgages in prior position) compared to your home value then vs now is the legally significant factor. They are only supposed to suspend your credit if they have lost 50% of their original cushion. If they didn't originally have excess equity, then they can suspend unless any prior mortgage balances have been equivalently reduced.
Suppose that your home was originally valued at 280K, you had a mortgage for 200K, and they gave you a credit line for 50K. Their original excess equity for the purposes of the line was 30K. Your home would have to drop in value at least 15K for them to suspend based on the official guideline, which is that they must have lost 50% or more of the original excess equity.
However, even if your home value dropped 15K, if your first mortgage balance has since been paid off by 5K, they can't suspend your line because their excess equity hasn't dropped 50% or 15K, it has only dropped 10K. Of course, if you modified your first mortgage and increased the balance in some way, their excess equity will have been reduced by that amount, so you need to keep that in mind.
If you have a 50% decline in the original equity cushion, but your outstanding balance is significantly less, you may be able to ask them to reduce the credit line instead of suspending the line. In other words, say your original credit line was 50K, and the original difference between all your liens and the credit line was 30K. Now the home's value has dropped by 15K, but you only have drawn 20K of the 50K of the original line. Instead of suspending the line, ask them to give you a lower credit balance on a temporary basis, particularly if you paid any fees to open the line originally. See the Interagency guidance I linked below.
Good Luck!
Reg Z Subpart B 226.9(c)(iii)
Notice for home equity plans. If a creditor prohibits additional extensions of credit or reduces the credit limit applicable to a home equity plan pursuant to §226.5b(f)(3)(i) or §226.5b(f)(3)(vi), the creditor shall mail or deliver written notice of the action to each consumer who will be affected. The notice must be provided not later than three business days after the action is taken and shall contain specific reasons for the action. If the creditor requires the consumer to request reinstatement of credit privileges, the notice also shall state that fact.
226.5b(f)(3)(i)
(f) Limitations on home equity plans. No creditor may, by contract or otherwise:
(3)Change any term, except that a creditor may:
(i) Provide in the initial agreement that it may prohibit additional extensions of credit or reduce the credit limit during any period in which the maximum annual percentage rate is reached. A creditor also may provide in the initial agreement that specified changes will occur if a specified event takes place (for example, that the annual percentage rate will increase a specified amount if the consumer leaves the creditor's employment).
(vi) Prohibit additional extensions of credit or reduce the credit limit applicable to an agreement during any period in which:
(A) The value of the dwelling that secures the plan declines significantly below the dwelling's appraised value for purposes of the plan;(B) The creditor reasonably believes that the consumer will be unable to fulfill the repayment obligations under the plan because of a material change in the consumer's financial circumstances;
(C) The consumer is in default of any material obligation under the agreement;
(D) The creditor is precluded by government action from imposing the annual percentage rate provided for in the agreement;
(E) The priority of the creditor's security interest is adversely affected by government action to the extent that the value of the security interest is less than 120 percent of the credit line; or
(F) The creditor is notified by its regulatory agency that continued advances constitute an unsafe and unsound practice.
Supplement I (official staff interpretations):
1. Suspension of credit privileges or reduction of credit limit. A creditor may prohibit additional extensions of credit or reduce the credit limit in the circumstances specified in this section of the regulation. In addition, as discussed under §226.5b(f)(3)(i), a creditor may contractually reserve the right to take such actions when the maximum annual percentage rate is reached. A creditor may not take these actions under other circumstances, unless the creditor would be permitted to terminate the line and accelerate the balance as described in §226.5b(f)(2). The creditor's right to reduce the credit limit does not permit reducing the limit below the amount of the outstanding balance if this would require the consumer to make a higher payment.
2. Temporary nature of suspension or reduction. Creditors are permitted to prohibit additional extensions of credit or reduce the credit limit only while one of the designated circumstances exists. When the circumstance justifying the creditor's action ceases to exist, credit privileges must be reinstated, assuming that no other circumstance permitting such action exists at that time.
3. Imposition of fees. If not prohibited by state law, a creditor may collect only bona fide and reasonable appraisal and credit report fees if such fees are actually incurred in investigating whether the condition permitting the freeze continues to exist. A creditor may not, in any circumstances, impose a fee to reinstate a credit line once the condition has been determined not to exist.
4. Reinstatement of credit privileges.
Creditors are responsible for ensuring that credit privileges are restored as soon as reasonably possible after the condition that permitted the creditor's action ceases to exist. One way a creditor can meet this responsibility is to monitor the line on an ongoing basis to determine when the condition ceases to exist. The creditor must investigate the condition frequently enough to assure itself that the condition permitting the freeze continues to exist. The frequency with which the creditor must investigate to determine whether a condition continues to exist depends upon the specific condition permitting the freeze. As an alternative to such monitoring, the creditor may shift the duty to the consumer to request reinstatement of credit privileges by providing a notice in accordance with §226.9(c)(3). A creditor may require a reinstatement request to be in writing if it notifies the consumer of this requirement on the notice provided under §226.9(c)(3). Once the consumer requests reinstatement, the creditor must promptly investigate to determine whether the condition allowing the freeze continues to exist. Under this alternative, the creditor has a duty to investigate only upon the consumer's request.6. Significant decline defined. What constitutes a significant decline for purposes of §226.5b(f)(3)(vi)(A) will vary according to individual circumstances. In any event,
if the value of the dwelling declines such that the initial difference between the credit limit and the available equity (based on the property's appraised value for purposes of the plan) is reduced by fifty percent, this constitutes a significant decline in the value of the dwelling for purposes of §226.5b(f)(3)(vi)(A). For example, assume that a house with a first mortgage of $50,000 is appraised at $100,000 and the credit limit is $30,000. The difference between the credit limit and the available equity is $20,000, half of which is $10,000. The creditor could prohibit further advances or reduce the credit limit if the value of the property declines from $100,000 to $90,000.
This provision does not require a creditor to obtain an appraisal before suspending credit privileges although a significant decline must occur before suspension can occur.Here is also a link to Interagency Guidance 58-2008. This is an FDIC website hosting it, but it is an interagency guidance and it does apply to BofA:
http://www.fdic.gov/news/news/financial/2008/fil08058a.htmlThe significant paragraph:
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.
Printer-friendly format
Email this thread to a friend
Bookmark this thread
(1000+ posts)
Send PM |
Profile |
Ignore
