Morgan Stanley Said to Freeze Home-Equity Credit Withdrawals

Morgan Stanley Said to Freeze Home-Equity Credit Withdrawals

www.bloomberg.com

Aug. 6 (Bloomberg) -- Morgan Stanley, the second-biggest U.S. securities firm, told thousands of clients this week that they won't be allowed to withdraw money on their home-equity credit lines, said a person familiar with the situation.

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I'm ashamed to say I used to work for these jerks...

www.bloomberg.com
(visit the link for the full news article)

This makes no sense. If the person qualified for the loan to begin with and are current with their payments, why shouldn't they be allowed to draw from it?

Many many institutions have done this over the past six months. Some have done it across the board others have done it mainly in bubble areas. With the massive decline in home values HELOCs are a bad bet for a bank. If a home is foreclosed upon and can't be sold at a price that pays off the first mortgage the HELOC holder gets zero from the sale and thier only option is to go after the borrowers other assetts. Also, most people don't know that almost all HELOCs are callable, meaning the lender can call you up and say "the entire balance is due now".

HELOCs have been a major support to consumer spending during a period when there has been very little real wage growth. It worked well enough to mask the real drop in American standard of living in a overheated housing market but now that housing has tanked they are another huge potential bomb on financial's balance sheets still rife with bad assetts. Many people's only "savings" was their home appreciation in the bubble time.

Many analysts have predicted the death of the consumer for years now. Easy access to HELOCs and rapidly appreciating home prices were, IMO, probably the major if not main reason the consumer was able to keep spending even though income had not risen during that time.

We don't really produce anything here in the states anymore so, the economy is dependent on the consumer to keep spending. I don't see how anyone can think we're not in for a rough time given mounting unemployment, dropping home values, withdrawal of credit, increasing commodities (interesting downside action there lately btw), and rapidly approaching demographic bombs (boomer retirement).