Home Asset Management Acct

I saw the article on this in the Thursday USA Today.

Turning a House into a Bank

What may be the most significant innovation in the American home-mortgage field in more than two decades officially hit the market recently.
It's called the "home asset management account." It grafts a growing equity line of credit onto a standard home mortgage, and it essentially makes tax-deductible home equity the centerpiece of a borrower's personal financial affairs. It turns your house into a bank that's always open -- if you choose to use it.

Here's how it works. You apply for a home asset management account instead of a traditional mortgage. The account consists of:

• A first mortgage up to $750,000. The rate on the loan is the same as the prevailing rate in the traditional mortgage marketplace.
  
• An initial home equity line of credit equal to all or most of your initial equity or down payment. The credit line comes automatically and need not be applied for separately. To activate the credit line, you have multiple options, including a set of checks, a debit card usable at most ATMs, a toll-free access phone number or a special Web site. You can also walk into a retail branch office of the lender and get cash on the spot. There is no requirement that the credit line ever be activated or drawn on.
  
• Every quarter you receive an "account review" statement that tells you how much your available equity line has increased because of principal payments on your primary mortgage, plus a summary of credit-line funds you've already drawn down.
  
• Once a year, the quarterly statement also reports the estimated growth in your home's market value. The estimate is based on a proprietary statistical model that analyzes resale pricing patterns in your area. The growth in your real estate equity is automatically added onto your available credit line, unless you request that it not be.
  
  If your estimated home resale value jumped by $20,000 during the past 12 months, for instance, that amount would be added to your credit line.
  
• Credit-line balances carry a variable interest rate, competitive with prevailing rates for home equity loans. But the credit line can be switched to a fixed-rate equity loan, whenever you think rates are favorable to lock in.
  
• In most cases, payments on all the combined first- and second-mortgage debts in the account are expected to be tax-deductible.

Home Asset Management Accounts

Consider this hypothetical example of how a home asset management account might work. For example: You buy a house for $200,000. You put down $20,000 and sign up for a home asset management account. The $180,000 30-year first mortgage in the account carries a fixed rate of 6 percent. The initial equity line available to you, thanks to your solid credit history and high credit scores, is equal to your $20,000 equity investment.

Each quarter after closing, you receive account reviews showing the principal paid down on the first mortgage and the status of your equity credit line. Say you don't activate the credit line during the first year. Then you get your annual statement showing total principal paid off during the year, plus the result of the estimated revaluation of the house and the land. Your home is now valued at $215,000, says your lender, and your available credit line rises by $15,000 plus whatever principal amounts you've paid down on the first mortgage.

You can tap into that line by writing a check or driving to an ATM. That, in turn, activates the interest charges on whatever balances you draw on. You can pay off whatever you choose in either loan account you want, or pay off the combined accounts when you sell the property.

Is this the home financing concept of the future? Peter Wissinger, president and chief executive of Wells Fargo Home Mortgage, which introduced it nationwide Wednesday, certainly hopes so. Other major lenders, including Countrywide Home Loans, are known to be working on their own versions of the plan for introduction within months.

The home asset management account unquestionably is the most important concept in the mortgage market since the introduction of adjustable-rate loans in the late 1970s and early 1980s. It has the potential to transform the way American homeowners pay for everything they buy with credit, and to lower their costs of borrowing to boot.


Link Mortgage to Equity Line - Troubling Aspects

But the idea has some troubling aspects as well. It allows you to hock your home to the hilt, putting at risk the largest wealth-producing asset owned by most households. And by making it easier than ever to liquefy home equity, it could encourage some homeowners to binge on spending, and lose their debt-laden properties if their incomes no longer support their credit appetites.

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http://www.wellsfargo.com/jump/hama.jhtml

http://www.wellsfargo.com/per/mortgage/tips_tools/faqs/loan_desc/hama.jhtml

 

It's very interesting. I like the option of having the LOC ready to go without the need for a lenghtly app, appraisal, approval process. We're about to remodel the kitchen and thanks to some good sales at HD, we're getting granite counter tops (at $49/sq ft) instead of Corian (on sale at $52/sq ft). If we had this LOC then we could do the whole project at one time--kitchen, appliances, flooring etc. and not have to try for increases on a HD account.

Of course the downside is if people don't have discipline with such an account and use the access checks to pay for groceries...