Undrawn LOCs

K

kegger

Hey folks, haven't posted for a while so good to see everything is still happening on the forum.

Just after some opinions.....

What do you think will happen to access to undrawn LOCs in the current financial market, if anything....?

If you think access might be restricted, any strategies out there to get around this...?

Cheers
 
I don't quite understand your question - I think you mean you have not drawn down your LOC fully and wanted to draw it down to the limit. I cannot see any problem with this (provided you don't go over the limit). Having said that people have advised us to keep a buffer with a small amount of undrawn LOC as a margin of safety.

PS - we are currently applying (and receiving approval in principle) for a new LOC secured against one of our IPs. We have not signed the application, but the bank has approved the amount we asked for. We have 2 other LOCs on our PPOR - not fully drawn.
 
apologies, will clarify.

What I was meaning was what will the credit crunch mean for investors who are LOE ?

About 12 months ago when the credit crisis first started in the US, there were rumours that if you say had a property worth $200k with an 80% LOC facility (access to $160k) that you were drawing on for whatever you wanted (investing, living etc), that the banks were freezing undrawn portions of the LOC. So, if you had drawn down $50k and were planning on drawing down another $50k in the future, you no longer could, as the banks were freezing undrawn LOCs, either forcing investors to sell up or refinance or live by some other means.

Hope this clarifies...

Cheers
 
kegger said:
apologies, will clarify.

What I was meaning was what will the credit crunch mean for investors who are LOE ?

About 12 months ago when the credit crisis first started in the US, there were rumours that if you say had a property worth $200k with an 80% LOC facility (access to $160k) that you were drawing on for whatever you wanted (investing, living etc), that the banks were freezing undrawn portions of the LOC. So, if you had drawn down $50k and were planning on drawing down another $50k in the future, you no longer could, as the banks were freezing undrawn LOCs, either forcing investors to sell up or refinance or live by some other means.

Hope this clarifies...

Cheers
Click to expand...

Thanks for that clarification. We are not in the LOE phase yet, so cannot really comment. We only have LOCs for investment purposes (eg pay for part of IP costs, and buy Navra managed fund units). However, our new LOC we have told the bank that we wanted it for private and non-tax deductible purposes and not for investment purposes and and they are OK with that.
 
I have LOC on all my IPs and another 2 LOCs not drawn down yet. They are there just in case I need to use them for the next IP's shortfall.
I have just read the CBA clauses.
LOC4.1 states: We may reduce or cancel the credit limit on the Loan Account at any time. And under defaults
9.1(c) You are in default under the contract if we are not satisfied with the value or the title to the Security Property, or both.
So if the worst happens and our props drop by 30%ish, they may say this is in default.
They can take them then, and sell them and cancel the Loans??
 
You could always try drawing it and putting it in a savings account. You will lose a bit but it could be a small price to pay to still be able to have access to those funds.
 
kegger said:
What do you think will happen to access to undrawn LOCs in the current financial market, if anything....?
Click to expand...
Have a look at your terms and conditions in your loan and see if there is a on demand clause-that gives the bank-lender the right to call in the whole amount, this happened to a mate of mine last week he never even
knew that clause was in the fin-contract,but he is down over 2 mill from
the ASX ,so it would be different for you ,just be carefull..imho..
willair..
 
I have $400 000

Hi Guys

Haven't checked my clauses yet. BUT we have a $400 000 LOC against our PPOR along with another $50 000 loan. We have no debt whatsoever as we were very conservative and just paid off our house as soon as we could. The house was valued in the high $500 000's when we got the LOC. But this was six months ago:)

The $50 000 loan is to use to refurbish the PPOR (just paint, carpet, drainage) which we plan to transfer into our trust to become our investment and rent out. Meanwhile, we would like to upgrade our PPOR to somwhere on the northern beaches of Sydney. Either a run-down place we can improve or land with a water view.

We have not spent a cent yet, as we are 'waiting' till early next year to invest for the first time when we believe interest rates will fall along with values.

We have a pretty good income between us ($150 000) and only one dependent.

I too am worried that the bank may decide to reneg on the $400 000 grand if property values dip by much. Would appreciate advice and thoughts.

Do you think we should stay put and invest in something smaller first? Is that a dumb question?

Lucky88
 
How is this one for a change:

1. I have 172k LOC unsecured. Why....because overtime I paid off my property and they did not bother to reduced my LOC. They now have no security yet my LOC facility remains, tried to tell them this ....but were they interest...NOPE!

