How We Fell Into Equity Line Hell (And The Reckoning Yet to Come) PART 1

Mortgage and Lending with Guild Mortgage NMLS #238304

The year was 2005 and the owner of my mortgage company strolled into my office with that "LOOK" on his face.

Clearly, I was in trouble.

He was there to scold have a serious talk with me. It seems my sin was doing too many equity lines.

I was asked to allocate more of my time to doing first mortgages. Why? Because an equity line made me (and the company) very little money.

Solemnly, I nodded in agreement and promised to change my ways.

Ignoring everything he had said, I went madly on, writing new equity lines every week. 

During those times, you didn't need to advertise or promote equity lines. Everyone wanted one.

If you didn't attach one when you bought your house, you did within months. If you walked into your bank to make a deposit, you were tackled by some bank employee trying to sell you on the idea. Your stack of mail included at least 2 offers every day suggesting that you "tap" your equity.

Equity lines were the "BOOM" in the booming economy.

What the owner of my company didn't realize was this: those lines paid dividends to me that far exceeded the tiny commissions.

The ROI was simply huge.

Homeowners LOVED that there were no closing costs. They LOVED that the whole process was so damn EASY. But most of all, they LOVED it when those little blank checks arrived along with $200,000 worth of liquidity that seemingly appeared out of thin air.

You know that saying guilty by association? Well, you can also be loved by association.

The NEXT time they needed mortgage help? That warm and fuzzy memory (that two hundred grand in cold hard cash will give you) still lingered. 

"Hey, let's call Janet!"

Half of the people who wanted equity lines claimed they were for "emergencies only". Two weeks later their emergency was this: they needed a brand new car. Or a pool in the backyard.

They told everyone they "paid cash" (as if the cash from an equity line was not a debt, just a happy benefit of owning California real estate).

Oh, but we felt so frothy back then, didn't we? So bubbly.

And then the bubble burst. We were having so much fun we almost forgot that bubbles always burst.

Almost overnight, banks stopped offering equity lines. The equity lines on the books were closed like a door slamming in your face. They were ruthlessly slashed to lower amounts. This created untold grief for people who had counted on using the money to pay off debts, or send their kids to college.

But did you know this? There is equity line grief coming down the pipeline that no one is even talking about.



PART 2: Why equity lines could be the next big disaster looming for the economy.


 Written By Janet Guilbault, Mortgage Banker and Direct Lender Based Out of the San Francisco Bay Area




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Lisa VonBargen
Photography7522 - Estes Park, CO
Estes Park Real Estate Photographer

Are we talking about being upside down? I've seen a few of those...equity line, remodel the house, new boat, etc., time to list the house and equity...or negative equity!

Dec 14, 2009 02:30 AM #1
Ann Allen Hoover
RE/MAX Advantage South - Hoover, AL
CDPE SRES ASP e-PRO Realtor - Homes for Sale - AL

Okay Janet, I am anxiously awaiting for Part 2 on Equity Line Hell.  I'm so glad I never got one of these.

Dec 14, 2009 02:32 AM #2
Celeste "SALLY" Cheeseman
Century 21 Liberty Homes - Mililani, HI

One thing is for talk about what no one wants to admit.

Dec 14, 2009 02:42 AM #3
Janet Guilbault
Guild Mortgage - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

Lisa: The single reasons preventing many people in California from doing a refinance is NOT their first mortgage.

It is complications from their second mortgage. Either it has placed them in an upside down position, or the second lender wants to close or slash the line.

I have had people pass on a 4.5% rate on their first mortgage because if they did the refi, the equityline would be closed.


Dec 14, 2009 02:48 AM #4
Paul McFadden
Paratex - Seattle, WA
Pest Control, Seattle, WA.

Janet: I too have witnessed equity lines being cut. Is it the next wave? Hard to say. I personally think we're heading out of the morass we're in. It's just going to take a while. Look for slow growth next year and possibly beyond. Thanks for the post!

Dec 14, 2009 05:08 AM #5
Jane Peters
Home Jane Realty - Los Angeles, CA
Connecting you to the L.A. real estate market

I don't want to know what is coming down the pipeline.  I am burying my head and hoping it will all pass.

Dec 14, 2009 12:19 PM #6
Barbara S. Duncan
RE/MAX Advantage - Searcy, AR
GRI, e-PRO, Executive Broker, Searcy AR

Well written blog and very scary.  How people were so willing to borrow against their equity was so foolish.

Dec 14, 2009 01:30 PM #7
Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices


It is so wonderfully and poetically written that it is easy to forget that it is about such prosaic thing as Equity lines of credit.

You are a terrific writer. Waiting for more. Thank you

Dec 14, 2009 01:46 PM #8
Chris Coley
North American Title Company - Fort Collins, CO
North American Title Company

Hi Janet,

I too wrote hundreds of equity lines "back in the day". My previous mortgage company (who no longer is in business) paid us to write the HELOCS and paid us for them even if there wasn't any draw against it! Ah the good old days!

Can't wait for your part 2!

Dec 15, 2009 01:43 PM #9
Bill Nazur
Corona, CA


It appears that this particular post may be the lump of coal in the stocking that few want to acknowledge....hope you are well!!

Dec 26, 2009 03:24 AM #10
Jeremy OnullNeal
Corona Realty - Corona, CA
Corona Real Estate Expert

Janet, Oh the memories.... Now back to reality and having to go back to work and EARN money. So many Californians used that money in the worst possilbe way and the sad part is now they have nothing to show for it. Your post is great and I love how you stuck to your guns and helped your customers. Great job.

Dec 30, 2009 05:23 AM #11
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Hi Janet,


How have you been?

A lot of my current clients had this happen.  They may have been better able to ride the storm had those lines remained intact.  They were counting on them for renovations which would make their homes more "sellable."  Now everyone wants "move-in ready" because equity lines of credit are soooooo tough!

Jan 16, 2010 03:50 PM #12
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Janet Guilbault

San Francisco Bay Area Direct Mortgage Lender
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