HELOC ABC's
EVERYONE needs to read this. Even if you "think you know" what HELOCs are, YOU need to read this. My bet is you will be shocked at the information presented on this page.
With a very basic understanding of what a Home Equity Line of Credit Agreement was, what it should be, and what it currently is, you will become a far more powerful individual with regards to understanding the need to re-instate proper HELOC Agreements as well as the drastic need for Banking Reform.
A "pure" HELOC is just a secured credit card. It is a "revolving credit line". It is a "credit product" and not a "mortgage product". Credit bureaus correctly report HELOCs as credit cards (revolving credit lines) and not as mortgages because that is what they are. Everyone thinks the credit bureaus are "behind the times". The credit bureaus are correct. The bankers are the ones wanting SALT to be a type of PEPPER.
My HELOC Account...
The credit card on the right IS (was) my HELOC Account...
It's a freaking credit card folks...
A pure HELOC Agreement is...
A HELOC Agreement is just a credit card Agreement that uses your home as "collateral" to ensure you will pay your credit card bill. That's it. Nothing more.
Well, actually there is more... and it's all a LOT BETTER... A HELOC is a credit card, debit card, checking account, interest bearing savings account and interest only mortgage substitute! When not convoluted for Bankers gain, it's the most amazing Banking product you can imagine.
In exchange for putting your home up as "collateral" to ensure you'll make your interest payments, you make the banker feel "secure", thus the term "secured credit card". For putting your home as collateral, you get several fantastic benefits:
A "Reset" is supposed to be a renewal process where an appraisal is done on the home to reassess the "collateral" and a basic income review should be done to ensure you can afford the interest only payments if the line is fully drawn.
A HELOC, unconvoluted by Banking Attorneys, really is a very simple and very powerful banking product for consumers. If used wisely a pure HELOC is in fact the most powerful banking product available to consumers, and that is the most relevant reason why bankers are trying their damnedest to make it disappear.
Well, actually there is more... and it's all a LOT BETTER... A HELOC is a credit card, debit card, checking account, interest bearing savings account and interest only mortgage substitute! When not convoluted for Bankers gain, it's the most amazing Banking product you can imagine.
In exchange for putting your home up as "collateral" to ensure you'll make your interest payments, you make the banker feel "secure", thus the term "secured credit card". For putting your home as collateral, you get several fantastic benefits:
- A higher than typical credit limit and a far lower than typical interest rate. The interest rate on my secured credit card (HELOC) is currently 3.25% vs 14-21% on a regular credit card. (I have a visa card with a $315,000 limit and a 3.25% interest rate. )
- Other added benefits of a secured credit card (HELOC) are a check book which enables you to write checks to yourself and others just like a regular checking account (there are no additional fees for using the checks tied to the credit card account). I also have a debit card for withdrawing cash and making deposits at ATMs.
- One other benefit of a secured credit card vs an unsecured credit card is that only interest is required to be paid monthly on the credit card balance vs interest and a small portion of the outstanding credit line balance. And this makes sense. After all, they do have rights to equity in my home if I don't make my interest only payments.
- While you'll likely on pay your credit card bill monthly, any time you have a chunk of cash in your checking account, you'll want to put it in your HELOC account as they calculate interest on the outstanding balance daily, so if you pay down your balance today, you don't pay interest on that balance tomorrow, and that makes it comparable to an interest bearing savings account too!
A "Reset" is supposed to be a renewal process where an appraisal is done on the home to reassess the "collateral" and a basic income review should be done to ensure you can afford the interest only payments if the line is fully drawn.
A HELOC, unconvoluted by Banking Attorneys, really is a very simple and very powerful banking product for consumers. If used wisely a pure HELOC is in fact the most powerful banking product available to consumers, and that is the most relevant reason why bankers are trying their damnedest to make it disappear.
A HELOC Agreement should NEVER have a mortgage-ish repayment term
Since a HELOC Agreement is just a fancy credit card Agreement, there should NEVER be a mortgage-ish repayment term associated with a HELOC.
