Posted by Michelle/AL on 9/4/07 2:22pm
Msg #209286

Your Input - Equity Line of credit

My 81 year old mother recently purchased a new home. She did everything on her own and didn’t get any input from me or anyone else, on her behalf. The bank she borrowed money from did several things that concern me:

1) My mom used an equity line of credit to purchase her new home. The total amount of the line of credit is 2x the amount of the home. My mom was unaware of this. When I inquired on my mom’s behalf, I was told that since my mom qualified for this higher amount and since the interest rate would be lower they just gave it to her.

2) I asked to see the loan application that my mom completed, requesting the loan. The loan officer told me it was non-existent. I told her that her answer was unacceptable. After pushing her further she finally showed me the application. My mom never signed it. The loan officer said that they never have their customers sign the application forms (my mom applied for the loan in person at the branch).

I told the loan officer that was very uncomfortable with the way in which they handled this loan. She was personally offended.

Am I making a mountain out of a mole hill? Is this standard practice? Since the woman I’m dealing with is also the bank’s manager, should I hire a lawyer or go to the bank’s president, or someone else? I have POA for my mom and while she isn’t senile, at age 81 she puts down her guard around anyone who is polite to her. I am not looking for any legal advice from this site, just your impressions.

Thank you in advance.

Michele

Reply by Philip Johnson on 9/4/07 2:47pm
Msg #209294

She has a first position heloc?

I have one also and for me it allows me a faster paydown and also gives me access to my money through writing a check. Now if it is right for an 81 year old, I can't say. Do you know the rate? Since mine is a heloc, it's adjustable so you have to ride the prime rate train. I'd say if the rate is in the ballpark and the fees were not too great, I'd say she probably did allright.

One other thing I'd say is good for your mother on her willingness to step out there and transact her business the way she wants. My family has its share of strong willed people who in their old age do it their way and I pray that I attain that age and am able to do it my way as well.

Reply by Brad/AZ on 9/4/07 3:15pm
Msg #209300

There are a number of initial disclosures & acknowledgements in addition to the 1003 (application) that should all be signed (e.g. good faith estimate, initial TIL, various other disclosures explaining her rights, etc.). I would think that if she did not sign any of these then at least she should have some recourse. As far as the limit goes, seeing as though it's a HELOC they probably put the limit somewhere around the appraised value of the home since she qualified for it. Although I'm not a lawyer, it still sounds really odd, but maybe that's how they do it in Alabama.

Reply by aatatusko on 9/4/07 3:19pm
Msg #209302

Your mom is lucky to have you looking out for her best interests. We have a heloc (line of credit NOT a home equity loan. It is a huge amount, when we took it out I think we were
buying a car and wanted to pay for it this way. The amount was at least 4 times the amount of the car, I was concerned but my husband explained that it doesn't become a loan until you
use it, so our $200k line just sits there waiting for us to need it. It is a nice comfort to know that if we every needed quick cash (for something like an organ transplant) it is there with no questions asked. Remember the banks like to lend $ when you don't need it, when you do you're sol. I think your mom is fine,but I'm not a lawyer or account.

Reply by Doris_CO on 9/4/07 4:19pm
Msg #209317

Michelle, I understand your concern. I'd have questions regarding the banks transaction too. I'd be questioning the unsigned application also, but if it's a small town, maybe that's how the bank does business. Check with the county your mother reside in for an ombudsman for the elderly and discuss your concerns with them. They could also give you advice on your POA and whether or not it will continue if your mother becomes mentally incompetent. Although your mother is mentally competent now, I know from experience that things can change quickly. I'd be concerned that there is such a large credit line that could be abused.

Reply by MikeC/NY on 9/4/07 7:29pm
Msg #209350

Re: Equity line of credit

I'm not sure how you can buy a new house with a HELOC - does she have other property that she pledged as security?

If it's simply a matter of worrying about the HELOC, all she is responsible for is the amount actually drawn against the line of credit; it doesn't matter what that the limit is twice the value of the house. As long as she doesn't continue to draw against the HELOC, there's no more debt being incurred.

That being said, HELOCs are usually adjustable rate, and that could become a problem very quickly... You might want to talk to her about consulting with an accountant or a financial advisor (or a lawyer) about a better way to do this.

I agree with you that the casual attitude of the loan officer is not acceptable - even if she was personally offended by your concerns, that doesn't make your concerns any less valid. I would go over her head an complain to whoever is next in the chain.

And for the person who posted about how comforting it was to have the HELOC available - just be aware that it appears on your credit report AND exists as a lien against your property for as long as the HELOC is open, even if you've paid it down and don't draw against it. This doesn't matter for some folks, but may be a big issue for others....

Reply by Philip Johnson on 9/5/07 9:40am
Msg #209406

I have a first position heloc on my house

It works the same way as a second position heloc, except they are in the first position. It allows one to access the total equity in the house as well to make larger principal payments, paying the balance down quicker while still allowing access to the money. For me it has been a great program and should allow me to pay my 30 year note in about 6 years saving a boatload of interest.

Reply by Michelle/AL on 9/4/07 9:37pm
Msg #209378

Phillip, Brad, Aatatusko, Doris and Mike,

Thank you from the bottom of my heart for taking the time to respond with your comments. I really appreciate it. Mom's interest rate is 7% fixed. Yes. She owns other property that she used as security for the loan. She's done well by paying off all but $14k of the loan already (prepay penalty period expired after 3 mos of the date the loan became effective). Because of the non-disclosure of important information on the bank's part, my mom has agreed to shop around for a different lender for the remaining $14k. Mike, you're right about this showing up as a liability on her credit report and being shown as a lien. She didn't realize that. I've been in Alabama for 3 years and I'm still surprised by a few things. Thanks again for your feedback.