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Friday, February 21, 2020   

Frozen HELOC
by Gerry Manning
Gerry is a retired U.S. Naval Reserve CPO and has been in the computer field for over 40 years, for the last 20 running his own consulting business. Gerry's wife has her own small (7 employee) retail PC sales and service business (www.pc-place.com).
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Gerry Manning

Dear Scott:

I thought I'd share some more tidbits with you, for whatever they might be worth. So far, I've been reading the "handwriting on the wall" with 20-20 vision.

Back in the spring, when Countrywide and WaMu were reported to have sent out hundreds of thousands of letters freezing people's HELOC accounts, I told my wife to immediately draw out the full limit on our GMAC one. She didn't like the idea, because we didn't need the money but went along with my judgment on the matter (will wonders never cease?)

By summer, sure enough, GMAC informed us that our HELOC was frozen. But now, since it was at prime + 1%, we're paying a much lower rate than on our first mortgage with them and we only have to pay interest each month. I know they hate THAT. And we have no true "consumer debt" other than our house. No cars, no nothing. We only use credit cards as a form of "guerrilla financing" for our businesses - balance transfers and teaser rates. It's kept our cost of working capital below 6% for many years.

In October, when things started getting crazy with the banks, I told her we should check all our business lines and use them if we could. After the HELOC episode, she didn't even argue with me. We had three - BofA, AMEX and Wells Fargo.

BofA told us that "because we hadn't been using it", our $50,000 line was reduced to $1,000. We closed it.

AMEX said "no problem" on our $70,000 line, so we borrowed out most of the line and put it into a money market account. Within a couple of months, they notified us that the type of business account we had was being eliminated from their business offerings and that we could no longer use it, but could pay it off on the original terms. We're doing so.

Wells Fargo hadn't made any changes to our $130,000 line, so we borrowed another 100K and put it in a money market account as well. That one has remained stable to date. Like the AMEX account, that one was a prime+ deal, so we've seen our interest rate decrease significantly since we borrowed the money. Obviously, we're still paying the net difference between that rate and the money-market rate, but at least we have the cash available when we need it. "Cash is king" in our small businesses, as in most others. Suppliers and employess have to get paid, even if we don't.

In October, we also got a solicitation from the local branch of Bank of the West where we had opened a money market account offering a really good deal on a business line of credit. My wife applied (for her business - mine is separate) and ended up getting told that if she would pay down her revolving credit by $100,000 then they would give her a $100,000 line for the business. She did so right away.

Once all the payoffs had cleared, the bank started backpedalling. Now they wanted her to close a number of the credit card accounts before doing the deal, having specifically said that she didn't have to back when they made the offer above. Since BofA "helped us out" in this regard, we're now waiting to see if they'll follow through as promised.

Just this week, she got informed by AMEX that the line on her platinum card that she's had for years (never a problem, of course) had been reduced from $26,000 to $2,400 - just above the current balance. A letter is supposedly "in the mail" to explain this. We're waiting...

During this time, in contravention of the suggestion you made to the other guy who got shafted by BofA, her credit score has been going up due to all the reductions in outstanding credit. So has mine, since some of the things she paid off had me as an authorized or joint user. So that certainly doesn't seem to be any part of the explanation. I think your first thought, that "they're doing it because they can" is more likely the correct interpretation.

Interestingly, the one lender that is bombarding us with offers as all this transpires is Discover. We both have cards with large lines that were recently paid off, and they're making better and better offers on almost a weekly basis to get us to borrow money from them. We may do that if the Bank of the West credit line fails to materialize.

I must admit that, unlike my wife, I kind of enjoy this "chess game" with the banks. They move there, I move here, then they move again... It's all very interesting. And fortunately, our businesses are doing quite well, given the economy as a whole. Consequently, with profits at a reasonable level and many months of cash flow sitting in our money market accounts, I can afford to play their silly game without getting stressed out over it. Nice position to be in, at present.

Anyway, I hope this will add to your insight into what's going on and be of some help. Least I can do, considering how much help you give others. Keep up the good work!

Sincerely yours,
Gerry Manning


** UPDATE **

A belated postscript. The article was published on February 18th. On February 20th, we got a call from Bank of the West saying that the line of credit for my wife's business was approved and that we should come down and sign the paperwork. We did, and on February 25th we were notified that it is now in place and can be drawn on at any time.


Reader Comments
" It's informative, interesting (amazing, on this topic), and well written. It alleviates the sense that we are all prisoners of the banking system and offers a glimpse of freedom."
--Barbara Dixson
" Same stuff going on with my credit cards and it gives me an insight on strategy to apply to these banks and creditors. Thanks a lot!!!"
--Devonne Ballard



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