Any mortgage-ish repayment period after an initial "draw period" is NOT natural to a credit card agreement, thus it is not natural in a pure HELOC Agreement. The presence of a mortgage-ish repayment period creates a "derived banking product" (that I will also refer to as a "derivative HELOC" or a "derivative mortgage product").
Do you see how silly this gets?
Any mortgage-ish repayment period after an initial "draw period" is NOT natural to a credit card agreement, thus it is not natural in a pure HELOC Agreement. The presence of a mortgage-ish repayment period creates a "derived banking product" (that I will also refer to as a "derivative HELOC" or a "derivative mortgage product").
- Our "current" HELOCs are should really be described as "derivatve mortgage agreements that act like a 10 year ARM but they have a 10 year introductory HELOC-ish period".
Do you see how silly this gets?
Bankers HATE pure HELOCs...
I realize this simple and accurate description of pure HELOCs (secured credit cards) differs dramatically from what the Bankers want you to believe. Bankers want you to believe a HELOC is a type of "mortgage" so that you then believe it's supposed to have a "mortgage-ish" repayment period after the "introductory" interest only draw period. ALL of that confusion is 100% intentional. That confusion enables bankers to slowly push the most powerful banking product known to consumers silently out of sight.
Renewable lines of credit provide customers the most control over their finances, and bankers hate it when the customer is in control of his/her finances, as such bankers hate pure HELOCs.
Here's how the banker's look at pure HELOCs...
Renewable lines of credit provide customers the most control over their finances, and bankers hate it when the customer is in control of his/her finances, as such bankers hate pure HELOCs.
Here's how the banker's look at pure HELOCs...
- They are the least profitable of all credit card products (by far)
- They are the least profitable of all banking products that can be used as a lien on a home
- They cut into the mortgage business and profits derived from the mortgage business
- They enable customers to pay down their equity, but then draw on their equity, thus they eliminate the need for cash out refinances AND they can reduce or eliminate the customers need for a high interest credit card
- They provide the customer a built in interest bearing savings account. Every penny the customer puts against their credit line, is less they owe in interest. A penny saved is a penny earned. If/when the interest rate goes up, while the payment goes up, the incentive to save also goes UP.
- For a consumer that is involved as small businessman, they act as an interest bearing working capital account.
- They enable consumer liquidity at levels unmatched by any other banking product
Bankers want a HELOC to look like a 10 year ARM...
By making the HELOC product look like a mortgage product, most resembling a 10 year ARM, bankers achieve numerous benefits:
- Bankers can force consumers to select from mortgage products for home finance, which are more profitable and provide more control over consumers since they decrease consumer liquidity.
- Bankers can hide profit tricks under "very complex" mortgage oversight vs simpler "credit card" oversight
- Bankers can earn greater profits in their credit card business
- Bankers benefit by the elimination of all the benefits to a consumer profits in excess of the risk-reward model
- Bankers
Industry Wide Collusion
ALL our major banks are currently dealing in HELOC Agreements WITHOUT renewal clauses and WITH mortgage-ish repayment terms. The absence of an Agreement with a transparent and earnable renewal clause and without a "mortgage-ish" repayment period that comes in at "Reset" time, to my knowledge, ALL our major banks are now dealing in derivative banking products, and the market void is indicative of industry wide collusion among Legal Departments in every major bank in the country. (Attorneys are the ones who create/write-up banking Agreements).
- Drug Market Analogy - Our Banking industry is selling crack and calling it cocaine. Even if there were bankers who wanted to offer pure cocaine again, it could not be done because once people realized they weren't getting the pure stuff to start with, it would expose the game that they and others like them have been playing for many years now. It would also expose the larger game of industry wide collusion. Quite a rabbit hole, huh?
