Is that legal? Yes it is, generally speaking, and many HELOC borrowers have received letters from companies like Countrywide or Chase doing exactly that. It has been a long while since we have seen declining values but there is a standard clause in most HELOC agreements. The Truth-In-Lending Act allows a lender to prohibit additional extensions of credit or reduce the line if the value declines significantly below the appraised value used for purposes of opening the HELOC. The HELOC agreement must provide for such reduction but I’m sure you will see that most agreements contain the appropriate language. Since we have no idea how long values will decline, it would probably be a good idea to inform clients of this possibility. Some are asking their customers to max out their lines prior to receiving such a letter. That is purely up to the agent’s discretion.

• Chase sent out a bulletin that 15, 30, and 45 day locks are available again. But Chase also, on their Full Income Documentation Program, announced that transactions secured by Primary Residence collateral “maximum CLTV has been reduced to 85% and the minimum required FICO has been raised to 660, additional state and county-specific CLTV requirements will apply, condo collateral is ineligible in Florida, DTI on purchase transactions has been limited to a maximum 40%, DTI on non-purchase transactions has been limited to a maximum 40% when FICO < 700, and the rule allowing a DTI bump to 50% when monthly disposable income was > $4,000 has been eliminated.
• Banco Popular/Eloan temporarily closed Equity Connect, a small wholesale side-business run by ELoan.
• Indymac Bank announced the suspension of residential Construction to Permanent loan production effective today. “…given our need to carefully manage our balance sheet and preserve our strong capital position in light of current market conditions, we need to limit our loan production almost exclusively to products that are immediately saleable into the secondary market…we are not being compelled to curtail CTP lending due to any performance issues or external pressures, and when industry conditions ultimately stabilize, we look forward to restarting CTP production in the future.” Indy said that they are “committed and well equipped to fund all loans currently in the pipeline,” and will process all completed credit packages received (CPRs) by February 15.  Approved CPR’s must be rate-locked by February 22 and funded no later than February 29. The move is expected to result in another sizeable round of lay-offs for Indymac.
• A Morgan Stanley analyst downgraded Wachovia and Wells Fargo to “underweight” from “equal-weight,” saying she was concerned about the increasing deterioration rate in housing values and the relatively large exposure that the two stocks have to housing assets.

Are we done with write downs? Probably not: according to Standard & Poor’s (who, along with other rating agencies have been blamed for much of the credit situation since they gave questionable bonds good ratings) losses from securities linked to subprime mortgages may exceed $265 billion as regional U.S. banks, credit unions and overseas financial institutions write down the value of their holdings. We’ve already seen roughly $100 billion in write downs, but the next round will be from many smaller financial institutions in Europe, Asia and the U.S. The ratings actions may create a “ripple impact” that further reduces prices of the securities, S&P said. Almost half the subprime bonds rated by S&P in 2006 and early 2007 were cut or placed on review.

The monthly unemployment number came out this morning, much, much lower than expected. Payrolls dropped 17,000 non-farm jobs in January, the first time in over 4 years that U.S. payrolls shrank, and much lower than the +70k that was forecast. There were revisions to the December and November numbers, which were basically a wash, while Hourly Earnings were +.2%, the Unemployment Rate dropped from 5.0% to 4.9%, and the average workweek fell by .1 hour. Construction and manufacturing sectors both lost the most jobs, while education and health areas improved. Manufacturers cut 28,000 jobs in January, a 19th straight month of contraction for the sector, while the number of construction jobs dropped by 27,000. Construction industries have dropped 284,000 jobs since September 2006, largely reflecting the continuing decline in home building. The market has reacted favorably, with the yield on the 10-yr down to 3.57% and mortgage prices better by .125-.250.

A mom was out walking with her 5 year old daughter. The 5-yr old picked up something off the ground and started to put it in her mouth. Mom took the item away from her and asked her not to do that.

“Why?” the daughter asked. 
“Because it’s been on the ground, you don’t know where it’s been, it’s dirty, and probably has germs,” she replied. 
At this point, the daughter looked at the mom with total admiration and asked, “Momma, how do you know all this stuff. You are so smart.” 
She was thinking quickly, “All moms know this stuff. It’s on the Mom Test. You have to know it, or they don’t let you be a Mom.” 
They walked along in silence for 2 or 3 minutes, but the 5-yr old was evidently pondering this new information. “Oh…I get it!” she beamed, “So if you don’t pass the test you have to be the dad.” 
“Exactly!” the mom replied.

Rob