Florida Likely to Launch Investigation into HELOC Fraud
Fraudulent reductions in Home Equity Lines of Credit (HELOCs), revolving credit collateralized by one's home, may become the focus of a forthcoming series of state-led hearings in Tallahassee, and the man behind the plan is setting big banks in his sights. Florida State Senator Mike Haridopolos is calling for a round of investigations to explore claims that banks fraudulently or arbitrarily reduced HELOCs to improve their bottom lines, according to a press statement this weekend. "I have heard the stories of this happening across our state and our country, and the courts are filled with lawsuits," Haridopolos said. "This needs to be investigated because, if true, it's outrageous." The Republican State Senator is also calling on Congress to conduct national hearings. Specifically, Haridopolos is urging the examination of this alleged practice within banks that received government funds through the Troubled Asset Relief Program (TARP). “When Congress gave away the taxpayers’ money to the banks, they guaranteed the public that if the banks did not use it to lend money, they would immediately call for hearings and hold the banks accountable," Haridopolos said. He added: “Since then, we have seen the President sit down with the leaders of the big banks and refuse to meet with the average Americans who are being hurt by their practices... I can tell you, the banks may control [Washington] DC, but the people control Florida and we're going to keep it that way.” Haridopolos is calling for hearings to feature testimony not only from homeowners, but consumer groups and banks, "so that everyone has a chance...to weigh in," according to the press statement. Federal regulations allow HELOC suspensions under adverse financial circumstances and in situations where the underlying property experiences a significant decline in value. According to the statement from Haridopolos' office, homeowners claim banks allegedly use false pretenses in order to freeze their family capital. Florida is not immune to the substantial peak-to-trough house price declines. And a spokesperson for Haridopolos told HousingWire some borrowers claim banks order no appraisals and make no assessment of actual property value decline before freezing their HELOCs. Similar claims by an Illinois homeowner recently resulted in a suit against JP Morgan Chase (JPM). The suit alleged Chase froze a HELOC without disclosing its valuation methods or explaining to the borrower to what degree the house value fell. Despite the allegedly fraudulent HELOC freezes and the scarcity of new HELOC lending, consumers in hard-hit areas like Florida are still buying in ways that aren’t measured against the backdrop of local foreclosures and price declines. Write to Diana Golobay. Disclaimer: The author held no relevant investment positions.