- Drug Market Analogy (in Banking Terms) - Our Banking industry is selling HELOCs without renewal clauses and with repayment periods and wanting people to believe that that is what a HELOCs is. If any banker wanted to offer a truly pure HELOC, the Line of Credit product with earn-able renewals and without contrived repayment periods, it could not be done now because it would expose the game that they and others like them have been participating in for a very long time now. It would also expose the larger game of industry wide collusion. Quite a rabbit hole, huh?
The TRUE Beauty in an interest only "Line of Credit"
If you believe mortgages should "require" the pay down of equity, you are caught in a cognitive trap of the bankers design. All mortgages that require the pay down of equity are, in fact, "derivative banking products" when compared to interest only Lines of Credit. If you remove for-profit bankers from the home financing equation, and instead just allowed states or other non-profit type institution to issue lines of credit, and if we fixed or capped interest rate swings on Lines of Credits with the home as collateral, our world would change DRAMATICALLY.
So as not to divert from this Bank of America experience, this reality is addressed on the "More > Mortgage Brainstorming" page. Think outside the box just a little, and you will realize everything you believe about mortgage financing beyond simple lines of credit is just an illusion created by bankers solely for their own benefit.
The "Reset" done right -- A simple and financially sound system...
A proper "Reset" process relates to an re-appraisal of the home and re-qualification of income to ensure minimum payments can be made.
The most common question that comes up is related to the handling of the credit line max value if the home no longer provides proper collateral support for the maximum line of credit.
The proper financial methods for handling such a situation are SIMPLE. Once armed with this knowledge, you must never let a deviant Banking Attorney or a clueless banker sway you from this truth again.
If at time of Reset, a homes value no longer represents proper security for the banker, here are the options:
As can be seen with these options, there is NEVER a time when an under-collateralized asset should lead to a PERMANENT freeze on a line of credit and/or the indefinite forced paydown of a line of credit account balance. NEVER. It doesn't make any "sense" unless it was a trap of the banker's design to start with.
The lack of desire of any banks to work thru these problems from a "renewal perspective", whether they had renewal clauses in the agreements or not is in fact the SMOKING GUN that indicates the bankers are in this to rape and pillage.
Truth be told, capitalism in pure form has no business in banking, insurance, healthcare and a few other major industries where the profits of investors run 100% in conflict with the benefits to the citizens. This is nothing new... the real question is... are you ready to wake up?
The most common question that comes up is related to the handling of the credit line max value if the home no longer provides proper collateral support for the maximum line of credit.
The proper financial methods for handling such a situation are SIMPLE. Once armed with this knowledge, you must never let a deviant Banking Attorney or a clueless banker sway you from this truth again.
If at time of Reset, a homes value no longer represents proper security for the banker, here are the options:
- Banks could adjust the interest rate on the entire credit line to accommodate the unsecured portion of the risk until such time the consumer can pay down the account balance.
- Banks could partition the line into secured and unsecured portions, and increase the interest rate on the unsecured portion. The unsecured portion is no different than unsecured credit on a traditional credit card...
- The Banker could require the pay down of the credit line to a lower maximum credit line. While the banker could require that all at once, if a customer has been a good customer for years, why be a jack-ass? It would be more appropriate to require a monthly pay down of the account balance until the lower threshold is reached. Let's face it. If you get to the Reset period and the collateral is insufficient, the bank was unprotected for an unknown period of time prior to the Reset anyway, and just because the situation becomes known doesn't mean the entire agreement needs to be cancelled or dismantled.
As can be seen with these options, there is NEVER a time when an under-collateralized asset should lead to a PERMANENT freeze on a line of credit and/or the indefinite forced paydown of a line of credit account balance. NEVER. It doesn't make any "sense" unless it was a trap of the banker's design to start with.
The lack of desire of any banks to work thru these problems from a "renewal perspective", whether they had renewal clauses in the agreements or not is in fact the SMOKING GUN that indicates the bankers are in this to rape and pillage.
Truth be told, capitalism in pure form has no business in banking, insurance, healthcare and a few other major industries where the profits of investors run 100% in conflict with the benefits to the citizens. This is nothing new... the real question is... are you ready to wake up?