2. Other properties I have this major 4 bank is:
a. 3 brm semi Adelaide with 90k owing and worth 180k
b. 3 brm house in Adelaide 183 owing worth 250k and have 103k in a offset
c. 2 br unit...paid off and waiting on my title

The banks have no ideas what your net debts to loans as they have too many customers. Their systems have poor record keeping. They will only notice if you have over 1m in borrowings as there is a risk flag and they regularly review these customers. If you owe less than 700k, you are low risk and will more than likely keep letting you ride things out unless you do not pay your mortgage!
 
sash said:
How is this one for a change:

1. I have 172k LOC unsecured. Why....because overtime I paid off my property and they did not bother to reduced my LOC. They now have no security yet my LOC facility remains, tried to tell them this ....but were they interest...NOPE!

2. Other properties I have this major 4 bank is:
a. 3 brm semi Adelaide with 90k owing and worth 180k
b. 3 brm house in Adelaide 183 owing worth 250k and have 103k in a offset
c. 2 br unit...paid off and waiting on my title

The banks have no ideas what your net debts to loans as they have too many customers. Their systems have poor record keeping. They will only notice if you have over 1m in borrowings as there is a risk flag and they regularly review these customers. If you owe less than 700k, you are low risk and will more than likely keep letting you ride things out unless you do not pay your mortgage!
Click to expand...

Have you got the title back or just paid the loan back to $0?

Wouldn't rely in their lack of visibility of your total borrowings for too much longer. All the banks are spending up big on complying with Anti Money Laundering/Counter Terrorism Funding legislation requires them to be able to identify and track exposure/transactions for clients, including linking trusts and companies to individuals.
 
sash said:
How is this one for a change:

1. I have 172k LOC unsecured. Why....because overtime I paid off my property and they did not bother to reduced my LOC. They now have no security yet my LOC facility remains, tried to tell them this ....but were they interest...NOPE!

2. Other properties I have this major 4 bank is:
a. 3 brm semi Adelaide with 90k owing and worth 180k
b. 3 brm house in Adelaide 183 owing worth 250k and have 103k in a offset
c. 2 br unit...paid off and waiting on my title

The banks have no ideas what your net debts to loans as they have too many customers. Their systems have poor record keeping. They will only notice if you have over 1m in borrowings as there is a risk flag and they regularly review these customers. If you owe less than 700k, you are low risk and will more than likely keep letting you ride things out unless you do not pay your mortgage!
Click to expand...

You sure they're not cross-collaterized?
 
Good guess...

Rolf Latham said:
Hiya Sash

I smell CBA :)

ta
rolf
Click to expand...

In process of getting another title back....just two left!
Token Funder said:
Have you got the title back or just paid the loan back to $0?

Wouldn't rely in their lack of visibility of your total borrowings for too much longer. All the banks are spending up big on complying with Anti Money Laundering/Counter Terrorism Funding legislation requires them to be able to identify and track exposure/transactions for clients, including linking trusts and companies to individuals.
Click to expand...

Nope.....I have kept my loans separate.
Jamie_D said:
You sure they're not cross-collaterized?
Click to expand...
 
I agree
CBA in notorious for forgetting to cancel the limits on viridians. Hell, we had a client who refinanced a house and they forgot to repay the loan (whoops).

They also fund lines of credit (i.e. put the limits in place) ahead of time and put holds on the account so you cant use them - it makes their sales look to be more than they are

Kegger... in reply to your ?... an interest only loan with 100% offset might be the answer for ya.
Or draw it up and put the $ in an account with another bank maybe?
 
And getting poorer judging by their management of corporate risk....

It might also explain why I have won every fight I have had with them. I meticulous with my documentation.....they aren't!

Rolf Latham said:
Hiya Sash

Not a good guess at all .

In 10 years I dont know of any other funder that has such poor risk management on the LVR side

ta
rolf
Click to expand...

....which might explain why I offsets in more than 1 bank.
lukentel said:
I agree
CBA in notorious for forgetting to cancel the limits on viridians. Hell, we had a client who refinanced a house and they forgot to repay the loan (whoops).

They also fund lines of credit (i.e. put the limits in place) ahead of time and put holds on the account so you cant use them - it makes their sales look to be more than they are

Kegger... in reply to your ?... an interest only loan with 100% offset might be the answer for ya.
Or draw it up and put the $ in an account with another bank maybe?
Click to expand...
 
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