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Wachovia cutting home-equity credit lines

Customers are getting left in the lurch amid the real estate downturn.

In the middle of remodeling the kitchen of their Mullica Hill house, Paul Gablin and his wife Julianne received a letter from Wachovia Bank canceling their line of credit. (Michael Perez / Inquirer)
In the middle of remodeling the kitchen of their Mullica Hill house, Paul Gablin and his wife Julianne received a letter from Wachovia Bank canceling their line of credit. (Michael Perez / Inquirer)Read more

In the middle of remodeling the kitchen of their Gloucester County house, Paul and Julianne Gablin received a letter from Wachovia Bank canceling the line of credit they were using to pay for the project.

Luckily for them, the Gablins own a house in Florida with another line of credit from Wachovia and were able to tap it to pay for the custom cabinets delivered yesterday.

Still, the episode has soured him on Wachovia because he has always made his loan payments, Paul Gablin said yesterday.

"The way they are acting, it must mean they are desperate," said Gablin, a retired Air Force pilot who flies internationally for UPS Inc.

Wachovia is the latest of the nation's big banks to close or reduce the size of home-equity lines of credit in response to the residential real estate downturn.

The Charlotte, N.C., bank used estimated property values from an outside vendor to calculate declines in home equity - the difference between the value of the house and the amount owed on loans secured by the house.

Wachovia credit-line customers whose home equity has declined 50 percent or more received letters in the last several weeks saying that their credit lines had been reduced or blocked, Wachovia spokeswoman Barbara Nate said.

"Our rationale is that we don't want customers to get in a situation where they can't afford their outstanding commitment," Nate said.

Gablin said he thought Wachovia's cancellation of his line of credit had more to do with the bank's troubles than with him. Wachovia reported a $9.1 billion loss in the second quarter.

A big chunk of Wachovia's problems stem from its 2006 purchase of mortgage lender Golden West Financial Corp. for $24.2 billion to capture business in then-hot markets, such as California and Florida.

"The largest banks are trying to limit their exposure to housing in general," and home-equity lines are one of the easier areas to cut back, said Matthew Anderson, a partner with Foresight Analytics L.L.C., a real estate analysis and forecasting firm in Oakland, Calif.

"It was a great sector for a long time," Anderson said. "But the delinquency rates have been rising for the last several quarters."

Other large banks with operations in the Philadelphia region, including Bank of America Corp. and Sovereign Bancorp Inc., have cut back slightly on home-equity lending this year. Citizens Bank said it had temporarily frozen a few credit lines.

A spokesman for Bank of America, also based in Charlotte, said relatively few cuts had been made in the Philadelphia region, where housing prices have been more stable than in many parts of the country.

"It does represent a hardship for customers, and we recognize that," spokesman David Bradley said.

Commerce Bancorp Inc. and PNC Financial Services Group, on the other hand, two banks that did not wander very far out along the risk curve during the credit boom that ended last year, said they had not been cutting back on credit lines based on housing values.

"PNC has always managed its home-equity lines of credit based upon a borrower's ability to pay, and we continue to believe this is the most relevant predictor of repayment," said Fred Solomon, a spokesman for the Pittsburgh bank.

Gablin, whose wife is self-employed as an interior designer, said nothing had changed about their ability to pay. Wachovia based its decision on a supposed decline in the value of their house in Sewell from $409,000 to $268,000, a 34 percent drop. Another bank recently valued the house at $392,000, Gablin said.

Wachovia's action irked Gablin's broker, who arranged the line of credit at Wachovia. "This touched a nerve with me because I find it kind of underhanded," said Anthony C. Magnotta Jr., a financial adviser in Mantua.

Magnotta said he understood the troubles banks were having and realized that if banks gave notice, many borrowers would load up the credit lines in advance of their being shut down.

Still, "there has to be a better solution," said Magnotta, who has other clients who have received cancellation letters from Wachovia.

One of them, Donald L. Kingett, a lawyer in Turnersville, was using his line of credit to pay contractors rehabbing a house in Pitman and to pay college tuition for his son, who next week starts his senior year at St. Joseph's University.

"I'm stuck. I don't know what I'm going to do with St. Joe's. I have to contact their bursar and see what kind of arrangements we can make."