Morgan Stanley Freezes Home-Equity Credit Withdrawals

by moonwolf | August 7, 2008 at 01:35 pm | 146 views | 4 comments

As the mortgage and credit crises deepen in the USA, word on the street has it that Morgan Stanley is taking strong steps to stem the bleeding, by denying those with mortgage backed lines of credit their right to withdraw funds.

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.

Most of the clients had properties that have lost value, according to the person, who declined to be identified because the information isn’t public. The New York-based investment bank will review home-equity lines of credit, or HELOCs, monthly from now on, the person said yesterday.

Wall Street firms including Morgan Stanley are ratcheting back on risks after the collapse of the subprime mortgage market and ensuing credit contraction saddled banks and brokerages with almost $500 billion of writedowns and losses. Consumers fell behind on home-equity credit lines at the fastest pace in two decades in the first quarter, the American Bankers Association reported last month.

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Paschen

at 13:56 on August 7th, 2008

good stuff:

moonwolf, I like this story. It's good stuff.

I do mot like them to much! Just my personal opinion though!

SOLARLIFE

at 19:20 on August 7th, 2008

good stuff:

moonwolf, I like this story. Homes are no collateral for loans any more. Banks have less than 10% coverage of the money we give them, sometimes only 3%. With the "rest" they speculated covered by self fabricated bank guarantees, only valid among them. Many big companies did the same. Barkleys Bank gives you meanwhile 10%, if you place € 10,000 on your account. Times change, homes will be no bank value to credit for next ten years, soon consolidation to local economy.

moonwolf

at 20:07 on August 7th, 2008

Thanks guys!

eastvanray

at 20:52 on August 7th, 2008

good stuff:

moonwolf, I like this story. It's good stuff.

There is a fairly simple solution. Have the properties in question re-assessed to determine the amount of equity. I am sure most home owners have significant equity as they will have been paying their mortgages down for some time. First time home buyers with little equity to begin with may be in a negative equity position but I doult the numbers are all that big. Speaking from vancouver where housing values have doubled over the past 6 or 7 years a correction of 10% to 20% would not have much impact on most home owners.

Those that foolishly used their home equity to finance a lifestyle beyond their means will have to stay in their home for a while until values push back up and they are in a better equity position. A valuable lesson hopefully learned.